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 333-14495-02
PANDA INTERHOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2660917
(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
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 5
PANDA INTERHOLDING 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 ...................................................... $ 828,787 $ 2,996,347
Restricted cash - current ...................................................... 8,781,393 7,062,753
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 ......................................................... 27,091,547 24,918,520
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 ...................... 17,357,524 20,555,467
Debt issuance costs, net of accumulated
amortization of $73,986 and $214,904 respectively .............................. 3,680,902 3,578,811
------------- -------------
$ 310,801,563 $ 305,030,493
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
PANDA INTERHOLDING 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 ....... 1,186,191 1,141,700
Operating expenses and other ............. 6,935,068 5,801,289
Current portion of long-term debt .......... 5,501,823 5,711,478
------------- -------------
Total current liabilities .............. 14,283,249 12,654,467
Deferred revenue ............................. -- 9,026,337
Long term debt, less current portion ......... 104,521,718 100,185,362
Capital lease obligation ..................... 217,488,645 228,408,012
Advance from parent .......................... 15,387,447 4,573,148
Commitments and contingencies (Note 3)
Shareholder's deficit:
Common stock, $.01 par value; 1,000 shares
authorized, issued and outstanding ...... 10 10
Accumulated deficit ........................ (40,879,506) (49,816,843)
------------- -------------
Total shareholder's deficit ............ (40,879,496) (49,816,833)
------------- -------------
$ 310,801,563 $ 305,030,493
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
PANDA INTERHOLDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
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 1,114,900
------------ ------------
22,495,204 49,900,840
------------ ------------
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 ................ 9,051,394 23,236,954
Depreciation .............................................. 3,159,659 8,846,929
Amortization of debt issuance costs ....................... 358,370 140,918
Amortization of partnership formation costs ............... 399,826 --
------------ ------------
22,043,870 58,838,177
------------ ------------
Income before minority interest and extraordinary item 451,334 (8,937,337)
Minority interest ......................................... (2,405,160) --
------------ ------------
Loss before extraordinary item .............................. (1,953,826) (8,937,337)
Extraordinary item - loss on early extinguishment of debt . (21,336,550) --
------------ ------------
Net loss .................................................... (23,290,376) (8,937,337)
Accumulated deficit, beginning of period .................... (14,788,098) (40,879,506)
------------ ------------
Accumulated deficit, end of period .......................... $(38,078,474) $(49,816,843)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
PANDA INTERHOLDING CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
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 ........................................... 224,416 256,347
------------ ------------
7,286,473 16,471,745
------------ ------------
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 ................ 2,681,640 7,773,610
Depreciation .............................................. 1,053,220 2,949,025
Amortization of debt issuance costs ....................... 76,555 47,338
Amortization of partnership formation costs ............... 133,276 --
------------ ------------
6,765,307 19,942,123
------------ ------------
Income before minority interest and extraordinary item....... 521,166 (3,470,378)
Minority interest ......................................... (499,077) --
------------ ------------
Income before extraordinary item ............................ 22,089 (3,470,378)
Extraordinary item - loss on early extinguishment of debt . (21,336,550) --
------------ ------------
Net loss .................................................... (21,314,461) (3,470,378)
Accumulated deficit, beginning of period .................... (16,764,013) (46,346,465)
------------ ------------
Accumulated deficit, end of period .......................... $(38,078,474) $(49,816,843)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
PANDA INTERHOLDING 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 .................................................. $ (23,290,376) $ (8,937,337)
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 ................... 358,370 140,918
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 ................... 994,467 (1,178,271)
------------- -------------
Net cash provided (used) by operating activities ...... 3,501,949 17,634,571
------------- -------------
Investing activities:
Restricted cash - current ................................. (1,114,820) 1,718,640
Additions to property, plant and equipment ................ (55,332,280) (2,813,200)
Acquisition of minority interest .......................... (34,700,000) --
Restricted cash - debt service reserves and escrow deposits (4,144,756) (3,197,943)
------------- -------------
Net cash provided (used) by investing activities ...... (95,291,856) (4,292,503)
------------- -------------
Financing activities:
Distributions to minority interest owner .................. (1,152,113) --
Advances (to) from parent ................................. 53,651,235 (10,814,299)
Deferred revenue .......................................... -- 9,026,337
Proceeds from long term debt .............................. 170,408,627 --
Repayment of long term debt ............................... (127,038,813) (4,126,701)
Repayment of capital lease obligation ..................... -- (5,221,018)
Debt issuance costs ........................................ (3,461,588) (38,827)
------------- -------------
Net cash provided (used) by financing activities ...... 92,407,348 (11,174,508)
------------- -------------
Increase (decrease) in cash and cash equivalents ............ 617,441 2,167,560
Cash and cash equivalents, beginning of period .............. 1,160,096 828,787
------------- -------------
Cash and cash equivalents, end of period .................... $ 1,777,537 $ 2,996,347
============= =============
Noncash operating and financing activities:
Interest expense on capital lease obligation .............. $ -- $ 16,140,385
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
PANDA INTERHOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1996 and 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Interholding Corporation ("Interholding", or
collectively with its subsidiaries the "Company"), a wholly owned
subsidiary of Panda Interfunding Corporation ("PIC"), which in
turn is an indirect 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 another subsidiary of PEII. The ownership
interests were transferred to the Company at PEII'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.
Interholding, through its wholly owned subsidiaries, holds
the Company's ownership interests in the Rosemary project and the
Brandywine project and has no other independent operations. 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.
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.
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.
F-6
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 July 1996, Panda Funding Corporation ("PFC"), a wholly-
owned subsidiary of PIC, issued $105,525,000 of pooled project
bonds ("Series A Bonds"). The Series A Bonds bear interest at a
fixed rate of 11-5/8% payable semiannually commencing February
20, 1997. Scheduled principal payments are required semiannually
commencing February 20, 1997 and will continue through maturity
on August 20, 2012. The Series A Bonds are subject to mandatory
redemption prior to maturity under certain conditions. The
Series A Bonds are fully and unconditionally guaranteed by PIC.
Although not direct obligations of the Company, the Series A
Bonds are guaranteed on a limited basis by Interholding up to a
maximum amount specified by the guarantee agreement which
approximates $25.1 million at December 31, 1996 and September 30,
1997. Additionally, the Series A Bonds are secured by (i) all of
the capital stock of PFC, PIC and Interholding, (ii) PIC's
interest in distributions from Interholding, and (iii) certain
other collateral. The Series A Bonds are effectively
subordinated to the obligations of PIC's subsidiaries under
project-level financing arrangements. The indenture contains
certain covenants, including limitations on distributions,
additional debt and certain other transactions.
While amounts are outstanding under the Series A Bonds, all
distributions to PIC from Interholding and certain proceeds
received by PIC from another subsidiary will be paid to a
collateral agent. On a monthly basis, the collateral agent will
remit to PIC remaining funds available after satisfaction of
PIC's debt service obligations (including amounts withheld, if
necessary, to meet future debt service and reserve fund
requirements as required by the indenture) provided that PIC is
in compliance with the debt covenants.
In connection with the issuance of the Series A Bonds, PIC
advanced to the Company (i) approximately $25.1 million to
partially fund the acquisition of the outside investor's limited
partnership interest in Panda-Rosemary as discussed in Note 5 to
the Company's audited financial statements for 1996, and (ii)
approximately $26.4 million to retire the term loan as discussed
in Note 6 to the Company's audited financial statements for 1996.
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.
F-7
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.
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-8
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Dollar amounts are in thousands unless otherwise noted)
General
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, or
collectively with its subsidiaries the "Company"), which is a
wholly owned subsidiary of Panda Interfunding Corporation ("
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 Interholding.
Interholding has no independent operations beyond its ownership
of the Project Entities. 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.
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."
Third Quarter 1997 compared to 1996
The Company recorded a net loss of $3,470 in the third
quarter of 1997 on revenues of $16,472 compared to net income
(before minority interest and extraordinary item) of $521 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 (44% 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.
-1-
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 $7,774 (47% of revenues) in
the 1997 period from $2,681 (37% 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") 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 issued by PIC.
Depreciation, amortization of debt issue costs and
amortization of partnership formation costs amounted to $2,996
(18% of revenues) in the 1997 period and $1,263 (17% 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
$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 issued by PIC.
As a result of the various factors discussed above, the
Company recorded net losses of $3,470 and $21,314 for the 1997
and 1996 periods, respectively.
-2-
First Nine Months of 1997 compared to 1996
The Company recorded a net loss of $8,937 in the first nine
months of 1997 on revenues of $49,901 compared to net income
before minority interest and extraordinary item of $451 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 (42% 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
(12% 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 $23,237 (47% of revenues) in
the 1997 period from $9,051 (40% 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") 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 $8,988
(18% of revenues) in the 1997 period and $3,918 (17% 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 $8,937 and $23,290 for the 1997
and 1996 periods, respectively.
-3-
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 advances from the Company's
parent. 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 Project Entities (and therefore the Company) 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.
-4-
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.
-5-
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 INTERHOLDING CORPORATION
Date: November 11, 1997 By: /s/ Janice Carter
Janice Carter
Executive Vice President,
Secretary and Treasurer
EXHIBIT INDEX
Sequentially
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> 9,610,190 10,059,100
<SECURITIES> 0 0
<RECEIVABLES> 9,402,685 8,559,518
<ALLOWANCES> 0 0
<INVENTORY> 7,913,777 5,988,990
<CURRENT-ASSETS> 27,091,547 24,918,520
<PP&E> 289,211,129 291,364,162
<DEPRECIATION> (26,539,539) (35,386,467)
<TOTAL-ASSETS> 310,801,563 305,030,493
<CURRENT-LIABILITIES> 14,283,249 12,654,467
<BONDS> 104,521,718 100,185,362
0 0
0 0
<COMMON> 10 10
<OTHER-SE> (40,879,506) (49,816,843)
<TOTAL-LIABILITY-AND-EQUITY> 310,801,563 305,030,493
<SALES> 21,883,962 48,785,940
<TOTAL-REVENUES> 22,495,204 49,900,840
<CGS> 7,813,737 20,867,693
<TOTAL-COSTS> 9,074,621 26,613,376
<OTHER-EXPENSES> 3,917,855 8,987,847
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,051,394 23,236,954
<INCOME-PRETAX> (1,953,826) (8,937,337)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,953,826) (8,937,337)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (21,336,550) 0
<CHANGES> 0 0
<NET-INCOME> (23,290,376) (8,937,337)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
