UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 Number 333-14495-01
PANDA INTERFUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2660915
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
4100 Spring Valley Road, Suite 1001, Dallas, Texas 75244
(Address of principal executive offices, including zip code)
(972) 980-7159
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since last report)
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 11, 1997.
Common Stock, Par Value $.01 Per Share 1,000
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited) F-1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 6
PANDA INTERFUNDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
1996 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... $ 828,797 $ 2,996,357
Restricted cash - current ...................................................... 17,809,921 16,867,247
Accounts receivable ............................................................ 9,402,685 8,559,518
Fuel oil, spare parts and supplies ............................................. 7,913,777 5,988,990
Other current assets ........................................................... 164,905 310,912
------------- -------------
Total current assets ......................................................... 36,120,085 34,723,024
Plant and equipment:
Electric generating facilities ................................................. 288,716,711 290,862,770
Furniture and fixtures ......................................................... 494,418 501,392
Less: accumulated depreciation ................................................. (26,539,539) (35,386,467)
------------- -------------
Total plant and equipment, net ............................................... 262,671,590 255,977,695
Restricted cash - debt service reserves and escrow deposits ...................... 31,799,366 31,589,305
Debt issuance costs, net of accumulated
amortization of $165,015 and $494,519 respectively ............................. 7,570,521 7,388,670
------------- -------------
$ 338,161,562 $ 329,678,694
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
PANDA INTERFUNDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
1996 1997
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ................................................... $ 660,167 $ --
Interest and letter of credit fees ................................... 6,297,558 2,474,417
Operating expenses and other ......................................... 6,991,796 5,801,289
Current portion of long-term debt ...................................... 5,717,623 5,711,478
------------- -------------
Total current liabilities .......................................... 19,667,144 13,987,184
Deferred revenue ......................................................... -- 13,223,856
Long term debt, less current portion ..................................... 209,830,918 205,494,563
Capital lease obligation ................................................. 217,488,645 228,408,012
Commitments and contingencies (Note 3)
Shareholder's deficit:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding .................................. 10 10
Advances to parent ..................................................... (63,033,590) (68,105,364)
Accumulated deficit .................................................... (45,791,565) (63,329,567)
------------- -------------
Total shareholder's deficit ........................................ (108,825,145) (131,434,921)
------------- -------------
$ 338,161,562 $ 329,678,694
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenue:
Electric capacity and energy sales ............................................... $ 21,495,843 $ 48,346,898
Steam and chilled water sales .................................................... 388,119 439,042
Interest income .................................................................. 611,242 1,887,951
------------ ------------
22,495,204 50,673,891
------------ ------------
Expenses:
Plant operating expenses ......................................................... 7,813,737 20,867,693
Project development and administrative ........................................... 1,260,884 5,745,683
Interest expense and letter of credit fees ....................................... 11,095,941 32,422,084
Depreciation ..................................................................... 3,159,659 8,846,929
Amortization of debt issuance costs .............................................. 394,781 329,504
Amortization of partnership formation costs ...................................... 399,826 --
------------ ------------
24,124,828 68,211,893
------------ ------------
Loss before minority interest and extraordinary item ............................... (1,629,624) (17,538,002)
Minority interest ................................................................ (2,405,160) --
------------ ------------
Loss before extraordinary item ..................................................... (4,034,784) (17,538,002)
Extraordinary item - loss on early extinguishment of debt ........................ (21,336,550) --
------------ ------------
Net loss ........................................................................... $(25,371,334) $(17,538,002)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
PANDA INTERFUNDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenue:
Electric capacity and energy sales ............................................... $ 6,936,940 16,060,659
Steam and chilled water sales .................................................... 125,117 154,739
Interest income .................................................................. 224,416 547,015
------------ ------------
7,286,473 16,762,413
------------ ------------
Expenses:
Plant operating expenses ......................................................... 2,752,391 7,238,987
Project development and administrative ........................................... 68,225 1,933,163
Interest expense and letter of credit fees ....................................... 4,726,187 10,834,159
Depreciation ..................................................................... 1,053,220 2,949,025
Amortization of debt issuance costs .............................................. 112,966 111,529
Amortization of partnership formation costs ...................................... 133,276 --
------------ ------------
8,846,265 23,066,863
------------ ------------
Loss before minority interest and extraordinary item ............................... (1,559,792) (6,304,450)
Minority interest ................................................................ (499,077) --
------------ ------------
Loss before extraordinary item ..................................................... (2,058,869) (6,304,450)
Extraordinary item - loss on early extinguishment of debt ........................ (21,336,550) --
------------ ------------
Net loss ........................................................................... $(23,395,419) $ (6,304,450)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
PANDA INTERFUNDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Total
------------------------------- Advances Accumulated Shareholder's
Shares Amount to Parent Deficit Deficit
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 ............. 1,000 $ 10 $ (63,033,590) $ (45,791,565) $(108,825,145)
Advances to parent .................. -- -- (5,071,774) -- (5,071,774)
Net loss ............................ -- -- -- (17,538,002) (17,538,002)
------------- ------------- ------------- ------------- -------------
BALANCE, September 30, 1997 .......... 1,000 $ 10 $ (68,105,364) $ (63,329,567) $(131,434,921)
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
PANDA INTERFUNDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net loss ....................................................................... $ (25,371,334) $ (17,538,002)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Loss on early extinguishment of debt ....................................... 21,336,550 --
Minority interest .......................................................... 2,405,160 --
Depreciation ............................................................... 3,159,659 8,846,929
Amortization of debt issuance costs ........................................ 394,781 329,504
Amortization of partnership formation costs ................................ 399,826 --
Amortization of loan discount and deferred interest ........................ 391,491 16,140,385
Changes in assets and liabilities:
Accounts receivable .......................................................... (2,079,293) 843,167
Fuel oil, spare parts and supplies ........................................... (159,380) 1,924,787
Other current assets ......................................................... (14,525) (146,007)
Accounts payable and accrued expenses ........................................ 3,095,742 (5,013,649)
------------- -------------
Net cash provided (used) by operating activities ........................... 3,558,677 5,387,114
------------- -------------
Investing activities:
Restricted cash - current ...................................................... (2,920,820) 942,674
Acquisition of minority interest ............................................... (34,700,000) --
Additions to property, plant and equipment ..................................... (55,332,280) (2,813,200)
Restricted cash - debt service reserves and escrow deposits .................... (18,886,349) 210,061
------------- -------------
Net cash provided (used) by investing activities ........................... (111,839,449) (1,660,465)
------------- -------------
Financing activities:
Distributions to minority interest owner ....................................... (1,152,113) --
Advances (to) from parent ...................................................... (31,887,353) (5,071,774)
Deferred revenue ............................................................... -- 13,223,856
Proceeds from long term debt ................................................... 275,933,627 --
Repayment of long term debt .................................................... (127,038,813) (4,342,500)
Repayment of capital lease obligation .......................................... -- (5,221,018)
Debt issuance costs ............................................................ (6,957,135) (147,653)
------------- -------------
Net cash provided (used) by financing activities ........................... 108,898,213 (1,559,089)
------------- -------------
Increase (decrease) in cash and cash equivalents ................................. 617,441 2,167,560
Cash and cash equivalents, beginning of period ................................... 1,160,096 828,797
------------- -------------
Cash and cash equivalents, end of period ......................................... $ 1,777,537 $ 2,996,357
============= =============
Noncash operating and financing activities:
Interest expense on capital lease obligation ................................... $ -- $ 16,140,385
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-6
PANDA INTERFUNDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1996 and 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Interfunding Corporation ("PIC", or collectively with
its subsidiaries the "Company"), a wholly owned subsidiary of
Panda Energy Corporation ("PEC"), which in turn is a wholly owned
subsidiary of Panda Energy International, Inc. ("PEII"), was
formed in July 1996 to hold the ownership interests in two
independent power projects which were formerly owned by PEC. The
ownership interests were transferred to the Company at PEC's
historical cost. Because the transfers occurred between entities
under common control, the transactions have been accounted for in
a manner similar to a pooling of interests.
PIC, through its wholly owned subsidiary Panda Interholding
Corporation ("Interholding"), holds the Company's ownership
interests in the Rosemary project and the Brandywine project.
Because Interholding has no independent operations other than
holding the ownership interests in the Rosemary and Brandywine
projects, Interholding (collectively with its subsidiaries) is
considered the predecessor entity of the Company. The entities
holding such ownership interests include the following: Panda
Rosemary Corporation ("PRC"), a 91% general partner in Panda-
Rosemary, L.P. ("Panda-Rosemary"); PRC II Corporation ("PRC II"),
a 9% limited partner in Panda-Rosemary; Panda Brandywine
Corporation, a 50% general partner in Panda-Brandywine, L.P.
("Panda-Brandywine"); Panda Energy Corporation (a Delaware
corporation), a 50% limited partner in Panda-Brandywine; and
Brandywine Water Company. The Company, through its general and
limited partnership interests, owns 100% of Panda-Rosemary and
Panda-Brandywine. Prior to July 31, 1996, the Company owned 10%
of Panda-Rosemary. The Rosemary and Brandywine projects are
located in the United States. Other direct or indirect wholly
owned subsidiaries of PIC include Panda Funding Corporation
("PFC"), Panda-Rosemary Funding Corporation ("PRFC") and Panda
Cayman Interfunding Corporation ("PIC Cayman"), which have been
formed to facilitate the financing of the development and
acquisition of independent power projects.
All material intercompany accounts and transactions have
been eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles and should be read in conjunction
with the audited financial statements for the year ended December
31, 1996. The accompanying unaudited condensed consolidated
financial statements for the three- and nine-month periods ended
September 30, 1996 and 1997 include all adjustments, consisting
of normal recurring accruals, which management considers
necessary for a fair presentation of the results for the interim
periods. The results of operations for the three- and nine-month
periods ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1997. The amounts presented in the balance sheet as of
December 31, 1996 were derived from the Company's audited
consolidated financial statements.
F-7
Allocation of Administrative Costs -- PEII performs certain
accounting, legal, insurance, and consulting services for the
Company. These general and administrative costs are generally
allocated to the Company using the percentage of time PEII
personnel spent performing these services. The expenses allocated
were $946,000 and $1,612,000 for the nine months ended September
30, 1996 and 1997, respectively, and were $392,000 and $557,000
for the three months ended September 30, 1996 and 1997,
respectively. The allocated expenses are included in project
development and administrative expenses in the statement of
operations. Management believes the method used to allocate these
costs is reasonable.
Deferred revenue -- Revenue from the sale of rights to
future interest income from certain of the Company's restricted
cash accounts (debt service reserves and escrow deposits) is
deferred and recognized as interest revenue over the lives of the
related debt obligations.
3. COMMITMENTS AND CONTINGENCIES
In connection with a previous borrowing from Nova Northwest
Inc. ("Nova"), Nova received a cash flow participation interest
in the distributions from the Rosemary Project for the term of
the Panda-Rosemary L.P. partnership agreement. Such
participation interest amounted to 4.33% of the Company's own
participation interest, which was 10% at the time the agreement
was entered into. The Company has filed an action with the
District Court of Dallas County, Texas seeking a declaratory
judgment that Nova's cash flow participation is 0.433% of the
Company's 100% interest after the acquisition of the
institutional investor's 90% limited partnership interest.
Management believes that the resolution of this dispute will not
have a material effect on the financial position, results of
operations or cash flows of the Company. PEII and Nova each have
the option to convert the present value of cash flow
participation, as defined by the agreement, to PEII common stock
at $6 a share.
In August 1996, Panda-Brandywine and PEPCO commenced
discussions concerning commercial operational requirements of the
Brandywine Project and conversion of the construction loan to
long-term financing in the form of a lease. During these
discussions, disagreements arose between Panda-Brandywine and
PEPCO with respect to certain provisions of the Brandywine Power
Purchase Agreement which relate to the determination of the
interest rate that is the basis for reduction in capacity
payments thereunder (the "PEPCO Interest Rate Dispute"). PEPCO
and Panda-Brandywine are presently attempting to resolve these
disagreements but there are no assurances that such efforts will
be successful. If the PEPCO Interest Rate Dispute is determined
adversely to Panda-Brandywine, the capacity payments paid by
PEPCO under the Brandywine Power Purchase Agreement (which
commenced in January 1997) will be less than originally
anticipated, thereby adversely affecting the revenues realized by
Panda-Brandywine, and consequently, reducing the amount of funds
that would be available for distribution to the Company.
F-8
Raytheon Engineers and Constructors, Inc. ("Raytheon")
constructed the Brandywine Project pursuant to a fixed-price,
turnkey engineering, procurement and construction contract (the
"Brandywine EPC Agreement") with Panda-Brandywine. Raytheon
completed the construction and start-up of the Brandywine Project
and has met the requirements for commercial operations and
substantial completion under the Brandywine EPC Agreement,
although the date on which commercial operations were achieved
and the entitlement of Raytheon to certain early completion
bonuses under the Brandywine EPC Agreement are the subject of a
dispute between Panda-Brandywine and Raytheon. The Company
estimates that the amount in dispute is less than $1 million and
believes that the resolution of this dispute will not have a
material adverse effect upon the financial position, results of
operations or cash flows of the Company.
The Company has entered into various long-term contracts for
the purchase and transportation of fuel subject to termination
only in certain limited circumstances. These contracts have
remaining terms of 10 to 25 years. The Company's minimum
purchase commitment under these contracts is 2.3 million British
thermal units of gas annually from October 31, 1996 through
October 31, 2011. In the aggregate, such commitments are not at
prices in excess of the current market.
PEII is also involved in other legal and administrative
proceedings in the ordinary course of business. Management
believes that the amount of ultimate liability with respect to
these matters will not have a material affect on the financial
position, results of operations or cash flows of the Company.
F-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Dollar amounts are in thousands unless otherwise noted)
General
The financial statements included in this Form 10-Q
include the consolidated financial statements of Panda
Interfunding Corporation ("PIC", or collectively with its
subsidiaries the "Company"). The financial statements
reflect the financial data of the entities that held
partnership interests in Panda-Rosemary, L.P. ("Panda-
Rosemary") and Panda-Brandywine, L.P. ("Panda-Brandywine")
(collectively the "Project Entities", which own the Rosemary
Facility and the Brandywine Facility, respectively, as
described in the following paragraph) during the periods
presented. In July 1996, these partnership interests were
transferred to Panda Interholding Corporation ("Interholding"),
which is a wholly owned subsidiary of PIC, by PIC's
parent and recorded at the parent's historical cost.
PIC and Interholding were incorporated in July 1996 and
were not in existence during the first six months of 1996;
however, the entities that currently own such partnership
interests are wholly-owned subsidiaries of PIC and
Interholding. Thus, references herein to financial data
of the Company are for convenience of reference, and it
should be understood that all such references are to the
financial information of the entities that held such
interests during the periods presented. Because such
entities are direct subsidiaries of Interholding,
Interholding is considered the predecessor of the Company.
The Company owns 100% equity interests in two completed
electric power generation facilities in the United States:
the Rosemary Facility, which began commercial operations in
December 1990, and the Brandywine Facility, which began
commercial operations in October 1996. Prior to July 31,
1996, the Company owned a 10% equity interest in the
Rosemary Facility.
Results of Operations
The Company's revenues from electric power generation
are derived from long-term contracts which include both a
fixed capacity payment and a variable energy payment. The
capacity payments, which are based upon the specified power
generating capacity of a project, are designed to cover
fixed costs and to provide an acceptable return on equity.
The energy payments, which are based on actual electricity
output, are designed to cover variable costs including fuel
costs and variable operating expenses incurred in connection
with electricity output. Accordingly, the impact of price
fluctuations on the results of operations is generally not
material. The extent to which a facility is dispatched
(i.e., required to deliver electricity), and therefore the
actual electricity output for a given period, are subject to
the discretion of the power purchaser, with certain
limitations. The capacity payments are the predominant
source of revenue for the Company. The Company currently
believes that it can meet its liquidity requirements solely
from the capacity payments in the unlikely event that its
facilities are not dispatched at all. See "Liquidity and
Capital Resources."
-1-
Third Quarter 1997 compared to 1996
The Company recorded a net loss of $6,304 in the third
quarter of 1997 on revenues of $16,762 compared to net loss
(before minority interest and extraordinary item) of $1,560
on revenues of $7,286 during the same period in 1996. The
increase in revenues in the 1997 period was primarily caused
by operations of the Brandywine Facility (which commenced on
October 31, 1996), supplemented by an increase in revenues
at the Rosemary Facility, and by increased interest income.
The 1997 period reflects operations of both the Rosemary and
Brandywine facilities, whereas the 1996 period includes only
the Rosemary Facility. For the 1997 and 1996 periods,
capacity revenues for the Rosemary Facility were $5,768 and
$6,182, respectively, reflecting a contractual decrease of
$414. Energy revenues for the Rosemary Facility for the 1997
and 1996 periods were $1,463 and $756, respectively. The
increase in energy revenues for the Rosemary Facility is
attributable to higher dispatch hours at that facility
compared to the 1996 period. During the third quarter of
1997, the Rosemary Facility was dispatched 478 hours as
compared to 223 hours in the 1996 period. Capacity revenues
and energy revenues from Potomac Electric Power Company for
the Brandywine Facility for the third quarter of 1997 were
$5,003 and $3,780, respectively. The Brandywine Facility
was dispatched 976 hours during this period. Additionally,
the Company had energy revenues of $46 from the sale of
natural gas to other purchasers. Plant operating expenses,
which included fuel cost, operation and maintenance expense,
insurance and property taxes, increased (as a percentage of
revenues) to $7,239 (43% of revenues) in the 1997 period
from $2,752 (38% of revenues) in 1996, primarily due to
higher operating costs at the Brandywine Facility, which had
not yet commenced operations in the third quarter of 1996.
Project development and administrative expenses were
$1,933 (12% of revenues) and $68 (1% of revenues) for the
1997 and 1996 periods, respectively. The increase in 1997
was primarily attributable to additional administrative
activities related to the commencement of commercial
operations at the Brandywine Facility and higher
administrative costs required to support the increased size
and complexity of the Company's operations. Also, the 1996
amount was lower than normal due to correction of certain
accruals in the third quarter of that year, the effect of
which was to reduce expense by approximately $200.
Interest expense increased to $10,834 (65% of revenues)
in the 1997 period from $4,726 (65% of revenues) in 1996 as
a result of the increase in outstanding indebtedness from
the issuance of $111.4 million original principal amount of
first mortgage bonds for the Rosemary Facility (the
"Rosemary Bonds"), $105.5 million original principal amount
of pooled project bonds ("Series A Bonds"), and the capital
lease financing for the Brandywine Facility. The impact of
such new indebtedness was partially offset by the
refinancing of the taxable revenue bonds issued in 1989 for
the Rosemary Facility and the repayment of other term loan
financing on July 31, 1996 from portions of the proceeds of
the Rosemary Bonds and the Series A Bonds.
Depreciation, amortization of debt issue costs and
amortization of partnership formation costs amounted to
$3,061 (18% of revenues) in the 1997 period and $1,299 (18%
of revenues) in 1996. The increase was primarily
attributable to depreciation for the Brandywine Facility in
1997.
-2-
For the 1996 period, minority interest in net income
was $499. There is no minority interest in 1997 due to the
Company's acquisition on July 31, 1996 of the minority
interest holder's limited partnership interest in Panda-
Rosemary. As a result of this acquisition, the Company owns
100% of Panda-Rosemary.
For the 1996 period, the Company incurred an
extraordinary loss on early extinguishment of debt of
$21,337 as a result of the refinancing of the taxable
revenue bonds issued in 1989 for the Rosemary Facility and
the repayment of other term loan financing on July 31, 1996
from portions of the proceeds of the Rosemary Bonds and the
Series A Bonds.
As a result of the various factors discussed above, the
Company recorded net losses of $6,304 and $23,395 for the
1997 and 1996 periods, respectively.
First Nine Months of 1997 compared to 1996
The Company recorded a net loss of $17,538 in the first
nine months of 1997 on revenues of $50,674 compared to net
loss before minority interest and extraordinary item of
$1,630 on revenues of $22,495 during the same period in
1996. The increase in revenues in the 1997 period was
primarily caused by operations of the Brandywine Facility
(which commenced on October 31, 1996), partially offset by a
decrease in revenues at the Rosemary Facility, and by
increased interest income. The 1997 period reflects
operations of both the Rosemary and Brandywine facilities,
whereas the 1996 period includes only the Rosemary Facility.
For the 1997 and 1996 periods, capacity revenues for the
Rosemary Facility were $18,438 and $19,781, respectively,
reflecting a contractual decrease of $1,343. Energy revenues
for the Rosemary Facility for the 1997 and 1996 periods were
$2,302 and $1,715, respectively. The increase in energy
revenues for the Rosemary Facility is attributable to higher
dispatch hours at that facility compared to the 1996 period.
During the first nine months of 1997, the Rosemary Facility
was dispatched 720 hours as compared to 490 hours in the
1996 period. Capacity revenues and energy revenues from
Potomac Electric Power Company for the Brandywine Facility
for the first nine months of 1997 were $15,038 and $8,831,
respectively. The Brandywine Facility was dispatched 2,685
hours during this period. Additionally, the Company had
energy revenues of $3,738 from the sale of natural gas and
fuel oil to other purchasers in the 1997 period. Plant
operating expenses, which included fuel cost, operation and
maintenance expense, insurance and property taxes, increased
to $20,868 (41% of revenues) in the 1997 period from $7,814
(35% of revenues) in 1996, primarily due to lower margins
obtained on the sale of natural gas and fuel oil to other
purchasers.
Project development and administrative expenses were
$5,746 (11% of revenues) and $1,261 (6% of revenues) for the
1997 and 1996 periods, respectively. The increase in 1997
was primarily attributable to additional administrative
activities related to the commencement of commercial
operations at the Brandywine Facility and higher
administrative costs required to support the increased size
and complexity of the Company's operations.
Interest expense increased to $32,422 (64% of revenues)
in the 1997 period from $11,096 (49% of revenues) in 1996 as
a result of the increase in outstanding indebtedness from
the issuance of $111.4 million original principal amount of
first mortgage bonds for the Rosemary Facility (the
"Rosemary Bonds"), $105.5 million original principal amount
of pooled project bonds ("Series A Bonds"), and the capital
lease financing for the Brandywine Facility. The impact of
such new indebtedness was partially offset by the
refinancing of the taxable revenue bonds issued in 1989 for
the Rosemary Facility and the repayment of other term loan
financing on July 31, 1996 from portions of the proceeds of
the Rosemary Bonds and the Series A Bonds.
-3-
Depreciation, amortization of debt issue costs and
amortization of partnership formation costs amounted to
$9,176 (18% of revenues) in the 1997 period and $3,954 (18%
of revenues) in 1996. The increase was primarily
attributable to depreciation for the Brandywine Facility in
1997.
For the 1996 period, minority interest in net income
was $2,405. There is no minority interest in 1997 due to
the Company's acquisition on July 31, 1996 of the minority
interest holder's limited partnership interest in Panda-
Rosemary. As a result of this acquisition, the Company owns
100% of Panda-Rosemary.
For the 1996 period, the Company incurred an
extraordinary loss on early extinguishment of debt of
$21,337 as a result of the refinancing of the taxable
revenue bonds issued in 1989 for the Rosemary Facility and
the repayment of other term loan financing on July 31, 1996
from portions of the proceeds of the Rosemary Bonds and the
Series A Bonds.
As a result of the various factors discussed above, the
Company recorded net losses of $17,538 and $25,371 for the
1997 and 1996 periods, respectively.
Liquidity and Capital Resources
To date, the Company has obtained cash from operations
of the Rosemary Facility and the Brandywine Facility,
borrowings under non-recourse project debt of Panda-Rosemary
and Panda-Brandywine, an equity contribution by Ford Motor
Credit Company ("Ford")(a former minority interest partner
in Panda-Rosemary), senior indebtedness issued to Trust
Company of the West, and the issuance of the Rosemary Bonds
and the Series A Bonds. The Company utilized this cash to
refinance the project debt of Panda-Rosemary, fund
development and construction of the Brandywine Facility,
service its debt obligations, make distributions to its
parent to fund project development efforts, and for general
and administrative expenses. Additionally, on July 31,
1996, the Company repaid all outstanding senior indebtedness
to Trust Company of the West and purchased Ford's remaining
limited partnership interest in Panda-Rosemary.
The principal future cash requirement of the Company
will be the payment of its obligations under the Series A
Bonds. Semi-annual principal and interest payments on the
Series A Bonds totaled $7.0 million in the first quarter of
1997 and are expected to total $6.1 million on each of
August 20 and February 20 through February 20, 1999, after
which time scheduled payments will increase as more
significant principal amortization begins. The amount of
principal payments generally increases over time.
-4-
The Company will rely almost exclusively on
distributions from the Project Entities to meet its cash
requirements. The Project Entities' ability to make such
distributions will depend upon the financial performance of
the Rosemary Facility and the Brandywine Facility and will
be subject to a number of limitations on distributions
contained in the project-level debt agreements. The Company
currently believes that it will have sufficient liquidity
from the cash flows available for distribution from the
Project Entities, together with amounts held in debt service
reserves and other restricted cash reserves, to satisfy its
obligations.
The Project Entities are dependent on capacity payments
under their respective power purchase agreements to meet
their fixed obligations, including payment of project-level
debt service, and to make distributions to the Company.
Capacity payments can be adversely affected by a major
equipment failure, resulting in a facility being unavailable
for dispatch for an extended period of time. Capacity
payments can also be subject to reduction pursuant to
regulatory disallowance and, under contractual provisions,
as a result of events outside the Company's control. In
1997, 1999 and 2006, the capacity payments for the Rosemary
Facility are scheduled to decrease by approximately $1.8
million (6.7%), $1.8 million (7.1%) and $5.4 million
(23.1%), respectively, based on the facility's current
capacity rating. The capacity payments for the Brandywine
Facility, which commenced in 1997, are subject to specified
downward adjustments in 1998 and 2000, and upward
adjustments in 2001 and 2007 through 2021. The Company
currently believes it will be able to continue to meet its
obligations during the periods such reductions are
applicable.
Each of the electric energy purchasers under the power
purchase agreements for the Rosemary Facility and the
Brandywine Facility has a contractual right to schedule the
facility for dispatch largely at the purchaser's discretion.
Thus, revenues from energy payments will vary depending on
the hours these facilities are dispatched by such
purchasers. The Company currently believes that it can meet
its liquidity requirements solely from the capacity payments
in the unlikely event that these facilities are not
dispatched at all.
Impact of Inflation
Inflationary increases in the Company's costs,
primarily project development costs, energy costs, and
capital costs, may be offset by increases in revenue as
provided in the various purchase agreements, although
competition may limit the Company's ability to fully recover
all such increases. The Company attempts, where possible,
to obtain provisions in its power purchase agreements
whereby certain revenue components, such as energy payments,
may be adjusted with inflationary increases. The Company
currently believes that inflation will not have a material
adverse effect on the Company's financial position, results
of operations or cash flows in the foreseeable future.
-5-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this
Quarterly Report on Form 10-Q:
Exhibit
Number Exhibit Description
27.01 Financial Data Schedule.*
* Filed herewith.
(b) The registrant did not file any reports on Form 8-K
during the quarter for which this report is filed.
-6-
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.
PANDA INTERFUNDING CORPORATION
Date: November 11, 1997 By: /s/ Janice Carter
Janice Carter
Executive Vice President,
Secretary and Treasurer
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
27.01 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from SEC Form 10-Q and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> SEP-30-1996 SEP-30-1997
<CASH> 18,638,718 19,863,604
<SECURITIES> 0 0
<RECEIVABLES> 9,402,685 8,559,518
<ALLOWANCES> 0 0
<INVENTORY> 7,913,777 5,988,990
<CURRENT-ASSETS> 36,120,085 34,723,024
<PP&E> 289,211,129 291,364,162
<DEPRECIATION> (26,539,539) (35,386,467)
<TOTAL-ASSETS> 338,161,562 329,678,694
<CURRENT-LIABILITIES> 19,667,144 13,987,184
<BONDS> 209,830,918 205,494,563
0 0
0 0
<COMMON> 10 10
<OTHER-SE> (108,825,145) (131,434,931)
<TOTAL-LIABILITY-AND-EQUITY> 338,161,562 329,678,694
<SALES> 21,883,962 48,785,940
<TOTAL-REVENUES> 22,495,204 50,673,891
<CGS> 7,813,737 20,867,693
<TOTAL-COSTS> 9,074,621 26,613,376
<OTHER-EXPENSES> 3,954,266 9,176,433
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,095,941 32,422,084
<INCOME-PRETAX> (1,629,624) (17,538,002)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,629,624) (17,538,002)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (21,336,550) 0
<CHANGES> 0 0
<NET-INCOME> (25,371,334) (17,538,002)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
