SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q/A
[ 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
Page
Explanatory Note..............................................................3
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1997 (Unaudited)................4
Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997...............................................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (Unaudited).......................6
Notes to Consolidated Financial Statements (Unaudited)...................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................11
Item 3.Quantitative and Qualitative Disclosures About Market Risk.......14
Part II - Other Information:.................................................15
Signatures:..................................................................16
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>
EXPLANATORY NOTE
As of January 1, 1998, the Company has changed its accounting policy for
interim reporting for certain operating costs from an average costing method to
an actual costing method. This amended report consisting of revised Items 1 and
2 of Part I of the quarterly report on Form 10-Q reflects the effects of that
change in accounting policy. Information not affected by that change in
accounting policy is repeated herein without amendment. Information contained
in this amendment should be read in conjunction with the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. The Company believes that
the use of an actual costing methodology better reflects the results of its
operations and conforms internal and external reporting of such results. This
change affects interim quarterly reporting only and has no effect on an annual
basis for the years ended December 31, 1998 and 1997 or any prior years.
<PAGE>
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements
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)
<S> <C> <C> <C> <C>
Three Months Nine Months
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
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 19,823 19,519 70,062 83,370
Production and operating costs 13,510 11,580 40,018 35,591
Depreciation 4,994 4,067 14,657 11,937
General and administrative 9,311 8,363 30,529 25,400
------- ------- -------- --------
Total operating expenses 47,638 43,529 155,266 156,298
------- ------- -------- --------
Operating income (loss) 3,201 (505) 21,279 18,354
Other income (expense)
Interest expense (6,046) (4,798) (17,613) (13,924)
Other income, net 332 184 4,931 1,049
------- ------- -------- --------
Earnings (losses) before minority
interests, income taxes and extraordinary
item (2,513) (5,119) 8,597 5,479
Minority interests in earnings of
subsidiaries 799 1,316 2,374 2,845
------- ------- -------- --------
Earnings (losses) before income taxes
and extraordinary item (3,312) (6,435) 6,223 2,634
Income taxes (1,424) (2,639) 2,676 1,079
------- ------- -------- --------
Earnings (losses) before extraordinary
item (1,888) (3,796) 3,547 1,555
Extraordinary loss from extinguishment
of debt, net of tax benefit -- -- (299) --
------- ------- -------- --------
Net earnings (losses) $(1,888) $(3,796) $ 3,248 $ 1,555
------- ------- -------- --------
Basic earnings (losses) per common share
Before extraordinary item $ (.15) $ (.32) $ .30 $ .13
Extraordinary loss -- -- (.03) --
------- ------- -------- --------
Net earnings (losses) $ (.15) $ (.32) $ .27 $ .13
------- ------- -------- --------
Diluted earnings (losses) per common share
Before extraordinary item $ (.15) $ (.31) $ .30 $ .13
Extraordinary loss -- -- (.03) --
------- ------- -------- --------
Net earnings (losses) $ (.15) $ (.31) $ .27 $ .13
------- ------- -------- --------
Average shares outstanding - basic 11,999 12,017 12,010 12,005
------- ------- -------- --------
Average shares outstanding - diluted 11,999 12,113 12,011 12,135
------- ------- -------- --------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share data)
<S> <C> <C>
September 30, December 31,
1998 1997
------------ ----------
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 433,389 388,448
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 $597,525 $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 25,764 21,485
-------- --------
Total current liabilities 64,884 71,782
Long-term debt 337,251 256,361
Other liabilities 5,094 4,786
Deferred income taxes 38,204 31,237
-------- --------
Total liabilities 445,433 364,166
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 33,836 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 147,449 145,482
-------- --------
Total liabilities and stockholders' equity $597,525 $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 $ 3,248 $ 1,555
Reconciliation of net earnings to cash provided
by operating activities
Extraordinary item 299 -
Depreciation and amortization 18,601 14,681
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 (6,170) (10,146)
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. Change in Accounting Policy
As of January 1, 1998, the Company has changed its accounting policy for
interim reporting for certain operating costs from an average costing method to
an actual costing method. The Company believes that use of an actual costing
methodology better reflects the results of its operations and conforms internal
and external reporting of such results. This change affects interim quarterly
reporting only and has no effect on an annual basis for the years ended December
31, 1998 and 1997 or on any prior years. The accompanying financial statements
reflect the use of the actual costing method for all periods presented.
3. 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.
4. 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.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. 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.
6. 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 (losses) before extraordinary item (3,895) 3,617 1,782
Diluted earnings (losses) per common share -
before extraordinary item (.32) .30 .15
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.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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%.
7. 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.
<PAGE>
TRIGEN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
8. 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 (losses) $(1,888) $(3,796) $3,248 $1,555
Other comprehensive income
Cumulative translation adjustment 36 - 55 39
------- ------- ------ ------
Comprehensive income (loss) $(1,852) $(3,796) $3,303 $1,594
------- ------- ------ ------
<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 losses
before extraordinary item of $(1.9) million or $(.15) per diluted share. This
compared with losses of $(3.8) million and $(.31) 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 $3.2 million and
operating margin was 6.3% in the third quarter of 1998 compared with operating
loss of $(.5) million 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 $19.8 million in the third quarter
compared with $19.5 million last year. As a percent of revenues, fuel and
consumables' costs were 39% in the third quarter 1998 compared to 45.3% last
year.
Production and operating costs increased 16.7% to $13.5 million in the
third quarter due mainly to the inclusion of production and operating costs
related to Trigen-BioPower.
Depreciation expense was $5.0 million compared with $4.1 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 $3.5 million or $.30 per diluted share. This
compared with $1.6 million and $.13 per diluted earnings per share last year.
Operating income was $21.3 million on revenues of $176.5 million in the first
nine months of 1998 compared with operating income of $18.3 million on revenues
of $174.7 million in 1997. Operating margin was 12.1% in 1998 compared with
10.5 % 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 $70.1 million in 1998 compared with $83.4
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 $40.0 million due mainly
to the inclusion of production and operating costs for Trigen-BioPower.
Depreciation expense was $14.7 million compared with $11.9 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.
Income Taxes
The Company's effective tax rate was 43% for the first nine months of 1998
compared with 41% last year.
<PAGE>
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 $4.2 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 $2.0
million to $147.4 million at September 30, 1998. This increase reflects $3.2
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 6. Exhibits
(a) The following exhibits are filed as part of this amendment:
18 Letter re change in accounting policy
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment 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: March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q/A for quarter ending September 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<RECEIVABLES> 33,367
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0
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<TOTAL-LIABILITY-AND-EQUITY> 597,525
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