-----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, EP5aedFCo7YZZR8/gchp7V0quG2opCgU4IGqMkLtUv/dGt90vfL8S7mEvMPXB2B7 SM7lkESfL9h+s2ATv6W9Qg== 0001047469-98-040900.txt : 19981118 0001047469-98-040900.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-040900 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98749638 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: 98749639 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 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1998 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) 450 LEXINGTON AVENUE, NEW YORK, NY 10017 ---------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-450-9000 -------------- (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) 450 LEXINGTON AVENUE, NEW YORK, NY 10017 ---------------------------------- ----- (Address of principal executive offices) (Zip code) (212)-450-9000 -------------- (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, 1998 and December 31, 1997 (Unaudited). . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) . . . . . . . 4 Consolidated Statement of Partners' Capital for the Nine Months Ended September 30, 1998 (Unaudited). . . . . . . . . . . . 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 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 8 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2 SITHE/INDEPENDENCE POWER PARTNERS, L.P. (a Delaware Limited Partnership) CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) SEPTEMBER 30, DECEMBER 31, 1998 1997 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 714 $ 3 Restricted cash and cash equivalents 70,626 40,643 Restricted investments 45,617 34,674 Accounts receivable - trade 26,635 33,384 Fuel inventory and other current assets 3,845 1,872 --------- --------- TOTAL CURRENT ASSETS 147,437 110,576 PROPERTY, PLANT AND EQUIPMENT, AT COST: Land 5,010 5,010 Electric and steam generating facilities 767,328 765,239 --------- --------- 772,338 770,249 Accumulated depreciation (72,134) (56,975) --------- --------- 700,204 713,274 DEBT ISSUANCE COSTS 8,454 9,212 OTHER ASSETS 3,943 4,985 --------- --------- TOTAL ASSETS $ 860,038 $ 838,047 ========= ========= LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Trade payables $ 21,837 $ 20,823 Accrued interest 14,929 174 Current portion of long-term debt 23,133 18,856 Accrued construction costs and retentions 1,476 443 --------- --------- TOTAL CURRENT LIABILITIES 61,375 40,296 LONG-TERM DEBT: 7.90% secured notes due 2002 96,191 109,897 8.50% secured bonds due 2007 150,839 150,839 9.00% secured bonds due 2013 408,609 408,609 --------- --------- 655,639 669,345 OTHER LIABILITIES 5,214 7,842 COMMITMENTS AND CONTINGENCIES PARTNERS' CAPITAL 137,810 120,564 --------- --------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 860,038 $ 838,047 ========= ========= 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, --------------------- --------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Revenue $ 81,489 $ 91,108 $ 262,946 $ 275,903 --------- --------- --------- --------- Cost of sales: Fuel 53,635 53,418 158,871 157,347 Operations and maintenance 9,732 10,329 30,663 23,147 Depreciation 4,902 4,918 15,159 14,752 --------- --------- --------- --------- 68,269 68,665 204,693 195,246 --------- --------- --------- --------- Operating income 13,220 22,443 58,253 80,657 Non-operating income (expense): Interest expense (15,400) (15,502) (46,045) (46,962) Interest income 1,564 1,781 5,038 5,370 --------- --------- --------- --------- Net income (loss) $ (616) $ 8,722 $ 17,246 $ 39,065 ========= ========= ========= =========
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, 1998 $ 1,280 $ 119,284 $ 120,564 Net income 172 17,074 17,246 --------- --------- --------- BALANCE, SEPTEMBER 30, 1998 $ 1,452 $ 136,358 $ 137,810 ========= ========= ========= 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, ---------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,246 $ 39,065 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,159 14,752 Amortization of deferred financing costs 758 798 Changes in operating assets and liabilities: Accounts receivable - trade 6,749 9,582 Fuel inventory and other current assets (1,973) 1,287 Other assets 1,042 1,041 Trade payables 1,014 (3,437) Accrued interest payable 14,755 15,042 Other liabilities (2,628) (8,116) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 52,122 70,014 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,056) (16,087) Restricted funds (40,926) (44,944) --------- --------- NET CASH USED IN INVESTING ACTIVITIES (41,982) (61,031) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of long-term debt (9,429) (5,101) --------- --------- NET CASH USED IN FINANCING ACTIVITIES (9,429) (5,101) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 711 3,882 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3 4 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 714 $ 3,886 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION Cash payments: Interest $ 31,290 $ 30,228
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, 1998 and December 31, 1997 and the consolidated statements of operations for the three and nine months ended September 30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998 and 1997 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, 1997 for the Partnership and its wholly-owned subsidiary, Sithe/Independence Funding Corporation. The results of operations for the three and nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year. The unaudited financial information at September 30, 1998 and for the three and nine months ended September 30, 1998 and 1997 contains all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the operating results for such periods. Operations and maintenance expense for the first quarter of 1997 reflects an $8.2 million credit as a result of the Partnership's discontinuance of its major overhaul cost normalization policy for its gas turbines, steam turbines and generators (the "covered units"). This policy was discontinued effective January 1, 1997, when the Partnership entered into a twelve-year service agreement with General Electric Company ("GE") under which GE performs all scheduled major overhauls of the covered units. -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 and first nine months of 1998 of $81.5 million and $262.9 million, respectively, was lower than in corresponding periods of last year by $9.6 million (11%) and $13.0 million (5%), respectively, due largely to lower net generation in the third quarter of 1998 offset in part by higher Con Edison tariffs. As a result of the unusually warm weather in the first half of this year, the Partnership has been required to begin curtailing second-half electricity generation to ensure that, by year end, the Project's ratio of thermal energy deliveries to total energy deliveries is at the level required to maintain the Project's Qualifying Facility ("QF") status. Additional QF-related curtailments will be required in the fourth quarter with the resulting adverse impact on operating income for that period presently estimated at approximately $13 million. Certain action has already been taken and additional efforts are underway toward increasing thermal energy deliveries and QF margin in 1999 and beyond. Cost of sales for the third quarter of 1998 of $68.3 million was $.4 million (.6%) lower than in the third quarter of 1997 reflecting lower operations and maintenance expense and lower fuel consumption due to lower net generation, almost entirely offset by higher fuel costs due to a contractual price increase under the Partnership's long-term gas supply contract. Cost of sales for the first nine months of 1998 of $204.7 million was $9.5 million (5%) higher than in the first nine months of 1997 principally reflecting (a) higher fuel costs due to a contractual price increase under the Partnership's long-term gas supply contract, partly offset by lower fuel consumption and a $3.0 million gas transportation cost rebate and (b) the fact that the first nine months of 1997 included an $8.2 million credit to maintenance expense associated with the discontinuance of the Partnership's major overhaul cost normalization policy for the covered units. Interest expense for the third quarter of 1998 and the first nine months of 1998 decreased by $.1 million and $.9 million, respectively, from the corresponding periods of last year due to lower outstanding amounts of long-term debt. LIQUIDITY AND CAPITAL RESOURCES 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, 1998, letters of credit aggregating $14.0 million were outstanding in -8- connection with such obligations. Also, the Partnership has secured the Project's debt service reserve obligations with a letter of credit in the amount of $50 million. As of September 30, 1998, the Partnership had restricted funds aggregating $116.2 million, including the Project's cumulative cash debt service reserve and major overhaul reserve of $33.0 million and $5.6 million, respectively. In addition, these restricted funds included $21.5 million that was utilized for October operating expenses, $24.4 million reserved for the December 31 debt service payment, $4.9 million reserved for Project completion and $26.8 million in the partnership distribution account. Funds in the distribution account are available as additional operating and debt service reserves until such time as certain coverage ratios are achieved. Although the Partnership's net income for 1998 is being reduced due to QF-related curtailments and its net income could also decline through the fourth quarter of 1999 due largely to Tier I gas prices increasing at a greater rate than increases in the energy component of billings to Con Edison, 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 is nearing the completion of its assessment of the state of year 2000 readiness of both its information technologies and non-information technology systems. The Partnership has completed the development of a comprehensive database of its systems which could be affected by year 2000 non-compliance and is in the process of communicating with the applicable suppliers and manufacturers of such systems to determine the state of year 2000 compliance of such systems. The Partnership has engaged Raytheon Engineers and Constructors Inc. ("Raytheon"), an affiliate of one of the Project's construction contractors, to perform an independent review of this assessment and to work with the Partnership to develop a comprehensive plan to remediate, test and implement any necessary corrections. The Partnership presently anticipates that this plan will be completed by the end of November 1998, that it will begin remediation efforts, to the extent required, by December 1998 and that any necessary remediation will be implemented prior to the end of 1999. Based upon information currently available to the Partnership, it estimates that the cost of remediation will be less than $1 million, of which less than of $.1 million has been expended in the first three quarters of 1998. 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. The Partnership has not yet developed any contingency plans with respect to year 2000 compliance, but will do so, in order to deal with any problems that are revealed as a result of the Partnership's internal and external assessment. 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. -9- The dates on which the Partnership believes it 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, 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 affect its operations and business, or expose it to third party liability. 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 "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, including the continuation of above normal temperatures, 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. -10- PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Description of Exhibit ----------- ---------------------- 27 -- Financial Data Schedule of Sithe/Independence Power Partners, L.P. for the quarter ended September 30, 1998. (b) Reports on Form 8-K: No report on Form 8-K was filed during the quarter covered by this report. -11- 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 13, 1998 /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 13, 1998 /s/ Richard J. Cronin III --------------------------------------- RICHARD J. CRONIN III CHIEF FINANCIAL OFFICER AND SENIOR VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) -12- 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 FORM 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-31-1998 SEP-30-1998 714 0 26,635 0 3,845 147,437 772,338 (72,134) 860,038 61,375 655,639 0 0 0 137,810 860,038 262,946 262,946 204,693 204,693 0 0 46,045 17,246 0 17,246 0 0 0 17,246 0 0
-----END PRIVACY-ENHANCED MESSAGE-----