-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cqp73W/EI3WYnSppgEHwiTSbPO8IXZ5if1bjpqkt/meRic+wEbuTsgqvKCS6OjBH EecOSXjG6Cp57q/cxHLmPQ== 0000912057-99-006074.txt : 19991117 0000912057-99-006074.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006074 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITHE INDEPENDENCE FUNDING CORP CENTRAL INDEX KEY: 0000899281 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 133677475 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-59960 FILM NUMBER: 99755024 BUSINESS ADDRESS: STREET 1: 450 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124509000 MAIL ADDRESS: STREET 1: 450 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SITHE INDEPENDENCE POWER PARTNERS LP CENTRAL INDEX KEY: 0000899322 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 330468704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-59960-01 FILM NUMBER: 99755025 BUSINESS ADDRESS: STREET 1: 450 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2124509000 MAIL ADDRESS: STREET 2: 450 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Quarterly Period Ended September 30, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From ______________ to _____________ Commission File Number 33-59960 SITHE/INDEPENDENCE FUNDING CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3677475 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 335 MADISON AVENUE, NEW YORK, NY 10017 -------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-351-0000 -------------- (Registrant's telephone number, including area code) SITHE/INDEPENDENCE POWER PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 33-0468704 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 335 MADISON AVENUE, NEW YORK, NY 10017 -------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-351-0000 (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 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. /X/ Yes / / No SITHE/INDEPENDENCE POWER PARTNERS, L.P. SITHE/INDEPENDENCE FUNDING CORPORATION PAGE NO. PART I FINANCIAL INFORMATION SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) Financial Statements: Consolidated Balance Sheets at September 30, 1999 and December 31, 1998 (Unaudited)..................................... 3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 (Unaudited).............. 4 Consolidated Statement of Partners' Capital for the Nine Months Ended September 30, 1999 (Unaudited)....................... 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (Unaudited)..................... 6 Notes to Consolidated Financial Statements (Unaudited).............. 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 8 Quantitative and Qualitative Disclosures about Market Risk................ 12 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................... 13 Signatures .......................................................... 14 -2- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,810 $ 2,147 Restricted cash and cash equivalents 60,382 39,522 Restricted investments 46,916 38,180 Accounts receivable - trade 29,105 11,738 Fuel inventory and other current assets 5,401 2,670 -------- -------- TOTAL CURRENT ASSETS 144,614 94,257 PROPERTY, PLANT AND EQUIPMENT, AT COST: Land 5,010 5,010 Electric and steam generating facilities 776,085 772,581 -------- -------- 781,095 777,591 Accumulated depreciation (91,611) (77,046) -------- -------- 689,484 700,545 DEBT ISSUANCE COSTS 7,455 8,197 OTHER ASSETS 5,604 6,645 -------- -------- TOTAL ASSETS $847,157 $809,644 ======== ======== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Trade payables $ 23,722 $ 16,574 Accrued interest 14,472 173 Current portion of long-term debt 23,353 27,411 -------- -------- TOTAL CURRENT LIABILITIES 61,547 44,158 LONG-TERM DEBT: 7.90% secured notes due 2002 72,838 82,486 8.50% secured bonds due 2007 150,839 150,839 9.00% secured bonds due 2013 408,609 408,609 -------- -------- 632,286 641,934 OTHER LIABILITIES 7,928 5,020 COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL 145,396 118,532 -------- -------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $847,157 $809,644 ======== ========
See notes to consolidated financial statements. -3-
SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands) Three Months Nine Months Ended September 30, Ended September 30, ----------------------------------- ------------------------------------ 1999 1998 1999 1998 -------------- -------------- -------------- -------------- Revenue $ 99,565 $ 81,489 $ 300,366 $ 262,946 -------------- -------------- -------------- -------------- Cost of sales: Fuel 60,171 53,635 182,391 158,871 Operations and maintenance 12,070 9,732 35,125 30,663 Depreciation 5,035 4,902 14,965 15,159 -------------- -------------- -------------- -------------- 77,276 68,269 232,481 204,693 -------------- -------------- -------------- -------------- Operating income 22,289 13,220 67,885 58,253 Non-operating income (expense): Interest expense (14,843) (15,400) (45,140) (46,045) Other income, net 1,577 1,564 4,119 5,038 -------------- -------------- -------------- -------------- Net income (loss) $ 9,023 $ (616) $ 26,864 $ 17,246 ============== ============== ============== ==============
See notes to consolidated financial statements. - 4 -
SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (Unaudited) (In thousands) Total General Limited Partners' Partner Partners Capital --------------- ----------- ------------------ Balance, January 1, 1999 $ 985 $ 117,547 $ 118,532 Net income and total comprehensive income 269 26,595 26,864 ------------- -------------- --------------- Balance, September 30, 1999 $ 1,254 $ 144,142 $ 145,396 ============= ============== =============== See notes to consolidated financial statements. - 5 -
SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, -------------------------------- 1999 1998 ----------- ----------- Cash flows from operating activities: Net income $ 26,864 $ 17,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 14,565 15,159 Amortization of deferred financing costs 742 758 Changes in operating assets and liabilities: Accounts receivable - trade (17,367) 6,749 Fuel inventory and other current assets (2,731) (1,973) Other assets 1,041 1,042 Trade payables 7,148 1,014 Accrued interest payable 14,299 14,755 Other liabilities 2,908 (2,628) -------------- ------------- Net cash provided by operating activities 47,469 52,122 -------------- ------------- Cash flows from investing activities: Capital expenditures (3,504) (1,056) Restricted funds (29,596) (40,926) -------------- ------------- Net cash used in investing activities (33,100) (41,982) -------------- ------------- Cash flows from financing activities: Principal payments of long-term debt (13,706) (9,429) -------------- ------------- Net cash used in financing activities (13,706) (9,429) -------------- ------------- Net increase in cash and cash equivalents 663 711 Cash and cash equivalents at beginning of period 2,147 3 -------------- ------------- Cash and cash equivalents at end of period $ 2,810 $ 714 ============== ============= Supplemental cash flow information Cash payments: Interest $ 30,841 $ 31,290
See notes to consolidated financial statements. - 6 - SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. THE PARTNERSHIP Sithe/Independence Power Partners, L.P. (the "Partnership"), in which Sithe Energies, Inc. and certain of its direct and indirect wholly-owned subsidiaries (the "Partners") hold all the partnership interests, is a Delaware limited partnership that was formed in November 1990 for a term of 50 years to develop, construct and own a gas-fired cogeneration facility with a design capacity of approximately 1,000 megawatts (the "Project") located in the Town of Scriba, County of Oswego, New York. The Project commenced commercial operation for financial reporting purposes on December 29, 1994. The majority of the capacity and electric energy generated by the Project is sold to Consolidated Edison Company of New York, Inc. ("Con Edison") and Alcan Aluminum Corporation ("Alcan") with the remainder of the electric energy being sold to Niagara Mohawk Power Corporation. 2. BASIS OF PRESENTATION The accompanying consolidated balance sheets at September 30, 1999 and December 31, 1998 and the consolidated statements of operations for the three and nine months ended September 30, 1999 and 1998 and cash flows for the nine months ended September 30, 1999 and 1998 should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 1998 for the Partnership and its wholly-owned subsidiary, Sithe/Independence Funding Corporation ("Sithe Funding"). Certain prior year amounts have been reclassified to conform to the 1999 presentation. The results of operations for the three and nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. The unaudited financial information at September 30, 1999 and for the three and nine months ended September 30, 1999 and 1998 contains all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the operating results for such periods. Effective January 1, 1999, the Partnership adopted Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which was issued by the American Institute of Certified Public Accountants in April 1998. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The adoption of SOP 98-5 had no effect on the financial position or results of operations of the Partnership. -7- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue for the third quarter of 1999 of $99.6 million was $18.1 million (22%) higher than in the corresponding period of last year due to higher electric generation ($11.5 million) and higher energy rates ($6.6 million). The lower generation in the 1998 quarter reflects the fact that in light of the record warm 1998 temperatures (the warmest in 103 years) and resulting low thermal deliveries to Alcan, the Project was required to curtail electric production in order to ensure maintenance of its 1998 Qualifying Facility ("QF") status. No such curtailments have occurred or are anticipated for 1999. Furthermore, as a result of projects completed in 1999 for the purpose of increasing thermal deliveries to Alcan, the Partnership believes that it will be able to maintain the Project's QF status without curtailing generation even if 1998-type weather patterns were to reoccur. Cost of sales for the third quarter of 1999 of $77.3 million was $9.0 million (13%) higher than in the corresponding period of last year due largely to higher fuel costs as well as a contractual price increase under the Partnership's long-term equipment maintenance contract. The higher fuel cost was attributable to a contractual price increase under the Partnership's long-term gas supply contract and higher fuel consumption as a result of higher net generation in the third quarter of 1999. Interest expense for the third quarter of 1999 of $14.8 million was $.6 million lower than in the corresponding period of last year due primarily to the lower outstanding amount of long-term debt. Revenue for the first nine months of 1999 of $300.4 million was $37.4 million (14%) higher than in the corresponding period of last year due primarily to higher net generation ($21.2 million) and higher energy rates ($16.2 million). Cost of sales for the first nine months of 1999 of $232.5 million was $27.8 million (14%) higher than in the corresponding period of last year due largely to higher fuel costs as well as a contractual price increase under the Partnership's long-term equipment maintenance contract. The higher fuel cost was attributable to a contractual price increase under the Partnership's long-term gas supply contract, higher fuel consumption resulting from higher net generation and the fact that fuel expense for the first nine months of 1998 included a $3.0 million gas transportation rebate. -8- Interest expense for the first nine months of 1999 of $45.1 million was $.9 million lower than in the corresponding period of last year due to the lower outstanding amount of long-term debt. Other income, net, consisted of interest income for all periods. LIQUIDITY AND CAPITAL RESOURCES Financing for the Project consisted of a loan to the Partnership by Sithe Funding of the proceeds of its issuance of $717.2 million of notes and bonds and $60 million of capital contributions by the Partners. In addition, under a credit facility obtained by the Partners, one or more letters of credit may be issued in connection with their obligations pursuant to certain Project contracts, and, as of September 30, 1999, letters of credit aggregating $13.7 million were outstanding in connection with such obligations. Also, the Partnership has secured a portion of the Project's debt service reserve obligations with a letter of credit in the amount of $50 million. As of September 30, 1999, the Partnership had restricted funds and investments aggregating $107.3 million, including the Project's cumulative cash debt service reserve and major overhaul reserve of $33.0 million and $5.8 million, respectively. In addition, these restricted funds included $21.5 million that was utilized for October 1999 operating expenses, $19.2 million segregated for the December 1999 interest payment on the Partnership's long-term debt and the balance in the Partnership distribution account. Funds in the Partnership distribution account are available as additional operating and debt service reserves until such time as certain coverage ratios are achieved. To secure the Partnership's obligation to pay any amounts drawn under the debt service letter of credit, the letter of credit provider has been assigned a security interest and lien on all of the collateral in which the holders of the Securities have been assigned a security interest and lien. The Partnership believes that funds available from cash on hand, restricted funds, operations and the debt service letter of credit will be more than sufficient to liquidate Partnership obligations as they come due and pay scheduled debt service. YEAR 2000 COMPLIANCE The Partnership utilizes a number of computerized operating and control systems at the Project, including applications used in plant operations and various administrative functions. The Partnership has completed the inventory of systems and components which could be affected by year 2000 non-compliance and has completed its assessment of the state of year 2000 readiness of both its information technologies and non-information technology systems. The Partnership engaged Raytheon Engineers and Constructors Inc., an affiliate of one of the Project's construction contractors, to perform an independent review of the inventory and assessment activities. This independent review was completed and Raytheon completed work with the Partnership to develop a comprehensive plan to remediate, test and implement any necessary corrections. The Partnership joined the Electric Power Research Institute Year 2000 Program to gain access to the pooled expertise and databases of over 100 -9- power generation companies and utilities that participate in this program. As of September 7, 1999, the Partnership's remediation and test program for mission critical equipment, components and systems was complete. In July 1999, the Partnership's year 2000 program was validated through an on-site review process that was conducted at the request of, and performed by, the North American Electric Reliability Council ("NERC"). The NERC's review concluded that the Partnership has a well implemented and documented year 2000 plan and a strong Project and corporate commitment to achieving year 2000 readiness. The results of this review were also reported to the Public Service Commission of the State of New York. Based upon information currently available to the Partnership, the Partnership anticipates that the total cost of remediation will be approximately $1.1 million, of which $1.0 million was spent through the third quarter of 1999 with the balance expected to be spent through the end of 1999. The Partnership is also assessing its exposure to year 2000 issues of the third parties with whom it has material contracts. Questionnaires have been sent to these third parties to determine their year 2000 status and discussions are being held to finalize the assessment of third party year 2000 readiness. The Partnership's contingency plans with respect to year 2000 readiness are about 90% complete and should be completed by the end of November 1999. In the absence of third party responses to such questionnaires, the Partnership has performed alternate procedures (i.e., review of year 2000 disclosures on third party company web-sites and review of quarterly and annual reports filed with the Securities and Exchange Commission) to determine the year 2000 status of the third parties on which it relies. The year 2000 status of many of these third parties is monitored by Federal and state regulatory authorities and as a result, the Partnership has reasonable assurance that all third parties on which it relies have or will have achieved year 2000 readiness. If the systems of the Partnership or the third parties on which it relies fail because they are not year 2000 ready, such failures could have a material adverse impact on the Partnership's financial position or results of operations. The dates on which the Partnership believes it has or will have achieved year 2000 compliance are based on the Partnership's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, or that there will not be a delay in, or increased costs associated with, remediation of the year 2000 issue. Specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in these areas, the ability to locate and correct all relevant computer code, timely responses to and corrections by third parties and suppliers, and similar uncertainties. Due to the general uncertainty inherent in the year 2000 issue, resulting in part from the uncertainty of the year 2000 readiness of third parties, the Partnership cannot ensure its ability to timely and cost-effectively resolve problems associated with the year 2000 issue that may impact its operations and business, or expose it to third party liability. -10- FORWARD-LOOKING STATEMENTS Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934. The words "anticipate", "believe", "expect", "estimated" and similar expressions generally identify forward-looking statements. While the Partnership believes in the veracity of all statements made herein, forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Partnership, are inherently subject to significant business, economic and competitive uncertainties and contingencies, the price of natural gas and the demand for and price of electricity. These uncertainties and contingencies could cause the Partnership's actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Partnership. -11- SITHE/INDEPENDENCE POWER PARTNERS, L.P. (A DELAWARE LIMITED PARTNERSHIP) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership has investments in financial instruments subject to interest rate risk consisting of $60.4 million of restricted cash and cash equivalents and $46.9 million of restricted investments. In the case of restricted cash and cash equivalents, due to the short duration of these financial instruments, a 10% immediate change in interest rates would not have a material effect on the Partnership's financial condition. In the case of restricted investments, the resulting potential decrease in fair value from a 10% immediate change in interest rates would be approximately $.7 million. The Partnership's outstanding long-term debt at September 30, 1999 bears interest at fixed rates and therefore the Partnership's results of operations would not be affected by changes in interest rates as they apply to borrowings. -12- PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Description of Exhibit ----------- ---------------------- 27 -- Article 5 Financial Data Schedule of Sithe/Independence Power Partners, L.P. for the quarter ended September 30, 1999. (b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter covered by this report. -13- 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. Sithe/Independence Funding Corporation -------------------------------------- (REGISTRANT) November 15, 1999 /s/ Richard J. Cronin III -------------------------------------- RICHARD J. CRONIN III CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, the co-registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sithe/Independence Power Partners, L.P. --------------------------------------- (REGISTRANT) By: Sithe/Independence, Inc. ------------------------- GENERAL PARTNER November 15, 1999 /s/ Richard J. Cronin III -------------------------------------- RICHARD J. CRONIN III CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE PARTNERSHIP'S FOR 10Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000899281 SITHE/INDEPENDENCE FUNDING CORP. 9-MOS DEC-31-1999 SEP-30-1999 2,810 0 29,105 0 5,401 144,614 781,095 (91,611) 847,157 61,547 632,286 0 0 0 145,396 847,157 300,366 300,366 232,481 232,481 0 0 45,140 26,864 0 26,864 0 0 0 26,864 0 0
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