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, 1999
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 12,407,102 shares of the Registrant's Common Stock outstanding as of
November 5, 1999.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
Quarter Ended September 30, 1999
Page
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1999 and 1998 (Unaudited) 3
Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .. 9
Item 3.Quantitative and Qualitative Disclosures About Market Risk 13
Part II - Other Information: 14
Signatures: .... 16
Disclosure Regarding Forward-Looking Statements
This report includes historical information as well as statements regarding
our future expectations. The statements regarding the future (referred to as
"forward-looking statements") include among other things statements about future
energy markets, cost reduction targets, return on capital goals, development,
production and acceptance of new products and process technologies, ongoing and
planned capacity additions and expansions and joint ventures. Important factors
that could cause actual results to differ materially from those discussed in
such forward-looking statements include: supply/demand for our products,
competitive pricing pressures, weather patterns, changes in industry laws and
regulations, competitive technology, failure to achieve our cost reduction
targets or complete construction projects on schedule and Year 2000 computer
related difficulties. We believe in good faith that the forward-looking
statements in this report have a reasonable basis, including without limitation,
management's examination of historical operating trends, data contained in our
records and other data available from third parties, but such forward-looking
statements are not guarantees of future performance and actual results may
differ materially from any results expressed or implied by such forward-looking
statements.
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<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1999 and 1998
Unaudited
(In thousands, except per share data)
Three Months Nine Months
----------- -----------
1999 1998 1999 1998
Revenues ---- ---- ---- ----
<S> <C> <C> <C> <C>
Thermal energy....................... $ 40,724 $ 35,300 $153,700 $132,578
Electric energy....................... 11,065 11,001 32,704 31,210
Equity in earnings of non-consolidated
partnerships 2,725 1,598 6,749 3,624
Fees earned and other revenues 3,223 2,940 10,899 9,133
--------- ------- ---------- -------
Total revenues 57,737 50,839 204,052 176,545
--------- ------- ---------- -------
Operating Expenses
Fuel and consumables 23,279 21,316 84,860 74,012
Production and operating costs 12,476 12,017 39,783 36,068
Depreciation and amortization 5,863 5,839 18,312 17,401
General and administrative 10,123 8,466 30,588 27,785
--------- ------- ---------- -------
Total operating expenses 51,741 47,638 173,543 155,266
--------- ------- ---------- -------
Operating income 5,996 3,201 30,509 21,279
Other income (expense)
Interest expense (6,423) (6,046) (18,829) (17,613)
Other income, net 50 332 15,397 4,931
--------- ------- ---------- -------
Earnings (losses) before minority
interests, income taxes, extraordinary
item, and cumulative effect of a change
in an accounting principle.... (377) (2,513) 27,077 8,597
Minority interests in earnings of
subsidiaries 1,350 799 2,390 2,374
--------- ------- -------- -------
Earnings (losses) before income taxes,
extraordinary item and cumulative effect
of a change in an accounting principle (1,727) (3,312) 24,687 6,223
Income taxes ( 715) (1,424) 10,220 2,676
--------- ------- -------- -------
Earnings (losses) before extraordinary item
and cumulative effect of a change
in an accounting principle (1,012) (1,888) 14,467 3,547
Extraordinary loss from extinguishment of
debt, net of tax benefit - - - - - - ( 299)
Cumulative effect of change in an accounting
principle, net of tax benefit - - - - (4,903) - -
--------- -------- -------- -------
Net earnings (losses) $ (1,012) $ (1,888) $ 9,564 $ 3,248
========= ======== ======== =======
Basic earnings per common share
Before extraordinary item and
Cumulative effect of a change
in an accounting principle $ (.09) $ (.15) $ 1.20 $ .30
Extraordinary loss - - - - - - (.03)
Cumulative effect of change in an
accounting principle - - - - (.41) - -
--------- ------- ------ ------
Net earnings (losses)...................$ (.09) $ (.15) $ .79 $ .27
========= ======= ====== ======
Diluted earnings per common share
Before extraordinary item and
cumulative effect of a change in
an accounting principle $ (.09) $ (.15) $ 1.20 $ .30
Extraordinary loss - - - - - - ( .03)
Cumulative effect of change in an
accounting principle - - - - (.41) - -
--------- ------- ------ ------
Net earnings (losses) $ (.09) $ (.15) $ .79 $ .27
========= ======== ====== ======
Average shares outstanding - basic 12,051 11,999 12,038 12,010
--------- ------- ------ ------
Average shares outstanding - diluted 12,219 11,999 12,087 12,011
--------- -------- ------ ------
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share data)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 21,544 $ 10,074
Accounts receivable
Trade (less allowance for doubtful accounts
of $1,460 in 1999 and $1,278 in 1998) 34,791 35,236
Other 9,593 5,686
--------- --------
Total accounts receivable 44,384 40,922
Inventories 7,613 7,074
Prepaid expenses and other current assets 8,350 8,016
-------- -------
Total current assets 81,891 66,086
Restricted cash and cash equivalents 4,552 4,623
Property, plant and equipment, net 484,768 442,755
Investment in non-consolidated partnerships 47,550 30,319
Intangible assets, net 46,749 49,968
Deferred costs and other assets, net 29,847 24,405
---------- --------
Total assets $695,357 $618,156
========= ========
Liabilities and Stockholders' Equity
Current liabilities
Short-term debt $ 11,700 $ 15,000
Current portion of long-term debt 17,054 16,398
Accounts payable 8,067 4,756
Accrued income taxes 4,581 5,728
Accrued fuel 9,495 14,121
Accrued expenses and other current
liabilities 26,758 19,626
-------- -------
Total current liabilities 77,655 75,629
Long-term debt 396,614 343,685
Other liabilities 4,132 4,254
Deferred income taxes 43,701 39,422
-------- -------
Total liabilities 522,102 462,990
Minority interests in subsidiaries 14,685 7,238
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 1999 and 1998 124 124
Additional paid-in capital 120,242 120,595
Retained earnings 44,683 36,417
Unearned compensation - restricted stock (4,592) ( 4,967)
Accumulated other comprehensive loss (1,254) ( 2,002)
Treasury stock, at cost, 41,285 shares in
1999 and 145,842 shares in 1998 (633) (2,239)
------- --------
Total stockholders' equity 158,570 147,928
-------- --------
Total liabilities and stockholders'
equity $695,357 $618,156
======== ========
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, 1999 and 1998
Unaudited
(In thousands)
1999 1998
----- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 9,564 $ 3,248
Reconciliation of net earnings to cash provided
by operating activities Non-cash after-tax gain
on litigation settlement ( 8,518) - -
Extraordinary item - - 299
Cumulative effect of a change in an accounting
principle 4,903 - -
Depreciation and amortization 18,312 17,401
Deferred income taxes 4,279 199
Provision for doubtful accounts 379 339
Minority interests in subsidiaries 2,390 2,374
Changes in assets and liabilities
Accounts receivable (3,290) 13,257
Inventories and other current assets (873) 187
Accounts payable and other current liabilities 2,671 (6,170)
Non-current assets and liabilities (2,874) (2,171)
--------- --------
Net cash provided by operating activities 26,943 28,963
--------- -------
Cash flows from investing activities
Acquisition of energy facilities. (5,903) (65,350)
Investments in non-consolidated partnerships (278) (979)
Purchase of marketable securities (1,013) --
Capital expenditures (56,530) (28,709)
-------- --------
Net cash used in investing activities (63,724) (95,038)
--------- ---------
Cash flows from financing activities
Short-term debt, net (3,300) (3,850)
Proceeds of long-term debt 67,950 110,100
Payments of long-term debt (15,136) (32,123)
Dividends paid (1,297) (1,293)
Purchase of treasury stock (38) (608)
Distribution to minority interests - - (2,089)
-------- -------
Net cash provided by financing activities 48,179 70,137
Cash and cash equivalents -------- -------
Increase 11,398 4,062
At beginning of period 14,698 13,693
-------- -------
At end of period $ 26,096 $17,755
======== ========
Current $ 21,544 $13,108
Restricted 4,552 4,647
-------- -------
At end of period $26,096 $17,755
======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 17,543 $10,606
-------- -------
Income taxes 5,708 1,629
-------- -------
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 and its subsidiaries ("we"), develop, own and
operate commercial and industrial energy systems in the United States, Canada
and Mexico. We use our expertise in thermal engineering and proprietary
cogeneration processes to convert fuel to various forms of thermal energy and
electricity. We combine heat and power generation, producing electricity as a
by-product, for use in our 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 as of
September 30, 1999 and December 31, 1998, and the results of operations for the
three and nine months ended September 30, 1999 and 1998 and the cash flows for
the nine months ended September 30, 1999 and 1998. The results of operations for
the three and nine month periods ended September 30, 1999 and cash flows for the
nine month period ended September 30, 1999 are not indicative of those to be
expected for the year ending December 31, 1999. These financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 1998 included in our Annual
Report on Form 10-K for the year ended December 31, 1998. Certain
reclassifications have been made to the 1998 financial statements to conform to
the 1999 presentation.
2. Recent Accounting Pronouncements
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In July 1999, SFAS No. 137 was issued, which deferred the effective date of SFAS
No. 133. We will adopt SFAS No. 133 effective January 1, 2001. Based on
preliminary analysis, we do not expect the future adoption of SFAS No. 133 to
have a material effect on results of operations and financial condition.
3. Supplementary Income Information
Included in other income, net for the nine months ended September 30, 1999
is a pre-tax gain of $14.5 million related to the Grays Ferry Cogeneration
Partnership litigation settlement agreement. The gain represents the market
value of the share of the Partnership that we received as part of this
settlement. (See Note 6- Legal Proceedings). Included in other income, net for
the nine months ended September 30, 1998 were gains of $2.1 million from the
sale of nitrogen oxide emission allowances and $1.7 million from an insurance
settlement.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Cumulative Effect of a Change in an Accounting Principle
Effective January 1, 1999, we adopted the American Institute of Certified
Public Accountants Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that costs associated with
start-up activities and organizational costs be expensed as incurred. The
effect of the adoption was an after-tax charge of $4.9 million, net of a tax
benefit of $3.5 million, to expense deferred organizational and start-up costs
as a cumulative effect of a change in an accounting principle.
5. Extraordinary Item
We incurred an extraordinary charge of $.3 million, net of a tax benefit of
$.2 million, in the nine months ended September 30, 1998 in connection with the
early retirement of debt.
6. Legal Proceedings
Grays Ferry Settlement
On April 23, 1999, the Pennsylvania Court of Common Pleas of Philadelphia
County approved a settlement agreement which ended the lawsuit brought by Grays
Ferry Cogeneration Partnership (the "Partnership"), Trigen-Schuylkill
Cogeneration, Inc. and Cogen America Schuylkill Inc. against PECO Energy Company
and Adwin (Schuylkill) Cogeneration, Inc. The Partnership is the owner of the
Grays Ferry Cogeneration Facility located in Philadelphia, Pennsylvania. The
Partnership, Trigen-Schuylkill and Cogen America commenced this lawsuit in
reaction to the alleged termination by PECO on March 3, 1998, of the electric
power purchase agreements between the Partnership and PECO (the "Power Purchase
Agreements").
Prior to the settlement we owned a one third interest in the Partnership
through our wholly owned subsidiary, Trigen-Schuylkill. Cogen America and Adwin
owned the other two-thirds interests in the Partnership. Adwin is an indirect
wholly owned subsidiary of PECO. Under the settlement agreement PECO's
subsidiary, Adwin, surrendered its rights to its one-third partnership interest
in the Partnership to the two remaining partners, Trigen-Schuylkill and Cogen
America. As a result, we own one half of the Partnership and Cogen America owns
the other half. During the second quarter 1999, we recognized an after tax gain
of $8.5 million ($.71 per diluted share) which represents the market value of
our share of Adwin's interest.
Separately, The Chase Manhattan Bank and Westinghouse Power Generation,
which financed the construction of the Gray's Ferry Cogeneration facility,
agreed to dismiss their lawsuits against PECO. The Chase Manhattan Bank also
agreed that they will not charge the Partnership for any default interest up to
April 16, 1999. During the second quarter 1999, the Partnership therefore
reversed previously accrued default interest of $2.9 million including $1.8
million that was recorded in 1998. Our share of the interest reversal was $1.4
million.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the year 2001, the energy price under the Power Purchase Agreements will
begin to be based upon a percentage of a market based index, which we expect to
produce substantially lower revenues from sales to PECO than the more favorable
rates of the early contract years. Under the settlement agreement, the
Partnership gained the right to sell to third parties electric energy and
capacity from the facility in excess of the 150 megawatts which PECO is required
to purchase under the Power Purchase Agreements, subject to a right of first
refusal for PECO. We expect that the ability to sell to third parties electric
energy and capacity above the 150 megawatts under contract to PECO, will result
in an opportunity to improve the financial performance of the Partnership. The
Partnership will now have the ability to institute capital modifications to the
combustion turbine to increase electric capacity during the summer months when
the price of electric capacity and energy are historically the highest.
7. Comprehensive Income
Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement requires
disclosure of all items recognized under accounting standards as components of
comprehensive income. Following are the components of comprehensive income for
the three months and nine months ended September 30, 1999 and 1998 (in
thousands).
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
Net earnings (losses)..........$(1,012) (1,888) $ 9,564 $3,248
Other comprehensive income
Cumulative foreign currency
Translation adjustment... 315 36 748 55
-------- -------- ------- -----
Comprehensive income (loss)..... $( 697) $(1,852) $10,312 $3,303
======== ======== ======= ======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Three Months ended September 30, 1999 compared with Three Months ended September
30, 1998.
Overview
For the quarter ended September 30, 1999, we reported a loss of $1.0
million or $.09 per diluted share. This compared with a loss of $1.9 million or
$.15 per diluted share in the third quarter of 1998. Revenues were $57.7
million in the third quarter compared with $50.8 million in the third quarter of
last year. Third quarter operating income of $6.0 million increased $2.8
million over the $3.2 million in the like quarter last year. This increase
reflects higher sales volume in most of the district energy systems and positive
contributions from new industrial accounts. In addition, equity earnings from
unconsolidated subsidiaries increased by $1.1 million in the third quarter of
1999 versus the third quarter of 1998 due to an increase in our ownership share
of the Grays Ferry Cogeneration Partnership. A significant portion of our
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 $57.7 million were up $6.9 million during the third quarter of
1999 or 13.6% from the third quarter of 1998, due to increased sales volume in
most of the district energy systems and positive contributions from our new
industrial accounts which became operational in 1999. Thermal energy sales were
up $5.4 million to $40.7 million while electric energy sales remained level with
last year at $11.1 million. Equity earnings from unconsolidated subsidiaries
were up $1.1 million from the third quarter of 1998, primarily due to an
increase in our ownership share of the Grays Ferry Cogeneration Partnership to
50% from 33 1/3%.
Operating Expenses
Fuel and consumables costs were $23.3 million in the third quarter of 1999
compared with $21.3 million in the third quarter of 1998. This increase was due
to the higher level of energy revenues and the addition of fuel and consumables
costs associated with new industrial accounts.
Production and operating costs increased $.5 million to $12.5 million in
the third quarter of 1999 due to the increase in revenues and the inclusion of
production and operating costs associated with new industrial accounts.
General and administrative expenses increased 19% in the quarter to $10.1
million primarily due to the inclusion of overhead attributable to new
industrial accounts, legal expenses incurred in connection with ongoing
litigation and increased headcount required to pursue energy outsourcing
opportunities.
<PAGE>
Income Taxes
Our 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 1999 and 1998 was 41.4% and 43.0%, respectively.
Nine Months ended September 30, 1999 compared with Nine Months ended September
30, 1998
Overview
For the nine months ended September 30, 1999, we reported earnings before a
cumulative effect of a change in an accounting principle of $14.5 million or
$1.20 per diluted share. This compared to $3.5 million and $.30 of diluted
earnings per share before extraordinary item during the same period last year.
Net earnings for the nine months ended September 30, 1999, amounted to $9.6
million or $.79 per diluted share after the effect of the adoption of the change
in accounting principle. Net earnings included a non-recurring after-tax gain
of $8.5 million, or $.71 per diluted share, related to the PECO lawsuit
settlement. Operating income was $30.5 million on revenues of $204.1 million in
the first nine months of 1999 compared with operating income of $21.3 million on
revenues of $176.5 million in first nine months of 1998. The operating margin
was 14.9% in the first nine months of 1999 compared with 12.1% in the first nine
months of 1998.
Revenues
Revenues of $204.1 million were up $27.6 million or 15.6% over 1998.
Thermal energy sales increased $21.1 million to $153.7 million and electric
energy sales increased $1.5 million to $32.7 million. The increase in thermal
energy sales is due to increased sales volume reflecting a colder winter than
1998 and from positive contributions from our new industrial accounts which
became operational in 1999. Equity earnings from unconsolidated subsidiaries
increased 86% to $6.7 million. This is primarily due to the increase in our
ownership share of the Grays Ferry Cogeneration Partnership to 50% from 33 1/3%
and from our $1.4 million share of the reversal of accrued default interest on
the Partnership debt through April 16, 1999. Fees earned and other revenues
increased $1.8 million to $10.9 million primarily due to increased equipment
sales and to new industrial accounts.
Operating Expenses
Fuel and consumables costs were $84.9 million compared with $74.0 million
during the same period last year. This is due to the higher level of energy
revenues and the addition of fuel and consumables costs associated with new
industrial accounts.
Production and operating costs increased 10.2% to $39.8 million due to the
increase in revenues and operating costs associated with new industrial
accounts.
Depreciation and amortization expense was $18.3 million versus $17.4
million in 1998. The increase reflects the higher level of capital
expenditures.
<PAGE>
General and administrative expenses increased $2.8 million compared to
1998. Expenses in 1998 included special cost adjustments of $2.0 million for
insurance and employee related costs. Increased costs in 1999 are primarily due
to legal expenses incurred in pursuing the Oklahoma City antitrust lawsuit
against Oklahoma Gas and Electric Company, overhead related to new industrial
accounts and to increased headcount required to pursue energy outsourcing
opportunities.
Interest Expense, Net
Interest expense increased $1.2 million to $18.8 million due to higher debt
levels.
Other Income, Net
Other income, net is up $10.5 million compared to 1998. This is primarily
due to recognizing the gain from our share of the Adwin interest in the Grays
Ferry Cogeneration Partnership which was surrendered to us on April 23, 1999 as
part of a legal settlement agreement (see Note 6-Legal Proceedings). We
recorded a pre-tax gain of $14.5 million which represents the market value of
the share of Adwin's interest in the Partnership that was surrendered to us.
1998 other income, net included the net results from gains of $2.1 million from
the sale of nitrogen oxide emission allowances and $1.7 million from an
insurance settlement.
Income Taxes
Our effective tax rate is determined primarily by the federal statutory
rate of 35%, and state and local income taxes. The effective tax rate for 1999
and 1998 was 41.4% and 43.0%, respectively.
Cumulative effect of a Change in an Accounting Principle
We incurred an after-tax charge of $4.9 million, net of a tax benefit of
$3.5 million, related to the adoption of SOP 98-5 "Reporting on the Costs of
Start-Up Activities" which was recorded as a cumulative effect of a change in an
accounting principle. Reference is made to Note 4 of the Notes to Consolidated
Financial Statements with respect to the cumulative effect of a change in an
accounting principle.
Liquidity and Financial Position
Cash and cash equivalents were $26.1 million at September 30, 1999 (which
included $4.6 million of restricted cash and cash equivalents), an increase of
$11.4 million from year end 1998. Working capital was $4.2 million compared
with a negative $9.5 million at December 31, 1998. At September 30, 1999,
receivables increased $3.5 million and inventories increased $.5 million to
$44.4 million and $7.6 million, respectively, from the balances at the end of
1998. Accounts payable were up $3.3 million to $8.1 million, accrued fuels
decreased by $4.6 million to $9.5 million and accrued expenses and other current
liabilities were up $7.2 million to $26.8 million at September 30, 1999. Our
working capital requirements vary in line with the peak heating demand in the
winter and peak cooling demand in the summer.
<PAGE>
During the first nine months of 1999, we generated $26.9 million of cash
from operating activities compared with $29.0 million in the like period last
year. The decrease in cash generated from operations in 1999 was due primarily
to higher working capital requirements. During the first nine months of 1999,
we invested $56.5 million in capital expenditures, $5.9 million in the
acquisition of energy facilities and non-consolidated partnership investments
and paid dividends of $1.3 million to shareholders.
Total debt was $425.4 million at September 30, 1999 compared with $375.1
million at the end of 1998. The $50.3 million increase, along with cash
generated from operations, was predominately used to fund capital expenditures.
During the first nine months of 1999, stockholders' equity increased $10.6
million to $158.6 million at September 30, 1999. This increase reflects $9.6
million of net earnings, $.4 million of amortization of unearned compensation
related to restricted shares, a $.7 million cumulative translation adjustment
and reduction in treasury stock related to profit sharing contributions and
employee stock purchase plan of $1.2 million, partially offset by $1.3 million
of dividend payments to shareholders.
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 us and other businesses is the inability of many
computer systems and applications to process the year 2000 ("Y2K") and beyond.
To address this problem, we have developed a plan that divides direction for Y2K
preparedness into four responsibility areas. These areas are Plant Production,
Plant Non-Production, Desktop Systems and Corporate Systems.
Plant Production 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. We have completed
testing of our material Plant Production systems for Y2K compatibility. At this
time, we believe that all of our material Plant Production systems are Y2K
compatible.
Plant Non-Production 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. At this time, we believe that all of our material Plant Non
Production systems are Y2K compliant.
We anticipate all material Desktop systems to be compliant by December 1999
and Corporate Systems, which include financial and billing systems, to be
compliant by December 1999. At this time, we believe our accounting system is
Y2K compliant. We are in the process of upgrading our billing and other systems
to achieve compliance. If we are not successful in these efforts, we believe
that it would not impact our ability to serve our customers, although we may
experience administrative difficulties.
<PAGE>
We estimate the total external cost to achieve Y2K compliance to be $1
million for the years 1997 through 1999. These costs have been substantially
incurred and expensed. We believe we are staffed sufficiently to address all
Y2K issues.
We purchase 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. We will continue to survey our key
vendors to determine their Y2K compliance. At this time, we do not expect any
material disruption in services from vendors due to Y2K issues. We are,
however, dependent in part, upon the ability of our vendors to be Y2K compliant.
Our Y2K efforts are ongoing and our overall plan, as well as consideration of
contingency plans, will continue to evolve as new information becomes available.
At this time, we do not expect any major interruption of our business activities
due to Y2K issues. However, we are unable to estimate the ultimate effect Y2K
risks will have on our operating results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not engage in the trading of market risk sensitive instruments in the
normal course of business. Our short and long-term debt is subject to fixed and
variable interest rates including rates based primarily on LIBOR. Based upon the
debt balances at September 30, 1999, a change in the LIBOR rate of .25% would
have a corresponding change in interest expense of approximately $655,000 per
year when three-month LIBOR is over 7.5% ranging to approximately $776,000 per
year when three-month LIBOR is under 6.0%. Three-month LIBOR at September 30,
1999 was 6.08%.
We use financial instruments to limit the financial risk of increases in
interest rates on our floating rate debt. The differential to be paid or
received under financial instruments is accrued and recognized in interest
expense as interest rates change. As of September 30, 1999, we had outstanding
interest rate swap, cap and collar agreements related to $40.8 million of debt
outstanding, with an average fixed interest rate of 5.8% and an average
remaining life of 5.6 years. If Trigen had liquidated the swap, cap and collar
the amount received would have approximated $357,000. We do not expect these
financial instruments to have a material effect on our earnings or cash flows.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings.
We report information regarding our legal proceedings under Note 6 to the
Consolidated Financial Statements in this Report and in our Annual Report on
Form 10-K for the year ended December 31, 1998 as well as in other reports we
have filed with the SEC earlier this year.
Shareholder Litigation
On September 21, 1999, three complaints were filed in Delaware Chancery
Court against: Trigen Energy Corporation, Suez Lyonnaise Des Eaux SA, Patrick
Buffet, George F. Keane, Thomas R. Casten, Philippe Brongniart, Olivier Degos,
Patrick Desnos, Richard E. Kessel, Charles E. Bayless, Michel Bleitrach,
Dominique Mangin D'Ouince and Michel Cassou. The individual defendants were
sued in their capacity as Trigen directors and/or former Trigen directors. A
complaint was filed by Michael Fothergill; another complaint was filed by Rosa
Cortez; and the third complaint was filed by Sarah Berkowitz. The complaints
raise substantially identical allegations: that Trigen received a proposal from
Suez to take Trigen private for $22.00 per share in cash. The plaintiffs allege
that this price does not represent the true value of Trigen and is unfair to the
minority shareholders. Plaintiffs further allege that because Suez owns
approximately 52% of Trigen's outstanding shares, Suez has the power to
effectuate the transaction without regard to the minority shareholders.
Plaintiffs seek class certification, declaratory and injunctive relief (or money
damages if the transaction is consummated), and an accounting.
Item 3. Defaults Upon Senior Securities.
As part of the settlement of the lawsuit between Grays Ferry Cogeneration
Partnership (the "Partnership") and PECO Energy Company, The Chase Manhattan
Bank and certain other commercial banks (collectively the "Banks") and
Westinghouse Power Generation agreed to waive claims for default interest
against the Partnership up to April 16, 1999. The Banks and Westinghouse
financed the construction of the Grays Ferry Cogeneration Facility under
separate loan agreements. The Partnership owes a total principal amount of
approximately $84,400,000 to the Banks. The Partnership owes a total principal
amount of approximately $15,000,000 to Westinghouse.
As of the date of this Report, the Partnership is in default under its debt
agreements with the Banks and Westinghouse for the following reasons. The
Partnership did not convert on time the Bank's short term construction loan for
the Grays Ferry Cogeneration Facility to a longer term loan. The Partnership
could not complete that conversion because of a dispute with the construction
contractor which has now been resolved. The Partnership also did not make a
principal payment to Westinghouse because the Banks required the Partnership to
apply the Partnership's available cash (net of operating expenses) to repayment
of principal owed to the Banks.
<PAGE>
Westinghouse and the Banks have not accelerated the debt owed to them nor
charged default interest against the Partnership, although the Banks have
reserved their rights to do so. The Banks also reserved their right to apply
available cash held by the 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 loan outstanding.
Item 5. Other Information.
On September 20, 1999, we received a letter from the management of the
majority stockholder, ELYO, indicating its offer to purchase the outstanding
stock of Trigen for $22.00 per share in cash. Our Board of Directors has
appointed an independent committee of the Board of Directors to evaluate the
offer. ELYO and its parent, Suez Lyonnaise des Eaux, control approximately 52%
of our outstanding stock.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1999
Form 8-K/A-2. Item 2. Acquisition or Disposition of Assets, July 2,
1999, and Item 7. Financial Statements and Exhibits, July 2, 1999.
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 & Chief Financial
Officer
/s/ Daniel J. Samela
-----------------------------
Daniel J. Samela Controller
Date: November 12, 1999
<TABLE> <S> <C>
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<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q for quarter ending September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
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