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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number: 33-74254
COGENTRIX DELAWARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 51-0352024
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zipcode)
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(704) 525-3800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On November 14, 2000, there were 282,000 shares of common stock, no par value,
issued and outstanding.
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COGENTRIX DELAWARE HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the Three Months and Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 16
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2
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COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
(dollars in thousands)
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September 30, December 31,
2000 1999
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 107,039 $ 44,914
Restricted cash 67,962 74,098
Accounts receivable 67,013 60,930
Inventories 22,107 20,137
Other current assets 2,269 1,972
----------- -----------
Total current assets 266,390 202,051
NET INVESTMENT IN LEASES 499,883 500,195
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $290,791 and $259,710, respectively 743,867 435,681
LAND AND IMPROVEMENTS 5,720 5,757
CONSTRUCTION IN PROGRESS 279,914 347,064
DEFERRED FINANCING COSTS, net of accumulated
amortization of $21,394 and $20,950, respectively 47,003 43,324
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 338,496 325,504
NOTE RECEIVABLE FROM PARENT 109,897 76,410
OTHER ASSETS 47,184 54,833
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$ 2,338,354 $ 1,990,819
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 64,363 $ 90,114
Accounts payable 70,732 55,973
Payable to Parent 58,566 10,365
Income taxes payable to Parent 24,117 16,745
Other accrued liabilities 27,398 31,837
----------- -----------
Total current liabilities 245,176 205,034
LONG-TERM DEBT 1,384,043 1,181,269
DEFERRED INCOME TAXES 150,076 129,193
MINORITY INTERESTS 71,046 69,608
OTHER LONG-TERM LIABILITIES 14,663 15,300
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1,865,004 1,600,404
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares authorized;
1,000 shares issued and outstanding 1 1
Additional paid-in capital from Parent 746,771 610,458
Accumulated other comprehensive loss (1,124) (1,144)
Accumulated deficit (272,298) (218,900)
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473,350 390,415
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$ 2,338,354 $ 1,990,819
=========== ===========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these consolidated balance sheets.
3
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COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months and Nine Months Ended
September 30, 2000 and 1999 (Unaudited)
(dollars in thousands, except share and earnings per common share amounts)
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
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OPERATING REVENUE:
Electric $ 95,725 $ 88,405 $ 255,693 $ 233,771
Steam 6,226 5,869 20,715 18,780
Lease 11,188 11,178 33,573 33,509
Service 14,156 12,089 40,757 34,983
Income from unconsolidated investments in power projects,
net of premium amortization 8,338 5,570 34,905 16,302
Other 18,298 5,285 27,197 16,377
--------- --------- --------- ---------
153,931 128,396 412,840 353,722
--------- --------- --------- ---------
OPERATING EXPENSES:
Fuel 29,467 26,859 83,463 64,347
Operations and maintenance 29,655 23,204 79,065 70,546
Cost of services 14,348 12,198 43,072 37,374
Depreciation and amortization 13,468 10,342 34,309 31,029
--------- --------- --------- ---------
86,938 72,603 239,909 203,296
--------- --------- --------- ---------
OPERATING INCOME 66,993 55,793 172,931 150,426
OTHER INCOME (EXPENSE):
Interest expense (19,508) (15,885) (51,574) (46,560)
Investment and other income (expense), net (3,518) 3,016 127 5,990
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME
AND PROVISION FOR INCOME TAXES 43,967 42,924 121,484 109,856
MINORITY INTERESTS IN INCOME (2,225) (4,392) (8,051) (10,874)
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 41,742 38,532 113,433 98,982
PROVISION FOR INCOME TAXES (16,536) (15,389) (44,352) (39,533)
--------- --------- --------- ---------
NET INCOME $ 25,206 $ 23,143 $ 69,081 $ 59,449
========= ========= ========= =========
EARNINGS PER COMMON SHARE $ 25,206 $ 23,143 $ 69,081 $ 59,449
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,000 1,000 1,000 1,000
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
4
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COGENTRIX DELAWARE HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999 (Unaudited)
(dollars in thousands)
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Nine Months Ended
September 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 69,081 $ 59,449
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 34,309 31,029
Deferred income taxes 20,869 17,915
Impairment of note receivable 6,102 --
Minority interests in income, net of dividends 1,417 7,344
Equity in net income of unconsolidated power projects (32,721) (15,911)
Dividends received from unconsolidated power projects 21,398 16,784
Minimum lease payments received 33,885 32,337
Amortization of unearned lease income (33,573) (33,509)
Increase in accounts receivable (6,083) (7,639)
Increase in inventories (1,970) (474)
Increase in accounts payable 14,759 3,214
Increase in accrued liabilities 51,134 17,671
Increase (decrease) in other 586 (2,978)
--------- ---------
Net cash flows provided by operating activities 179,193 125,232
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CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions, net (1,142) (1,216)
Investments in unconsolidated affiliates (1,669) (76,500)
Construction in progress and project development costs (266,198) --
Decrease (increase) in restricted cash 6,136 (9,808)
--------- ---------
Net cash flows used in investing activities (262,873) (87,524)
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CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to Parent (122,479) (57,189)
Proceeds from issuance of long-term debt 287,968 96,336
Repayments of long-term debt (110,928) (79,824)
Increase in note receivable to Parent (33,487) (52,522)
Capital contribution from Parent 136,313 60,888
Increase in deferred financing costs (11,582) (13)
--------- ---------
Net cash flows provided by (used in) financing activities 145,805 (32,324)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 62,125 5,384
CASH AND CASH EQUIVALENTS, beginning of period 44,914 33,027
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 107,039 $ 38,411
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer of construction in progress to property, plant and
equipment with commencement of commercial operations $ 338,873 $ --
Amortization of deferred financing costs included in construction
in progress 2,575 --
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
5
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COGENTRIX DELAWARE HOLDINGS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS
Cogentrix Delaware Holdings, Inc. ("Holdings") is a Delaware holding
company whose subsidiary companies are principally engaged in the business
of acquiring, developing, owning and operating independent power generating
facilities (individually, a "Facility", or collectively, the "Facilities").
Cogentrix Delaware Holdings, Inc. and subsidiary companies are collectively
referred to as the "Company".
Holdings is a wholly-owned subsidiary of Cogentrix Energy, Inc. (the
"Parent") and has guaranteed all of the Parent's existing and future senior
unsecured debt for borrowed money (the "Guarantee"). This guarantee was
given to the lenders under the Parent's corporate credit facility and
terminates, unless the term of the credit agreement is extended, when the
credit agreement for the corporate credit facility terminates in 2003. As
of September 30, 2000, the Parent had $455 million of senior notes
outstanding due 2004 and 2008 and had no borrowings outstanding under the
corporate credit facility. The Guarantee provides that the terms of the
Guarantee may be waived, amended, supplemented or otherwise modified at any
time and from time to time by Holdings and the agent bank for the lenders
under the credit agreement. The Guarantee is not incorporated in the
indenture under which the Parent issued its outstanding senior notes due
2004 and 2008.
2. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Holdings and its subsidiary companies (collectively, the
"Company"). Wholly-owned and majority-owned subsidiaries, including a
50%-owned joint venture in which the Company has effective control through
majority representation on the board of directors of the managing general
partner, are consolidated. Less-than-majority-owned subsidiaries are
accounted for using the equity method. Investments in unconsolidated
affiliates in which the Company has less than a 20% interest and does not
exercise significant influence over operating and financial policies are
accounted for under the cost method. All material intercompany transactions
and balances among Holdings, its subsidiary companies and its consolidated
joint ventures have been eliminated in the accompanying consolidated
condensed financial statements.
Information presented as of September 30, 2000 and for the three
months and nine months ended September 30, 2000 and 1999 is unaudited. In
the opinion of management, however, such information reflects all
adjustments, which consist of normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 30,
2000, and the results of operations for the three months and nine months
ended September 30, 2000 and 1999 and cash flows for the nine months ended
September 30, 2000 and 1999. The results of operations for these interim
periods are not necessarily indicative of results which may be expected for
any other interim period or for the fiscal year as a whole.
The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the United
States Securities and Exchange Commission (the "Commission"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although management believes that the disclosures made are
adequate to make the information presented not misleading. It is suggested
that these unaudited consolidated condensed financial statements be read in
conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's most recent report on Form 10-K for
the year ended December 31, 1999, which the Company filed with the
Commission on March 30, 2000.
6
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3. FACILITIES UNDER CONSTRUCTION
Sterlington, Louisiana
On August 17, 2000, Ouachita Power LLC ("Ouachita"), an indirect,
wholly-owned subsidiary of the Company, entered into a credit agreement
with a bank, as agent for several banks and other financial institutions,
which provides up to $460.0 million in borrowings, a credit support letter
of credit in the maximum amount of $30.0 million, and a $10.0 million debt
service reserve letter of credit. The proceeds of the borrowings will be
used to construct an approximate 816 megawatt combined cycle, natural
gas-fired, electric generating facility located near the city of
Sterlington, Louisiana. The Company has committed to provide an equity
contribution to the project subsidiary of approximately $61.6 million upon
the earliest to occur of (a) an event of default under the Ouachita credit
agreements, (b) the incurrence of construction costs after all project
financing has been expended, or (c) June 1, 2002. The equity contribution
commitment is supported by a letter of credit, which is provided under the
Parent's corporate credit facility. The Company expects the Ouachita
facility, which the Company will operate, to begin operations in mid-2002.
Electricity generated by the Ouachita facility will be sold under a 15-year
power purchase agreement with Dynegy Power Marketing, Inc. ("Dynegy"). An
affiliate of Dynegy will supply fuel to the Ouachita facility.
The borrowings under the credit agreement accrue interest per annum at
an annual rate equal to the applicable LIBOR rate plus 1.25% during the
construction period. The construction loans convert to term loans on the
earliest to occur of (a) the commencement of commercial operations, or (b)
June 1, 2002. The term loans accrue interest per annum at an annual rate
equal to the applicable LIBOR rate plus 1.30% to 1.63%. The term loans
mature 5 years after the commencement of commercial operations.
Rathdrum, Idaho
On March 9, 2000, Rathdrum Power, LLC ("Rathdrum Power") entered into
a credit agreement with a bank, as agent for a group of lending banks, and
a financial institution which provides up to $126.0 million in borrowings
and a $5.0 million debt service reserve letter of credit. Proceeds from the
credit agreement will be used to construct an approximate 270 megawatt
combined-cycle, natural gas-fired generating facility located in Rathdrum,
Idaho. Rathdrum Power is owned 51% by a wholly-owned project subsidiary of
the Company and 49% by Avista Power, Inc. The Company has committed to
provide an equity contribution to the project subsidiary of approximately
$16.7 million upon the earliest to occur of (a) an event of default under
the Rathdrum Power credit agreement, (b) the incurrence of construction
costs after all project financing has been expended, or (c) October 1,
2002. This equity contribution commitment is supported by a letter of
credit, which is provided under the Parent's corporate credit facility. An
indirect, wholly-owned subsidiary of Holdings has entered into an
engineering, procurement and construction contract with Rathdrum Power to
construct the Rathdrum facility. The Parent has guaranteed this
subsidiary's obligations under the contract. The Company expects the
Rathdrum facility, which the Company will operate, to begin operation in
late 2001. Electricity generated by the Rathdrum facility will be sold
under a 25-year power purchase agreement with Avista Turbine Power, Inc.,
which will also supply fuel to the Rathdrum facility.
The credit agreement provides borrowings up to $49.0 million from the
financial institution and $77.0 million from the banks. The financial
institution loans accrue interest at 8.56% per annum and have a term equal
to the construction period plus 25 years and the bank loans accrue interest
at the applicable LIBOR rate plus an applicable margin ranging from 1.25%
to 2.25% and will have a term equal to the construction period plus periods
up to 18 years.
4. RINGGOLD, PENNSYLVANIA FACILITY
In January 1998, the Company signed an agreement with Pennsylvania
Electric Company to terminate the Ringgold, Pennsylvania facility's power
purchase agreement. In September 2000, the Company received approximately
$18.0 million as consideration for terminating the power purchase
agreement. A portion of the proceeds was used to retire the entire amount
of the project subsidiary's outstanding debt. In conjunction with this
termination, the Company discontinued electric power production at the
facility. The Company recorded
7
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other operating income of approximately $13.1 million, net of transaction
costs related to termination of this power purchase agreement.
5. PARENT CORPORATE CREDIT FACILITY AMENDMENT
In September 2000, the Parent's corporate credit facility was amended
to increase available commitments from $175.0 million to $250.0 million, to
modify certain covenants and to extend the facility through October 2003.
In addition, the commitment fee will be 37.5 basis points per annum when
greater than 50% of available commitments are utilized and 50.0 basis
points per annum when less than 50% of available commitments are utilized.
6. ADDITIONAL SENIOR NOTES DUE 2008
In September 2000, the Parent sold an additional $100.0 million of its
8.75% unsecured senior notes due 2008 in a Rule 144A offering. The Parent
issued these additional notes at a discount resulting in an effective rate
of approximately 8.86%. The Parent anticipates completing a registered
exchange offer for these notes by December 8, 2000.
7. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June 2000,
the Commission amended SAB 101 to delay the implementation date until no
later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. SAB 101, which the Company will implement during the
fourth quarter of 2000, provides the Commission Staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The Company does not expect the adoption of SAB 101 to have a
material impact on its results of operations, financial position or cash
flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
No. 133 established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheets as either an asset or
liability measured at its fair value. SFAS No. 133 required that changes in
the derivative's fair value be recognized in current earnings unless
specified hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" delaying the effectiveness of SFAS No. 133 to fiscal
quarters of all fiscal years beginning after June 15, 2000.
The Company will complete its assessment of adopting SFAS No. 133
during the fourth quarter of 2000. Based on its analysis to date, the
Company believes that the only instruments that will qualify for treatment
under SFAS No. 133 are the instruments the Company entered into to hedge
interest rate risk, primarily interest rate swaps and caps. The Company
does not anticipate the adoption of SFAS No. 133 to have a material impact
on the consolidated financial position or results of its operations. The
Company will adopt SFAS No. 133, as amended by SFAS No. 138, as of January
1, 2001.
8. CLAIMS AND LITIGATION
One of the Company's indirect, wholly-owned subsidiaries is party to
certain product liability claims related to the sale of coal combustion
by-products for use in various construction projects. Management cannot
currently estimate the range of possible loss, if any, the Company will
ultimately bear as a result of these claims. However, management believes -
based on its knowledge of the facts and legal theories applicable to these
8
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claims and after consultations with various counsel retained to represent
these subsidiaries in their defense of such claims - that the ultimate
resolution of these claims should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In addition to the litigation described above, the Company experiences
other routine litigation in the normal course of its business. Management
is of the opinion that none of this routine litigation will have a material
adverse impact on the Company's consolidated financial position or results
of operations.
9. RECLASSIFICATIONS
Certain amounts included in the accompanying consolidated financial
statements for prior periods have been reclassified from their original
presentation to conform with the presentation as of and for the periods
ended September 30, 2000.
9
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 9 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to discussing and analyzing our recent historical financial
results and condition, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" includes statements concerning
certain trends and other forward-looking information affecting or relating to us
which are intended to qualify for the protections afforded "Forward-Looking
Statements" under the Private Securities Litigation Reform Act of 1995, Public
Law 104-67. The forward-looking statements made herein are inherently subject to
risks and uncertainties which could cause our actual results to differ
materially from the forward-looking statements.
GENERAL
Holdings is a Delaware holding company that, through its direct and
indirect subsidiaries, acquires, develops, owns and operates electric generating
plants, principally in the United States. We derive most of our revenue from the
sale of electricity, but we also produce and sell steam. We sell the electricity
we generate, principally under long-term power purchase agreements, to regulated
electric utilities and power marketers. We sell the steam we produce to
industrial customers with manufacturing or other facilities located near our
electric generating plants. We were one of the early participants in the market
for electric power generated by independent power producers that developed as a
result of energy legislation the United States Congress enacted in 1978. We
believe we are one of the largest independent power producers in the United
States based on our total project megawatts in operation.
We currently own - entirely or in part - a total of 25 electric
generating plants in operation in the United States. Our 25 plants are designed
to operate at a total production capability of approximately 4,821 megawatts.
After taking into account our part interests in the 17 plants that are not
wholly-owned by us, that range from approximately 1.6% to 74.0%, our net
ownership interests in the total production capability of our 25 electric
generating plants is approximately 2,254 megawatts. We currently operate 12 of
our facilities, nine of which we developed and constructed.
We also have ownership interests in and will operate three plants
currently under construction in Louisiana, Oklahoma and Idaho with an aggregate
production capability of approximately 1,896 megawatts. Once these plants begin
operation, we will have ownership interests in a total of 27 domestic electric
generating plants that are designed with an aggregate production capability of
approximately 6717 megawatts. Our net equity interest in the total production
capability of these 28 plants will be approximately 4,017 megawatts.
Unless the context requires otherwise, references in this report to
"we," "us," or "our" refer to Holdings and its subsidiaries, including
subsidiaries that hold investments in other corporations or partnerships whose
financial results are not consolidated with ours. The term "Cogentrix " refers
only to Cogentrix Energy, Inc., the Parent of Holdings, which is a development
and management company that conducts its business primarily through
subsidiaries. Holdings' subsidiaries that are engaged in the development,
ownership or operation of electric generating facilities are sometimes referred
to individually as a "project subsidiary" and collectively as Holdings' "project
subsidiaries." The unconsolidated affiliates of Holdings that are engaged in the
ownership and operation of electric generating facilities and in which we have
less than a majority interest are sometimes referred to as a "project affiliate"
or collectively as "project affiliates."
10
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RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
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THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
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2000 1999 2000 1999
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Total operating revenues $153,931 100% $128,396 100% $412,840 100% $353,722 100%
Operating costs 73,470 48 62,261 48 205,600 50 172,267 49
Depreciation and amortization 13,468 8 10,342 8 34,309 8 31,029 9
-------- -------- -------- --------
Operating income $ 66,993 44% $ 55,793 44% $172,931 42% $150,426 42
======== ======== ======== ========
</TABLE>
Total operating revenues increased 19.9% to $153.9 million for the
third quarter of 2000 as compared to the third quarter of 1999. This increase
was primarily attributable to the termination of our power purchase agreement at
our Ringgold, Pennsylvania facility on which we recorded other operating income
of approximately $13.1 million, net of transaction costs. In conjunction with
the termination, we have discontinued operation of the facility. The increase
was also attributable to a $7.7 million increase in electric and service
revenue. This increase is primarily due to an increase in electric revenue from
our interest in the Batesville facility, which commenced commercial operations
in August 2000, and to a lesser extent, an increase in megawatt hours sold to
the purchasing utilities at several of our other electric generating facilities.
The increase in operating revenues is also attributable to a $2.8 million
increase in income from unconsolidated investments in power projects. This
increase is attributable to an increase in megawatt hours sold to the purchasing
utilities at some of the facilities, and a reduction of major overhaul expenses
at four of the facilities. The increase in income from unconsolidated power
projects is also the result of the acquisition of an additional 20.1% interest
in the Indiantown facility in the third quarter of 1999.
The increase in total operating revenues of 16.7% to $412.8 million for
the nine-month period ended September 30, 2000, as compared to $353.7 million
for the nine-month period ended September 30, 1999, were largely influenced by
the same factors discussed above.
Our operating costs increased 18.0% to $73.5 million for the third
quarter of 2000 and 19.3% to $205.6 million for the nine-month period ended
September 30, 2000 as compared to $62.3 million and $172.3 million for the
corresponding periods during 1999. These increases were due to a $3.4 million
and $21.7 million increase in fuel expense for the third quarter of 2000 and
nine-month period ended September 30, 2000, respectively, as a result of an
increase in megawatt hours sold to the purchasing utilities at several of our
electric generating plants. Operating costs were also impacted by the increase
in operations and maintenance expense as a result of the commencement of
commercial operations at the Batesville facility in August 2000. The increase in
depreciation and amortization expense during the three-month and nine-month
periods ended September 30, 2000, resulted primarily from the commencement of
commercial operations of the Batesville facility.
Interest expense increased 10.7% to $51.6 million for the nine months
ended September 30, 2000 as compared to the corresponding period of 1999. The
increase is primarily a result of incremental interest expense from the
inclusion of $337.5 million of long-term debt from the Batesville facility which
began commercial operations in August 2000 and the additional borrowings of
approximately $25.2 million at our Richmond facility in June 2000. These
increases are offset by a reduction in interest expense at several of our
project subsidiaries due to scheduled repayments on outstanding project
financing debt. Our average long-term debt for the nine months ended September
30, 2000 increased to $1.4 billion, as compared to average long-term debt of
$885.2 million for the nine months ended September 30, 1999. The increase in
average long-term debt is primarily the result of the inclusion of the
additional Batesville and Richmond facilities project debt and additional
borrowings incurred during the nine months ended September 30, 2000 for projects
under construction in Idaho, Oklahoma and Louisiana. Interest incurred on these
construction borrowings is capitalized during the construction phase.
Investment and other, net, decreased approximately $6.5 million for the
three-month period ended September 30, 2000 as a result of a charge to reduce
the carrying value of a note receivable to its estimated net realizable value,
as a result of uncertainties with respect to collectibility.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed each facility primarily under financing
arrangements and related documents, which generally require the extensions of
credit to be repaid solely from the project's revenues and provide that the
repayment of the extensions of credit (and interest thereon) is secured solely
by the physical assets, agreements, cash flow and, in certain cases, the capital
stock of or the partnership interest in that project subsidiary. This type of
financing is generally referred to as "project financing". The project financing
debt of our subsidiaries and joint ventures (aggregating $1.4 billion as of
September 30, 2000) is non-recourse to us and our other project subsidiaries.
As of September 30, 2000, we had long-term debt (including the current
portion thereof) of approximately $1.4 billion. Future annual maturities of
long-term debt range from $34.8 million to $124.9 million in the five-year
period ending December 31, 2004. We believe that our project subsidiaries and
project affiliates will generate sufficient cash flow to pay all required debt
service on their project financing debt and allow them to pay management fees
and dividends or distributions to us.
The ability of our project subsidiaries and project affiliates to pay
dividends, distributions and management fees periodically to us is subject to
certain limitations in our respective financing documents. Such limitations
generally require that: (a) debt service payments be current, (b) debt service
coverage ratios be met, (c) all debt service and other reserve accounts be
funded at required levels and (d) there be no default or event of default under
the relevant financing documents. There are also additional limitations that are
adapted to the particular characteristics of each subsidiary and project
affiliate.
In September 2000, our Parent sold an additional $100.0 million of its
8.75% unsecured senior notes due 2008, which we guarantee. Our Parent issued
these notes at a discount resulting in an effective rate of approximately 8.86%.
The proceeds received, net of transaction costs, from the sale of these notes
were approximately $97.6 million. A portion of the net proceeds was utilized to
prepay in full approximately $37.1 million of project subsidiary debt at our
Roxboro and Southport, North Carolina facilities.
In September 2000, the Parent amended its unsecured corporate credit
facility to increase available commitments from $175.0 million to $250.0
million, to modify certain covenants and to extend the future maturity through
October 2003. The Parent corporate credit facility provides direct advances to,
or the issuance of letters of credit for, our benefit in the amount up to $250.0
million. At September 30, 2000, the Parent had utilized approximately $183.4
million of the credit available primarily for letters of credit issued in
connection with projects we had under construction in Louisiana, Idaho, Oklahoma
and a project the Parent has under construction in the Dominican Republic. The
balance of the commitments under the Parent corporate credit facility is
available, subject to any limitations imposed by the covenants contained therein
and in the indentures, to be drawn upon by the Parent to repay other outstanding
indebtedness or for general corporate purposes, including equity investments in
new projects or acquisitions of existing electric generating facilities or those
under development.
Two of our wholly-owned subsidiaries, Cogentrix Eastern America, Inc.
and Cogentrix Mid-America, Inc. ("Mid-America"), formed to hold interests in
electric generating facilities acquired in 1999 and 1998, maintain credit
agreements with banks that provide for $67.5 million and $25.0 million of
revolving credit, respectively. Both credit facilities provide for credit in the
form of direct advances and the Mid-America facility provides issuances of
letters of credit. Including the credit facilities described above, and the
revolving credit facility at one of our project subsidiaries, we maintain
revolving credit with aggregate commitments of $136.0 million. As of September
30, 2000, we had approximately $34.2 million available under these facilities.
The aggregate commitments on these facilities decrease to $105.4 million as of
December 31, 2001, and to $25.0 million as of December 31, 2002, 2003, and 2004.
On August 17, 2000, we entered into a credit agreement with a bank, as
agent for several banks and other financial institutions, that provides up to
$460.0 million in borrowings, a credit support letter of credit in the maximum
amount of $30.0 million, and a $10.0 million debt service reserve letter of
credit that will be used to construct an approximate 816 megawatt,
combined-cycle, natural gas-fired electric generating facility located near the
city of Sterlington, Louisiana. We have committed to provide an equity
contribution to the project subsidiary of approximately $61.6 million upon the
earliest to occur of (1) an event of default under the project financing
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agreements, (2) the incurrence of construction costs after all project financing
has been expended, or (3) June 1, 2002. Our equity contribution commitment is
supported by a letter of credit that is provided under our Parent's corporate
credit facility. We expect the facility, that we will operate, to begin
operations in mid-2002.
On March 9, 2000, a partnership, in which we own a 51% interest, closed
a credit agreement with a bank and a financial institution which provides for a
$126.0 million construction loan and a $5.0 million debt service reserve letter
of credit. Proceeds from the construction loan are being used to construct an
approximate 270-megawatt combined-cycle natural gas-fired generating facility
located in Rathdrum, Idaho. We have committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (a) an event of default under the project subsidiary's financing
agreement, (b) the incurrence of construction costs after all project financing
has been expended, or (c) October 1, 2002. This equity contribution commitment
is supported by a letter of credit, that is provided under our Parent's
corporate credit facility. An indirect, wholly-owned subsidiary of ours has
entered into an engineering, procurement and construction contract with the
partnership to construct the Rathdrum facility. Our Parent has guaranteed this
subsidiary's obligations under the contract. We expect the Rathdrum facility,
that we will operate, to begin operation in late 2001.
Any project we develop in the future, and those electric generating
facilities we may seek to acquire, are likely to require substantial capital
investment. Our ability to arrange financing on a non-recourse basis and the
cost of such capital are dependent on numerous factors. In order to access
capital on a non-recourse basis in the future, we may have to make larger equity
investments in, or provide more financial support for, the project entity.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as general economic conditions, and therefore tend to fluctuate significantly.
We protect against the risk of changes in the market price for electricity by
entering into contracts with fuel suppliers, utilities or power marketers that
reduce or eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term market.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The hedging
mechanism against increased fuel and transportation costs for most of our
currently operating facilities is to provide contractually for matching
increases in the energy payments our project subsidiaries receive from the
utility purchasing the electricity generated by the facility.
Under the power sales agreements for certain of our facilities, energy
payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity or provide periodic,
scheduled increases in energy prices that are designed to match periodic,
scheduled increases in fuel and transportation costs that are included in the
fuel supply and transportation contracts for the facilities.
For our Batesville facility - and most of our facilities currently
under construction - we have tolling arrangements in place to minimize the
impact of fluctuating fuel prices. Under these tolling arrangements, each
customer is typically obligated to supply and pay for fuel necessary to generate
the electrical output expected to be dispatched by the customer.
Changes in interest rates could have a significant impact on our
results of operations because they affect the cost of capital needed to
construct projects as well as interest expense of existing project financing
debt. As with fuel price escalation risk, we attempt to hedge against the risk
of fluctuations in interest rates by arranging either fixed-rate financing or
variable-rate financing with interest rate swaps, collars or caps on a portion
of our indebtedness.
Although hedged to a significant extent, our financial results will
likely be affected to some degree by fluctuations in energy prices, interest
rates and inflation. The effectiveness of the hedging techniques we have
implemented is dependent, in part, on each counterparty's ability to perform in
accordance with the provisions of the relevant contracts. We have sought to
reduce the risk by entering into contracts with creditworthy organizations.
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity
We routinely enter into derivative financial instruments and other
financial instruments to hedge our risk against interest rate fluctuations. As
of September 30, 2000, there have been no significant changes in the portfolio
of instruments as disclosed in our report on Form 10-K for the year ended
December 31, 1999 filed with the Commission on March 30, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
One of our indirect, wholly-owned subsidiaries is party to certain
product liability claims related to the sale of coal combustion by-products for
use in various construction projects. Management cannot currently estimate the
range of possible loss, if any, we will ultimately bear as a result of these
claims. However, our management believes - based on its knowledge of the facts
and legal theories applicable to these claims and after consultations with
various counsel retained to represent these subsidiaries in its defense of such
claims - that the ultimate resolution of these claims should not have a material
adverse effect on our consolidated financial position, results of operations or
on Cogentrix Energy's ability to generate sufficient cash flow to service its
outstanding debt.
In addition to the litigation described above, we experience other
routine litigation in the normal course of our business. Our management is of
the opinion that none of this routine litigation will have a material adverse
effect on our financial position or results of operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Certificate of Incorporation of Cogentrix
Delaware Holdings, Inc. (3.3) (1)
3.2 Bylaws of Cogentrix Delaware Holdings, Inc.
(3.4) (1)
4.1 Indenture, dated as of March 15, 1994
between Cogentrix Energy, Inc. and First
Union National Bank of North Carolina, as
Trustee, including form of 8.10% 2004 Senior
Note (4.1) (2)
4.2 Indenture, dated as of October 20, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee, including
form of 8.75% Senior Note (4.2) (3)
4.3 First Supplemental Indenture, dated as of
October 20, 1998 between Cogentrix Energy,
Inc. and First Union National Bank, as
Trustee (4.3) (3)
4.4 Registration Agreement, dated as of
September 22, 2000, by and among Cogentrix
Energy, Inc., Salomon Smith Barney, Inc. and
CIBC World Markets Corp. (4.4) (6)
4.5 Amendment No. 1 to the First Supplemental
Indenture, dated as of November 25, 1998
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee (4.6) (4)
4.6 Amended and Restated Guarantee, dated as of
October 29, 1998, made by Cogentrix Delaware
Holdings, Inc. the Guarantor in favor of the
Borrower Creditors (10.130) (3)
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10.1 Third Amended and Restated Guarantee, dated
as of September 14, 2000, made by Cogentrix
Delaware Holdings, Inc., the Guarantor, in
favor of the Borrower Creditor (10.2) (5)
27 Financial Data Schedule, which is submitted
electronically to the U.S. Securities and
Exchange Commission for information only and
is not filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered
by this report.
(1) Incorporated by reference to the Amendment No. 3 to
the Registration Statement on Form S-4 (File No.
33-67171) filed with the Securities and Exchange
Commission by Cogentrix Energy, Inc. and Cogentrix
Delaware Holdings, Inc. on March 15, 1999. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at
the end of the description of the exhibit above.
(2) Incorporated by reference to the Form 10-K (File No.
33-74254) filed by Cogentrix Energy, Inc. on
September 28, 1994. The number designating the
exhibit on the exhibit index to such previously-filed
report is enclosed in parentheses at the end of the
description of the exhibit above.
(3) Incorporated by reference to the Registration
Statement on Form S-4 (File No. 33-67171) filed by
Cogentrix Energy, Inc. on November 12, 1998. The
number designating the exhibit on the exhibit index
to such previously-filed report is enclosed in
parentheses at the end of the description of the
exhibit above.
(4) Incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-4 (File No.
33-67171) filed by Cogentrix Energy, Inc. on January
27, 1999. The number designating the exhibit on the
exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description
of the exhibit above.
(5) Incorporated by reference to the Form 10-Q (File No.
33-74254) filed by Cogentrix Energy, Inc. on November
14, 2000. The number designating the exhibit on the
exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description
of the exhibit above.
(6) Incorporated by reference to the Registration
Statement on Form S-4 (File No. 33-48448) filed on
October 23, 2000. The number designating the exhibit
index to such previously- filed report is enclosed in
parentheses at the end of the description of the
exhibit above.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGENTRIX DELAWARE HOLDINGS, INC.
(Registrant)
November 14, 2000 /s/ Thomas F. Schwartz
-------------------------------------------
Thomas F. Schwartz
President
(Principal Executive and Accounting Officer)
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