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 333-29005-01
PANDA GLOBAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2697755
(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 1. Legal Proceedings 6
Item 6. Exhibits and Reports on Form 8-K 6
PANDA GLOBAL HOLDINGS, INC.
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 ............................... $ 1,335,086 $ 3,502,656
Restricted cash - current ............................... 17,809,921 102,102,606
Accounts receivable ..................................... 9,402,685 12,140,358
Fuel oil, spare parts and supplies ...................... 7,913,777 5,988,990
Other current assets .................................... 164,905 310,912
------------- -------------
Total current assets .................................. 36,626,374 124,045,522
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)
Construction in progress ................................ -- 24,847,286
Development costs ....................................... 6,053,361 12,625,189
------------- -------------
Total plant and equipment, net ........................ 268,724,951 293,450,170
Restricted cash - debt service reserves and escrow deposits 32,548,366 70,807,846
Debt issuance costs, net of accumulated
amortization of $165,015 and $951,364 respectively ...... 7,570,521 14,248,648
------------- -------------
$ 345,470,212 $ 502,552,186
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-1
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDER'S DEFICIT
(Unaudited)
December 31 September 30
1996 1997
------------- -------------
Current liabilities:
Accounts payable and accrued expenses:
Construction costs ..................... $ 660,167 $ --
Interest and letter of credit fees ..... 6,297,558 11,084,839
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 22,597,606
Deferred revenue ........................... -- 13,223,856
Long term debt, less current portion ....... 209,830,918 350,920,651
Capital lease obligation ................... 217,488,645 228,408,012
Minority interest .......................... -- 5,741,166
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 ....................... (52,782,940) (45,774,025)
Accumulated deficit ...................... (48,733,565) (72,565,090)
------------- -------------
Total shareholder's deficit .......... (101,516,495) (118,339,105)
------------- -------------
$ 345,470,212 $ 502,552,186
============= =============
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
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 5,533,725
------------ ------------
22,495,204 54,319,665
------------ ------------
Expenses:
Plant operating expenses ................................ 7,813,737 20,867,693
Project development and administrative .................. 2,206,884 7,356,713
Interest expense and letter of credit fees .............. 11,095,941 40,293,506
Depreciation ............................................ 3,159,659 8,846,929
Amortization of debt issuance costs ..................... 394,781 786,349
Amortization of partnership formation costs ............. 399,826 --
------------ ------------
25,070,828 78,151,190
------------ ------------
Loss before minority interest and extraordinary item ...... (2,575,624) (23,831,525)
Minority interest ....................................... (2,405,160) --
------------ ------------
Loss before extraordinary item ............................ (4,980,784) (23,831,525)
Extraordinary item - loss on early extinguishment of debt (21,336,550) --
------------ ------------
Net loss .................................................. $(26,317,334) $(23,831,525)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
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 2,619,285
------------ ------------
7,286,473 18,834,683
------------ ------------
Expenses:
Plant operating expenses ................................ 2,752,391 7,238,987
Project development and administrative .................. 460,225 2,490,163
Interest expense and letter of credit fees .............. 4,726,187 15,267,581
Depreciation ............................................ 1,053,220 2,949,025
Amortization of debt issuance costs ..................... 112,966 371,757
Amortization of partnership formation costs ............. 133,276 --
------------ ------------
9,238,265 28,317,513
------------ ------------
Loss before minority interest and extraordinary item ...... (1,951,792) (9,482,830)
Minority interest ....................................... (499,077) (160,000)
------------ ------------
Loss before extraordinary item ............................ (2,450,869) (9,642,830)
Extraordinary item - loss on early extinguishment of debt (21,336,550) --
------------ ------------
Net loss .................................................. $(23,787,419) $ (9,642,830)
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
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) from Parent Deficit Deficit
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 ............. 1,000 $ 10 $ (52,782,940) $ (48,733,565) $(101,516,495)
Advances (to) from parent ........... -- -- 7,008,915 -- 7,008,915
Net loss ............................ -- -- -- (23,831,525) (23,831,525)
------------- ------------- ------------- ------------- -------------
BALANCE, September 30, 1997 .......... 1,000 $ 10 $ (45,774,025) $ (72,565,090) $(118,339,105)
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE>
PANDA GLOBAL HOLDINGS, INC.
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 ....................................................................... $ (26,317,334) $ (23,831,525)
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 ........................................ 394,781 786,349
Amortization of partnership formation costs ................................ 399,826 --
Amortization of loan discount and deferred interest ........................ 391,491 16,541,385
Changes in assets and liabilities:
Accounts receivable .......................................................... (2,079,293) (2,737,673)
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 3,596,773
------------- -------------
Net cash provided (used) by operating activities ........................... 2,612,677 4,981,018
------------- -------------
Investing activities:
Restricted cash - current ...................................................... (2,920,820) (84,292,685)
Additions to property, plant and equipment ..................................... (57,276,658) (25,373,249)
Acquisition of minority interest ............................................... (34,700,000) --
Restricted cash - debt service reserves and escrow deposits .................... (18,886,349) (38,259,480)
------------- -------------
Net cash provided (used) by investing activities ........................... (113,783,827) (147,925,414)
------------- -------------
Financing activities:
Contributions from minority interest owners .................................... -- 5,741,166
Distributions to minority interest owner ....................................... (1,152,113) --
Advances (to) from parent ...................................................... (28,996,975) (1,850,150)
Deferred revenue ............................................................... -- 13,223,856
Proceeds from long term debt ................................................... 275,933,627 145,025,088
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) (7,464,476)
------------- -------------
Net cash provided (used) by financing activities ........................... 111,788,591 145,111,966
------------- -------------
Increase (decrease) in cash and cash equivalents ................................. 617,441 2,167,570
Cash and cash equivalents, beginning of period ................................... 1,166,385 1,335,086
------------- -------------
Cash and cash equivalents, end of period ......................................... $ 1,783,826 $ 3,502,656
============= =============
Noncash operating, investing and financing activities:
Interest expense on capital lease obligation ................................... $ -- $ 16,140,385
Development costs transferred from parent ...................................... -- 8,859,065
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-6
PANDA GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1996 and 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Panda Global Holdings, Inc. ("Panda Global", or collectively
with its subsidiaries the "Company"), a wholly owned subsidiary
of Panda Energy International, Inc. ("PEII"), was formed in March
1997 to hold the ownership interests in four independent power
projects which were formerly owned by other wholly owned
subsidiaries 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. The Company has two direct wholly owned subsidiaries:
Panda Energy Corporation ("PEC")( a Texas corporation) which
indirectly holds the Company's ownership interests in domestic
projects, and Panda Global Energy Company ("Global Cayman")(a
Cayman Islands company) which indirectly holds the Company's
ownership interest in an international project located in China.
PEC, through its wholly owned subsidiary Panda Interfunding
Corporation ("PIC") and PIC's wholly owned subsidiary Panda
Interholding Corporation ("Interholding"), holds the Company's
ownership interests in the Rosemary project and the Brandywine
project. 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-
Brandywine and, as of July 31, 1996, owns 100% of Panda-Rosemary.
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.
Additionally, PEC holds the Company's 100% ownership
interest in the Kathleen project through its wholly owned
subsidiaries.
F-7
Global Cayman (which collectively with its subsidiaries is a
development stage enterprise having no operating revenues) holds
a 95.5% ownership interest in Pan-Sino Energy Development Company
LLC ("Pan-Sino")(a Cayman Islands company), which in turn holds a
99% ownership interest in Pan-Western Energy Corporation LLC
("Pan-Western")(a Cayman Islands company), which in turn owns an
approximately 88% interest in four joint venture companies (the
"Joint Venture Companies") organized under the laws of the
People's Republic of China ("China") to develop and construct an
independent power project located in China. The Joint Venture
Companies, which currently have no material assets or operations,
are: Tangshan Panda Heat and Power Company, Ltd. ("Tangshan
Panda"), Tangshan Pan-Western Heat and Power Company, Ltd.
("Tangshan Pan-Western"), Tangshan Cayman Heat and Power Company,
Ltd. ("Tangshan Cayman") and Tangshan Pan-Sino Heat Company, Ltd.
("Tangshan Pan-Sino"). Additionally, effective in June 1997,
Global Cayman, through its wholly owned subsidiary Panda Bhote
Koshi Company (a Cayman Islands company), holds a 100% interest
in Panda of Nepal LLC (a Cayman Islands company), which in turn
holds an ownership interest (expected to be 75% following the
completion of financing) in Bhote Koshi Power Company Pvt. Ltd.
(a Nepal company), which was organized under the laws of Nepal to
develop and construct an independent power project in Nepal.
Collectively, PEC, Pan-Sino and Pan-Western are the
predecessors of the Company.
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 nine months 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 $1,892 and $3,224 for the nine months ended September 30,
1996 and 1997 and $784 and $1,114 for the three months ended
September 30, 1996 and 1997, respectively. Such costs 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.
F-8
3. POWER PROJECTS AND LONG-TERM DEBT
Luannan Project Financing -- In April 1997, Global Cayman
issued $155.2 million original principal amount of senior secured
notes ("Senior Secured Notes") to finance the development and
construction of the Luannan Project. The Senior Secured Notes,
which were issued at a discount for gross proceeds of $145.0
million, bear interest at a fixed rate of 12 1/2% payable
semiannually commencing October 15, 1997. Scheduled principal
payments are required semiannually commencing October 15, 2000
and will continue through maturity on April 15, 2004. The Senior
Secured Notes are subject to mandatory redemption prior to
maturity under certain conditions. The Senior Secured Notes are
secured by (i) a pledge of 100% of the capital stock of Global
Cayman, 99% of the capital stock of Pan-Western and at least 90%
of the capital stock of Pan-Sino, and (ii) a security interest in
certain funds of Global Cayman and its subsidiaries established
under the indenture. Additionally, the Senior Secured Notes are
fully and unconditionally guaranteed by Panda Global, whose
guarantee (the "Senior Secured Notes Guarantee") is secured by
(i) a pledge of 100% of the capital stock of Panda Global and PEC
and (ii) a security interest in certain funds of Panda Global
established under the indenture. The Senior Secured Notes
Guarantee is effectively subordinated to the obligations of PIC
and its subsidiaries under the Series A Bonds and project-level
financing arrangements. The indenture contains certain
covenants, including limitations on distributions, additional
debt and certain other transactions. Individually, and in the
aggregate, the pledges of capital stock of PEC, Pan-Western and
Pan-Sino do not constitute a "substantial portion" (as defined in
Rule 3-10 of Regulation S-X promulgated under the Securities Act
of 1933) of collateral for the Senior Secured Notes and the
Senior Secured Notes Guarantee. Separate financial statements of
such entities are not presented, as management has determined
that such information is not material to holders of the Senior
Secured Notes. The Company has incurred costs on the Luannan
Project of $3.3 million and $24.8 million as of December 31, 1996
and September 30, 1997, respectively. Such costs are included in
the accompanying balance sheets in plant and equipment under
development costs as of December 31, 1996 and under construction
in progress as of September 30, 1997 due to the completion of
financing for the project in April 1997.
Nepal Project - The Company has an ownership interest
(expected to be 75% following completion of financing) in a joint
venture with a major hydroelectric engineering company and a
local Nepalese party to build a 36 megawatt hydroelectric
facility on the upper Bhote Koshi River in Nepal ("Nepal
Project"). The ownership interest was transferred from a
subsidiary of PEII to Global Cayman at historical cost in June
1997. A 25-year power purchase agreement with the Nepal
Electricity Authority was signed in July 1996. The Nepal Project
will be constructed pursuant to a fixed-price, turnkey contract
with China Gezhouba Construction Group Corporation. The Company
has received a commitment letter from a multilateral agency to
provide debt financing for the Nepal Project and is currently
seeking additional financing for the project. Construction of
the project is subject to the successful completion of financing.
The Company has incurred development costs for the Nepal Project
of $9.7 million as of September 30, 1997, which are included in
plant and equipment under development costs in the accompanying
balance sheet.
Kathleen Project - The Company has incurred costs on the
Kathleen Project of $2.8 million and $3.0 million as of December
31, 1996 and September 30, 1997, respectively. Such costs are
included in plant and equipment under development costs in the
accompanying balance sheets.
F-9
4. 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 PEII's own
participation interest, which was 10% at the time the agreement
was entered into. PEII 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 PEII'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
In 1995, Florida Power filed an action with the Florida
Public Service Commission ("Florida PSC") relating to the term of
the power purchase agreement for the Kathleen Project and whether
the Kathleen Project, as designed, is eligible to execute the
power purchase agreement pursuant to Florida Power's bid
solicitation and the Florida PSC's regulations. On May 20, 1996,
the Florida PSC issued an order finding that: (1) the Kathleen
Project, as designed, did not comply with the power purchase
agreement and the Florida PSC's regulations; (2) the capacity
payments under the power purchase agreement should only extend
for 20 years (as opposed to the 30 year stated term of the
agreement); and (3) the construction and commercial operation
milestones should be extended for an additional 18 months. The
Company appealed this ruling to the Florida Supreme Court. On
September 18, 1997 the Florida Supreme Court issued a ruling
affirming the earlier finding of the Florida PSC. The Company
will continue to vigorously pursue this legal matter.
Management believes that the outcome of this litigation will not
have a material effect on the accompanying condensed consolidated
financial statements.
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 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 liquidity of the Company.
F-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations
(Dollar amounts are in thousands unless otherwise noted)
General
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. The Company also owns an approximately
83% indirect interest in the Luannan Project in China, for
which preliminary construction activity commenced in
December 1996 and full construction activity commenced
following the successful completion of financing in April
1997. Additionally, the Company owns an equity interest
(expected to be 75% following the completion of financing)
in a hydroelectric power project in Nepal which was
transferred to the Company at historical cost in June 1997
from another subsidiary of the Company's ultimate parent
Panda Energy International, Inc. Construction of the Nepal
Project is subject to the successful completion of financing.
The Company also owns a 100% equity interest in the Kathleen
project in Florida, development of which has been delayed by
litigation.
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 loss before minority interest of
$9,483 in the third quarter of 1997 on revenues of $18,835
compared to a loss before minority interest and
extraordinary item of $1,952 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 to $7,239 (38% of
revenues) in the 1997 period from $2,752 (38% of revenues)
in 1996, primarily due to operating costs of the Brandywine
Facility, which had not yet commenced operations in the
third quarter of 1996.
-1-
Project development and administrative expenses were
$2,490 (13% of revenues) and $460 (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. 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 $15,268 (81% 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"), the capital
lease financing for the Brandywine Facility, and $145.0
million discounted principal amount of Senior Secured Notes
issued in April 1997 for the Luannan 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
$3,321 (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.
For the 1996 period, minority interest in net income of
Panda-Rosemary was $499. There is no minority interest in
1997 related to Panda-Rosemary 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 1997 period, the minority interest in the
net loss of the Luannan project entities was $160.
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 $9,642 and $23,787 for the
1997 and 1996 periods, respectively.
-2-
First Nine Months of 1997 compared to 1996
The Company recorded a net loss of $23,832 in the first
nine months of 1997 on revenues of $54,320 compared to net
loss before minority interest and extraordinary item of
$2,576 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
(as a percentage of revenues) to $20,868 (38% 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
$7,357 (14% of revenues) and $2,207 (10% 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 $40,294 (74% 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"), the capital
lease financing for the Brandywine Facility, and $145.0
million discounted principal amount of Senior Secured Notes
issued in April 1997 for the Luannan 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
$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.
-3-
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 Company
also issued $145.0 million discounted principal amount of
12.5% Senior Secured Notes in April 1997, the proceeds of
which are restricted to use in the construction of the
Luannan Project.
The principal future cash requirement of the Company
will be payment of its debt service obligations. 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, the
Brandywine Facility and the Luannan 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.
-4-
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 1. Legal Proceedings
Panda-Kathleen, L.P., an indirect subsidiary of the
registrant (the "Kathleen Partnership"), is a defendant
in a legal proceeding, commenced in January 1995,
captioned In re: Petition for Declaratory Statement
Regarding Eligibility for Standard Offer Contract and
Payment Thereunder by Florida Power Corporation, Case
No. 950110-EI, whereby the Florida Power Corporation
("FPC") sought a declaratory judgment that a power
purchase agreement between the FPC and the Kathleen
Partnership is not "available" to the Kathleen
Partnership. The Florida Supreme Court issued a ruling
on September 18, 1997 affirming a prior ruling of the
Florida Public Service Commission to the effect that
such power purchase agreement is not available to the
Kathleen Partnership as proposed. The registrant
understands that the Kathleen Partnership intends to
continue to pursue vigorously this legal matter. The
registrant believes that an adverse resolution to this
legal matter would not have a material adverse effect
on the business or financial condition of the
registrant.
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 GLOBAL HOLDINGS, INC.
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> 19,145,007 105,605,262
<SECURITIES> 0 0
<RECEIVABLES> 9,402,685 12,140,358
<ALLOWANCES> 0 0
<INVENTORY> 7,913,777 5,988,990
<CURRENT-ASSETS> 36,626,374 124,045,522
<PP&E> 295,264,490 328,836,637
<DEPRECIATION> (26,539,539) (35,386,467)
<TOTAL-ASSETS> 345,470,212 502,552,186
<CURRENT-LIABILITIES> 19,667,144 22,597,606
<BONDS> 209,830,918 350,920,651
0 0
0 0
<COMMON> 10 10
<OTHER-SE> (101,516,505) (118,339,115)
<TOTAL-LIABILITY-AND-EQUITY> 345,470,212 502,552,186
<SALES> 21,883,962 48,785,940
<TOTAL-REVENUES> 22,495,204 54,319,665
<CGS> 7,813,737 20,867,693
<TOTAL-COSTS> 10,020,621 28,224,406
<OTHER-EXPENSES> 3,554,440 9,633,278
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,095,941 40,293,506
<INCOME-PRETAX> (2,575,624) (23,831,525)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,575,624) (23,831,525)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (21,336,550) 0
<CHANGES> 0 0
<NET-INCOME> (26,317,334) (23,831,525)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
