UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): March 31, 1998
CALPINE CORPORATION
(A Delaware Corporation)
Commission File Number: 033-73160
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
This report is an amendment to the Calpine Corporation report on Form 8-K filed
on April 14, 1998. The report is being amended to (a) include Texas Cogeneration
Company's audited financial statements for the years ended December 31, 1997 and
1996, (b) provide the Pro Forma Financial Statements for the year ended December
31, 1997, and provide the disclosures in the Notes to the Pro Forma Financial
Statements.
The following financial statements and pro forma financial information are filed
as part of this Form 8-K/A:
(a) Financial Statements
Financial Statements of Texas Cogeneration Company Page No.
(i) Independent Auditors' Report 4
(ii) Consolidated Balance Sheets as of
December 31, 1997 and 1996 5
(iii) Consolidated Statements of Operations
for the Years Ended December 31, 1997 and 1996 6
(iv) Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
December 31, 1997 and 1996 7
(v) Consolidated Statement of Cash Flows for
the Years Ended December 31, 1997 and 1996 8
(vi) Notes to Consolidated Financial Statements for
the Years Ended December 31, 1997 and 1996 9
(b) Pro Forma Financial Information
(i) Consolidated Balance Sheet as of
December 31, 1997 18
(ii) Consolidated Statements of Operations
for the Years Ended December 31, 1997 19
The pro forma consolidated balance sheet gives effect to the following
transactions as if such transactions occurred on December 31, 1997; (i)
the acquisition by the Company of the remaining interest in the
Bethpage Power Plant; (ii) the sale of the 7-7/8 % Senior Notes Due
2008 and the application of the net proceeds therefrom, and (iii) the
acquisition by the Company of the remaining interest in Texas
Cogeneration Company.
The following pro forma consolidated statement of operations for the
year ended December 31, 1997 gives effect to the following transactions
as if such transactions occurred on January 1, 1997; (i) certain
transactions as described in the notes to the pro forma financial
statements; (ii) the sale of the 7-7/8% Senior Notes Due 2008 and the
application of the net proceeds therefrom, and (iii) the acquisition by
the Company of the remaining interest in Texas Cogeneration Company.
The pro forma adjustments are based upon available information and
certain assumptions that management believes are reasonable.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALPINE CORPORATION
By: /s/ Ann B. Curtis
-------------------------------------
Ann B. Curtis
Senior Vice President and
Chief Financial Officer
May 14, 1998
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Deloitte & Touche LLP -----------------------------------------------
(logo) Suite 2300 Telephone: (713) 756-2000
333 Clay Street Facsimile: (713) 756-2001
Houston, Texas 77002-4196
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Texas Cogeneration Company:
We have audited the accompanying consolidated balance sheets of Texas
Cogeneration Company and subsidiaries ("TCC") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of TCC's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Cogen Technologies NJ Venture (the "Investee"), TCC's
investment in which is accounted for by use of the equity method. TCC's equity
of $13,330,397 and $13,289,082 in the investee's net assets at December 31, 1997
and 1996, respectively, and of $1,355,888 and $1,504,523 in the Investee's net
income for the respective years then ended are included in the accompanying
consolidated financial statements. The financial statements of the Investee were
audited by other auditors whose report thereon has been furnished to us, and our
opinion, insofar as it relates to the amounts included for such entity, is based
solely upon the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material aspects, the
financial position of TCC at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the financial statements, TCC is involved in
litigation relating to contract disputes with a customer.
/s/ Deloitte & Touche L.L.P.
March 18, 1998
- ----------------
Deloittte Touche
Thomatsu
International
- ----------------
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TEXAS COGENERATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents - unrestricted ..... $ 23,962,675 $ 8,270,698
Cash and cash equivalents - restricted ....... 3,000,000 3,000,000
Accounts receivable - trade, net ............. 38,561,510 40,706,539
Materials and supplies, at average cost ...... 2,805,264 2,984,330
Prepaid expenses ............................. 397,845 141,058
------------ ------------
Total Current Assets ....................... 68,727,294 55,102,625
------------ ------------
Investments and Other Assets ................... 14,066,620 14,093,789
Property, plant and equipment, at cost ......... 414,765,981 413,756,463
Less accumulated depreciation ................ 116,644,100 104,889,929
------------ ------------
Net Property, Plant and Equipment .......... 298,121,881 308,866,534
------------ ------------
Deferred Charges - Unamortized Debt
Issue Costs .................................. 4,524,392 6,198,751
------------ ------------
Total Assets ............................... $385,440,187 $384,261,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ......... $ 47,323,572 $ 39,336,068
Accounts payable - trade ..................... 9,451,262 14,173,456
Accounts payable - affiliates ................ 13,793,649 17,089,242
Other accrued liabilities .................... 18,870,868 14,835,441
------------ ------------
Total Current Liabilities .................. 89,439,351 85,434,207
------------ ------------
Maintenance Reserve ............................ 5,703,828 7,350,418
Long-Term Debt ................................. 84,488,127 124,222,652
Deferred Income Taxes .......................... 68,694,808 66,639,979
Commitments & Contingencies ..................... -- --
Stockholders' Equity
Common stock, $1 par value, 15,000
shares authorized, 14,190 shares issued
and outstanding ............................ 14,190 14,190
Additional paid-in capital ................... 115,509,921 91,709,921
Retained earnings ............................ 21,589,962 8,890,332
------------ ------------
Total Stockholders' Equity ................. 137,114,073 100,614,443
------------ ------------
Total Liabilities and Stockholders' Equity . $385,440,187 $384,261,699
============ ============
The accompanying notes are an integral part of these
consolidated financial statements
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TEXAS COGENERATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
Revenues
Electricity .......................... $263,632,983 $269,854,689
Steam ................................ 29,881,838 30,144,861
Equity earnings of investees ......... 1,287,404 1,436,039
Interest and other ................... 1,423,480 1,262,695
------------ ------------
Total Revenues ..................... 296,225,705 302,698,284
------------ ------------
Expenses
Fuel costs ........................... 211,012,820 208,659,854
Operating and maintenance ............ 31,451,352 40,796,155
Depreciation and ..................... 12,392,857 12,290,193
amortization
Taxes other than income .............. 5,727,426 5,754,581
Interest and related charges ......... 14,291,645 17,066,534
------------ ------------
Total Expenses ..................... 274,876,100 284,567,317
------------ ------------
Income Before Income Taxes ............... 21,349,605 18,130,967
Income Tax Expense ....................... 8,649,975 7,238,509
------------ ------------
Net Income ............................... $ 12,699,630 $ 10,892,458
============ ============
Earnings on Common Stock ................. $ 12,699,630 $ 10,892,458
============ ============
Earnings Per Share of
Common Stock............................ $ 894.97 $ 767.62
============ ============
Weighted Average Number of
Common Shares Outstanding............... 14,190 14,190
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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TEXAS COGENERATION COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-------------------------
Additional
Paid-in Retained
Shares Amount Capital Earnings Total
------------- ----------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995... 14,190 $ 14,190 $ 89,209,921 $ 8,997,820 $ 98,221,931
Net income..................... 10,892,458 10,892,458
Contributed capital............ 2,500,000 2,500,000
Dividends to stockholders...... (10,999,946) (10,999,946)
------------- -------- ------------- -------------- ------------
Balance at December 31, 1996... 14,190 14,190 91,709,921 8,890,332 100,614,443
Net income..................... 12,699,630 12,699,630
Contributed capital............ 23,800,000 23,800,000
------------- -------- ------------- -------------- -----------
Balance at December 31, 1997... 14,190 $ 14,190 $ 115,509,921 $ 21,589,962 $137,114,073
============= ======== ============= ============== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TEXAS COGENERATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
Cash and Cash Equivalents at January 1 ......... $ 11,270,698 $ 30,644,346
------------ ------------
Cash Flows from Operating Activities:
Net Income .................................. 12,699,630 10,892,458
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Loss on sales of assets ................. 26,714 --
Deferred income taxes ................... 2,054,829 2,160,685
Depreciation and amortization ........... 14,058,600 13,964,554
Equity earnings of investees ............ (1,287,404) (1,436,039)
Maintenance reserve ..................... 2,060,094 3,164,802
Changes in Assets and Liabilities:
Accounts receivable ................... 2,145,029 (2,244,741)
Materials and supplies ................ 179,066 70,087
Other current assets .................. (256,787) (57,564)
Accounts payable ...................... (8,017,787) (1,049,864)
Other current liabilities ............. 1,707,482 (4,930,118)
------------ ------------
Net Cash Provided by Operating Activities 25,369,466 20,534,260
------------ ------------
Cash Flows from Investing Activities:
Additions to property, plant and equipment ... (3,045,041) (7,317,539)
Distribution received from equity investee ... 1,314,573 2,047,940
------------ ------------
Net Cash Used in Investing Activities ... (1,730,468) (5,269,599)
------------ ------------
Cash Flows from Financing Activities:
Principal payments on long-term debt ......... (31,747,021) (26,138,363)
Common stock dividends ....................... -- (10,999,946)
Contributed capital .......................... 23,800,000 2,500,000
------------ ------------
Net Cash Used in Financing Activities .... (7,947,021) (34,638,309)
------------ ------------
Increase (Decrease) in Cash and ........... 15,691,977 (19,373,648)
Cash Equivalents
------------ ------------
Cash and Cash Equivalents at December 31, . $ 26,962,675 $ 11,270,698
============ ============
Supplemental Disclosure of
Cash Flow Information:
Cash paid for income taxes ................ $ 5,186,000 $ 8,581,969
Cash paid for interest .................... $ 12,514,740 $ 15,052,757
The accompanying notes are an integral part of these
consolidated financial statements.
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TEXAS COGENERATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
A. Formation - Texas Cogeneration Company ("TCC" or the "Company"), formerly
Enron/Dominion Cogen Corp., a Delaware corporation, was formed in June 1986 to
consolidate Enron Corp.'s ("Enron") existing cogeneration business and to
develop, own, operate and invest in cogeneration projects and other nonregulated
electric-generating facilities throughout the United States. Enron's ownership
in TCC was held through Enron Power Corp. ("EPC"), a wholly-owned subsidiary. At
December 31, 1997, the Company owned a 100% interest in Texas City Cogeneration,
L.P. ("TCCLP"), a company whose principal asset is a 450 megawatt ("MW")
gas-fired cogeneration facility in Texas City, Texas, which has been operating
since May 1987; a 100% interest in Clear Lake Cogeneration Limited Partnership
("Clear Lake" or "CLC"), which owns a 377 MW gas-fired cogeneration plant in
Pasadena, Texas, acquired in May 1988; and a 7.06% interest in Cogen
Technologies NJ Venture ("Bayonne"), which owns a 165 MW gas-fired cogeneration
facility in Bayonne, New Jersey, which was placed in service in October 1988.
The cogeneration projects owned by TCC operate as qualifying facilities under
the Federal Public Utilities Regulatory Policy Act of 1978 ("PURPA"). Proposed
legislation in the U.S. Congress has called for either a repeal of PURPA or a
complete restructuring of the regulations governing the electric industry,
including PURPA, in order to promote open competition in the industry. These
initiatives are generally not yet effective and will be the subject of
considerable debate and modification; however, any changes could result in lower
contract prices. Management believes that a reduction in prices under the
existing contracts is a remote possibility.
B. Ownership - On June 27, 1988 Enron sold 50% of the total outstanding common
stock in the Company to Dominion Cogen, Inc. ("Dominion"). On June 23, 1997, EPC
sold its remaining common stock to Calpine Finance Company ("CFC"), a
wholly-owned subsidiary of Calpine Corporation ("Calpine").
At December 31, 1997, Enron Cogeneration One Company ("ECO") and Cogenron Inc.
("Cogenron"), both 100% owned subsidiaries of TCC, formed a limited partnership
named Texas City Cogeneration, L.P. (the "Partnership") pursuant to the Texas
Revised Uniform Limited Partnership Act to engage in the production and sale of
electrical energy, capacity and steam. ECO contributed cash for a 0.1% general
partnership interest. Cogenron contributed all of its net assets for a 99.9%
limited partnership interest. Immediately after formation of the Partnership,
Cogenron assigned its entire limited partnership interest in the Partnership to
Texas Cogeneration Five, Inc. ("TC5") for a 100% ownership in TC5. The result of
this restructuring is that TCC effectively owns 100% of the Partnership, which
is consolidated into TCC's financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Consolidation - The consolidated financial statements include the accounts of
all wholly owned subsidiaries of TCC after the elimination of intercompany
accounts and transactions. An investment in a joint venture that is less than
50% owned ("investee") is accounted for using the equity method of accounting
(see Note 5).
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B. Accounts Receivable - Trade receivables represent current obligations of
major customers. The amount shown is net of an allowance for doubtful accounts
of $6,358,883 at December 31, 1997. The entire allowance is related to the
litigation discussed in Note 8.
C. Property, Plant, and Equipment, and Depreciation - The provision for
depreciation is computed using the straight-line method based on estimated
useful lives of 30 years and an estimated salvage value of 10% of the original
cost for the cogeneration facilities. Composite depreciation rates are applied
to general property having similar economic characteristics.
D. Other Accrued Liabilities - Other accrued liabilities consist primarily of ad
valorem taxes in the amount of $5,143,395 and $4,783,048 and the current portion
of maintenance reserve in the amount of $8,721,289 and $6,393,344 at December
31, 1997 and 1996, respectively.
E. Maintenance Costs - Estimated costs associated with periodic major
inspections of gas turbines are accrued monthly to operating and maintenance
expense on a straight-line basis over the planned 6 year maintenance cycle and
classified as current when they are expected to be incurred during the following
year. Maintenance and repairs, other than periodic major inspections, are
charged to expense as incurred.
F. Interest and Related Charges - Interest and related charges are comprised of
interest on long-term debt of $12,616,297 and $15,392,175 and amortization of
debt issuance costs of $1,675,348 and $1,674,359 for the years ended December
31, 1997 and 1996, respectively. Costs associated with the issuance of long-term
debt are amortized over the term of the debt instrument using a systematic
method, which does not differ materially from the effective-interest method.
G. Income Taxes - The Company utilizes the asset and liability approach for
accounting for income taxes. Under this approach, deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
H. Cash Flows - The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents. For purposes
of the Statements of Consolidated Cash Flows, the Company uses the indirect
method for reporting cash flows. Noncash transactions during the year ended
December 31, 1997 included $1,378,739 related to the installation of spare parts
inventory in the plant that was charged to the maintenance reserve.
I. Use of Estimates - The preparation of the financial statements in accordance
with generally accepted accounting principles requires estimates and assumptions
that affect the reported amounts of assets and liabilities as well as certain
disclosures. The Company's financial statements include amounts that are based
on management's best estimates and judgements. Actual results could differ from
those estimates.
J. Impairment of Assets - Effective January 1, 1996, TCC adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
evaluates long-lived assets for impairment based upon the recoverability of that
asset's carrying value. When it is probable that the undiscounted future cash
flows will not be sufficient to recover the asset's carrying
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value, an impairment is recognized. No such impairments were recognized by the
Company during the years ended December 31, 1997 and 1996.
K. Reclassifications - Certain amounts from the prior year have been
reclassified to conform to the current year presentation.
3. LONG-TERM DEBT
December 31,
------------ ------------
1997 1996
------------ ------------
Clear Lake - Term Notes due 2003 ......... $ 94,744,799 $105,248,620
Cogenron Debt due 1999 ................... 37,066,900 58,310,100
------------ ------------
131,811,699 163,558,720
Less current maturities ................ 47,323,572 39,336,068
------------ ------------
Long-term debt ......................... $ 84,488,127 $124,222,652
============ ============
On January 18, 1994, CLC refinanced its long-term debt with Barclays Bank PLC
("Barclays") by entering into an amended and restated credit agreement involving
a $125,000,000 term loan (the "Note") with a final maturity date of December 21,
2003. On June 23, 1997 Calpine Finance Company ("CFC") purchased the Note from
Barclays. The associated interest rates are periodically selected by CLC from
three pricing alternatives, which are based upon a prime rate, a Eurodollar rate
or a commercial paper rate. The period for the rates selected can range from one
to 180 days. The weighted average interest rate in effect was 8.41% and 8.18% at
December 31, 1997 and 1996, respectively. Maturities due on the Note are as
follows: $10,256,672, $12,357,436, $12,975,308, 9,885,948 and $49,269,435 for
the years ending December 31, 1998, 1999, 2000, 2001 and thereafter,
respectively. The Note is secured by a pledge of CLC's property, plant and
equipment and several operating agreements. The credit agreement contains
covenants that include requirements to maintain certain financial tests and to
restrict and limit cash distributions, capital expenditures, investments, and
additional borrowings. At December 31, 1997 and 1996, CLC was in compliance with
such restrictive covenants. Distributions of $7,663,000 made during the year
ended December 31, 1994 are guaranteed by affiliates of CLC under provisions of
the Note and under certain conditions could be required to be re-contributed to
CLC. No other such distributions have been made.
Effective May 3, 1995, CLC entered into an interest rate swap agreement having
an original notional principal amount of $118,875,000 million which declines
over time. On June 23, 1997, this agreement was purchased by CFC. The interest
rate swap agreement, which matures on December 31, 2003, effectively fixes CLC's
interest rate exposure at a rate of 8.16%. CLC intends to hold the interest rate
swap agreement through its maturity date. The total notional principal amount
was $95,812,500 and $106,437,500 at December 31, 1997 and 1996, respectively.
CLC is exposed to credit loss in the event of nonperformance by the other party
to the interest rate swap agreement. However, CLC does not anticipate
nonperformance by the counterparty.
Cogenron's long-term debt consists of a note (the "Debt") issued to the Bank of
New York, N.A. ("BNY"), as agent, in the amount of $142,000,000. On June 23,
1997, CFC purchased the debt from BNY. The Debt is now payable to CFC and
matures on its original due date of June 30, 1999. The interest rates on the
Debt are periodically selected by Cogenron from three pricing alternatives,
which are based on a prime rate, a Eurodollar rate, and a certificate of deposit
rate. The period for the rates can range from one to 180 days. The weighted
average interest rate in effect at December 31, 1997 and 1996 was 7.42% and
8.06%, respectively. The interest payments are
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required on a quarterly basis or on the last day of each applicable interest
period, whichever is sooner. The principal on the Debt becomes due and payable
on a quarterly basis with total annual requirements as follows: $20,251,000 and
$16,815,900 for the years ending December 31, 1998 and 1999, respectively.
On January 21, 1991, Cogenron entered into an interest rate swap agreement with
the BNY, which had an original total notional principal amount of $114,965,000.
On June 23, 1997, this agreement was purchased by Calpine Finance Company. The
agreement effectively fixes Cogenron's interest rate exposure at a rate of
9.47%. The total notional principal amount was $10,126,400 and $31,369,600 for
the years ended December 31, 1997 and 1996, respectively. Cogenron intends to
hold the interest rate swap agreement through its maturity date of June 25,
1998. Cogenron is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement; however, Cogenron does not
anticipate nonperformance by the counterparty.
The Debt is secured by a pledge of all of Cogenron's fuel supply contracts and
certain banking accounts. Certain prepayments of Cogenron's outstanding Debt may
be required if (i) certain Cogenron cash flow levels are exceeded, (ii) Cogenron
does not extend its project contracts beyond the existing terms, or (iii)
Cogenron does not meet certain financial indices. The total prepayment amount
due at December 31, 1997 and 1996 was $20,667,318 and 7,589,048, respectively.
However, a waiver was obtained extending the due date of the prepayment due
under (ii) and restricting dividends until the expiration date of the waiver
even though such dividends may otherwise be permitted under the Credit
Agreement. The waiver extends the due date of the prepayment through March 31,
1998. As such, the prepayment amount is included in Current Maturities of
Long-Term Debt.
Cash equivalents reflected in the accompanying Consolidated Balance Sheets of
$3,000,000 at December 31, 1997 and 1996 are restricted by indenture provisions
of Cogenron's long-term debt. Other restrictions on the remaining cash
equivalents include limitations on investments, additional debts, liens,
dividends and certain stock and debt acquisitions. At December 31, 1997, the
Company was in compliance with such restrictive covenants.
4. INCOME TAXES
The income tax expense (benefit) reflected in the Statements of Consolidated
Operations consisted of the following components:
1997 1996
----------- -----------
Current
Federal .............................. $ 5,130,862 $ 3,752,215
State ................................ 1,464,284 1,325,609
----------- -----------
Total - Current ................... 6,595,146 5,077,824
----------- -----------
Deferred
Federal .............................. 2,366,700 2,461,763
State ................................ (311,871) (301,078)
----------- -----------
Total - Deferred .................. 2,054,829 2,160,685
----------- -----------
Total Income Tax Expense ............... $ 8,649,975 $ 7,238,509
=========== ===========
The total income tax expense for 1997 and 1996 does not differ materially from
the amounts computed by applying the statutory federal income tax rate of 35% to
income before income taxes.
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The principal components of TCC's net deferred income tax liability at December
31, 1997 and 1996 were as follows:
1997 1996
------------ ------------
Deferred Income Tax Assets ................. $ (7,828,431) $(12,583,260)
Deferred Income Tax Liabilities ............ $ 76,523,239 $ 79,223,239
------------ ------------
Net Deferred Income Tax Liabilities ........ $ 68,694,808 $ 66,639,979
============ ============
The major types of deferred income tax assets and liabilities are depreciation
and amortization, alternative minimum tax ("AMT") credit carryforwards, and
state income taxes. AMT credit carryforwards of $4,261,000 and $8,188,000 at
December 31, 1997 and 1996, respectively, have an indefinite carryforward
period.
5. EQUITY INVESTEE
Summarized combined financial information of TCC's 50% or less owned affiliate
is presented below:
Year Ended December 31,
--------------------------------
Balance Sheet 1997 1996
----------- -----------
Current assets 24,972,023 18,925,779
Property, plant and equipment, net 73,750,300 80,564,300
Other noncurrent assets 251,750 281,750
Current liabilities 16,157,511 12,888,418
Noncurrent liabilities 70,571,110 74,350,429
Owners' equity 12,245,452 12,522,982
TCC's Underlying Equity in the Net
Assets of Investee 13,330,397 13,289,082
Year Ended December 31,
---------------------------------
Statement of Operations 1997 1996
------------ ------------
Operating revenues $ 96,492,711 $ 95,250,977
Operating expenses 77,287,499 73,936,904
------------ ------------
Net income 19,205,212 $ 21,314,073
============ ============
TCC's Underlying Equity in 1,355,888 1,504,523
the Earnings of Investee
Net distributions paid to TCC $ 1,314,573 $ 2,047,940
Bayonne - The Company, through its wholly owned subsidiary Enron Cogen Five
Company ("EC5"), owns a 7.06% joint venture interest in a cogeneration facility
in Bayonne, New Jersey. The plant's total capital cost was $122 million, of
which 75% was financed.
The difference between the carrying value of TCC's investment and its underlying
equity in the net assets of its investee was $736,223 at December 31, 1997 and
$804,707 at December 31, 1996 and is being amortized at a rate per year of
$68,484 for both 1997 and 1996.
6. RELATED PARTY TRANSACTIONS
The commercial management of TCC and its subsidiaries is performed by TCC. Enron
Capital and Trade Resources Corp. ("ECT") provided accounting assistance to TCC
and its subsidiaries through October 23, 1997 pursuant to an Administrative
Services Agreement, dated as of August 1, 1995. These services were performed by
Dominion Energy for the remainder of 1997 pursuant to an Administrative Services
Agreement dated June 23, 1997. Services related to both Administrative Services
Agreements were provided at cost. For the period from August 1, 1995 through
June 22, 1997, operational management of the Texas City and Clear Lake plants
was performed by Enron Operations Company ("EOC"), a wholly-owned subsidiary of
Enron and an
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affiliate of EPC, pursuant to separate Operations and Maintenance Agreements,
both dated as of August 1, 1995, between EOC, TCC, and Cogenron, Inc. and EOC,
TCC, and Clear Lake. Effective June 23, 1997, the operational management of the
Texas City and Clear Lake plants is performed by Calpine pursuant to separate
Operations and Maintenance Agreements, both dated as of June 23, 1997, between
EOC, TCC, and Cogenron, Inc. and EOC, TCC, and Clear Lake. TCC paid EOC $251,156
and $1,025,260 for the years ended December 31, 1997 and 1996, respectively, for
operating the two plants and for assuming all related risks for such operations.
CLC paid Calpine $218,056 for the year ended December 31, 1997 for operating the
plant and for assuming all related risks for such operations. Cogenron paid
Calpine $259,724 for the year ended December 31, 1997 for operating the plant
and for assuming all related risks for such operations.
Effective December 1, 1995, TCC entered into an Equity Support Agreement ("ESA")
with Cogenron whereby TCC agreed to contribute funds, if needed, equal to the
lesser of Cogenron cash shortfall amounts or the amount due to DEI Texas Inc.
("DEI"), a wholly-owned subsidiary of Dominion Energy, Inc., pursuant to the gas
sales agreement effective December 1, 1995 and described in Note 7 below. TCC
entered into a similar agreement with EPC and Dominion whereby the same amount
would be contributed to TCC, 50% from EPC and 50% from Dominion, in order to
reimburse TCC for any payments made under the agreement. In addition to the ESA
agreement, TCC entered into a Supplemental Equity Support Agreement ("SESA"),
whereby TCC agreed to contribute funds to Cogenron upon request by lenders equal
to the operating cash shortfall remaining after the contribution under the ESA
agreement, if any. Such funds would in turn be contributed to TCC, 50% from EPC
and 50% from Dominion. As of December 31, 1997 and 1996, no payments had been
required under these agreements.
In addition, effective December 1, 1995, TCC entered into an ESA agreement with
CLC whereby TCC agreed under certain conditions to contribute funds equal to the
lesser of CLC operating cash shortfall amounts or the positive difference
between the fixed price actually paid by CLC for Tier 1 gas pursuant to the new
gas sales agreement effective December 1, 1995 and described in Note 7 below and
an index price. TCC entered into a similar agreement with EPC and Dominion
whereby the same amount would be contributed to TCC, 50% from EPC and 50% from
Dominion, in order to reimburse TCC for any payments made under this agreement.
TCC also entered into a Contingent Equity Support Agreement ("CESA") effective
December 1, 1995 with CLC, EPC, and Dominion whereby TCC agreed to contribute
funds to CLC upon request by lenders equal to the operating cash shortfall
remaining after the contribution under the ESA agreement, if any. Such funds
would in turn be contributed to TCC, 50% from EPC and 50% from Dominion.
Contributions under the CESA agreement are limited to $11,000,000 in total. In
addition to the ESA and CESA agreements, TCC entered into a Supplemental Equity
Support Agreement ("SESA"), whereby TCC agreed to contribute funds to CLC upon
request by lenders equal to the operating cash shortfall remaining after the
contributions under the ESA and CESA agreements, if any. Such funds would in
turn be contributed to TCC, 50% from EPC and 50% from Dominion.
Payments were made under the ESA, CESA, and SESA support agreements for
$2,290,000, $9,656,000, and $11,854,000 respectively, for the year ended
December 31, 1997 and $483,000, $1,344,000, and $0 respectively, for the year
ended December 31, 1996. Calpine assumed EPC's support requirements under the
CESA and ESA agreements on June 23, 1997. EPC remains responsible for
contributions due under the SESA agreement.
14
<PAGE>
Cogenron is obligated to purchase a minimum of annual average 45,000 million
British Thermal Units ("MMBTU") of natural gas per day from DEI Texas, Inc.
("DEI"), which is a wholly-owned subsidiary of Dominion Energy, Inc., an
affiliate of Dominion. This obligation extends through June 30, 1999. During the
years ended December 31, 1997 and 1996, such gas purchases averaged 45,345 MMBTU
and 44,645 MMBTU per day and totaled $83.4 million and $78.4 million,
respectively. Cogenron is also obligated, at the option of Union Carbide
Corporation ("UCC"), to purchase up to approximately one-third of its natural
gas requirements from UCC. These obligations commenced May 1, 1987 and extend
through June 30, 1999. Such gas purchases for the years ended December 31, 1997
and 1996, totaled $41.4 million and $51.6 million, respectively.
Pursuant to a gas sales contract effective December 1, 1992 through March 31,
2005, CLC was obligated to purchase at least 90% of the facility's gas
requirements from ECT. On February 1, 1994, CLC assigned its rights under the
contract to TCC whom purchased the gas from ECT and resold it to CLC.
Effective December 1, 1995, TCC, CLC, and DEI entered into new gas sales
contracts whereby TCC purchases the gas from DEI and resells it to CLC at
comparable pricing. In addition, certain pricing terms were amended.
This new contract is effective through March 31, 2005. A market gas sales
contract was entered into between CLC and ECT on April 1, 1996 for a maximum
daily quantity of 19,000 MMBTUs. This contract is effective through June 30,
1998. TCC and ECT sold CLC approximately 29.0 trillion British thermal units
("TBTU") and 29.3 TBTUs of natural gas for approximately $71.7 million and $71.3
million during 1997 and 1996, respectively.
7. COMMITMENTS
Cogenron is located on property owned by UCC pursuant to an operating lease
agreement extending through June 30, 1999, subject to renewal based on certain
provisions in the operating agreement. Lease payments will be $30,000 in the
first and last years of the lease and $60,000 in all other years. The lease term
began with commercial operations of the plant in May 1987.
CLC is located on property owned by Celtran Inc., a wholly owned subsidiary of
Hoechst Celanese. Lease payments are $100 per year. The lease term began August
31, 1983, and expires December 31, 2005.
At December 31, 1997, the Company was committed to purchase various major
maintenance parts from Westinghouse Electric Corporation for approximately $14.1
million through 2003. The annual payments based on expected parts deliveries are
as follows: $4,136,366, $4,335,777, $1,606,579, $954,526 and $3,070,993 for the
years ending December 31, 1998, 1999, 2000, 2001 and thereafter, respectively.
At December 31, 1997 and 1996, $0 and $7,881,999, respectively, related to
maintenance parts is reflected as a current liability on the balance sheet.
8. LITIGATION
On October 2, 1997, CLC filed suit against Texas-New Mexico Power Company
("TNP") for various contractual disputes, including disputes over standby power
charges, transmission costs, and fuel surcharge amounts. Trial for all of the
above issues is expected to begin in the last half of 1998. CLC has also filed a
Declaratory Order with the Public Utilities Commission of Texas ("TPUC")
regarding the transmission cost issues. TNP has deducted various
15
<PAGE>
amounts from its monthly electricity payments and withheld payments relating to
disputed amounts. The potential gain or loss which could result from the outcome
of this litigation, after consideration of any reserves established, ranges from
a before-tax gain of $9,900,000 to a before-tax loss of $7,000,000 at December
31, 1997. Although no assurances can be given, CLC believes, based on its
experience to date, advice from outside legal counsel, and after considering
appropriate reserves that have been established (see Note 2A), that the ultimate
resolution of such items, will not have a materially adverse impact on CLC's
financial position or its results of operations.
9. MAJOR CUSTOMERS
Texas Utilities Electric Company ("TUEC") electricity purchases from Cogenron
accounted for 89% and 88% of Cogenron's operating revenue for the years ended
December 31, 1997 and 1996, respectively. Electricity sales to UCC accounted for
1.0% and 2.0% of operating revenue for the years ended December 31, 1997 and
1996, respectively. The remaining 10.0% of operating revenue for 1997 and 1996
was derived from steam sales to UCC.
The rates that TUEC is obligated to pay Cogenron for electricity produced may be
reduced in the event that the TPUC disallows the pass-through of such rates to
TUEC's ratepayers. Management believes that such pass-through disallowance of
rates by the TPUC is unlikely because of regulations under which payments to
Cogenron are considered necessary and reasonable expenses of TUEC. Pursuant to
the contract for the sale of electricity, TUEC has the option, should the
contract be prematurely terminated, to lease the project from Cogenron for a
nominal rental. Management believes the risk of termination is minimal. Although
these contracts expire prior to the expected useful life of the facility,
management believes they will be able to replace or extend such contracts to
allow for full recovery of the Project and any removal costs.
CLC received approximately 53% and 46% of its electricity revenue from TNP for
the years ended December 31, 1997 and 1996, respectively. An additional 37% and
44% of electricity revenue was from Houston Lighting and Power Company ("HL&P")
and 10% and 10% from Hoechst Celanese ("Celanese") for the years ended December
31, 1997 and 1996, respectively. All energy sales are governed by an Operating
Agreement between HL&P and CLC which coordinates the operation of the CLC
facility with HL&P's overall system operations. Celanese is the sole steam
customer.
Pursuant to a letter agreement dated August 31, 1992, between Clear Lake and
TNP, which expires August 30, 2004, TNP has a right to purchase up to 250
megawatts through the expiration of the agreement. The annual monthly average
minimum capacity is to be 200 megawatts through the expiration of the agreement.
The price that TNP pays for the power is based upon TNP's actual avoided cost.
HL&P purchases nonfirm electricity from Clear Lake in accordance with rules
established by the TPUC. Under a contract effective September 1, 1995, HL&P must
purchase 50 megawatts of firm electricity and capacity. This contract expires
March 31, 2005. CLC maintains an irrevocable letter of credit in the amount of
$12,000,000 in favor of HL&P as security for CLC's performance under the
contract.
Pursuant to an electricity sales contract dated September 1, 1994, Celanese is
purchasing firm electricity and capacity in the amount of 35 megawatts through
August 31, 2004. Celanese also purchases nonfirm electricity in
16
<PAGE>
accordance with the rules established by the TPUC. Pursuant to a letter
agreement dated December 6, 1993 between CLC and Celanese, Celanese has the
right to purchase up to 900,000 pounds of steam per hour. This agreement extends
through June 30, 2004.
CLC has granted first and second rights of refusal to Celanese and HL&P,
respectively, if at any time CLC wishes to lease, sell or transfer its interest
in the facility. Although these Clear Lake contracts terminate prior to the
expected useful life of the facility, management believes that, given the design
of the facility and success record of the technology, the Company will be able
to replace or extend such contracts for the sale of steam and power to allow for
the full recovery of the facility and any removal costs.
CLC's power contracts with TNP and HL&P and Cogenron's contract with TUEC
provide for sales of energy from the projects at prices based on the utilities'
avoided cost. Federal and state initiatives to promote open competition in the
electric utility industry may result in reductions of HL&P's avoided cost and,
as a result, there is a possibility that the revenues CLC and Cogenron would
receive under these power contracts would also be reduced. These initiatives are
generally not yet effective and will be the subject of considerable debate and
modification.
The rates that TNP and HL&P are obligated to pay CLC for electricity produced
may be reduced in the event that the TPUC disallows the pass-through of such
rates to the utilities' ratepayers. Management believes that such pass-through
disallowance of rates by the TPUC is unlikely because of regulations under which
payments to CLC are considered necessary and reasonable expenses of the
utilities.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, and accounts payable - The
carrying amounts of these items are a reasonable estimate of their fair values.
Long-term debt - Interest rates that are currently available to TCC for issuance
of debt with similar terms and remaining maturities are used to estimate fair
value for debt issues that are not quoted on an exchange. It was determined that
the interest rates currently available are the same as those recently in effect
on the Company's debt, excluding the interest rate swap agreements, and thus the
carrying amount of the debt is a reasonable estimate of its fair value.
Interest rate swap agreements - The interest rate swap agreements are valued at
an estimated unrealized net loss of $3,169,523, which represents amounts at
which they could be settled, based on estimates obtained from dealers.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
17
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 31, 1997
----------------------------------------------------------------------------------------
Pro Forma
Adjustments Adjustments Before the Texas
for the for the Texas City/ City/Clear
Bethpage Sale of Clear Lake Lake
Actual Transaction the Notes Acquisition Acquisition Pro Forma
----------- ---------- ----------- ----------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,513 $ (2,531) (1) $ 152,716 (5) $ 198,698 $ (131,132) (10) $ 67,566
Accounts receivable from related 7,672 -- -- 7,672 -- 7,672
parties
Accounts receivable 35,133 3,446 -- 38,579 38,562 77,141
Collateral securities, current 6,036 -- -- 6,036 -- 6,036
portion
Loans receivable from related 30,507 -- -- 30,507 (30,507) (11) --
parties, current portion
Prepaid operating lease 13,652 -- -- 13,652 -- 13,652
Other current assets 25,065 3,995 -- 29,060 3,203 32,263
----------- ---------- ---------- ----------- ---------- ----------
Total current assets 166,578 4,910 152,716 324,204 (119,874) 204,330
Property, plant and equipment, net 719,721 39,685 -- 759,406 383,476 1,142,882
Investments in power projects 239,160 (4,438) (2) -- 234,722 (72,189) (12) 162,533
Project development costs 4,614 -- -- 4,614 -- 4,614
Collateral securities, net of 87,134 -- -- 87,134 -- 87,134
current portion
Notes and loans receivable from 117,357 -- -- 117,357 (101,304) (13) 16,053
related parties
Restricted cash 15,584 -- -- 15,584 -- 15,584
Other assets 30,808 789 6,088 (6) 37,685 -- 37,685
----------- ---------- ---------- ----------- ---------- ----------
Total assets $ 1,380,956 $ 40,946 $ 158,804 $ 1,580,706 $ 90,109 $1,670,815
=========== ========== ========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of non-recourse $ 112,966 $ 4,703 (3) $ (108,109) (7) $ 9,560 $ -- $ 9,560
project financing
Accounts payable 30,441 2,963 -- 33,404 23,245 56,649
Accrued payroll and related 4,950 -- -- 4,950 -- 4,950
expenses
Accrued interest payable 18,025 272 -- 18,297 -- 18,297
Other current liabilities 12,204 332 -- 12,536 18,871 31,407
----------- ---------- ---------- ----------- ---------- ----------
Total current liabilities 178,586 8,270 (108,109) 78,747 42,116 120,863
Non-recourse project financing, net 182,893 32,676 (4) (32,676) (8) 182,893 -- 182,893
of current portion
Senior Notes 560,041 -- 299,589 (9) 859,630 -- 859,630
Deferred income taxes, net 142,050 -- -- 142,050 24,933 166,983
Deferred lease incentive 71,383 -- -- 71,383 -- 71,383
Other liabilities 6,047 - 6,047 23,060 29,107
----------- ---------- ---------- ----------- ---------- ----------
Total liabilities 1,141,000 40,946 158,804 1,340,750 90,109 1,430,859
----------- ---------- ---------- ----------- ---------- ----------
Stockholders' equity:
Common stock 20 -- -- 20 -- 20
Additional paid-in capital 167,542 -- -- 167,542 -- 167,542
Retained earnings 72,394 72,394 72,394
----------- ---------- ---------- ----------- ---------- ----------
Total stockholders' equity 239,956 -- -- 239,956 -- 239,956
----------- ---------- ---------- ----------- ---------- ----------
Total liabilities and $ 1,380,956 $ 40,946 $ 158,804 $ 1,580,706 $ 90,109 $1,670,815
stockholders' equity =========== ========== ========== =========== ========== ==========
</TABLE>
Notes to Pro Forma Consolidated Balance Sheet
(1) Represents the cash required to fund a portion of the acquisition of the
Bethpage Power Plant.
(2) The 45% ownership interest in the Bethpage Power Plant accounted for under
the equity method of accounting.
(3) Reflects the current portion of non-recourse project financing assumed by
the Company in connection with the acquisition of the Bethpage Power Plant.
(4) Reflects the long-term portion of non-recourse project financing assumed by
the Company in connection with the acquisition of the Bethpage Power Plant.
(5) Reflects the cash balance after the application of the net proceeds from
the sale of the 7-7/8% Senior Notes Due 2008 ("the Offering").
(6) Represents the estimated transaction costs associated with the Offering
that are capitalized and will be amortized over the ten-year life of the
notes.
(7) Represents the non-recourse project financing associated with the
acquisition of the Texas City and Clear Lake Power Plants and the current
portion of the non-recourse project financing associated with the
acquisition of the Bethpage Power Plant that the Company repaid in full
with a portion of the net proceeds from the Offering.
(8) Represents the long-term portion of the non-recourse project financing
associated with the acquisition of the Bethpage Power Plant that the
Company repaid in full with a portion of the net proceeds from the
Offering.
(9) Reflects the notes issued in the Offering, less the original issue
discount.
(10) Represents the cash required to fund a portion of the acquisition of the
remaining interest in the Texas City and Clear Lake Power Plants, net of
cash acquired.
(11) Represents the elimination of the current portion of the notes receivable
from the Texas City and Clear Lake Power Plants.
(12) Represents the 50% ownership interest in the Texas City and Clear Lake
Power Plants accounted for under the equity method of accounting.
(13) Represents the long-term portion of the notes receivable from the Texas
City and Clear Lake Power Plants.
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<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
--------------------------------------------------------------------------------
Pro Forma
Before Texas Texas City
Adjustments Adjustments City/Clear / Clear
for the for the sale Lake Lake Pro Forma
Actual Transactions(1)of the Notes Acquisition Acquisition(3) Combined
--------- --------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Electricity and steam sales $ 237,277 $ 34,753 $ -- $ 272,030 $ 293,515 $ 565,545
Service contract revenue from related parties 10,177 13,880 -- 24,057 (7,411) 16,646
Income (loss) from unconsolidated 15,819 6,876 -- 22,695 (8,039) 14,656
investments in power projects
Interest income on loans to power projects 13,048 6,424 -- 19,472 (12,559) 6,913
--------- --------- --------- --------- ---------- ---------
Total revenue 276,321 61,933 -- 338,254 265,506 603,760
--------- --------- --------- --------- --------- ---------
Cost of revenue:
Plant operating expenses 72,366 33,035 -- 105,401 197,924 303,325
Depreciation 47,501 3,168 -- 50,669 33,334 84,003
Production royalties 10,803 -- -- 10,803 -- 10,803
Operating lease expenses 14,031 -- -- 14,031 -- 14,031
Service contract expenses 8,607 3,879 -- 12,486 (6,094) 6,392
--------- --------- --------- --------- ---------- ---------
Total cost of revenue 153,308 40,082 -- 193,390 225,164 418,554
--------- --------- --------- --------- --------- ---------
Gross profit 123,013 21,851 -- 144,864 40,342 185,206
Project development expenses 7,537 -- -- 7,537 -- 7,537
General and administrative expenses 18,289 9 -- 18,298 (91) 18,207
--------- --------- --------- --------- ---------- ---------
Income from operations 97,187 21,842 -- 119,029 40,433 159,462
Interest expense 61,466 11,038 15,942 (2) 88,446 (5,380) 83,066
Other income, net (17,438) (274) -- (17,712) (1,423) (19,135)
--------- --------- --------- --------- --------- ---------
` Income before provision for income 53,159 11,078 (15,942) 48,295 47,236 95,531
taxes
Provision for income taxes 18,460 4,187 (6,496) 16,151 17,916 34,067
--------- --------- ---------- --------- --------- ---------
Net income $ 34,699 $ 6,891 $ (9,446) $ 32,144 $ 29,320 $ 61,464
========= ========= ========== ========= ========= =========
Basic earnings per common share:
Weighted average shares of common stock 19,946 19,946
outstanding
Basic earnings per common share $ 1.74 $ 3.08
Diluted earnings per common share:
Weighted average shares of common stock 21,016 21,016
outstanding
Diluted earnings per common share $ 1.65 $ 2.92
</TABLE>
Notes to Pro Forma Consolidated Statements of Operations
(1) Represents the pro forma results of operations which give effect to the
following transactions as if such transactions had been completed on
January 1, 1997: (i) the Montis Niger Gas Fields on January 30, 1997 (ii)
the acquisition by the Company of a 50% interest in the Texas City Power
Plant and the Clear Lake Power Plant on June 23, 1997; (iii) the
acquisition by the Company of 50% interests in the Gordonsville Power Plant
and the Auburndale Power Plant on October 9, 1997; (iv) the sale of the
$200,000,000 of 8-3/4% Senior Notes Due 2007 on July 8, 1997, and the
application of the proceeds therefrom; (v) the sale of $75,000,000 of 8
3/4% Senior Notes Due 2007 on September 10, 1997, and the application of
the proceeds therefrom; (vi) the acquisition by the Company of an 11.36%
interest in the Lockport Power Plant, 50% interests in the Kennedy
International Airport and Stony Brook Power Plants, a 45% interest in the
Bethpage Power Plant and a 100% interest in three fuel management contracts
on December 19, 1997 (collectively referred to as the "Transactions"); and
(vii) the acquisition of the remaining 55% interest in the Bethpage Power
Plant on February 5, 1998.
(2) Reflects $23.6 million of interest expense related to the sale of the
7-7/8% Senior Notes Due 2008, $650,000 of amortization expense for the
transaction costs and original issue discount, reduced by $3.0 million of
interest expense as a result of the repayment, with a portion of the net
proceeds of the Offering, of the $37.4 million non-recourse project
financing related to the Bethpage Power Plant and $5.4 million of interest
expense as a result of the repayment, with a portion of the net proceeds of
the Offering, of the $103.4 million of non-recourse project financing
related to the Texas City and Clear Lake Power Plants.
(3) Represents the pro forma results of operations for the remaining 50%
acquisition by the Company of the Texas City Power Plant and the Clear Lake
Power Plant as if the transaction occurred on January 1, 1997 and the
related accounting as a consolidated investment. The acquisition was
completed on March 31, 1998.
19
