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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
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NORTH CAROLINA 56-1853081
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
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9405 ARROWPOINT BOULEVARD, CHARLOTTE, NORTH CAROLINA 28273-8110
(Address of principal executive offices) (Zipcode)
(704) 525-3800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. [X] Yes [ ] No
On November 14, 2000, there were 282,000 shares of common stock, no par value,
issued and outstanding.
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COGENTRIX ENERGY, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements:
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the Three Months and Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 17
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(dollars in thousands)
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SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 166,105 $ 80,344
Restricted cash 76,916 81,647
Accounts receivable 67,343 59,360
Inventories 22,107 20,137
Other current assets 2,825 2,252
----------- -----------
Total current assets 335,296 243,740
NET INVESTMENT IN LEASES 499,883 500,195
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $294,628 and $262,963, respectively 745,516 437,483
LAND AND IMPROVEMENTS 5,720 5,764
CONSTRUCTION IN PROGRESS 351,878 350,243
DEFERRED FINANCING COSTS, net of accumulated
amortization of $25,972 and $23,950, respectively 66,835 51,315
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 338,496 325,504
PROJECT DEVELOPMENT COSTS 5,462 7,124
NOTES RECEIVABLE 12,400 19,502
OTHER ASSETS 53,956 57,516
----------- -----------
$ 2,415,442 $ 1,998,386
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 84,363 $ 90,114
Accounts payable 41,292 37,588
Accrued compensation 6,355 8,415
Accrued interest payable 27,259 25,708
Accrued dividends payable -- 8,683
Other accrued liabilities 17,489 15,621
----------- -----------
Total current liabilities 176,758 186,129
LONG-TERM DEBT 1,872,306 1,518,773
DEFERRED INCOME TAXES 95,853 72,980
MINORITY INTERESTS 71,046 69,608
OTHER LONG-TERM LIABILITIES 29,290 29,445
----------- -----------
2,245,253 1,876,935
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 130
Accumulated other comprehensive loss (1,124) (1,144)
Accumulated earnings 171,183 122,465
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170,189 121,451
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$ 2,415,442 $ 1,998,386
=========== ===========
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The accompanying notes to consolidated condensed financial statements are an
integral part of these consolidated balance sheets.
3
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(dollars in thousands, except share and earnings per common share amounts)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2000 1999 2000 1999
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OPERATING REVENUE:
Electric $ 95,725 $ 88,405 $ 255,693 $ 233,771
Steam 6,226 5,869 20,715 18,780
Lease 11,188 11,178 33,573 33,509
Service 14,156 12,089 40,757 34,983
Income from unconsolidated investments in power projects,
net of premium amortization 8,338 5,570 34,905 16,302
Other 18,432 4,359 26,259 12,462
--------- --------- --------- ---------
154,065 127,470 411,902 349,807
--------- --------- --------- ---------
OPERATING EXPENSES:
Fuel 29,290 26,596 83,036 63,710
Operations and maintenance 24,095 17,156 60,223 51,375
Cost of services 14,085 11,876 42,284 36,405
General, administrative and development 9,374 8,214 29,178 29,044
Depreciation and amortization 14,150 10,863 36,118 32,639
--------- --------- --------- ---------
90,994 74,705 250,839 213,173
--------- --------- --------- ---------
OPERATING INCOME 63,071 52,765 161,063 136,634
OTHER INCOME (EXPENSE):
Interest expense (27,126) (24,158) (74,048) (71,465)
Investment and other, net (3,171) 1,827 1,029 4,741
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME
AND PROVISION FOR INCOME TAXES 32,774 30,434 88,044 69,910
MINORITY INTERESTS IN INCOME (2,225) (4,393) (8,050) (10,875)
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 30,549 26,041 79,994 59,035
PROVISION FOR INCOME TAXES (12,110) (9,949) (31,276) (23,208)
--------- --------- --------- ---------
NET INCOME $ 18,439 $ 16,092 $ 48,718 $ 35,827
========= ========= ========= =========
EARNINGS PER COMMON SHARE $ 65.39 $ 57.06 $ 172.76 $ 127.05
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 282,000 282,000 282,000 282,000
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
4
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
(dollars in thousands)
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NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,718 $ 35,827
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization 36,118 32,639
Deferred income taxes 22,859 6,234
Impairment of note receivable 6,102 --
Minority interests in income, net of dividends 1,417 7,345
Equity in net income from unconsolidated power projects (32,721) (15,911)
Dividends received from unconsolidated power projects 21,398 16,784
Minimum lease payments received 33,885 32,337
Amortization of unearned lease income (33,573) (33,509)
Increase in accounts receivable (7,983) (4,284)
Increase in inventories (1,970) (474)
Increase in accounts payable 3,704 4,815
Increase in accrued liabilities 1,359 16,068
Increase (decrease) in other 4,802 (17,197)
--------- ---------
Net cash flows provided by operating activities 104,115 80,674
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment additions, net (1,550) (1,538)
Investments in unconsolidated affiliates (1,669) (76,498)
Construction in progress, project development costs and turbines (334,342) --
Increase (decrease) in restricted cash 4,731 (12,623)
--------- ---------
Net cash flows used in investing activities (332,830) (90,659)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (8,683) (7,398)
Proceeds from issuance of long-term debt 458,088 86,280
Repayments of long-term debt (110,928) (69,768)
Increase in deferred financing costs (25,001) (774)
Decrease in note receivable 1,000 --
--------- ---------
Net cash flows provided by financing activities 314,476 8,340
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 85,761 (1,645)
CASH AND CASH EQUIVALENTS, beginning of period 80,344 48,207
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 166,105 $ 46,562
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
ACTIVITIES:
Transfer of construction in progress to property, plant and
equipment with commencement of commercial
operations $ 338,914 $ --
Amortization of deferred financing costs included in construction
in progress 2,914 --
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The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
5
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COGENTRIX ENERGY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include
the accounts of Cogentrix Energy, Inc. ("Cogentrix Energy") and its
subsidiary companies (collectively, the "Company"). Wholly-owned and
majority-owned subsidiaries, including a 50%-owned joint venture in which
the Company has effective control through majority representation on the
board of directors of the managing general partner, are consolidated.
Less-than-majority-owned subsidiaries are accounted for using the equity
method. Investments in unconsolidated affiliates in which the Company has
less than a 20% interest and does not exercise significant influence over
operating and financial policies are accounted for under the cost method.
All material intercompany transactions and balances among Cogentrix Energy,
its subsidiary companies and its consolidated joint ventures have been
eliminated in the accompanying consolidated condensed financial statements.
Information presented as of September 30, 2000 and for the three months
and nine months ended September 30, 2000 and 1999 is unaudited. In the
opinion of management, however, such information reflects all adjustments,
which consist of normal recurring adjustments necessary to present fairly
the financial position of the Company as of September 30, 2000, and the
results of operations for the three months and nine months ended September
30, 2000 and 1999 and cash flows for the nine months ended September 30,
2000 and 1999. The results of operations for these interim periods are not
necessarily indicative of results which may be expected for any other
interim period or for the fiscal year as a whole.
The accompanying unaudited consolidated condensed financial statements
have been prepared pursuant to the rules and regulations of the United
States Securities and Exchange Commission (the "Commission"). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although management believes that the disclosures made are
adequate to make the information presented not misleading. It is suggested
that these unaudited consolidated condensed financial statements be read in
conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's most recent report on Form 10-K for
the year ended December 31, 1999, which the Company filed with the
Commission on March 30, 2000.
2. FACILITIES UNDER CONSTRUCTION
Sterlington, Louisiana
On August 17, 2000, Ouachita Power LLC ("Ouachita"), an indirect,
wholly-owned subsidiary of the Company, entered into a credit agreement
with a bank, as agent for several banks and other financial institutions,
which provides up to $460.0 million in borrowings, a credit support letter
of credit in the maximum amount of $30.0 million, and a $10.0 million debt
service reserve letter of credit. The proceeds of the borrowings will be
used to construct an approximate 816 megawatt combined cycle, natural
gas-fired, electric generating facility located near the city of
Sterlington, Louisiana. The Company has committed to provide an equity
contribution to the project subsidiary of approximately $61.6 million upon
the earliest to occur of (a) an event of default under the Ouachita credit
agreements, (b) the incurrence of construction costs after all project
financing has been expended, or (c) June 1, 2002. The equity contribution
commitment is supported by a letter of credit, which is provided under
Cogentrix Energy's corporate credit facility. The Company expects the
Ouachita facility, which the Company will operate, to begin operations in
mid-2002. Electricity generated by the Ouachita facility will be sold under
a 15-year power purchase agreement with Dynegy Power Marketing, Inc.
("Dynegy"). An affiliate of Dynegy will supply fuel to the Ouachita
facility.
The borrowings under the credit agreement accrue interest per annum at
an annual rate equal to the applicable LIBOR rate plus 1.25% during the
construction period. The construction loans convert to term loans
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on the earliest to occur of (a) the commencement of commercial operations,
or (b) June 1, 2002. The term loans accrue interest per annum at an annual
rate equal to the applicable LIBOR rate plus 1.30% to 1.63%. The term loans
mature 5 years after the commencement of commercial operations.
Dominican Republic
On April 18, 2000, La Compania de Electricidad de San Pedro de Macoris
("Macoris") entered into credit facilities with a group of lending banks
and financial institutions which provide up to $232.5 million which will be
used to construct an approximate 300 megawatt oil-fired, combined-cycle
electric generating facility located in the province of San Pedro de
Macoris, Dominican Republic. Macoris is owned 65% by a wholly-owned project
subsidiary of the Company, and 35% by Commonwealth Development Corporation
of Great Britain. The Company has committed to provide an equity
contribution to the project subsidiary of approximately $50.3 million upon
the earliest to occur of (a) an event of default under the Macoris credit
facility, (b) completion of construction of the Dominican Republic
facility, or (c) February 2003. This equity contribution is supported by a
letter of credit, which is provided under Cogentrix Energy's corporate
credit facility. The Company expects the Dominican Republic facility, which
the Company will operate, to commence commercial operations in early 2002.
Electricity generated by the Dominican Republic facility will be sold under
a 20-year power purchase agreement with Corporacion Dominicana de
Electricidad ("CDE"). Macoris has entered into an agreement with the
government of the Dominican Republic which provides for government
assistance and assurances related to, among other things, the obtaining of
certain rights, licenses and permits, seaward access, importation of fuel
and equipment, foreign currency exchange and transfer of funds. The
government has also executed an irrevocable and unconditional guarantee for
the full and prompt payment of all of CDE's payment obligations to Macoris
under the power purchase agreement.
The Macoris loans will be provided under the following facilities: a
$72.2 million bank loan, accruing interest per annum at the applicable
LIBOR rate plus an applicable margin ranging from 1.75% to 2.75% during the
12-year loan life, $83.3 million of fixed rate loans, guaranteed by certain
export credit agencies, accruing interest per annum at fixed rates ranging
from 7.71% to 7.78% during the 14-year loan lives, a $12.0 million
unguaranteed loan accruing interest per annum at either a fixed rate or
LIBOR rate, as chosen by the Company, plus an applicable margin during the
8-year life and a $65.0 million institutional loan accruing interest at the
10-year U.S. Treasury rate plus 4.00% during the 17-year loan life.
Rathdrum, Idaho
On March 9, 2000, Rathdrum Power, LLC ("Rathdrum Power") entered into a
credit agreement with a bank, as agent for a group of lending banks, and a
financial institution which provides up to $126.0 million in borrowings and
a $5.0 million debt service reserve letter of credit. Proceeds from the
credit agreement will be used to construct an approximate 270 megawatt
combined-cycle, natural gas-fired generating facility located in Rathdrum,
Idaho. Rathdrum Power is owned 51% by a wholly-owned project subsidiary of
the Company and 49% by Avista Power, Inc. The Company has committed to
provide an equity contribution to the project subsidiary of approximately
$16.7 million upon the earliest to occur of (a) an event of default under
the Rathdrum Power credit agreement, (b) the incurrence of construction
costs after all project financing has been expended, or (c) October 1,
2002. This equity contribution commitment is supported by a letter of
credit, which is provided under Cogentrix Energy's corporate credit
facility. An indirect, wholly-owned subsidiary of Cogentrix Energy has
entered into an engineering, procurement and construction contract with
Rathdrum Power to construct the Rathdrum facility. Cogentrix Energy has
guaranteed this subsidiary's obligations under the contract. The Company
expects the Rathdrum facility, which the Company will operate, to begin
operation in late 2001. Electricity generated by the Rathdrum facility will
be sold under a 25-year power purchase agreement with Avista Turbine Power,
Inc., which will also supply fuel to the Rathdrum facility.
The credit agreement provides borrowings up to $49.0 million from the
financial institution and $77.0 million from the banks. The financial
institution loans accrue interest at 8.56% per annum and have a term equal
to the construction period plus 25 years and the bank loans accrue interest
at the applicable LIBOR rate
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plus an applicable margin ranging from 1.25% to 2.25% and will have a term
equal to the construction period plus periods up to 18 years.
3. RINGGOLD, PENNSYLVANIA FACILITY
In January 1998, the Company signed an agreement with Pennsylvania
Electric Company to terminate the Ringgold, Pennsylvania facility's power
purchase agreement. In September 2000, the Company received approximately
$18.0 million as consideration for terminating the power purchase
agreement. A portion of the proceeds was used to retire the entire amount
of the project subsidiary's outstanding debt. In conjunction with this
termination, the Company discontinued electric power production at the
facility. The Company recorded other operating income of approximately
$13.1 million, net of transaction costs, related to termination of this
power purchase agreement.
4. CORPORATE CREDIT FACILITY AMENDMENT
In September 2000, Cogentrix Energy's corporate credit facility was
amended to increase available commitments from $175.0 million to $250.0
million, to modify certain covenants and to extend the facility through
October 2003. In addition, the commitment fee will be 37.5 basis points per
annum when greater than 50% of available commitments are utilized and 50.0
basis points per annum when less than 50% of available commitments are
utilized.
5. ADDITIONAL SENIOR NOTES DUE 2008
In September 2000, Cogentrix Energy sold an additional $100.0 million
of its 8.75% unsecured senior notes due 2008 in a Rule 144A offering.
Cogentrix Energy issued these additional notes at a discount resulting in
an effective rate of approximately 8.86%. Cogentrix Energy anticipates
completing a registered exchange offer for these notes by December 8, 2000.
6. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). In June 2000,
the Commission amended SAB 101 to delay the implementation date until no
later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. SAB 101, which the Company will implement during the
fourth quarter of 2000, provides the Commission Staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The Company does not expect the adoption of SAB 101 to have a
material impact on its results of operations, financial position or cash
flows.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
No. 133 established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheets as either an asset or
liability measured at its fair value. SFAS No. 133 required that changes in
the derivative's fair value be recognized in current earnings unless
specified hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a
company must formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133" delaying the effectiveness of SFAS No. 133 to fiscal
quarters of all fiscal years beginning after June 15, 2000.
The Company will complete its assessment of adopting SFAS No. 133
during the fourth quarter of 2000. Based on its analysis to date, the
Company believes that the only instruments that will qualify for treatment
under SFAS No. 133 are the instruments the Company entered into to hedge
interest rate risk, primarily interest rate swaps and caps. The Company
does not anticipate the adoption of SFAS No. 133 to have a material impact
on the
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consolidated financial position or results of its operations. The Company
will adopt SFAS No. 133, as amended by SFAS No. 138, as of January 1, 2001.
7. CLAIMS AND LITIGATION
One of the Company's indirect, wholly-owned subsidiaries is party to
certain product liability claims related to the sale of coal combustion
by-products for use in various construction projects. Management cannot
currently estimate the range of possible loss, if any, the Company will
ultimately bear as a result of these claims. However, management believes -
based on its knowledge of the facts and legal theories applicable to these
claims and after consultations with various counsel retained to represent
these subsidiaries in their defense of such claims - that the ultimate
resolution of these claims should not have a material adverse effect on the
Company's consolidated financial position or results of operations.
In addition to the litigation described above, the Company experiences
other routine litigation in the normal course of its business. Management
is of the opinion that none of this routine litigation will have a material
adverse impact on the Company's consolidated financial position or results
of operations.
8. RECLASSIFICATIONS
Certain amounts included in the accompanying consolidated financial
statements for prior periods have been reclassified from their original
presentation to conform with the presentation as of and for the periods
ended September 30, 2000.
9
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
The information called for by this item is hereby incorporated herein
by reference to pages 3 through 9 of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to discussing and analyzing our recent historical financial
results and condition, the following "Management's Discussion and Analysis of
Financial Condition and Results of Operations" includes statements concerning
certain trends and other forward-looking information affecting or relating to us
which are intended to qualify for the protections afforded "Forward-Looking
Statements" under the Private Securities Litigation Reform Act of 1995, Public
Law 104-67. The forward-looking statements made herein are inherently subject to
risks and uncertainties which could cause our actual results to differ
materially from the forward-looking statements.
GENERAL
Cogentrix Energy, Inc. is an independent power producer that, through
its direct and indirect subsidiaries, acquires, develops, owns and operates
electric generating plants, principally in the United States. We derive most of
our revenue from the sale of electricity, but we also produce and sell steam. We
sell the electricity we generate, primarily under long-term power purchase
agreements, to regulated electric utilities and power marketers. We sell the
steam we produce to industrial customers with manufacturing or other facilities
located near our electric generating plants. We were one of the early
participants in the market for electric power generated by independent power
producers that developed as a result of energy legislation the United States
Congress enacted in 1978. We believe we are one of the larger independent power
producers in the United States based on our total project megawatts in
operation.
We currently own - entirely or in part - a total of 25 electric
generating plants in operation in the United States. Our 25 plants are designed
to operate at a total production capability of approximately 4,821 megawatts.
After taking into account our part interests in the 17 plants that are not
wholly-owned by us, that range from approximately 1.6% to 74.0%, our net
ownership interests in the total production capability of our 25 electric
generating plants is approximately 2,254 megawatts. We currently operate 12 of
our facilities, nine of which we developed and constructed.
We also have ownership interests in and will operate four plants
currently under construction in Louisiana, Oklahoma, Idaho and the Dominican
Republic with an aggregate production capability of approximately 2,196
megawatts. Once these plants begin operation, we will have ownership interests
in a total of 28 domestic-and one international-electric generating plants that
are designed with an aggregate production capability of approximately 7,017
megawatts. Our net equity interest in the total production capability of these
29 plants will be approximately 4,212 megawatts.
Unless the context requires otherwise, references in this report to
"we," "us," "our," or "Cogentrix" refer to Cogentrix Energy, Inc. and its
subsidiaries, including subsidiaries that hold investments in other corporations
or partnerships whose financial results are not consolidated with ours. The term
"Cogentrix Energy" refers only to Cogentrix Energy, Inc., which is a development
and management company that conducts its business primarily through
subsidiaries. Cogentrix Energy's subsidiaries that are engaged in the
development, ownership or operation of electric generating facilities are
sometimes referred to individually as a "project subsidiary" and collectively as
Cogentrix Energy's "project subsidiaries." The unconsolidated affiliates of
Cogentrix Energy that are engaged in the ownership and operation of electric
generating facilities and in which we have less than a majority interest are
sometimes referred to as a "project affiliate" or collectively as "project
affiliates."
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RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
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THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
--------------------- --------------------- -------------------- ---------------------
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Total operating revenues $154,065 100% $127,470 100% $411,902 100% $349,807 100%
Operating costs 67,470 44 55,628 44 185,543 45 151,490 43
General, administrative
and development 9,374 6 8,214 6 29,178 7 29,044 8
Depreciation and amortization 14,150 9 10,863 9 36,118 9 32,639 9
-------- -------- -------- --------
Operating income $ 63,071 41% $ 52,765 41% $161,063 39% $136,634 39%
======== ======== ======== ========
</TABLE>
Total operating revenues increased 20.9% to $154.1 million for the
third quarter of 2000 as compared to the third quarter of 1999. This increase
was primarily attributable to the termination of our power purchase agreement at
our Ringgold, Pennsylvania facility on which we recorded other operating income
of approximately $13.1 million net of transaction costs. In conjunction with the
termination, we have discontinued operation of the facility. The increase was
also attributable to a $7.7 million increase in electric and service revenue.
This increase is primarily due to an increase in electric revenue from our
interest in the Batesville facility, which commenced commercial operations in
August 2000, and to a lesser extent, an increase in megawatt hours sold to the
purchasing utilities at several of our other electric generating facilities. The
increase in operating revenues is also attributable to a $2.8 million increase
in income from unconsolidated investments in power projects. This increase is
attributable to an increase in megawatt hours sold to the purchasing utilities
at some of the facilities, and a reduction of major overhaul expenses at four of
the facilities. The increase in income from unconsolidated power projects is
also the result of the acquisition of an additional 20.1% interest in the
Indiantown facility in the third quarter of 1999.
The increase in total operating revenues of 17.8% to $411.9 million for
the nine-month period ended September 30, 2000, as compared to $349.8 million
for the nine-month period ended September 30, 1999, were largely influenced by
the same factors discussed above.
Our operating costs increased 21.4% to $67.5 million for the third
quarter of 2000 and 22.4% to $185.5 million for the nine-month period ended
September 30, 2000 as compared to $55.6 million and $151.5 million for the
corresponding periods during 1999. These increases were due to a $3.4 million
and $21.7 million increase in fuel expense for the third quarter of 2000 and
nine-month period ended September 30, 2000, respectively, as a result of an
increase in megawatt hours sold to the purchasing utilities at several of our
electric generating plants. Operating costs were also impacted by the increase
in operations and maintenance expense as a result of the commencement of
commercial operations at the Batesville facility in August 2000. The increase in
depreciation and amortization expense during the three-month and nine-month
periods ended September 30, 2000, resulted primarily from the commencement of
commercial operations of the Batesville facility.
General, administrative and development expense increased 14.6% to $9.4
million for the third quarter of 2000 as compared to $8.2 million for the third
quarter of 1999. The increase resulted primarily from an increase in
compensation expense related to an increase in the number of corporate employees
and an increase in incentive compensation expense related to our increased
profitability. The increase in general, administrative and development expense
was partially offset by the capitalization of certain corporate development
costs related to projects under active development and construction.
General, administrative and development expense increased 0.1% to $29.2
million for the nine-month period ended September 30, 2000 as compared the
corresponding period of 1999. The increase resulted primarily from the factors
discussed above: an increase in compensation expenses offset by the
capitalization of certain corporate development costs.
Interest expense increased 3.5% to $74.0 million for the nine months
ended September 30, 2000 as compared to the corresponding period of 1999. The
increase is primarily a result of incremental interest expense
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from the inclusion of $337.5 million of long-term debt from the Batesville
facility which began commercial operations in August 2000 and the additional
borrowings of approximately $25.2 million at our Richmond facility in June 2000.
These increases are offset by a reduction in interest expense at several of our
project subsidiaries due to scheduled repayments on outstanding project
financing debt. Our average long-term debt for the nine months ended September
30, 2000 increased to $1.8 billion, as compared to average long-term debt of
$1.2 billion for the nine months ended September 30, 1999. The increase in
average long-term debt is primarily the result of the inclusion of the
additional Batesville and Richmond facilities project debt and additional
borrowings incurred during the nine months ended September 30, 2000 for projects
under construction in Idaho, Oklahoma, Louisiana and the Dominican Republic.
Interest incurred on these construction borrowings is capitalized during the
construction phase.
Investment and other, net, decreased approximately $5.0 million for the
three-month period ended September 30, 2000 as a result of a charge to reduce
the carrying value of a note receivable to its estimated net realizable value,
as a result of uncertainties with respect to collectibility.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed each facility primarily under financing
arrangements and related documents, which generally require the extensions of
credit to be repaid solely from the project's revenues and provide that the
repayment of the extensions of credit (and interest thereon) is secured solely
by the physical assets, agreements, cash flow and, in certain cases, the capital
stock of or the partnership interest in that project subsidiary. This type of
financing is generally referred to as "project financing". The project financing
debt of our subsidiaries and joint ventures (aggregating $1.5 billion as of
September 30, 2000) is non-recourse to Cogentrix Energy and our other project
subsidiaries, except in connection with certain transactions where Cogentrix
Energy has agreed to certain limited guarantees and other obligations with
respect to such projects.
As of September 30, 2000, we had long-term debt (including the current
portion thereof) of approximately $2.0 billion. Future annual maturities of
long-term debt range from $54.8 million to $144.9 million in the five-year
period ending December 31, 2004. We believe that our project subsidiaries and
project affiliates will generate sufficient cash flow to pay all required debt
service on their project financing debt and allow them to pay management fees
and dividends or distributions to Cogentrix Energy periodically in sufficient
amounts to allow Cogentrix Energy to pay all required debt service, fund a
significant portion of its development activities and meet its other
obligations.
The ability of our project subsidiaries and project affiliates to pay
dividends, distributions and management fees periodically to Cogentrix Energy is
subject to certain limitations in our respective financing documents. Such
limitations generally require that: (a) debt service payments be current, (b)
debt service coverage ratios be met, (c) all debt service and other reserve
accounts be funded at required levels and (d) there be no default or event of
default under the relevant financing documents. There are also additional
limitations that are adapted to the particular characteristics of each
subsidiary and project affiliate. Management does not believe that such
restrictions or limitations will adversely affect Cogentrix Energy's ability to
meet its debt obligations.
In September 2000, we sold an additional $100.0 million of our 8.75%
unsecured senior notes due 2008. We issued these notes at a discount resulting
in an effective rate of approximately 8.86%. The proceeds received, net of
transaction costs, from the sale of these notes were approximately $97.6
million. A portion of the net proceeds was utilized to prepay in full
approximately $37.1 million of project subsidiary debt at our Roxboro and
Southport, North Carolina facilities.
In September 2000, we amended our unsecured corporate credit facility
to increase available commitments from $175.0 million to $250.0 million, to
modify certain covenants and to extend the final maturity through October 2003.
The corporate credit facility provides direct advances to, or the issuance of
letters of credit for, our benefit in the amount up to $250.0 million. At
September 30, 2000, we had utilized approximately $183.4 million of the credit
available primarily for letters of credit issued in connection with projects we
had under construction in Louisiana, Idaho, Oklahoma and the Dominican Republic.
The balance of the commitments under the corporate credit facility is available,
subject to any limitations imposed by the covenants contained therein and in the
indentures, to be drawn upon by us to repay other outstanding indebtedness or
for general corporate purposes,
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including equity investments in new projects or acquisitions of existing
electric generating facilities or those under development.
Two of our wholly-owned subsidiaries, Cogentrix Eastern America, Inc.
and Cogentrix Mid-America, Inc. ("Mid-America"), formed to hold interests in
electric generating facilities acquired in 1999 and 1998, maintain credit
agreements with banks that provide for $67.5 million and $25.0 million of
revolving credit, respectively. Both credit facilities provide for credit in the
form of direct advances and the Mid-America facility provides issuances of
letters of credit. Including the credit facilities described above, and the
revolving credit facility at one of our project subsidiaries, we maintain
revolving credit, which is non-recourse to Cogentrix Energy, Inc., with
aggregate commitments of $136.0 million. As of September 30, 2000, we had
approximately $34.2 million available under these facilities. The aggregate
commitments on these facilities decrease to $105.4 million as of December 31,
2001, and to $25.0 million as of December 31, 2002, 2003, and 2004.
On August 17, 2000, we entered into a credit agreement with a bank, as
agent for several banks and other financial institutions, that provides up to
$460.0 million in borrowings, a credit support letter of credit in the maximum
amount of $30.0 million, and a $10.0 million debt service reserve letter of
credit that will be used to construct an approximate 816 megawatt,
combined-cycle, natural gas-fired electric generating facility located near the
city of Sterlington, Louisiana. We have committed to provide an equity
contribution to the project subsidiary of approximately $61.6 million upon the
earliest to occur of (1) an event of default under the project financing
agreements, (2) the incurrence of construction costs after all project financing
has been expended, or (3) June 1, 2002. Our equity contribution commitment is
supported by a letter of credit that is provided under our corporate credit
facility. We expect the facility, that we will operate, to begin operations in
mid-2002.
On April 18, 2000, a partnership, in which we own a 65% interest,
closed credit facilities with a group of lending banks and financial
institutions that will provide up to $232.5 million in construction loans to be
used to construct an approximate 300 megawatt, combined-cycle, oil-fired
electric generating facility in the Dominican Republic. We have committed to
provide an equity contribution to the project subsidiary of approximately $50.3
million upon the earliest to occur of (a) an event of default under the project
subsidiary's financing agreement, (b) completion of construction of the
facility, or (c) February 2003. Our equity commitment is supported by a letter
of credit, that is provided under our corporate credit facility. We expect the
Dominican Republic facility, that we will operate, to begin commercial
operations in early 2002.
On March 9, 2000, a partnership, in which we own a 51% interest, closed
a credit agreement with a bank and a financial institution which provides for a
$126.0 million construction loan and a $5.0 million debt service reserve letter
of credit. Proceeds from the construction loan are being used to construct an
approximate 270-megawatt combined-cycle natural gas-fired generating facility
located in Rathdrum, Idaho. We have committed to provide an equity contribution
to the project subsidiary of approximately $16.7 million upon the earliest to
occur of (a) an event of default under the project subsidiary's financing
agreement, (b) the incurrence of construction costs after all project financing
has been expended, or (c) October 1, 2002. This equity contribution commitment
is supported by a letter of credit, that is provided under our corporate credit
facility. An indirect, wholly-owned subsidiary of Cogentrix Energy has entered
into an engineering, procurement and construction contract with the partnership
to construct the Rathdrum facility. Cogentrix Energy has guaranteed this
subsidiary's obligations under the contract. We expect the Rathdrum facility,
that we will operate, to begin operation in late 2001.
Any project we develop in the future, and those electric generating
facilities we may seek to acquire, are likely to require substantial capital
investment. Our ability to arrange financing on a non-recourse basis and the
cost of such capital are dependent on numerous factors. In order to access
capital on a non-recourse basis in the future, we may have to make larger equity
investments in, or provide more financial support for, the project entity.
We currently have commitments with a turbine supplier to purchase a
specified number of turbines with specified delivery dates. We have made
approximately $39.9 million in non-refundable deposits related to these
commitments. We expect to make additional progress payments of $20.2 million
which would be repaid or funded from proceeds of project financings we
anticipate closing.
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IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
Energy prices are influenced by changes in supply and demand, as well
as general economic conditions, and therefore tend to fluctuate significantly.
We protect against the risk of changes in the market price for electricity by
entering into contracts with fuel suppliers, utilities or power marketers that
reduce or eliminate our exposure to this risk by establishing future prices and
quantities for the electricity produced independent of the short-term market.
Through various hedging mechanisms, we have attempted to mitigate the impact of
changes on the results of operations of most of our projects. The hedging
mechanism against increased fuel and transportation costs for most of our
currently operating facilities is to provide contractually for matching
increases in the energy payments our project subsidiaries receive from the
utility purchasing the electricity generated by the facility.
Under the power sales agreements for certain of our facilities, energy
payments are indexed, subject to certain caps, to reflect the purchasing
utility's solid fuel cost of producing electricity or provide periodic,
scheduled increases in energy prices that are designed to match periodic,
scheduled increases in fuel and transportation costs that are included in the
fuel supply and transportation contracts for the facilities.
For our Batesville facility -- and most of our facilities currently
under construction -- we have tolling arrangements in place to minimize the
impact of fluctuating fuel prices. Under these tolling arrangements, each
customer is typically obligated to supply and pay for fuel necessary to generate
the electrical output expected to be dispatched by the customer.
Changes in interest rates could have a significant impact on our
results of operations because they affect the cost of capital needed to
construct projects as well as interest expense of existing project financing
debt. As with fuel price escalation risk, we attempt to hedge against the risk
of fluctuations in interest rates by arranging either fixed-rate financing or
variable-rate financing with interest rate swaps, collars or caps on a portion
of our indebtedness.
Although hedged to a significant extent, our financial results will
likely be affected to some degree by fluctuations in energy prices, interest
rates and inflation. The effectiveness of the hedging techniques we have
implemented is dependent, in part, on each counterparty's ability to perform in
accordance with the provisions of the relevant contracts. We have sought to
reduce the risk by entering into contracts with creditworthy organizations.
Other Financial Ratio Data
Set forth below are other financial data and ratios for the
twelve-month period ended September 30, 2000 (in thousands, except ratio data):
Twelve Months Ended
September 30, 2000
-------------------
Parent EBITDA $124,667
Parent Fixed Charges $33,728
Parent EBITDA / Parent Fixed Charges 3.70
Parent EBITDA represents cash flow to Cogentrix Energy prior to debt
service and income taxes of Cogentrix Energy. Parent Fixed Charges include cash
payments made by Cogentrix Energy related to outstanding indebtedness of
Cogentrix Energy and the cost of funds associated with Cogentrix Energy's
guarantees of some of its subsidiaries' indebtedness. Parent EBITDA is not
presented here as a measure of operating results. Our management believes Parent
EBITDA is a useful measure of Cogentrix Energy's ability to service debt. Parent
EBITDA should not be construed as an alternative either to (a) operating income
(determined in accordance with generally accepted accounting principles) or (b)
cash flows from operating activities (determined in accordance with generally
accepted accounting principles).
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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity
We routinely enter into derivative financial instruments and other
financial instruments to hedge our risk against interest rate fluctuations. As
of September 30, 2000, there have been no significant changes in the portfolio
of instruments as disclosed in our report on Form 10-K for the year ended
December 31, 1999 filed with the Commission on March 30, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
One of our indirect, wholly-owned subsidiaries is party to certain
product liability claims related to the sale of coal combustion by-products for
use in various construction projects. Management cannot currently estimate the
range of possible loss, if any, we will ultimately bear as a result of these
claims. However, our management believes - based on its knowledge of the facts
and legal theories applicable to these claims and after consultations with
various counsel retained to represent these subsidiaries in its defense of such
claims - that the ultimate resolution of these claims should not have a material
adverse effect on our consolidated financial position, results of operations or
on Cogentrix Energy's ability to generate sufficient cash flow to service its
outstanding debt.
In addition to the litigation described above, we experience other
routine litigation in the normal course of our business. Our management is of
the opinion that none of this routine litigation will have a material adverse
effect on our financial position or results of operation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Articles of Incorporation of Cogentrix
Energy, Inc. (3.1) (1)
3.2 Amended and Restated Bylaws of Cogentrix
Energy, Inc., as amended. (3.2)(5)
4.1 Indenture, dated as of March 15, 1994,
between Cogentrix Energy, Inc. and First
Union National Bank of North Carolina, as
Trustee, including form of 8.10% 2004 Senior
Note (4.1) (2)
4.2 Indenture, dated as of October 20, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee, including
form of 8.75% Senior Note (4.2) (3)
4.3 First Supplemental Indenture, dated as of
October 20, 1998, between Cogentrix Energy,
Inc. and First Union National Bank, as
Trustee (4.3) (3)
4.6 Amendment No. 1 to the First Supplemental
Indenture, dated as of November 25, 1998,
between Cogentrix Energy, Inc. and First
Union National Bank, as Trustee (4.6) (4)
4.7 Registration Agreement, dated as of
September 22, 2000, by and among Cogentrix
Energy, Inc., Salomon Smith Barney, Inc. and
CIBC World Markets Corp. (4.4) (6)
10.1 Third Amended and Restated Credit Agreement
among Cogentrix Energy, Inc. and the Several
Lenders from time to time parties thereto
and Australia and
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New Zealand Banking Group Limited as
Coordinating Lead Arranger, the Bank of Nova
Scotia and CitiBank, N.A., as lead
Arrangers, and Australia and New Zealand
Banking Group Limited as Agent and Issuing
Bank, dated as of September 14, 2000.
(10.46) (6)
10.2 Third Amended and Restated Guarantee, dated
as of September 14, 2000, made by Cogentrix
Delaware Holdings, Inc., the Guarantor, in
favor of the Borrower Creditors. (10.47) (6)
10.3 Fourth Amendment to the Cogentrix Energy,
Inc. Supplemental Retirement Savings Plan
10.4 Employment Agreement, dated as of August 11,
2000, between David J. Lewis and Cogentrix
Energy, Inc. (10.40) (6)
10.5 Amended and Restated Employment Agreement,
dated as of May 1, 1997 and Amended on
August 14, 2000, between Mark F. Miller and
Cogentrix Energy, Inc. (10.41) (6)
27 Financial Data Schedule, which is submitted
electronically to the U.S. Securities and
Exchange Commission for information only and
is not filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
(1) Incorporated by reference to Registration Statement on Form
S-1 (File No. 33-74254) filed January 19, 1994. The number
designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
(2) Incorporated by reference to the Form 10-K (File No. 33-74254)
filed September 28, 1994. The number designating the exhibit
on the exhibit index to such previously-filed report is
enclosed in parentheses at the end of the description of the
exhibit above.
(3) Incorporated by reference to the Registration Statement on
Form S-4 (File No. 33-67171) filed November 12, 1998. The
number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
(4) Incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-4 (File No. 33-67171) filed
January 27, 1999. The number designating the exhibit on the
exhibit index to such previously-filed report is enclosed in
parentheses at the end of the description of the exhibit
above.
(5) Incorporated by reference to the Form 10-K (File No. 33-74254)
filed March 30, 1998. The number designating the exhibit on
the exhibit index to such previously-filed report is enclosed
in parentheses at the end of the description of the exhibit
above.
(6) Incorporated by reference to the Registration Statement on
Form S-4 (File no. 33-48448) filed on October 23, 2000. The
number designating the exhibit on the exhibit index to such
previously-filed report is enclosed in parentheses at the end
of the description of the exhibit above.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGENTRIX ENERGY, INC.
(Registrant)
November 14, 2000 s/Thomas F. Schwartz
--------------------------------------------
Thomas F. Schwartz
Group Senior Vice President, and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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