SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998 Commission file number 0-9964
BESICORP GROUP INC.
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(Exact name of small business issuer as specified in its charter)
New York 14-1588329
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(State or other jurisdiction of (Internal Revenue Service
incorporation or organization) Employer Identification No.)
1151 Flatbush Road, Kingston, New York 12401
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(Address of principal executive office) (Zip Code)
Issuer's Telephone Number, including area code: (914) 336-7700
N/A
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Former name, former address and former fiscal year, if changed since last report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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____
Common stock outstanding as of October 30, 1998 2,969,195
Transitional Small Business Disclosure Format Yes______ No ___X___
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
<TABLE>
<C> <S> <S>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
September 30,1998 March 31,1998
ASSETS
Current Assets:
Cash and cash equivalents $ 42,225,504 $ 812,971
Short-term investments 10,994,537 1,056,778
Investment in Niagara Mohawk Power Corporation common stock 66,055,151 0
Trade accounts receivable (less allowance for doubtful accounts
of $68,929 and $23,000 as of September 30, 1998
and March 31, 1998, respectively) 596,973 369,539
Due from affiliates 61,035 870,295
Current portion of long-term notes receivable:
Others (includes interest of $12,298 and $8,316, respectively) 124,649 102,053
Inventories 1,241,658 944,013
Deferred income taxes 93,600 93,600
Other current assets 293,734 485,052
------------ ------------
Total Current Assets 121,686,841 4,734,301
------------ ------------
Property, Plant and Equipment:
Land and improvements 237,159 237,159
Buildings and improvements 1,914,029 1,906,953
Machinery and equipment 1,509,949 1,226,115
Furniture and fixtures 247,365 246,701
------------ ------------
3,908,502 3,616,928
Less accumulated depreciation and amortization 1,906,366 1,769,212
------------ ------------
Net Property, Plant and Equipment 2,002,136 1,847,716
------------ ------------
Other Assets:
Patents and trademarks, less accumulated
amortization of $1,973 and $1,691, respectively 8,391 7,823
Long-term notes receivable:
Affiliates - Net of allowance of $555,276 0 0
Others - Net of allowance of $1,944,624 92,181 129,886
Due from affiliates 0 375,000
Investment in partnerships 17,152,393 0
Deferred costs 0 1,316,693
Deferred income taxes 1,634,200 916,600
Other assets 78,356 116,977
------------ -----------
Total Other Assets 18,965,521 2,862,979
------------ -----------
TOTAL ASSETS $ 142,654,498 $ 9,444,996
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<C>
<S> <S>
September 30,1998 March 31,1998
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,262,636 $ 1,403,504
Current portion of long-term debt 136,746 111,367
Current portion of accrued reserve and warranty expense 144,769 152,891
Taxes other than income taxes 127,630 114,811
Income taxes payable 48,136,426 172,246
---------- ---------
Total Current Liabilities 49,808,207 1,954,819
Investment in Partnerships 0 33,870
Long-Term Accrued Reserve and Warranty Expenses 161,390 152,402
Long-Term Debt 691,618 3,766,074
---------- ----------
Total Liabilities 50,661,215 5,907,165
---------- ----------
Shareholders' Equity:
Common stock, $.10 par value: authorized
5,000,000 shares; issued 3,234,958 shares 323,495 323,495
Additional paid-in capital 5,445,530 5,492,072
Retained earnings (deficit) 87,842,255 (615,259)
---------- ----------
93,611,280 5,200,308
Less: treasury stock at cost (265,763 shares and 278,234
shares, respectively) (1,617,997) (1,662,477)
---------- -----------
Total Shareholders' Equity 91,993,283 3,537,831
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 142,654,498 $ 9,444,996
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<C>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<S> <S> <S> <S>
Three months ended September 30, Six months ended September 30,
1998 1997 1998 1997
----- ----- ----- -----
Revenues:
Product sales $ 1,097,897 $ 878,047 $ 2,085,690 $ 2,268,666
Development and management fees 0 180,479 2,043,334 908,006
Other revenues 46,643 86,924 233,355 135,383
Income from partnerships 133,161,691 2,242,994 136,704,931 4,989,602
Interest and other investment income 2,780,122 48,330 2,824,932 94,914
----------- --------- ------------ ----------
Total Revenues 137,086,353 3,436,774 143,892,242 8,396,571
----------- --------- ------------ ----------
Costs and Expenses:
Cost of product sales 1,026,294 877,685 1,966,269 2,073,899
Selling, general and administrative expenses 3,942,666 1,982,570 5,830,355 4,084,795
Interest expense 25,715 99,489 120,098 196,515
Other expense 8,373 10,506 8,807 8,347
----------- ---------- ----------- ----------
Total Costs and Expenses 5,003,048 2,970,250 7,925,529 6,363,556
----------- ---------- ----------- ----------
Income Before Income Taxes 132,083,305 466,524 135,966,713 2,033,015
Provisions for Income Taxes 46,186,257 161,413 47,509,199 700,203
----------- ---------- ----------- ----------
Net Income $ 85,897,048 $ 305,111 $ 88,457,514 $ 1,332,812
=========== ========== =========== ==========
Basic Earnings per Common Share $ 28.94 $ .10 $ 29.81 $ .45
=========== ========== =========== ==========
Basic Weighted Average Number of
Shares Outstanding (in Thousands) 2,969 2,947 2,967 2,941
========== ========= ============ ==========
Diluted Earnings per Common Share $ 28.30 $ 0.10 $ 29.16 $ 0.44
========== ========= ============ ==========
Diluted Weighted Average Number of
Shares Outstanding 3,036 3,021 3,033 3,013
========== ========= ============ ==========
Dividends per Common Share $ NONE $ NONE $ NONE $ NONE
========== ========= ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<C> <S> <S>
Six months ended September 30,
1998 1997
____________ ___________
Operating Activities:
Net income $ 88,457,514 $ 1,332,812
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred taxes (717,600) 0
Amortization of discounts on notes (1,098) (1,098)
Provision for uncollectibles 45,929 0
Realized and unrealized (gains) losses (2,253,028) 8,881
Depreciation and amortization 137,435 146,972
Partnership income recognized (136,704,931) (4,989,602)
Distributions from partnerships 119,518,668 3,791,430
Changes in assets and liabilities:
Short-term investments (9,565,148) (20,549)
Investment in Niagara Mohawk Power Corporation
common stock (64,174,734) 0
Accounts and notes receivable 927,105 1,383,289
Inventory (297,644) 118,172
Accounts payable and accrued expenses (140,868) (122,361)
Taxes payable/refundable 47,976,999 312,595
Other assets and liabilities, net 1,546,646 (322,183)
____________ ___________
Net cash provided by operating activities 44,755,245 1,638,358
____________ ___________
Financing Activities:
Increase in borrowings 0 122,000
Repayment of borrowings (3,049,077) (179,726)
Purchase of common stock (53,187) (140,077)
Issuance of common stock 51,125 128,100
_____________ ____________
Net cash used by financing activities (3,051,139) (69,703)
_____________ ____________
Investing Activities:
Acquisition of property, plant and equipment (291,573) (204,495)
_____________ _____________
Net cash used by investing activities (291,573) (204,495)
_____________ _____________
Increase in Cash and Cash Equivalents 41,412,533 1,364,160
Cash and Cash Equivalents - Beginning 812,971 210,533
____________ _____________
Cash and Cash Equivalents - Ending $ 42,225,504 $ 1,574,693
============ =============
Supplemental Cash Flow Information:
Interest paid $ 161,955 $ 188,871
Income taxes paid 268,742 386,023
Additions to property, plant, and equipment
which were financed and not included above $ 0 $ 66,375
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The accompanying unaudited financial statements have been prepared in
accordance with the generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying consolidated financial statements contain all
adjustments (including normal recurring adjustments) necessary to present fairly
the financial position of Besicorp Group Inc. (together with its subsidiaries,
the "Company") as of September 30, 1998, and March 31, 1998; the results of
operations for the three- and six-month periods ended September 30, 1998 and
1997; and the statement of cash flows for the corresponding six-month periods.
MRA related income (as defined) has been included on the Statement of Operations
in income from partnerships pending a determination as to what portion of that
item should be reported as an extraordinary item.
The balance sheet at March 31, 1998 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. For further information, refer to the audited consolidated financial
statements and footnotes thereto included in the Form 10-KSB filed by the
Company for the year ended March 31, 1998.
B. Business and Proposed Merger
The Company specializes in the development of power projects and energy
technologies. Working with partners, the Company develops independent power
projects. The Company also provides engineering, system design, project
management and turnkey installation of photovoltaic systems, and fabricates,
manufactures, markets and distributes photovoltaic products and systems through
a domestic and international network.
The Company, BGI Acquisition LLC ("Acquisition"), a Wyoming limited liability
company, and BGI Acquisition Corp. ("Merger Sub"), a New York corporation and a
wholly owned subsidiary of Acquisition, entered into an Agreement and Plan of
Merger dated November 23, 1998, (the "Plan of Merger"), that provides that
Merger Sub will be merged with and into the Company, with the Company being the
surviving corporation and wholly owned by Acquisition (the "Merger"). If the
Merger is consummated, the Company's shareholders will be entitled to receive
$34.50 (the "Merger Consideration") in cash for each share of Besicorp Common
Stock, subject, in certain circumstances, to upward adjustment if the Base
Amount (as defined in the Plan of Merger) exceeds $105,275,000. It is
anticipated that if there is any upward adjustment, such adjustment will not
exceed $4.00 per share. There will not be a downward adjustment to the Merger
Consideration; however, no assurance can be given that there will be any upward
adjustment to the Merger Consideration. Consummation of the Merger is subject to
the satisfaction of numerous conditions, including the adoption of the Plan of
Merger by the Company's shareholders and the Company's distributing (the
"Spin-Off") to its shareholders on a pro rata basis all of the shares of common
stock (the "Newco Common Stock") of Besicorp Ltd. ("Newco"), a subsidiary of
Besicorp, which at the time of the Spin-Off will, among other things, own
Besicorp's photovoltaic and independent power plant development businesses and
have assumed substantially all of the Company's liabilities. No assurance can be
given that such transactions will be consummated.
C. Basic/Diluted Earnings per Common Share
Diluted Earnings per Share considers the effect of potential common shares such
as stock options and warrants. The dilution in the three-and six-month periods
ended September 30, 1998 and September 30, 1997 is due to the net incremental
effect of incentive stock options and warrants of 81,500 and 82,000,
respectively.
D. The results of operations for the three- and six-month periods ended
September 30, 1998 is not indicative of the results to be expected for any other
interim period or for the full year.
<PAGE>
E. Inventories
Inventories are carried at the lower of cost (first-in, first-out method), or
market. Inventories at September 30, 1998 and March 31, 1998, consist of:
September 30, 1998 March 31, 1998
------------------ --------------
Assembly parts $397,331 $298,239
Finished goods 844,327 645,774
------------ ----------
$1,241,658 $944,013
========== =========
F. Deferred Costs
Deferred costs and reimbursable costs at September 30, 1998 and March 31, 1998
were as follows:
<TABLE>
<C>
<S> <S> <S> <S>
Internal Costs Third
Payroll Expenses Party Costs Total
Balance March 31, 1998 $483,550 $217,511 $615,632 $1,316,693
Additions 75,504 11,851 43,716 131,071
Write-offs (513,375) (229,362) (659,348) (1,402,085)
Reimbursements (45,679) ________ ________ (45,679)
--------- ---------
Balance September 30, 1998 $0 $0 $0 $0
========= ======== ======== =========
</TABLE>
The Company decided to write off all deferred costs during the second quarter of
Fiscal 1999 due to the uncertain nature of the development of the projects, due
to the uncertain political and economic conditions in the countries where the
projects are located (principally in India and Brazil), and the current trend in
accounting principles regarding non-deferral of development expenses.
G. Investments in Partnerships
At September 30, 1998, the Company had partnership interests in six completed
gas-fired cogeneration plants located in New York State. At September 30, 1998
and March 31, 1998, the balance of recorded investments was comprised of the
following:
<TABLE>
<C>
<S> <S>
September 30, 1998 March 31, 1998
------------------ --------------
Capital contributions and investments $2,976,813 $2,976,813
Partnership distributions (147,669,881) (28,151,213)
Recognized share of income (losses) 161,845,461 25,140,530
------------ ------------
$17,152,393 $(33,870)
=========== ==========
</TABLE>
<PAGE>
The aggregate financial position and results of operations for the partnerships
as reported in the financial statements issued by the respective partnerships as
at June 30, 1998 (unaudited) and December 31, 1997 (audited) and for the six
months and year then ended were as follows:
<TABLE>
<C>
<S> <S>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------- -----------------
Total Partnerships:
Assets $97,037,549 $520,329,768
Plant and equipment 19,100,000 391,492,464
Secured debt 72,386 508,289,568
Partners' equity (deficit) 63,989,664 (17,572,222)
Revenues 99,393,319 149,469,661
Income 307,007,634 20,238,179
Company's Share:
Partners' equity (deficit) 29,896,779 (7,354,035)
Income 144,125,634 10,113,516
</TABLE>
The operating assets of the partnerships in which the Company has investments
secured the projects' debt, and the significant losses incurred by the
partnerships in the early years of operation were funded by that debt.
Consequently, the Company, having no obligation to fund the losses or pay the
partnerships' debt, did not generally record the losses in the financial
statements. The income from partnerships, which has been recorded on the
financial statements in the amount of $136,704,931 has been recognized on
partnerships where income has exceeded prior unrecognized accumulated losses of
$3,110,466. The recorded income also reflects the write-down of impaired value
of the investments of $4,306,848 in two partnerships. Secured debt of $72,386 of
one partnership was paid on July 9, 1998. The reported value of plant and
equipment at September 30, 1998 reflects the write-down taken to reflect the
impaired value of the power plants owned by certain project partnerships due to
the termination of the PPAs and, with respect to the power plants leased by
certain project partnerships, the credits expected to be received at the time of
disposition of the facilities.
The amounts pertaining to one partnership, which had been involved in extensive
litigation, were excluded from the partnership's financial position and results
of operations presented above. See "Part II; Item 1. Legal Proceedings."
The following schedule contains summarized financial information for each of the
partnerships:
<PAGE>
<TABLE>
<C>
Besicorp Group Inc.
Partnership Summary Financial Information
As At June 30, 1998 and For the Six Months Then Ended
<S> <S> <S> <S>
Kamine/Besicorp Kamine/Besicorp Kamine/Besicorp Kamine/Besicorp
Carthage L.P. So. Glens Falls L.P. Natural Dam L.P. Beaver Falls L.P.
____________________________________________________________________________________________
Cash $ 7,769,430 $ 15,517,947 $ 9,081,752 $ 14,288,163
Other Current Assets 2,768,661 3,004,560 1,851,232 4,079,820
Property, Plant & Equipment 2,880,000 640,000 2,880,000 6,700,000
____________________________________________________________________________________________
Total Assets $13,418,091 $ 19,162,507 $ 13,812,984 $ 25,067,983
============================================================================================
Current Liabilities $ 7,171,939 $ 7,610,044 $ 9,075,658 $ 5,217,349
Long Term Liabilities - - - -
____________________________________________________________________________________________
Total Liabilities 7,171,939 7,610,044 9,075,658 5,217,349
____________________________________________________________________________________________
Total Equity 6,246,152 11,552,463 4,737,326 19,850,634
____________________________________________________________________________________________
Total Liabilities and Equity $ 13,418,091 $ 19,162,507 $ 13,812,984 $ 25,067,983
============================================================================================
Revenues $ 11,684,810 $ 12,895,084 $ 11,113,754 $ 22,129,986
Expenses 9,313,843 10,479,447 8,267,921 14,783,802
Other Income 54,302,670 55,740,721 45,289,891 58,572,792
____________________________________________________________________________________________
Net Income $ 56,673,637 $ 58,156,358 $ 48,135,724 $ 65,918,976
============================================================================================
Kamine/Besicorp Kamine/Besicorp
Syracuse L.P. GlenCarthage L.P. Total
________________________________________________________________
Cash $ 8,666,589 $ 6,311,619 $ 61,635,500
Other Current Assets 3,888,366 709,410 16,302,049
Property, Plant & Equipment 6,000,000 - 19,100,000
________________________________________________________________
Total Assets $18,554,955 $ 7,021,029 $ 97,037,549
================================================================
Current Liabilities $ 3,589,927 $ 310,582 $ 32,975,499
Long Term Liabilities - 72,386 72,386
________________________________________________________________
Total Liabilities 3,589,927 382,968 33,047,885
________________________________________________________________
Total Equity 14,965,028 6,638,061 63,989,664
________________________________________________________________
Total Liabilities and Equity $18,554,955 $ 7,021,029 $ 97,037,549
================================================================
Revenues $19,807,602 $ 21,762,083 $ 99,393,319
Expenses 14,918,180 10,212,617 67,975,810
Other Income 61,684,051 - 275,590,125
_________________________________________________________________
Net Income $66,573,473 $ 11,549,466 $ 307,007,634
=================================================================
</TABLE>
<PAGE>
As previously disclosed, the Company was a party to a Master Restructuring
Agreement ("MRA") which was entered into on July 10, 1997 between Niagara Mohawk
Power Corporation ("NIMO") and 16 independent power producers ("IPPs") holding
29 Power Purchase Agreements ("PPAs") including the Company's five PPAs. On June
30, 1998, the MRA was consummated. Pursuant to the terms of the MRA, the
Company's five PPAs, which had provided a total of 323 Megawatts of capacity and
energy to NIMO, were terminated. As a result of the MRA and related
transactions, and the operations of the project partnerships, the Company has
received through September 30, 1998 (i) 4,615,770 shares of NIMO common stock
(the "NIMO Shares") and (ii) net cash of approximately $59 million, of which
approximately $8 million continues to be retained at the partnership level
primarily in regard to ongoing obligations of the projects. The closing price of
the NIMO Shares on June 30, 1998 was $14.94 for an aggregate value of
approximately $69 million. In accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," this investment qualifies as
trading securities, which are reported at fair value, with changes in fair value
included in the operating statement. The value of the investment in NIMO shares
of $66,055,151 reflected on the balance sheet at September 30, 1998 reflects
4,296,270 shares at a market price per share of $15.375. Through November 16,
1998, the Company had sold 1,919,500 shares of the NIMO shares, realizing net
proceeds of approximately $29.6 million for a gain of approximately $.9 million.
The remaining NIMO shares of 2,696,270, based on the closing price on that date
of $15.25, have an aggregate value of approximately $41 million. Unrealized
gains on the NIMO Shares were $1,880,417 at September 30, 1998 and realized
gains for the three and six months ended September 30, 1998 were $329,169. The
net proceeds received by the Company as a result of the MRA reflect the fact
that a substantial portion of the gross proceeds received by the partnerships
from NIMO was used to terminate most obligations with third parties, including
lenders, lessors, fuel suppliers and transporters, thermal hosts, and others.
The Company's share of these termination payments was approximately $290.
With the exception of development fees of $1.8 million received from the
Kamine/Besicorp Beaver Falls L.P. ("Beaver Falls"), which were recognized as
revenue during the first quarter of Fiscal 1999, development fees of $.9 million
received from the Kamine/Besicorp Syracuse L.P. ("Syracuse"), which were
recorded as a receivable from the project in Fiscal 1998, and certain cost
reimbursements totaling $.8 million, the MRA and operating results proceeds were
accounted for as partnership distributions.
During the three- and six- month periods ended September 30, 1998, the Company
recorded income, which is non-recurring, of $133,161,691 and $136,704,931,
respectively, predominantly as a result of the MRA and, to a minimal extent, the
operating results of the project partnerships. These amounts give effect to
write-downs, net to the Company of approximately $85 million, recorded to
reflect the impaired value, based upon appraisals, of the Beaver Falls and
Syracuse power plants due to the termination of the PPAs. With respect to the
Kamine/Besicorp Carthage L.P.("Carthage"), Kamine/Besicorp South Glens Falls
L.P. ("South Glens Falls"), and Kamine/Besicorp Natural Dam L.P. ("Natural Dam")
which hold leasehold interests in three power plants, the income amounts reflect
the expensing of all costs associated with the termination of those long-term
leases reduced by the estimated proceeds, based on appraisal values, expected
to be received upon the disposition of the facilities. The Company's share of
the cost of the lease terminations was approximately $77 million. Since the
power plant sales were consummated by the end of calendar 1998 (see "Subsequen
Events" below), the Company does not expect that there will be further
significant adjustments to the recorded income.
Subsequent Events
On December 7, 1998, the Company announced it had consummated the sales of the
three leased power plants - Carthage Natural Dam and South Glens Falls. The
Company holds partnership interests of 50 per cent in each of the projects.
The Company's share of the net proceeds from these sales, which was received
on December 29, 1998, was approximately $1.4 million, $1.9 million, and
$1.9 million, respectively.
On December 14, 1998, the Company announced it had consummated the sale of the
Syracuse power plant. The Company holds a partnership interest of 35.715 per
cent in the project. The Company's share of the net proceeds from this sale,
which was received on December 29, 1998, was approximately $2.3 million.
On December 22, 1998, the Company announced it had consummated the sale of the
Beaver Falls power plant. The Company holds a partnership interest of 50.2 per
cent in the project. The Company's share of the net proceeds from this sale,
which was received on December 29, 1998, was approximately $3.2 million.
H. Notes Receivable
The Company has settled litigation involving a project partnership. See "Part
II; Item 1 - Legal Proceedings." As a result, the Company will be unable to
recover combined loans of $2.5 million to the project and adjacent steam host.
The Company had established reserves during the year ended March 31, 1998 to
cover such losses.
I. Revenue Recognition
Revenues on sales of products are recognized at the time of shipment of goods.
Development and management fee revenue is recognized when deemed payable under
the agreement. See Note B regarding the proposed merger.
J. Segments of Business
The Company specializes in the development of power projects and energy
technologies. Working with partners, the Company develops independent power
projects (the "Project Segment"). The Company also provides engineering, system
design, project management and turn-key installation of photovoltaics, and
fabricates, manufacturers, markets and distributes photovoltaic products and
systems through a domestic and international network (the "Product Segment"). A
summary of industry segment information for the six months ended September 30,
1998 and 1997 is as follows:
<TABLE>
<C>
<S> <S> <S> <S>
Project Product
September 30, 1998 Segment Segment Eliminations Total
- ------------------ -------- --------- ------------- ------
Net revenues $141,602,329 $2,289,913 $143,892,242
Net income (loss) 89,392,241 (934,727) 88,457,514
Identifiable assets 293,413,279 2,509,803 $(153,268,584) 142,654,498
Capital expenditures 146,569 145,004 291,573
Depreciation and amortization 92,805 44,630 137,435
September 30, 1997
Net revenues $6,019,664 $2,376,907 $8,396,571
Net income (loss) 2,428,933 (1,096,121) 1,332,812
Identifiable assets 42,445,663 3,769,387 $(34,130,688) 12,084,362
Capital expenditures 50,958 153,537 204,495
Depreciation and amortization 91,538 55,434 146,972
</TABLE>
K. Legal Proceedings
See Part II, Item 1 which is incorporated herein by reference.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net income for the three months ended September 30, 1998 increased
by $85,591,937, to $85,897,048 from the net income of $305,111 recorded for the
three months ended September 30, 1997. Net income for the six months ended
September 30, 1998 of $88,457,514 represents an increase of $87,124,702 from the
net income of $1,332,812 for the six months ended September 30, 1997. The
factors which contributed to these changes in net income are discussed below.
Second Quarter Developments and Subsequent Events
As previously disclosed, the Company was a party to a Master Restructuring
Agreement ("MRA") which was entered into on July 10, 1997 between Niagara Mohawk
Power Corporation ("NIMO") and 16 independent power producers ("IPPs") holding
29 Power Purchase Agreements ("PPAs") including the Company's five PPAs. On June
30, 1998, the MRA was consummated. Pursuant to the terms of the MRA, the
Company's five PPAs, which had provided a total of 323 Megawatts of capacity and
energy to NIMO, were terminated. As a result of the MRA and related
transactions, and the operations of the project partnerships, the Company has
received through September 30, 1998 (i) 4,615,770 shares of NIMO common stock
(the "NIMO Shares") and (ii) net cash of approximately $59 million, of which
approximately $8 million continues to be retained at the partnership level
primarily in regard to ongoing obligations of the projects. The closing price of
the NIMO Shares on June 30, 1998 was $14.94 for an aggregate value of
approximately $69 million. In accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," this investment qualifies as
trading securities, which are reported at fair value, with changes in fair value
included in earnings. The value of the investment in NIMO shares of $66,055,151
reflected on the balance sheet at September 30, 1998 reflects 4,296,270 shares
at a market price per share of $15.375. Through November 16, 1998, the Company
had sold 1,919,500 shares of the NIMO shares, realizing net proceeds of
approximately $29.6 million for a gain of approximately $.9 million. The
remaining NIMO shares of 2,696,270, based on the closing price on that date of
$15.25, have an aggregate value of approximately $41 million. Unrealized gains
on the NIMO Shares were $1,880,417 at September 30, 1998 and realized gains for
the three and six months ended September 30, 1998 were $329,169. The net
proceeds received by the Company as a result of the MRA reflect the fact that a
substantial portion of the gross proceeds received by the partnerships from NIMO
was used to terminate most obligations with third parties, including lenders,
fuel suppliers and transporters, thermal hosts, and others. The Company's share
of these termination payments was approximately $290 million.
With the exception of development fees of $1.8 million received from the
Kamine/Besicorp Beaver Falls L.P. ("Beaver Falls"), which were recognized as
revenue during the first quarter of Fiscal 1999, development fees of $.9 million
received from the Kamine/Besicorp Syracuse L.P. ("Syracuse"), which were
recorded as a receivable from the project in Fiscal 1998, and certain cost
reimbursements totaling $.8 million, the MRA and operating results proceeds were
accounted for as partnership distributions.
During the three- and six- month periods ended September 30, 1998, the Company
recorded income, which is non-recurring, of $133,161,691 and $136,704,931,
respectively, predominantly as a result of the MRA and, to a minimal extent, the
operating results of the project partnerships. These amounts give effect to
write-downs, net to the Company of approximately $96 million, recorded to
reflect the impaired value , based upon appraisals, of the Beaver Falls and
Syracuse power plants due to the termination of the PPAs. With respect to the
Kamine/Besicorp Carthage L.P., Kamine/Besicorp South Glens Falls L.P., and
Kamine/Besicorp Natural Dam L.P. which hold leasehold interests in three power
plants, the income amounts reflect the expensing of all costs associated with
the termination of those long-term leases reduced by the estimated proceeds,
based on appraisal values, to be received upon the disposition of the
facilities.. The Company's share of the cost of the lease terminations was
approximately $77 million. Since the power plant sales were consummated by the
end of calendar 1998, the Company does not expect that there will be further
significant adjustments to the recorded income.
In December 1998, the partnerships in which the Company has interests
consummated contracts to sell the Carthage, South Glens Falls, Natural Dam,
Syracuse, and Beaver Falls plants. See Footnote G "Invest in Partnership"
Subsequent Events. The Company's share of the net proceeds to be received from
these sales is estimated to be approximately $10.7 million. As a result of the
sale of the power plants and the assumption by the buyer of the ongoing project
obligations, approximately $6 million of the $8 million previously reserved by
the Company with respect to its share of the MRA and operating proceeds retained
by the project partnerships will be released to the Company by the partnerships.
The Company, BGI Acquisition LLC ("Acquisition"), a Wyoming limited liability
company, and BGI Acquisition Corp. ("Merger Sub"), a New York corporation and a
wholly owned subsidiary of Acquisition, entered into an Agreement and Plan of
Merger dated November 23, 1998, (the "Plan of Merger"), that provides that
Merger Sub will be merged with and into the Company, with the Company being the
surviving corporation and wholly owned by Acquisition (the "Merger"). If the
Merger is consummated, the Company's shareholders will be entitled to receive
$34.50 (the "Merger Consideration") in cash for each share of Besicorp Common
Stock, subject, in certain circumstances, to upward adjustment if the Base
Amount (as defined in the Plan of Merger) exceeds $105,275,000. It is
anticipated that if there is any upward adjustment, such adjustment will not
exceed $4.00 per share. There will not be a downward adjustment to the Merger
Consideration; however, no assurance can be given that there will be any upward
adjustment to the Merger Consideration. Consummation of the Merger is subject to
the satisfaction of numerous conditions, including the adoption of the Plan of
Merger by the Company's shareholders and the Company's distributing (the
"Spin-Off") to its shareholders on a pro rata basis all of the shares of common
stock (the "Newco Common Stock") of Besicorp Ltd. ("Newco"), a subsidiary of
Besicorp, which at the time of the Spin-Off will, among other things, own
Besicorp's photovoltaic and independent power plant development businesses and
have assumed substantially all of the Company's liabilities. No assurance can be
given that such transactions will be consummated.
REVENUES
Consolidated
Consolidated revenues increased by $133,649,579, to $137,086,353 during the
three months ended September 30, 1998, as compared to $3,436,774 during the
three months ended September 30, 1997. Consolidated revenues for the six months
ended September 30, 1998 increased by $135,495,671 to $143,892,242, as compared
to $8,396,571 during the six months ended September 30, 1997.
Project Segment
Development and Management Fees. There were no revenues attributable to
development and management fees for the Company's independent power projects
("Project Segment") during the three months ended September 30, 1998. The
Company earned $180,479 in management fees during the three months ended
September 30, 1997. As a result of the MRA consummation and the resulting
termination of the PPAs, the Company will no longer receive management fee or
development fee income from the related project partnerships.
Revenues attributable to development and management fees for the Company's
independent power projects ("Project Segment") during the six months ended
September 30, 1998 increased by $1,135,328 to $2,043,334 as compared to $908,006
for the six months ended September 30, 1997. The increase during the period is
due primarily to a development fee of $1.8 million received from the Beaver
Falls project. The Company received development fees of $600,000 from the Beaver
Falls project during the six months ended September 30, 1997. The Company also
earned $243,334 in management fees during the six months ended September 30,
1998 in connection with its projects compared to $308,006 during the six months
ended September 30, 1997.
Income from Partnerships. During the three-month period ended September 30,
1998, the Company recognized $133,161,691 of income from partnerships, an
increase of $130,918,697 compared to $2,242,994 recognized for the three months
ended September 30, 1997. During the six-month period ended September 30, 1998,
the Company recognized $136,704,931 of income from partnerships, an increase of
$131,715,329 compared to $4,989,602 recognized for the six months ended
September 30, 1997. The increases in both the three- and six-month periods were
primarily due to the consummation of the MRA, in which five project partnerships
participated, and, to a minimal extent, the operations of the partnerships.
The partnerships will generate no significant future income as a result of the
MRA consummation and the resulting termination of the PPAs. If the sale of the
Company's power plants is not consummated by December 31, 1998, the Company
expects that there will be a significant downward adjustment to the recorded
income for the current fiscal year.
Interest and Other Investment Income. Interest and other investment income
during the three months ended September 30, 1998 increased by $2,731,792 to
$2,780,122 compared to $48,330 for the three months ended September 30, 1997.
Interest and other investment income during the six months ended September 30,
1998 increased by $2,730,018 to $2,824,932 compared to $94,914 for the six
months ended September 30, 1997. The increase in both current periods is due
primarily to realized and unrealized gains on the NIMO Shares and to
significantly higher invested principal balances.
<PAGE>
Product Segment
Product Sales. Revenues for the Company's energy technology products (the
"Product Segment") sales activities during the three-month period ended
September 30, 1998 increased by $219,850 to $1,097,897, as compared to $878,047
for the three months ended September 30, 1997. The increase for the period is
due to an increase of $387,295 in sales of solar electric products. That
increase was partially offset by a decrease of $167,445 in sales of solar
thermal and heat transfer products.
During the six-month period ended September 30, 1998, revenues decreased by
$182,976 to $2,085,690 as compared to $2,268,666 for the six months ended
September 30, 1997. The decrease for the period is due primarily to lower sales
of solar thermal and heat transfer products of $765,134, a result of the
Company's decision to discontinue those product lines. That decrease was
partially offset by an increase of $582,158 in sales of solar electric products.
Other Revenues. Other revenues derived from the Project and Product Segments
decreased by $40,281 for the three-month period ended September 30, 1998 and
increased by $97,972 for the six-month period ended September 30, 1998 versus
the same periods last year. Other revenues are primarily comprised of contract
revenue received from various sources, including the New York State Energy
Research and Development Authority, Northrup Grumman Corporation, and Motorola,
Inc. in accordance with funding agreements with the Company. Contract revenue
may vary from quarter to quarter based upon the degree of completion of the
various tasks outlined in the applicable agreements.
COSTS AND EXPENSES
Cost of Product Segment Sales
Cost of product sales for the three-month periods ended September 30, 1998 and
1997 was $1,026,294 and $877,685, respectively, or 93% and 100% of revenues
attributable to product sales. During the six-month periods ended September 30,
1998 and 1997, cost of product sales was $1,966,269 and $2,073,899,
respectively, or 94% and 91% of revenues attributable to product sales. The
decrease in the quarter ended September 30, 1998 is due primarily to
efficiencies achieved in the photovoltaic product manufacturing process. For the
six months ended September 30, 1998, the increase in cost of sales percentage is
due primarily to the discontinuance of the solar thermal and heat transfer
product lines which had lower costs of sales historically. This was partially
offset by the effect of the manufacturing efficiencies referenced above.
Costs of Project Segment Development and Management Fees
Other than the settlement of deferred costs in conjunction with potential
project closings, there are no current specific costs and expenses identified
with development and management fee revenue. Costs and expenses associated with
this segment are the normal selling, general, and administrative expenses of the
Company.
Selling, General and Administrative Expenses
Consolidated. Selling, general, and administrative expenses ("SG&A") increased
by $1,960,096, or 99%, to $3,942,666 for the three-month period ended September
30, 1998, as compared to $1,982,570 for the three-month period ended September
30, 1997. During the six-month period ended September 30, 1998, SG&A increased
by $1,745,560 to $5,830,355, as compared to $4,084,795 for the six-month period
ended September 30, 1997, an increase of 43%. As discussed below, small
decreases in the Product Segment partially offset increases in the Project
Segment.
<PAGE>
Project Segment. For the Project Segment, SG&A for the three-month periods ended
September 30, 1998 and September 30, 1997 was $3,324,058 and $1,267,993,
respectively, representing 84% and 64% of the total SG&A. SG&A for the six-month
periods ended September 30, 1998 and September 30, 1997 was $4,592,975 and
$2,687,471, respectively, representing 79% and 66% of the total SG&A. The
increases of $2,056,065 and $1,905,504 in the respective current three- and
six-month periods are primarily due to the write-off of project costs previously
deferred of $1,402,085 due to the uncertain political and economic conditions in
the countries where the projects are located (principally in India and Brazil),
and the current trend in accounting principles regarding non-deferral of
development expenses, and increased compensation expense of $1,286,386,
primarily the result of incentive compensation paid in connection with the MRA
consummation. These increases were partially offset by certain cost
reimbursements of $613,113 received during the second quarter of Fiscal 1999 in
connection with the MRA consummation.
Product Segment. SG&A expenses for the Company's Product Segment for the
three-month periods ended September 30, 1998 and 1997 were $618,608 and
$714,577, respectively, representing 16% and 36% of the total SG&A. SG&A
expenses for the Company's Product Segment for the six-month periods ended
September 30, 1998 and 1997 were $1,237,380 and $1,397,324, respectively,
representing 21% and 34% of the total SG&A. These decreases of $95,969 and
$159,944 for the respective current three- and six-month periods are due
primarily to the discontinuance of the Company's heat transfer product lines and
to the reclassification of certain labor charges to Cost of Product Sales.
Interest Expense
Interest expense for the three-month period ended September 30, 1998 decreased
by $73,774 to $25,715, as compared to $99,489 for the three-month period ended
September 30, 1997. Interest expense for the six-month period ended September
30, 1998 decreased by $76,417 to $120,098 compared to $196,515 for the six-month
period ended September 30, 1997. The decrease in the both the three- and
six-month periods is due primarily to the payment on July 10, 1998 of the $3
million Working Capital Loan from Stewart and Stevenson, Inc. ("S&S").
Provision for Income Taxes
The provision for income taxes increased during the three months ended September
30, 1998 by $46,024,844 to $46,186,257 compared to $161,413 for the same period
last year. During the six-month period ended September 30, 1998, the provision
for income taxes increased by $46,808,996 to $47,509,199 compared to $700,203
for the same period last year. The increase in the current three- and six-month
periods is due to the increase in Income Before Income Taxes which resulted
primarily from the increase in income from partnerships. The Company provides
federal and state income taxes based on enacted statutory rates adjusted for
projected benefits of tax operating loss carry forwards and other credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $69,099,152 from $2,779,482 at March
31, 1998, to $71,878,634 at September 30, 1998 primarily as a result of the
consummation of the MRA.
During the six months ended September 30, 1998, cash of $44,755,245 was provided
from operations. The net income of $88,457,514, when adjusted for non-cash
revenue/expense items of $139,493,293, including income from partnerships of
$136,704,931, resulted in a cash decrease of $51,035,779. Major factors
offsetting this cash decrease included cash distributions from the partnerships
of $50,570,604, proceeds of $5,092,744 from the sale of NIMO shares, the receipt
of a development fee receivable at March 31, 1998 of $900,000, and net changes
in assets and liabilities of $39,547,090.
During the current six-month period, the Company's financing activities resulted
in a decrease in cash of $3,051,139, primarily due to the repayment of
borrowings.
Investing activities during the current six-month period resulted in a decrease
in cash of $291,573 due to the acquisition of property, plant and equipment.
<PAGE>
As previously discussed, the consummation of the MRA and related transactions
and partnership operating results for the quarter ended June 30, 1998, resulted
in the receipt of approximately $52 million and the NIMO Shares valued at
approximately $69 million. As previously discussed, the Company has, through
October 28, 1998, sold 1,919,500 NIMO Shares resulting in cash proceeds of
approximately $29.6 million and a gain of approximately $.9 million. In
accordance with its established investment objectives and guidelines, the
Company has invested surplus cash in money market funds and commercial paper.
The Company's five PPAs with NIMO were terminated as a result of the
consummation of the MRA and, consequently, there will be no significant future
periodic distributions to the Company from the operations of the projects.
Pending the consummation of the Merger described herein, the Company expects
that capital requirements for its operations and for repayment of long-term debt
will be met by its current cash and short-term investment position.
Year 2000
Many existing computer systems and software applications use two digits, rather
than four, to record years, i.e., "98" instead of "1998." Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions, including, among other things, a temporary inability to
process transactions, send invoices, determine whether payments have been
received or engage in similar normal business activities. This is known as the
Year 2000 issue.
The Company relies on computer hardware, software, and related technology
primarily in its internal operations, such as billing and accounting. During
Fiscal 1998, the Company formed a Year 2000 Management Committee to address the
potential financial and business consequences of Year 2000 issues, such as the
disruptions mentioned above, the failure to receive essential supplies and
services or the loss of customers, with respect to both the Company's hardware,
software, applications and interfaces (collectively, "IT Systems") and
non-information technology systems such as telemetry, security, power and
transportation (collectively, the "Non-IT Systems"). In general, the Year 2000
Management Committee is dividing its efforts with respect to both the IT Systems
and the Non-IT Systems into three phases: (1) inventory and assessment ("Phase
One"), (2) strategy and contingency planning ("Phase Two") and (3) upgrades,
conversions and other solutions ("Phase Three").
With respect to the IT Systems, the Company has completed its evaluation of its
hardware, software and other IT Systems and decided to migrate from a 486 PC
environment to an Intel Pentium environment. Thus the efforts are now in Phase
Three. To date all workstations and financial software have been replaced.
Microsoft Office Suite software and back-up software has been upgraded, virus
protection software is now Year 2000 compliant, and New Year 2000 compliant
servers have been installed. To complete Phase Three, the Company will upgrade
accounting software, e-mail exchange servers, internet proxy server, and all
other servers to NT 4.0, upgrade all workstations to Windows 98, send second
notices to IT Systems vendors that have not responded to the Company's request
to receive written certification and begin to seek replacement vendors, if
necessary. The Company expects to complete Phase Three by July 1999.
With respect to the Non-IT Systems, the Partnerships are responsible for the
day-to-day management of the Power Plants, so the Year 2000 Management Committee
restricted its efforts to the photovoltaic business, other operations unrelated
to the Power Plants, and administration. The Company relies on outside providers
for its basic needs such as electricity, telephone service and other utilities.
As part of its evaluation of its Non-IT Systems, the Year 2000 Management
Committee contacted the utilities and other suppliers. Phase One has been
completed and the Year 2000 Management Committee is studying the results in its
efforts to determine what, if anything, will be required to prepare the Non-IT
Systems for the Year 2000 and to assure itself that utility services will not be
interrupted. The Year 2000 Management Committee expects to complete Phase Two by
April 1999 and Phase Three by July 1999.
The Company is also communicating with its vendors, suppliers, and customers to
both monitor and encourage their respective remedial efforts regarding Year 2000
issues. The Company is in the process of contacting by letter or phone all of
its significant vendors and suppliers and its largest customers to determine the
extent to which the Company's systems might be vulnerable as a result of third
parties' failure to resolve their own Year 2000 issues. The Company is concerned
about receiving all necessary utility services; in addition, the Company's
photovoltaic business is dependent on components provided by photovoltaic module
suppliers. Since failure by vendors and suppliers to successfully address their
Year 2000 issues could result in delays in their providing various products and
services to the Company, the Company will seek replacement vendors as is
necessary to assure availability of products and services. Failure by customers
could disrupt their ability to maximize their use of the Company's products and
services and lead to a reduction in revenues; therefore, the Company will send a
newsletter to its product customers to help develop each customer's awareness of
Year 2000 issues and their implications.
So long as the Company's efforts to become Year 2000 compliant continue on
schedule, the Year 2000 Management Committee believes that its internal
operations will not be affected by Year 2000 problems. The Company does not rely
solely on its IT Systems in order to produce products it sells or to develop
project opportunities. In fact, in July 1998, the Company's IT Systems
temporarily ceased to function due to a lightning strike that destroyed many
components of the system, and while inconvenienced, the business operated,
deadlines were met , and relationships were cultivated. The Company expects to
complete its upgrade and replacement purchases by the first half of calendar
1999. Testing is underway and will continue through January 2000.
There can be no assurance that year 2000 problems of third parties upon which
the Company's systems and operations rely will not have a material adverse
effect on the Company's operating results or financial condition. However, the
Company does not anticipate any adverse impact on its business due to a lack of
availability of supplies or difficulties of customers. Therefore, short of any
third party disaster that the Company is unable to control and for which the
Company cannot develop contingency plans, such as the failure of a utility
providing power or telecommunications, the Company does not believe its business
will be detrimentally impacted by potential Year 2000 problems.
Except for capital expenditures associated with computer hardware and software
upgrades which are planned for Fiscal 1999 and which may be partially Year
2000-related, the Company does not anticipate that the incremental expenses
related to the Year 2000 issue for Fiscal 1999 will be material. Such
incremental expenses incurred during Fiscal 1998 were not significant.
PART II - OTHER INFORMATION
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibit 2.1 Agreement and Plan of Merger dated November 23,
1998 by and between Besicorp Group Inc., BGI Acquisition LLC
and BGI Acquisition Corp. (excluding the exhibits and
schedules thereto). The omitted schedules and exhibits are
identified below.
Schedule or Exhibit Description
Schedule 3.2.1 Lease Terms
Schedule 3.2.2 Schedule of Retained Assets and
Permitted Liabilities
Schedule 4.2.1 Subsidiaries
Schedule 4.2.4 Required Consents
Schedule 4.2.5 Stock
Schedule 4.2.6 Subsidiaries
Schedule 4.2.9 Liabilities
Schedule 4.2.14 Tax Returns
Schedule 4.2.15 Tax Liabilities
Schedule 4.2.16 Issues with Taxing Authorities
Schedule 4.2.17 Miscellaneous Tax Matters
Schedule 4.2.19 Contracts
Schedule 4.2.20 Partnership Contracts
Schedule 4.2.21 Plans
Schedule 4.2.23 Litigation
Schedule 4.2.25 Compliance with Laws
Schedule 4.2.27 Owned Real Estate
Schedule 4.2.28 Leased Premises
Exhibit A Form of Indemnification Agreement
Exhibit B Form of Escrow Agreement
Exhibit C Form of Legal Opinion of
Purchaser's Counsel
Exhibit D Form of Legal Opinion of Company'S
Counsel
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
On July 8, 1998, the Company filed a report on Form 8-K disclosing that
it was a party to the consummation of the Master Restructuring Agreement on June
30, 1998 between Niagara Mohawk Power Corporation and 14 developers/owners of 27
independent power plants.
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.
Besicorp Group Inc., Registrant
Date: February 1, 1999 By: /s/ Michael F. Zinn
Michael F. Zinn
President
(principal executive officer)
Date: February 1, 1999 By: /s/ Michael J. Daley
Michael J. Daley
Chief Financial Officer
(principal financial officer)
Date: February 1, 1999 By: /s/ James E. Curtin
James E. Curtin
Vice President and Controller
(principal accounting officer)
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 42,225,504
<SECURITIES> 77,049,688
<RECEIVABLES> 665,902
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