<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-13264
TRIGEN ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3378939
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Water Street
White Plains, New York 10601-1009
(Address of principal executive offices) (Zip Code)
(914) 286-6600
(Registrant's telephone number, including area code)
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
There were 12,301,399 shares of the Registrant's Common Stock outstanding as of
November 12, 1998.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
Quarter Ended September 30, 1998
Part I - Financial Information: Page
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997 (Unaudited) 3
Consolidated Balance Sheets as of September 30, 1998
(Unaudited) and December 31, 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited) 5
Notes to Consolidated 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 13
Part II - Other Information: 14
Signatures: 15
Disclosure Regarding Forward-Looking Statements
This Quarterly Report includes historical information as well as statements
regarding the future expectations (referred to as "forward-looking statements")
of Trigen Energy Corporation and its wholly owned subsidiaries (collectively
"Trigen"). Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements include:
supply/demand balance for Trigen's products, competitive pricing pressures,
weather patterns, changes in industry laws and regulations, adverse judicial
determinations, competitive technology and any failure to achieve Trigen's cost
reduction targets or complete construction projects on schedule. Trigen
believes in good faith that the forward-looking statements in this Quarterly
Report have a reasonable basis, including without limitation, management's
examination of historical operating trends, data contained in the records of
Trigen and other data available from third parties, but there can be no
guarantee that the expectations described in these forward looking statements
will be fulfilled or accomplished.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1998 and 1997
Unaudited
(In thousands, except per share data)
Three Months Nine Months
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Thermal energy $35,300 $28,753 $132,578 $129,206
Electric energy 11,001 10,247 31,210 35,809
Equity in earnings/(losses)
of non-consolidated
partnerships 1,598 (456) 3,624 (1,150)
Fees earned and other
revenues 2,940 4,480 9,133 10,787
------- ------- -------- ------
Total revenues 50,839 43,024 176,545 174,652
------- ------ ------- -------
Operating expenses
Fuel and consumables 16,782 15,022 68,309 81,499
Production and operating
costs 12,032 9,767 39,170 34,840
Depreciation 4,388 3,353 14,307 11,643
General and administrative 9,311 8,363 30,529 25,400
------- ------- -------- --------
Total operating expenses 42,513 36,505 152,315 153,382
------- ------- -------- --------
Operating income 8,326 6,519 24,230 21,270
Other income (expense)
Interest expense ( 6,046) ( 4,798) (17,613)(13,924)
Other income, net 332 184 4,931 1,049
------- ------- -------- ------
Earnings before minority
interests, income taxes and
extraordinary item 2,612 1,905 11,548 8,395
Minority interests in earnings
of subsidiaries 799 1,316 2,374 2,845
------- ------- -------- ------
Earnings before income taxes and
extraordinary item 1,813 589 9,174 5,550
Income taxes 780 241 3,945 2,275
------- ------- -------- ------
Earnings before extraordinary
item 1,033 348 5,229 3,275
Extraordinary loss from
extinguishment of debt,
net of tax benefit -- -- (299) --
------- ------- -------- ------
Net earnings $ 1,033 $ 348 $ 4,930 $3,275
------- ------- -------- ------
Basic earnings per common share
Before extraordinary item $ .09 $ .03 $ .44 $ .27
Extraordinary loss -- -- (.03) --
------- ------- -------- ------
Net earnings $ .09 $ .03 $ .41 $ .27
------- ------- -------- ------
Diluted earnings per common share
Before extraordinary item $ .09 $ .03 $ .44 $ .27
Extraordinary loss -- -- (.03) --
------- ------- -------- ------
Net earnings $ .09 $ .03 $ .41 $ .27
------- ------- -------- ------
Average shares outstanding -
basic 11,999 12,017 12,010 12,005
------- ------- -------- ------
Average shares outstanding -
diluted 11,999 12,113 12,011 12,135
------- ------- -------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share data)
September 30, December 31,
1998 1997
------------- -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 13,108 $ 8,967
Accounts receivable
Trade (less allowance for doubtful
Accounts of $1,278 in 1998 and
$1,074 in 1997) 24,243 34,866
Other 7,846 10,815
-------- --------
Total accounts receivable 32,089 45,681
Inventories 7,150 7,054
Prepaid expenses and other
current assets 8,622 7,985
-------- --------
Total current assets 60,969 69,687
Restricted cash and cash equivalents 4,647 4,726
Property, plant and equipment, net 433,739 388,448
Investment in non-consolidated
partnerships 24,065 19,560
Intangible assets, net 50,825 21,454
Deferred costs and other assets, net 23,630 22,094
-------- --------
Total assets $597,875 $525,969
-------- --------
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 10,350 $ 14,200
Current portion of long-term debt 15,875 14,499
Accounts payable 3,523 10,053
Accrued fuel 9,372 11,545
Accrued expenses and other current
liabilities 24,432 21,485
-------- --------
Total current liabilities 63,552 71,782
Long-term debt 337,251 256,361
Other liabilities 5,094 4,786
Deferred income taxes 38,204 31,237
-------- --------
Total liabilities 444,101 364,166
Minority interests in subsidiaries 4,643 16,321
Stockholders' equity
Preferred stock-$.01 par value,
authorized and unissued
15,000,000 shares -- --
Common stock-$.01 par value,
authorized 60,000,000 shares,
issued 12,417,934 shares in 1998
and 12,070,162 shares in 1997 124 121
Additional paid-in capital 120,843 114,157
Retained earnings 35,518 31,881
Unearned compensation - restricted
stock (5,581) --
Cumulative translation adjustment 351 296
Treasury stock, at cost, 139,497
shares in 1998 and 45,500 shares
in 1997 (2,124) (973)
-------- --------
Total stockholders' equity 149,131 145,482
-------- --------
Total liabilities and stockholders'
Equity $597,875 $525,969
-------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
Unaudited
(In thousands)
<S> <C> <C>
1998 1997
------------ ---------
Cash flows from operating activities
Net earnings $ 4,930 $ 3,275
Reconciliation of net earnings to cash
provided by operating activities
Extraordinary item 299 --
Depreciation and amortization 18,251 14,387
Deferred income taxes 199 256
Provision for doubtful accounts 339 565
Minority interests in subsidiaries 2,374 2,845
Changes in assets and liabilities
Accounts receivable 13,257 12,685
Inventories and other current assets 187 (186)
Accounts payable and other current
liabilities (7,502) (11,572)
Non-current assets and liabilities (3,371) ( 4,518)
-------- ---------
Net cash provided by operating
Activities 28,963 17,737
-------- --------
Cash flows from investing activities
Acquisitions (65,350) --
Capital expenditures (28,709) (22,609)
Purchase of a fuel management
agreement and related inventory -- (8,871)
Proceeds on a sale of property,
plant and equipment -- 3,000
Investment in non-consolidated
Partnerships (979) (5,582)
-------- --------
Net cash used in investing
Activities (95,038) (34,062)
-------- --------
Cash flows from financing activities
Short-term debt, net (3,850) (11,900)
Proceeds of long-term debt 110,100 65,387
Payments of long-term debt (32,123) (37,979)
Dividends paid (1,293) (1,261)
Issuance of common stock, net (608) 1,162
Distribution to minority interests (2,089) (3,544)
-------- --------
Net cash provided by financing
Activities 70,137 11,865
-------- --------
Cash and cash equivalents
Increase (decrease) 4,062 (4,460)
At beginning of period 13,693 25,276
-------- --------
At end of period $ 17,755 $ 20,816
-------- --------
Current 13,108 $ 16,074
Restricted 4,647 4,742
-------- --------
At end of period $ 17,755 $ 20,816
-------- --------
Supplemental disclosure of cash flow
information
Cash paid during the period for
Interest $ 16,005 $ 12,556
-------- --------
Income taxes 1,629 2,548
-------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Trigen Energy Corporation (the "Company"), develops, owns and operates
commercial and industrial energy systems in the United States and Canada. The
Company uses its expertise in thermal engineering and proprietary cogeneration
processes to convert fuel to various forms of thermal energy and electricity.
The Company combines heat and power generation, producing electricity as a
by-product, for use in its facilities and for sale to customers.
The consolidated financial statements of Trigen Energy Corporation and its
subsidiaries presented herein are unaudited. However, such information reflects
all adjustments, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary to present fairly the financial position of the
Company as of September 30, 1998, and the results of operations for the three
and nine months ended September 30, 1998 and 1997 and the cash flows for the
nine months ended September 30, 1998 and 1997. The results of operations for
the three and nine month periods ended September 30, 1998 and cash flows for the
nine month period ended September 30, 1998, are not indicative of those to be
expected for the year ending December 31, 1998. These financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 1997, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
costs of start-up activities and organizational costs to be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. Earlier application of SOP 98-5 is
encouraged in fiscal years for which annual financial statements have not yet
been issued. The Company is in the process of evaluating the impact SOP 98-5
will have on the Company's results of operations and financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Company is currently assessing the impact of adopting FAS 133.
3. Supplementary Income Information
Included in other income, net for the nine months ended September 30, 1998,
were gains of $2,102,000 from the sale of nitrogen oxide emission allowances and
$1,678,000 from an insurance settlement, which were recorded during the second
quarter of 1998.
4. Extraordinary Item
The Company incurred an extraordinary charge during the first quarter of
$299,000, net of a tax benefit of $161,000, in the nine months ended September
30, 1998, in connection with the early retirement of debt.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
5. Acquisitions
On January 22, 1998, the Company acquired all of the capital stock of Power
Sources, Inc. (renamed Trigen-BioPower, Inc.), a biomass-to-energy power plant
developer and operator, for a total cash investment of $44,100,000, funded from
the Company's existing credit facility. Trigen-BioPower had revenues of
$18,967,000 and net earnings of $2,441,000 for the twelve-month period ended
December 31, 1997. Results for Trigen-Bio-Power are included with those of the
Company since the date of acquisition.
The acquisition was accounted for under the purchase method of accounting.
The purchase price has been allocated to the assets acquired and liabilities
assumed based on fair market value at the date of acquisition. The excess of
the purchase price over the net assets acquired was $10,398,000 and is being
amortized over a period not exceeding 30 years. The fair value of the assets
acquired and liabilities assumed is as follows (in thousands):
Current assets $ 3,325
Property, plant and equipment 32,265
Intangibles 11,687
Costs in excess of net assets acquired 10,398
Current liabilities ( 2,147)
Long-term debt ( 4,290)
Other liabilities ( 7,138)
---------
Total purchase price $ 44,100
---------
The following pro forma summary presents the consolidated results of
operations for the three and nine months ended September 30, 1997 and the nine
months ended September 30, 1998 as if the acquisition had occurred at the
beginning of the years presented (in thousands, except per share data):
Three Months
Ended Nine Months Ended
September 30, September 30,
------------- -----------------
1997 1998 1997
------------- -----------------
Revenues $ 47,451 $177,682 $188,515
Earnings before
extraordinary item 249 5,299 3,502
Diluted earnings per common share -
before extraordinary item .02 .44 .29
The pro forma results included certain adjustments for depreciation expense
as a result of a step up in the basis of property, plant and equipment and an
increase in the remaining useful lives, amortization expense as a result of
goodwill and other intangible assets and interest expense on borrowings to
finance the acquisition. The pro forma results do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisition been made at the beginning of the years presented, or of results
which may occur in the future.
On September 23, 1998, the Company purchased for $21.3 million an
additional 48% interest in the Trigen-Nations Energy Company Limited Partnership
from Nations Energy Corporation. This limited partnership owns the energy
production assets in service to Coors Brewing Company in Golden Colorado. The
excess of purchase price over the net assets purchased was $9.5 million and will
be amortized over a period not exceeding 32 years. This purchase increases the
Company's investment in Trigen-Nations Energy Company to 99%.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
6. Legal Proceeding
On April 9, 1998, Grays Ferry Cogeneration Partnership, Trigen-Schuylkill
Cogeneration, Inc., Cogen America Schuylkill Inc. (formerly NRGG Schuylkill
Cogeneration Inc.) and Trigen-Philadelphia Energy Corporation commenced an
action against PECO Energy Company ("PECO") and Adwin (Schuylkill) Cogeneration,
Inc. in the Pennsylvania Court of Common Pleas of Philadelphia County (the
"Court"). Grays Ferry Cogeneration Partnership (the "Partnership") is the owner
of the Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania.
At September 30, 1998, the Company had an investment of $16.2 million in the
Partnership, representing a one third interest in the Partnership through its
wholly owned subsidiary, Trigen-Schuylkill Cogeneration, Inc. Cogen America
Schuylkill Inc. and Adwin (Schuylkill) Cogeneration, Inc. own the other two
thirds interests in the Partnership. Adwin (Schuylkill) Cogeneration, Inc. is an
indirect wholly owned subsidiary of PECO. In addition, at September 30, 1998,
the Company had a receivable of $2.2 million due from the Partnership. Included
in the Company's earnings before income taxes for the three months and nine
months ended September 30, 1998 were the Company's share of Partnership earnings
of $1.5 million and $4.2 million, respectively, and fees earned from the
Partnership of $.7 million and $2.1 million, respectively. This compared to
fees earned from the Partnership of $.2 million and $.6 million in the three
months and nine months ended September 30, 1997.
The Partnership commenced this action in reaction to the wrongful
termination by PECO on March 3, 1998, of the electric power purchase agreement
between the Partnership and PECO (the "Power Purchase Agreement"). The
Partnership is seeking a declaratory judgement to require PECO to comply with
the electric power purchase agreement and for damages to be proven at trial in
an amount in excess of $200 million.
On May 6, 1998, the Court issued a preliminary injunction against PECO
which requires PECO to pay the Partnership for its electric energy and capacity
at the rates set forth in the Power Purchase Agreement and otherwise to
specifically perform in accordance with the Power Purchase Agreement. The
preliminary injunction will remain in effect until the Court renders its
decision after the final hearing of this matter. The final hearing is currently
scheduled to occur in March of 1999. On July 7, 1998, PECO withdrew its appeal
of the preliminary injunction.
The Chase Manhattan Bank has issued notices of default to the Partnership
under the terms of the Credit Agreement, dated as of March 1, 1996, between the
Partnership, The Chase Manhattan Bank, as agent, and certain other commercial
banks (collectively the "Banks"). The Partnership's debt under the Credit
Agreement of $102.6 million is secured only by the Partnership assets and the
partners' ownership interests in the Partnership. The Banks have not
accelerated the debt owing under the Credit Agreement nor charged default
interest charges against the Partnership, although the Banks could take these
actions in the future. The Partnership recorded default interest of $1.1 million
through September 30, 1998. The Banks have required to date, and may require
in the future, the Partnership to apply available cash held by Partnership (net
of operating expenses, other than certain payments to affiliates, and expenses
required to complete construction) toward repayment of the principal amount of
the loans outstanding. On September 4, 1998, the Banks filed their own
complaint against PECO with the Court. Among other things, the Banks are
seeking a declaration that PECO's termination of the Power Purchase Agreement
was wrongful.
The Company believes that PECO's termination of the Power Purchase
Agreement was wrongful and the Company intends to aggressively pursue the
remedies available to it. In the event the Company is not successful and PECO's
actions are upheld, PECO would be required under PURPA to continue to purchase
power from the Grays Ferry Cogeneration Facility at PECO's avoided cost. This
would generate significantly lower earnings per share for the Company than the
1998 annual earnings per share of $.40 to $.52 that the Company previously
forecast, based on the contracted power purchase price. While it is possible
that the Company's investment in the Partnership and the receivable from the
Partnership could become impaired, at this time the Company does not believe
that is likely.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
7. Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This statement
requires disclosure of all items recognized under accounting standards as
components of comprehensive income. Following are the Company's components of
comprehensive income for the three and nine months ended September 30, 1998 and
1997 (in thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------------- - -----------------
Net earnings $ 1,033 $ 348 $ 4,930 $ 3,275
Other comprehensive income
Cumulative translation
adjustment 36 -- 55 39
------- ------ -------- ------
Comprehensive income $ 1,069 $ 348 $ 4,985 $3,314
------- ------- ------- ------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months ended September 30, 1998 compared with Three Months ended September
30, 1997.
Overview
For the quarter ended September 30, 1998, the Company reported earnings
before extraordinary item of $1.0 million or $.09 per diluted share. This
compared with $.3 million and $.03 of diluted earnings per share in the third
quarter of 1997. Revenues were $50.8 million in the third quarter compared with
$43 million last year. Operating income was $8.3 million and operating margin
was 16.4% in the third quarter of 1998 compared with operating income of $6.5
million and operating margin of 15.2% in the like quarter last year. Operating
results for 1998 include those of the newly acquired Trigen-BioPower from
January 22, 1998, the date of acquisition. Trigen-BioPower contributed $4.6
million in revenues and $.7 million in operating income to third quarter
operating results. A significant portion of the Company's revenues and profits
are subject to seasonal fluctuation due to peak heating demand in the winter and
peak cooling demand in the summer.
Revenues
Revenues of $50.8 million were up $7.8 million from the third quarter of
1997. Thermal energy sales increased $6.5 million reflecting the $4.6 million
revenue contribution by Trigen-BioPower. The increase in earnings/(losses) of
non-consolidated partnerships reflects the recognition of $1.5 million of
earnings from the Grays Ferry Cogeneration partnership. Fees earned and other
revenues declined $1.5 million, primarily reflecting the absence of revenues
associated with the sale of natural gas pipeline in the third quarter 1997.
Operating Expenses
Fuel and consumables' costs were $16.8 million in the third quarter
compared with $15.0 million last year. As a percent of revenues, fuel and
consumables' costs were 33% in the third quarter 1998 compared to 34.9% last
year.
Production and operating costs increased 23% to $12.0 million in the third
quarter due mainly to the inclusion of production and operating costs related to
Trigen-BioPower.
Depreciation expense was $4.4 million compared with $3.4 million in 1997.
The increase reflects the higher level of capital expenditures and depreciation
expense of Trigen-BioPower.
General and administrative expenses increased 11% in the quarter to $9.3
million due primarily to the inclusion of general and administrative expenses
for Trigen-BioPower.
Interest Expense
Interest expense increased $1.2 million to $6.0 million in the third
quarter reflecting the increased level of borrowing, primarily due to financing
the Trigen-BioPower acquisition.
Income Taxes
The Company's effective tax rate is determined primarily by the federal
statutory rate of 35%, and state and local income taxes. The effective income
tax rate for the third quarter of 1998 and 1997 was 43.0% and 41.0%,
respectively.
<PAGE>
Nine months ended September 30, 1998 compared with Nine months ended
September 30, 1997.
Overview
For the nine months ended September 30, 1998, the Company reported earnings
before extraordinary item of $5.2 million or $.44 per diluted share. This
compared with $3.3 million and $.27 per diluted earnings per share last year.
Operating income was $24.2 million on revenues of $176.5 million in the first
nine months of 1998 compared with operating income of $21.3 million on revenues
of $174.7 million in 1997. Operating margin was 13.7% in 1998 compared with
12.2 % in 1997. Trigen-BioPower contributed $12.9 million in revenues and $2.6
million in operating income to operating results for the nine months ended
September 30, 1998.
Revenues
Revenues of $176.5 million exceeded prior year by $1.9 million. Thermal
energy sales increased $3.4 million to $132.6 million, primarily reflecting
Trigen-BioPower's $12.9 million contribution to 1998 revenues. This
contribution was partially offset by a decline in thermal energy sales at our
energy systems in Baltimore, Boston, Philadelphia, and St. Louis due principally
to the mild winter weather. Electric energy sales were down as a result of the
Nassau plant being taken off line by the local utility, as permitted under the
contract, for a longer period of time in 1998 than in 1997. Also in 1998, this
facility was taken off line for 22 days for major overhaul work. Equity in
earnings/(losses) of non-consolidated partnerships increased $4.8 million,
primarily due to the inclusion of earnings from the Grays Ferry Cogeneration
partnership. Fees earned and other revenues declined $1.7 million, primarily
reflecting the absence of revenues associated with the sale of a natural gas
pipeline in 1997.
Operating Expenses
Fuel and consumables' costs were $68.3 million in 1998 compared with $81.5
million last year. This decrease reflects the lower level of energy revenues at
systems primarily located in the Northeast, the outages at the Nassau plant and
savings realized from the purchase of a fuel management contract in 1997.
Production and operating costs increased 12.4% to $39.2 million due mainly
to the inclusion of production and operating costs for Trigen-BioPower.
Depreciation expense was $14.3 million compared with $11.6 million last
year. The increase reflects the higher level of capital expenditures and
depreciation expense of Trigen-BioPower.
General and administrative expenses increased $5.1 million in the first
nine months of 1998 due primarily to a $2.0 million increase in insurance and
employee-related costs and to the inclusion of general and administrative
expenses for Trigen-BioPower.
Interest Expense
Interest expense increased $3.7 million to $17.6 million in 1998 due to the
increased level of borrowing, primarily due to financing the Trigen-BioPower
acquisition.
Other Income, Net
The $3.9 million increase in other income, net results from gains of $2.1
million from the sale of nitrogen oxide emission allowances and $1.7 million
from an insurance settlement during 1998.
<PAGE>
Income Taxes
The Company's effective tax rate was 43% for the first nine months of 1998
compared with 41% last year.
Extraordinary Item
The Company incurred an extraordinary charge of $.3 million, net of a $.2
million income tax benefit, in the first quarter of 1998 in connection with the
early retirement of debt.
Liquidity and Financial Position
Cash and cash equivalents were $17.8 million at September 30, 1998 (which
included $4.6 million of restricted cash and cash equivalents), an increase of
$4.1 million from year-end 1997. Working capital was a negative $2.6 million
compared with a negative $2.1 million at December 31, 1997. At September 30,
1998, receivables were down 30% to $32.1 million while inventories increased
slightly to $7.2 million from the balances at the end of 1997. Accounts payable
decreased $6.5 million to $3.5 million, and accrued expenses and other current
liabilities were up $2.9 million to $24.4 million at September 30, 1998. The
Company's working capital requirements vary in line with the peak heating demand
in the winter and peak cooling demand in the summer.
During the first nine months of 1998, the Company generated $29.0 million
of cash from operating activities compared with $17.7 million last year. The
improvement was primarily due to the cash generated by Trigen-BioPower. During
the first nine months of 1998, the Company acquired Trigen-BioPower for $44.1
million, and an additional 48% interest in Trigen-Nations for $21.3 million,
invested $28.7 million in capital expenditures and $1.0 million in partnership
investments, and paid dividends of $1.3 million to shareholders and $2.1 million
to minority interests. These expenditures were financed by the cash generated
from operating activities and by $74.1 million of net new borrowings.
Total debt was $363.5 million at September 30, 1998, compared with $285.1
million at the end of 1997. The $78.4 million increase in debt includes $4.3
million of Trigen-BioPower debt assumed in the acquisition. In February 1998,
$14.4 million of Trigen-Nassau bonds, with a fixed tax-exempt rate of 7.75%,
were refinanced by a new issue of variable rate demand tax-exempt bonds. This
refinancing resulted in an extraordinary charge of $.3 million, net of a $.2
million income tax benefit.
During the first nine months of 1998, stockholders' equity increased $3.6
million to $149.1 million at September 30, 1998. This increase reflects $4.9
million of net earnings, $.6 million of amortization of unearned compensation
related to restricted shares, offset by $1.3 million of dividend payments to
shareholders and the purchase of 113,879 shares of common stock for the treasury
at a cost of $1.5 million.
Reference is made to Note 6 of the Notes to Consolidated Financial
Statements with respect to legal proceedings involving the Company.
Year 2000 Date Conversion
An issue affecting the Company and others is the inability of many computer
systems and applications to process the year 2000 ("Y2K") and beyond. To
address this problem, the Company has developed a plan that divides direction
for Y2K preparedness into four responsibility areas. These areas are Plant
Production Compliance, Plant Non-Production Compliance, Desktop Systems and
Corporate Systems.
Plant Production Compliance includes primary plant systems that produce
steam, chilling and hot water, electricity and other forms of energy. A plan to
upgrade all non-compliant software and hardware has been underway since 1996.
The Company anticipates that all primary plant systems will be compliant by the
third quarter of 1999.
<PAGE>
Plant Non-Production Compliance includes Y2K issues related to
telecommunications hardware, climate control systems, security systems,
elevators, parking controls, and related systems. Generally, these systems
achieve 100% compliance with minor hardware upgrades or chip replacements from
original parts manufacturers. Currently, approximately 85% of all plant
non-production systems are compliant. The Company anticipates that all
non-production systems will be compliant by March 1999.
The Company anticipates all desktop systems to be compliant by September
1999 and Corporate Systems, which includes financial and billing systems, to be
compliant by August 1999. The Company is in the process of evaluating the best
method of upgrading its systems to achieve compliance.
The Company estimates the total external cost to achieve Y2K compliance to
be $1 million for the years 1997 through 1999. The Company believes it is
staffed sufficiently to address all Y2K issues.
The Company purchases raw material from key vendors to produce energy.
These vendors include major natural gas, electricity, and water utilities, fuel
oil and chemical distributors and coal producers. The Company will continue to
survey its key vendors to determine their Y2K compliance. At this time, the
Company does not expect any material disruption in services from vendors due to
Y2K issues. The Company is, however, dependent in part, upon the ability of its
vendors to be Y2K compliant.
The Company's Y2K efforts are ongoing and its overall plan, as well as
consideration of contingency plans, will continue to evolve as new information
becomes available. At this time, the Company does not expect any major
interruption of its business activities due to Y2K issues. However, the Company
is unable to estimate the ultimate effect Y2K risks will have on its operating
results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings.
Reference is made to Note 6 of the Notes to Consolidated Financial
Statements with respect to legal proceedings involving the Company.
Item 5. Other Information
Effective August 3, 1998, the Board of Directors of the Company appointed
Martin S. Stone as Vice President and Chief Financial Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this report:
10.33* Form of Incentive Stock Option Agreement between
Trigen and Thomas R. Casten, Richard E. Kessel,
Eugene E. Murphy, Steven G. Smith and Richard S.
Strong
10.34* Form of Incentive Stock Option Agreement between
Trigen and Martin S. Stone
27* Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended September
30, 1998.
- - - -------------------------
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIGEN ENERGY CORPORATION
/s/ Martin S. Stone
------------------------------------
Martin S. Stone
Vice President, Finance and
Chief Financial Officer
/s/ Daniel J. Samela
------------------------------------
Daniel J. Samela
Controller
Date: November 16, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q for quarter ending September 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 09-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,108
<SECURITIES> 0
<RECEIVABLES> 33,367
<ALLOWANCES> 1,278
<INVENTORY> 7,150
<CURRENT-ASSETS> 60,969
<PP&E> 524,056
<DEPRECIATION> 90,317
<TOTAL-ASSETS> 597,875
<CURRENT-LIABILITIES> 63,552
<BONDS> 337,251
0
0
<COMMON> 124
<OTHER-SE> 149,007
<TOTAL-LIABILITY-AND-EQUITY> 597,875
<SALES> 176,545
<TOTAL-REVENUES> 176,545
<CGS> 121,786
<TOTAL-COSTS> 152,315
<OTHER-EXPENSES> 2,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,682
<INCOME-PRETAX> 9,174
<INCOME-TAX> 3,945
<INCOME-CONTINUING> 5,299
<DISCONTINUED> 0
<EXTRAORDINARY> ( 299)
<CHANGES> 0
<NET-INCOME> 4,930
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
Trigen Energy Corporation Incentive Stock Option Agreement
This Agreement, made as of this 25th day of September, 1998 (the "Date of
Grant") by and between Trigen Energy Corporation ("Trigen") and Eugene E. Murphy
the "Optionee").
WITNESSETH:
WHEREAS, the Optionee is now employed by Trigen or a subsidiary or parent in a
key capacity and Trigen desires to provide the Optionee with the opportunity to
acquire or enlarge his or her stock ownership in Trigen so that the Optionee may
have a more direct proprietary interest in Trigen's success;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, Trigen and Optionee agree as follows:
1. Grant of Incentive Stock Option. Pursuant to the provisions of Trigen's
Stock Incentive Plan (the "Plan") Trigen hereby grants to the Optionee, subject
to the terms and conditions of the Plan and herein set forth, the Incentive
Stock Option to purchase from Trigen all or any part of 9,000 shares of common
stock of Trigen par value $0.01 per share ("Common Stock") at the purchase price
of $14.00 per share (the "Option"), such Option to be exercised as hereinafter
provided. This Option is intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code.
2. Terms and Conditions. It is understood and agreed that the Option evidenced
hereby is subject to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth anniversary of the
Date of Grant (the "Expiration Date").
(b) Exercise of Option. The Option shall become exercisable as follows:
(i) twenty percent (20%) of the shares optioned hereunder may be first
exercised on or after the later of the Date of Grant or the Optionee's first
anniversary of his/her date of hire provided Optionee is an employee of Trigen
or a subsidiary or parent on such anniversary date;
(ii) an additional twenty percent (20%) of the shares optioned hereunder may be
first exercised on or after the later of August 12, 1999 or the Optionee's
second anniversary of his/her date of hire (the later of such dates herein
defined as, the "Date of Second Vesting"), provided Optionee is an employee of
Trigen or a subsidiary or parent on such anniversary date;
(iii) an additional twenty percent (20%) of the shares optioned hereunder
may be first exercised on or after the first anniversary of the Date of Second
Vesting, provided Optionee is an employee of Trigen or a Subsidiary or a Parent
on such anniversary date;
(iv) an additional twenty percent (20%) of the shares optioned hereunder may be
first exercised on or after the second anniversary of the Date of Second
Vesting, provided Optionee is an employee of Trigen or a Subsidiary or a Parent
on such anniversary date;
(v) the balance of the shares optioned hereunder may be first exercised on or
after the third anniversary of the Date of Second Vesting, provided Optionee is
an employee of Trigen or a Subsidiary or a Parent on such anniversary date.
In no case may a fraction of a share be purchased. If the foregoing schedule
provides for a fractional share, the number of shares which can then be
purchased by Optionee shall be reduced to the next lower whole number of shares,
and any fractional share shall be carried forward for Optionee's account.
Exercise shall be effected by a written notice to Trigen specifying the number
of shares to be purchased, accompanied by payment of the purchase price for such
shares.
(c) Payment of Purchase Price Upon Exercise. The purchase price may be paid in
cash, or a number of shares of Common Stock owned by the Optionee for at least
six months having a fair market value (as of the date of exercise) equal to the
price to be paid upon the exercise of the Option, or any combination thereof.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee shall cease to be employed by the Company for any reason
other than (A) death or (B) disability within the meaning of Section 22(e)(3) of
the Internal Revenue Code or (C) retirement, as hereinafter defined or (D)
termination of employment in the manner set forth in 2(d)(ii) below, the
Optionee may nevertheless exercise this Option (to the extent it is exercisable
on the date Optionee's employment is so terminated) within the three month
period following the date of termination of employment. If the Optionee shall
become disabled within the meaning of Section 22(e)(3) of the Internal Revenue
Code or if the Optionee shall die while in the employ of the Company or within
three months following termination (except in the case of termination of
employment in the manner set forth in 2(d)(ii) below) or if the employee
retires, this Option shall be exercisable (to the extent that the Option is
exercisable as of the date of disability, death or retirement) within the
one-year period following the date of disability, death or retirement, by (x)
the Optionee or (y) the person to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution (a
"Beneficiary"). For purposes of this Agreement, "retirement means leaving the
employ of Trigen for any reason once the Optionee has attained the age of
sixty-five (65) years.
(ii) Except in the case of retirement, if the Committee determines in its
absolute discretion that the Optionee ceases of his own volition to be employed
by the Company or if the Optionee is discharged by the Company (A) in accordance
with the terms of a written employment contract between the Optionee and a
Company, or (B) for a violation of any Company policy, rule, or regulation, or
(C) for any act or omission which results in the Company failing to satisfy any
contract, agreement, law, rule, or regulation related to its business, then this
Option shall expire to the extent that it is unexercised at the time of such
termination of employment.
Notwithstanding the foregoing provisions, in no event shall this Option be
exercisable after the Expiration Date.
(e) Non-Transferability; Binding Effect. This Option shall not be transferable
other than by will or the laws of descent and distribution. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee, and may be exercisable during the lifetime of the
Optionee only by the Optionee.
(f) Adjustments. In the event of a change in the Common Stock by reason of a
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or other similar
transaction, then the Committee may equitably adjust the number or kind of
shares subject to the Option and their purchase price. Any adjustment so made
shall be final and binding upon the Optionee.
(g) No Rights as a Stockholder. Neither the Optionee nor any Beneficiary shall
have any rights as a stockholder with respect to any shares of Common Stock to
be distributed pursuant to this Option prior to the date on which such person
becomes the record holder thereof.
(h) No Right to Continued Employment. This Option shall not confer upon the
Optionee any right with respect to continuance of employment by the Company, nor
shall it interfere in any way with the right of a Company to terminate the
Optionee's employment at any time.
(i) Compliance with Laws and Regulations. This Option and the obligation of
Trigen to sell and deliver shares hereunder shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. If the sale of Common Stock
has not been registered under the Securities Act of 1933, as amended, Trigen may
require, as a condition to exercise of the Option, such representations or
agreements as Trigen may consider appropriate to avoid violation of such Act and
may require that the certificates evidencing such Common Stock bear an
appropriate legend restricting transfer.
3. Plan. All of the terms, conditions, and definitions set forth in the Plan
(including but not limited to the Change in Control provisions) are incorporated
and made a part of this Agreement. Copies of the Plan are available for
inspection during normal working hours at the Company's offices.
4. Notices. Any notice hereunder to Trigen shall be addressed to its office
at One Water Street, White Plains, New York 10601, Attention: Treasurer. Any
notice hereunder to Optionee shall be addressed to Eugene E. Murphy, 616 A
Heritage Hills, Somers, NY 10589. Either party may designate another address
at any time hereafter in writing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first written above.
TRIGEN ENERGY CORPORATION
By:
Harry J. Schum,
Director Human Resources
By:
Eugene E. Murphy Date
Trigen Energy Corporation Incentive Stock Option Agreement
Rev. 9/25/98 Page 5
Trigen Energy Corporation Incentive Stock Option Agreement
Trigen Energy Corporation Incentive Stock Option Agreement
This Agreement, made as of this 28th day of July, 1998 (the "Date of Grant") by
and between Trigen Energy Corporation ("Trigen") and Martine S. Stone (the
"Optionee").
WITNESSETH:
WHEREAS, the Optionee is now employed by Trigen or a subsidiary or parent in a
key capacity and Trigen desires to provide the Optionee with the opportunity to
acquire or enlarge his or her stock ownership in Trigen so that the Optionee may
have a more direct proprietary interest in Trigen's success;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, Trigen and Optionee agree as follows:
1. Grant of Incentive Stock Option. Pursuant to the provisions of Trigen's
Stock Incentive Plan (the "Plan") Trigen hereby grants to the Optionee, subject
to the terms and conditions of the Plan and herein set forth, the Incentive
Stock Option to purchase from Trigen all or any part of 5,500 shares of common
stock of Trigen par value $0.01 per share ("Common Stock") at the purchase price
of $11.875 per share (the "Option"), such Option to be exercised as hereinafter
provided. This Option is intended to be an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code.
2. Terms and Conditions. It is understood and agreed that the Option evidenced
hereby is subject to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth anniversary of the
Date of Grant (the "Expiration Date").
(b) Exercise of Option. The Option shall become exercisable as follows:
(i) twenty percent (20%) of the shares optioned hereunder may be first
exercised on or after the later of the Date of Grant or the Optionee's first
anniversary of his/her date of hire provided Optionee is an employee of Trigen
or a subsidiary or parent on such anniversary date;
(ii) an additional twenty percent (20%) of the shares optioned hereunder may be
first exercised on or after the second anniversary of the Date of Grant,
provided Optionee is an employee of Trigen or a subsidiary or parent on such
anniversary date;
(iii) an additional twenty percent (20%) of the shares optioned hereunder
may be first exercised on or after the first anniversary of the Date of Second
Vesting, provided Optionee is an employee of Trigen or a Subsidiary or a Parent
on such anniversary date;
(iv) an additional twenty percent (20%) of the shares optioned hereunder may be
first exercised on or after the second anniversary of the Date of Second
Vesting, provided Optionee is an employee of Trigen or a Subsidiary or a Parent
on such anniversary date;
(v) the balance of the shares optioned hereunder may be first exercised on or
after the third anniversary of the Date of Second Vesting, provided Optionee is
an employee of Trigen or a Subsidiary or a Parent on such anniversary date.
In no case may a fraction of a share be purchased. If the foregoing schedule
provides for a fractional share, the number of shares which can then be
purchased by Optionee shall be reduced to the next lower whole number of shares,
and any fractional share shall be carried forward for Optionee's account.
Exercise shall be effected by a written notice to Trigen specifying the number
of shares to be purchased, accompanied by payment of the purchase price for such
shares.
(c) Payment of Purchase Price Upon Exercise. The purchase price may be paid in
cash, or a number of shares of Common Stock owned by the Optionee for at least
six months having a fair market value (as of the date of exercise) equal to the
price to be paid upon the exercise of the Option, or any combination thereof.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee shall cease to be employed by the Company for any reason
other than (A) death or (B) disability within the meaning of Section 22(e)(3) of
the Internal Revenue Code or (C) termination of employment in the manner set
forth in 2(d)(ii) below, the Optionee may nevertheless exercise this Option (to
the extent it is exercisable on the date Optionee's employment is so terminated)
within the three month period following the date of termination of employment.
If the Optionee shall become disabled within the meaning of Section 22(e)(3) of
the Internal Revenue Code or if the Optionee shall die while in the employ of
the Company or within three months following termination (except in the case of
termination of employment in the manner set forth in 2(d)(ii) below), this
Option shall be exercisable (to the extent that the Option is exercisable as of
the date of disability or death) within the one-year period following the date
of disability or death, by (x) the Optionee or (y) the person to whom such
Optionee's rights under the Option are transferred by will or the laws of
descent and distribution (a "Beneficiary").
(ii) If the Committee determines in its absolute discretion that the Optionee
ceases of his own volition to be employed by the Company or if the Optionee is
discharged by the Company (A) in accordance with the terms of a written
employment contract between the Optionee and a Company, or (B) for a violation
of any Company policy, rule, or regulation, or (C) for any act or omission which
results in the Company failing to satisfy any contract, agreement, law, rule, or
regulation related to its business, then this Option shall expire to the extent
that it is unexercised at the time of such termination of employment.
Notwithstanding the foregoing provisions, in no event shall this Option be
exercisable after the Expiration Date.
(e) Non-Transferability; Binding Effect. This Option shall not be transferable
other than by will or the laws of descent and distribution. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee, and may be exercisable during the lifetime of the
Optionee only by the Optionee.
(f) Adjustments. In the event of a change in the Common Stock by reason of a
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or other similar
transaction, then the Committee may equitably adjust the number or kind of
shares subject to the Option and their purchase price. Any adjustment so made
shall be final and binding upon the Optionee.
(g) No Rights as a Stockholder. Neither the Optionee nor any Beneficiary shall
have any rights as a stockholder with respect to any shares of Common Stock to
be distributed pursuant to this Option prior to the date on which such person
becomes the record holder thereof.
(h) No Right to Continued Employment. This Option shall not confer upon the
Optionee any right with respect to continuance of employment by the Company, nor
shall it interfere in any way with the right of a Company to terminate the
Optionee's employment at any time.
(i) Compliance with Laws and Regulations. This Option and the obligation of
Trigen to sell and deliver shares hereunder shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. If the sale of Common Stock
has not been registered under the Securities Act of 1933, as amended, Trigen may
require, as a condition to exercise of the Option, such representations or
agreements as Trigen may consider appropriate to avoid violation of such Act and
may require that the certificates evidencing such Common Stock bear an
appropriate legend restricting transfer.
3. Plan. All of the terms, conditions, and definitions set forth in the Plan
(including but not limited to the Change in Control provisions) are incorporated
and made a part of this Agreement. Copies of the Plan are available for
inspection during normal working hours at the Company's offices.
4. Notices. Any notice hereunder to Trigen shall be addressed to its office
at One Water Street, White Plains, New York 10601, Attention: Treasurer. Any
notice hereunder to Optionee shall be addressed to Martin S. Stone, 11 Holmes
Avenue, Hartsdale, NY 10530. Either party may designate another address at any
time hereafter in writing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date first written above.
TRIGEN ENERGY CORPORATION
By:
Carol R. Beerbaum, Vice President
Strategic Planning and Strategic Resources
By:
Martin S. Stone Date
Trigen Energy Corporation Incentive Stock Option Agreement
Rev. 9/25/98 Page 3
Trigen Energy Corporation Incentive Stock Option Agreement
