<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15d OF THE
SECURITIES EXCHANGE ACT OF 1934
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTIONS I (1)(a) AND (b) OF FORM 10-K AND
IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to ___________
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
- ----------------- ----------------------------------- ------------------
333-75369 PPL TRANSITION BOND COMPANY, LLC 23-3004428
(Exact name of Registrant as
specified in its charter)
(Delaware)
Two North Ninth Street, GENA92, Room 3
Allentown, PA 18101-1179
(610) 774-7934
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant: None.
Documents incorporated by reference:
Not applicable.
<PAGE>
PPL TRANSITION BOND COMPANY, LLC
--------------------------------
FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------
TABLE OF CONTENTS
-----------------
Item Page
PART I
------
1. Business............................................. x
2. Properties........................................... x
3. Legal Proceedings.................................... x
4. Submission of Matters to a Vote of Security Holders.. xx
PART II
-------
5. Market for the Registrant's Common Equity and Related
Stockholder Matters.................................. xx
6. Selected Financial Data.............................. xx
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ xx
7A. Quantitative and Qualitative Disclosures About
Market Risk.......................................... xx
8. Financial Statements and Supplementary Data
Report of Independent Accountants.................. xx
Statement of Operations and Changes in Member's
Equity............................................. xx
Statement of Cash Flows............................ xx
Balance Sheet...................................... xx
Notes to Financial Statements...................... xx
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. xx
PART III
--------
10. Directors and Executive Officers of the Registrant xx
11. Executive Compensation............................ xx
12. Security Ownership of Certain Beneficial
Owners and Management............................. xx
13. Certain Relationships and Related Transactions.... xxx
PART IV
-------
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................. xxx
Signatures.......................................... xxx
Exhibit Index....................................... xxx
<PAGE>
GLOSSARY OF TERMS AND ABBREVIATIONS
CAPITAL SUBACCOUNT - An account held by the Trustee under the Indenture which is
funded by a contribution to PPL Transition Bond Company, LLC by PPL Electric
Utilities at the date of issuance of each series of transition bonds.
CEP SECURITIES - CEP Securities Co. LLC, a Delaware limited liability company
and an indirect wholly-owned subsidiary of PPL Electric Utilities.
COMPETITION ACT - The Pennsylvania Electricity Generation Customer Choice and
Competition Act, enacted in Pennsylvania in December 1996.
GENERAL SUBACCOUNT - An account held by the Trustee under the Indenture, into
which ITC remittances by the Servicer are deposited. The Trustee allocates the
funds from the General Subaccount to other subaccounts on the quarterly payment
dates.
INDENTURE - The Indenture entered into by PPL Transition Bond Company, LLC and
the Trustee, providing for the issuance of transition bonds.
ITC - Intangible Transition Charge, which PPL Electric Utilities has been
authorized by the PUC to impose on customer bills and to collect through a non-
bypassable billing mechanism to recover Qualified Transition Expenses.
ITP - Intangible Transition Property, which is the property right created under
the Competition Act representing the irrevocable right of PPL Transition Bond
Company, LLC to receive, through Intangible Transition Charges, amounts
sufficient to recover all Qualified Transition Expenses.
OVERCOLLATERALIZATION SUBACCOUNT - An account held by the Trustee under the
Indenture, which is funded ratably from collections of ITC over the term of each
series of transition bonds.
PPL ELECTRIC UTILITIES - PPL Electric Utilities Corporation.
PUC - The Pennsylvania Public Utility Commission.
PUC RESTRUCTURING ORDER - The final order issued by the PUC to PPL Electric
Utilities in August 1998, in connection with PPL Electric Utilities'
restructuring filing under the Competition Act, as supplemented by a May 1999
PUC order.
QUALIFIED TRANSITION EXPENSES - The transition or stranded costs of an electric
utility approved by the PUC for recovery through the issuance of transition
bonds; the costs of retiring existing debt or equity capital of the electric
utility or its holding company parent, including accrued interest and
acquisition or redemption premium, costs of defeasance, and other related fees,
costs and charges, through the issuance of transition bonds or the assignment,
sale or other transfer of Intangible Transition Property; and the costs incurred
to issue, service or refinance the transition bonds, including accrued interest
and acquisition or redemption premium, and other related fees, costs and charges
associated with the transition bonds, or to assign, sell or otherwise transfer
Intangible Transition Property.
RESERVE SUBACCOUNT - An account held by the Trustee under the Indenture, which
consists of remaining funds available after required allocations on the
quarterly payment dates.
SERVICER - PPL Electric Utilities acting in this capacity under the Servicing
Agreement. In this capacity, PPL Electric Utilities calculates, bills and
collects ITC, and maintains applicable accounting records, among other duties.
SERVICING AGREEMENT - The Intangible Property Servicing Agreement between PPL
Electric Utilities, as Servicer, and PPL Transition Bond Company, LLC, as
Issuer.
TRUSTEE - The Bank of New York, a New York banking corporation, as Trustee under
the Indenture.
<PAGE>
PPL TRANSITION BOND COMPANY, LLC
--------------------------------
PART I
------
ITEM 1. BUSINESS
- ------- --------
GENERAL
On February 29, 2000, PP&L Transition Bond Company LLC (incorporated in
1999) filed a Certificate of Amendment with the Delaware Department of State to
change its name to PPL Transition Bond Company, LLC, effective immediately.
PPL Transition Bond Company, LLC (the Company) is a Delaware limited
liability company, whose sole member is PPL Electric Utilities. The Company was
organized in March 1999, for the sole purpose of purchasing and owning ITP,
issuing transition bonds (the Bonds), pledging its interest in ITP and other
collateral to the Trustee under an Indenture between the Company and the Trustee
to collateralize the Bonds, and performing activities that are necessary to
accomplish these purposes. The Company's organizational documents require it to
operate in a manner so that its assets would not be consolidated with the
bankruptcy estate of PPL Electric Utilities in the event that PPL Electric
Utilities becomes subject to a bankruptcy proceeding.
The only material business conducted by the Company has been the
acquisition of ITP from CEP Securities and the issuance in August 1999 of $2.42
billion of Bonds, Series 1999-1, Class A-1 through Class A-8. The specific
interest rate and maturity of each class of bonds is specified in Note 3 of the
Notes to Financial Statements. Each series of Bonds have been registered in the
name of Cede & Company, as nominee of the Depository Trust Company. All of the
Bonds were sold to a syndicate of underwriters managed by Morgan Stanley Dean
Witter.
The Company used the proceeds of the issuance of the Bonds to pay expenses
of issuance and to purchase the transferred ITP from CEP Securities. PPL
Electric Utilities arranged for the formation of CEP Securities as a bankruptcy
remote special purpose entity for the purpose of holding ITP before the issuance
of the first series of the Bonds.
The Company has no employees. PPL Electric Utilities, as Servicer under
the Servicing Agreement, is required to manage, service, administer and make
collections of the ITP. The Servicing Agreement also requires PPL Electric
Utilities, as Servicer, to file adjustment requests on each calculation date,
and the Competition Act and the PUC Restructuring Order require the PUC to act
upon these requests within specified time periods. These adjustment requests
are based on actual ITC collections and updated assumptions by the Servicer as
to projected future usage of electricity by customers, expected delinquencies
and write-offs, and future payments and expenses relating to the ITP and the
Bonds. The Servicer filed such an adjustment request on December 15, 1999 with
the PUC. The request was approved and revised rates became effective on January
1, 2000.
INTANGIBLE TRANSITION PROPERTY
The ITP represents the irrevocable right of PPL Electric Utilities, or its
successor or assignee, to collect a non-bypassable ITC from customers pursuant
to the PUC Restructuring Order in accordance with the Competition
<PAGE>
Act. The PUC Restructuring Order authorized PPL Electric Utilities to securitize
up to $2.85 billion of its stranded costs. PPL Electric Utilities, or any
assignee of PPL Electric Utilities to whom ITP is sold, may issue and sell, in
reliance on the PUC Restructuring Order, one or more series of the Bonds, each
series in one or more classes, secured by ITP. The Company acquired the ITP and
issued the Bonds in August 1999. The principal amount of the Bonds, interest,
fees, and funding of the Overcollateralization Subaccount will be recovered
through ITC payable by retail consumers of electricity within PPL Electric
Utilities' service territory who receive electric delivery service from PPL
Electric Utilities.
ITEM 2. PROPERTIES
- ------- ----------
The Company has no physical property. Its primary asset is the ITP
described above in Item 1 ("Business - Intangible Transition Property").
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Omitted pursuant to Instruction I of Form 10-K.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
(a) Sales of Unregistered Securities. There is no established public trading
market for the Company's equity securities. PPL Electric Utilities owns
all of the Company's equity. On August 5, 1999, PPL Electric Utilities
transferred $12.1 million to the Company as an initial capital
contribution, which is also the total capital contribution as of December
31, 1999. Such transaction was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2). The Company
has made no other sales of unregistered securities.
(b) Restriction on Dividends. The Company may not make any payments,
distributions or dividends to any member of the Company with respect to its
membership interest in the Company except in accordance with the Indenture.
(c) Bondholders. As of December 31, 1999 the sole holder of the Bonds was Cede
& Co., as nominee of the Depository Trust Company. The Bonds are not
registered on any national securities exchange and are not traded on any
established trading market.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Omitted pursuant to Instruction I of Form 10-K.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following analysis of the results of operations and financial condition
of the Company is in an abbreviated format pursuant to Instruction I of Form 10-
K. Such analysis should be read in conjunction with the financial statements
attached hereto.
As discussed above under Item 1 "Business - General," the Company is a
Delaware limited liability company, whose sole member is PPL Electric Utilities.
As discussed in Note 3 to Financial Statements, on August 10, 1999, the Company
issued the Bonds and transferred the proceeds in exchange for all rights, title
and interest in the ITP from CEP Securities. As the Company was formed for
limited purposes, as discussed under Item 1 "Business - General," the income
statement effects were limited primarily to revenue from collections of ITC by
the Servicer, interest income earned on the Capital Subaccount maintained by the
Trustee and on temporary investments, interest expense on the Bonds,
amortization of the ITP, servicing fees and other administrative expenses.
From the period of inception, March 25, 1999, to December 31, 1999, the
income generated from the ITP was approximately $151 million. The Company also
earned approximately $349 thousand in interest from the Capital Subaccount
maintained by the Trustee and temporary investments. Interest expense of
approximately $65 million consists of interest on the Bonds, amortization of
debt issuance expenses and the discount on the Bonds. The Company also incurred
servicing fees of approximately $469 thousand and other administrative fees of
$38 thousand.
The principal amount of the Bonds, interest, fees, and funding of the
Overcollateralization Subaccount will be recovered through ITC payable by retail
consumers of electricity within PPL Electric Utilities' service territory who
receive electric delivery service from PPL Electric Utilities. As part of PPL
Electric Utilities' responsibility as Servicer under the Servicing Agreement, as
discussed in Item 1 "Business - General," PPL Electric Utilities remitted to the
Trustee $83 million of ITC collections for the period August 10, 1999 to
November 30, 1999. The first quarterly payment of Bond principal, interest and
all related expenses was made by the Trustee on December 27, 1999.
Due to the manner in which seasonal customer electricity usage levels were
estimated for purpose of establishing the initial ITC, the Trustee was required
to use $8.6 million of the funds in the Capital Subaccount held by the Trustee
under the Indenture to meet the $29.7 million of scheduled principal payments on
the Bonds on December 27, 1999 (See Note 3 to Financial Statements). The Company
currently anticipates that there will be sufficient revenue to make interest
payments due on the next quarterly payment date, March 27, 2000. However, after
application of the remaining amounts in the Capital Subaccount and unapplied
Bond proceeds, the Company anticipates a shortfall of approximately $3 million
in the scheduled principal payment on that date (which shortfall does not
constitiute an Event of Default under the Indenture.)
Under the Competition Act and the PUC Restructuring Order, withdrawals from
the Capital Subaccount must be replenished by increases in the ITC. Under the
Servicing Agreement, PPL Electric Utilities, as Servicer, filed a request for an
adjustment to the ITC with the PUC on December 15, 1999 to produce additional
revenues sufficient to replenish the Capital Subaccount prior to the December
2000 quarterly payment date. The adjustment went into effect on January 1,
2000.
<PAGE>
YEAR 2000
The Company is dependent on PPL Electric Utilities, as Servicer, to collect
the ITC from customers and remit the ITC to the Trustee. PPL Electric Utilities
successfully achieved Year 2000 readiness with respect to systems affecting the
collection and remittance of the ITC, the ability to service the ITP, and the
ability to make distributions on the Bonds. PPL Electric Utilities incurred all
year 2000 remediation costs as Servicer.
The Bank of New York, as Trustee, also successfully made the transition
without incident.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
None.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To PPL Electric Utilities Corporation, the Sole Member
of PPL Transition Bond Company, LLC:
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) present fairly, in all material respects, the financial position
of PPL Transition Bond Company, LLC at December 31, 1999, and the results of its
operations and its cash flows for the period then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 31, 2000
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PPL TRANSITION BOND COMPANY, LLC
- --------------------------------
STATEMENT OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Period
March 25, 1999 (date
of inception)
to December 31,
1999
--------------------
<S> <C>
REVENUE
Intangible transition charge revenue................... $150,852
Interest income........................................ 349
--------------------
Total revenue..................................... 151,201
--------------------
EXPENSES
Amortization of intangible transition property......... 85,020
Interest expense....................................... 65,246
Administrative and general expenses.................... 586
--------------------
Total expenses.................................... 150,852
--------------------
Operating Income.......................................... 349
Income Tax Expense........................................ 145
--------------------
Net Income................................................ $204
====================
Member's equity - beginning of period..................... 0
Member's cash contribution................................ 12,101
--------------------
Member's equity - end of period........................... $12,305
====================
</TABLE>
The accompanying Notes to Financial Statements are an integral part
of the financial statements.
<PAGE>
PPL TRANSITION BOND COMPANY, LLC
- --------------------------------
STATEMENT OF CASH FLOWS
(Thousands of Dollars)
<TABLE>
<CAPTION>
For the Period
March 25, 1999 (date
of inception) to
December 31,
1999
--------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................. $204
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of intangible transition property........... 85,020
Amortization of debt issuance expenses................... 1,399
Amortization of debt discount............................ 29
Deferred income taxes.................................... 6,250
Changes in current assets and liabilities:
Intangible transition charges receivable from Servicer.. (68,507)
Accounts receivable - income taxes...................... (6,105)
Interest accrued........................................ 2,255
Payable to Servicer..................................... 1,056
Other................................................... 532
Other operating activities - net........................... 327
--------------------
Net cash provided by operating activities............ 22,460
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangible transition property................. (2,402,000)
Change in restricted funds................................. (3,519)
--------------------
Net cash used in investing activities................ (2,405,519)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of transition bonds................. 2,419,737
Repayment of transition bonds.............................. (29,685)
Debt issuance expenses..................................... (16,264)
Equity contribution from member............................ 12,101
--------------------
Net cash provided by financing activities............ 2,385,889
--------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 2,830
Cash and Cash Equivalents at Beginning of Period........... 0
--------------------
Cash and Cash Equivalents at End of Period................. $2,830
--------------------
SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $61,562
Income taxes $0
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of the financial statements.
<PAGE>
PPL TRANSITION BOND COMPANY, LLC
- --------------------------------
BALANCE SHEET
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31,
1999
-------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents............................... $2,830
Intangible transition charges receivable from Servicer.. 68,507
Other receivables....................................... 16
Accounts receivable - income taxes...................... 6,105
Other prepaid expenses.................................. 39
-------------
Current assets...................................... 77,497
-------------
NONCURRENT ASSETS
Intangible transition property, net..................... 2,316,980
Unamortized debt issuance expenses...................... 14,865
Restricted funds........................................ 3,519
-------------
Noncurrent assets................................... 2,335,364
-------------
Total assets........................................ $2,412,861
=============
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES
Long-term debt.......................................... $226,699
Interest accrued ....................................... 2,255
Payable to Servicer..................................... 1,056
Other................................................... 587
-------------
Current liabilities................................. 230,597
-------------
NONCURRENT LIABILITIES
Long-term debt, net of discount......................... 2,163,382
Deferred income taxes................................... 6,250
Other................................................... 327
-------------
Noncurrent liabilities.............................. 2,169,959
-------------
Commitments and contingent liabilities..................
-------------
MEMBER'S EQUITY............................................ 12,305
-------------
Total liabilities and member's equity............... $2,412,861
=============
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Terms and abbreviations appearing in Notes to Financial Statements are
explained in the glossary.
1. NATURE OF OPERATIONS
The financial statements include the accounts of PPL Transition Bond
Company, LLC (the Company). PPL Transition Bond Company, LLC, a limited
liability company established under the laws of the State of Delaware, was
formed on March 25, 1999 pursuant to a limited liability company agreement. PPL
Electric Utilities is the sole member of the Company.
The Company was organized for the sole purpose of purchasing and owning
ITP, issuing transition bonds (the Bonds), pledging its interest in ITP and
other collateral to the Trustee under an Indenture between the Company and the
Trustee to collateralize the Bonds, and performing activities that are necessary
to accomplish these purposes. ITP represents the irrevocable right of PPL
Electric Utilities, or its successor or assignee, to collect a non-bypassable
ITC from customers pursuant to the PUC Restructuring Order in accordance with
the Competition Act. The PUC Restructuring Order authorizes the ITC to be
sufficient to recover up to $2.85 billion aggregate principal amount of Bonds,
plus an amount sufficient to provide for any credit enhancement, to fund any
reserves and to pay interest, redemption premiums, servicing fees and other
expenses relating to the Bonds.
The Company's organizational documents require it to operate in a manner so
that its assets would not be consolidated with the bankruptcy estate of PPL
Electric Utilities in the event that PPL Electric Utilities becomes subject to a
bankruptcy proceeding. Both PPL Electric Utilities and the Company have treated
the transfer of the ITP to the Company as a sale under applicable law. The
Bonds are treated as debt obligations of the Company. The assets of the Company
are not available to creditors of PPL Electric Utilities or PPL Corporation and
the ITP is legally not an asset of PPL Electric Utilities or PPL Corporation.
The Company is expected to terminate its existence after final maturity of the
Bonds.
The Company issued $2.42 billion of Bonds in eight different classes on
August 10, 1999. See Note 3 for additional information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions will affect the reported amount of
revenues, expenses, assets, and liabilities and disclosure of contingencies.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. Cash and Cash Equivalents do
not include Restricted Funds.
<PAGE>
RESTRICTED FUNDS
Under the Indenture, the Company deposited an amount equal to 0.5% of the
initial principal amount of the 1999-1 Bonds into the Capital Subaccount with
the Trustee. This amount was contributed by PPL Electric Utilities to the
Company. This account is the last account drawn in the event funds are
insufficient to make scheduled allocations. If the Capital Subaccount is used,
it will be replenished from ITC remittances to its original level through the
periodic reconciliation process. Accordingly, the Capital Subaccount is
classified as "Restricted funds" on the Balance Sheet.
AMORTIZATION OF INTANGIBLE TRANSITION PROPERTY
The ITP was recorded at the acquired cost and is being amortized over the
life of the Bonds, based on ITC revenues, interest accruals and other fees. The
ITP is solely the property of the Company.
AMORTIZATION OF DEBT ISSUANCE COSTS AND DISCOUNT ON DEBT
The costs associated with the issuance of the Bonds have been capitalized
and are being amortized over the life of the Bonds, utilizing the effective
interest method.
INCOME TAXES
The Company is a limited liability company and elected to be disregarded as
a separate entity for federal and state income tax purposes. The Company's
taxable income or loss is included in the consolidated federal and state income
tax returns of its member. The Statement of Operations and Changes in Member's
Equity reflects the Company's pro rata allocation of its member's consolidated
income taxes in accordance with its member's tax sharing policy.
3. LONG-TERM DEBT AND SOURCE OF REPAYMENT
In August 1999, the Company issued $2.42 billion of Series 1999-1 Bonds.
The Bonds consist of eight classes. The Company used the proceeds from the
Bonds to purchase ITP from CEP Securities. PPL Electric Utilities arranged for
the formation of CEP Securities to provide flexibility to issue multiple
tranches of transition bonds at different dates. The Bonds are collateralized
by the ITP and other assets of the Company.
<PAGE>
Scheduled maturities and interest rates for the Bonds at December 31, 1999
are:
<TABLE>
<CAPTION>
Expected Final Final
Class Bond Rate Amount Payment Date Maturity Date
- -------- ----------- ------------- ----------------- -----------------
($ Thousands)
<S> <C> <C> <C> <C>
A-1 6.08% $ 263,315 March 25, 2001 March 25, 2003
A-2 6.41% 178,000 December 26, 2001 December 26, 2003
A-3 6.60% 303,000 March 25, 2003 March 25, 2005
A-4 6.72% 201,000 December 26, 2003 December 26, 2005
A-5 6.83% 313,000 March 25, 2005 March 25, 2007
A-6 6.96% 223,000 December 26, 2005 December 26, 2007
A-7 7.05% 455,000 June 25, 2007 June 25, 2009
A-8 7.15% 454,000 December 26, 2008 June 25, 2009
----------
$2,390,315
Current Maturities (226,699)
Unamort. Discount (234)
----------
Long-term Debt $2,163,382
==========
</TABLE>
The carrying value of the long-term debt approximates fair market value as
of December 31, 1999. The current maturities stated above are based on the
expected final payment dates rather than the final maturity date.
The source of repayment for the Bonds is the ITC. The Servicer collects
this non-bypassable charge from PPL Electric Utilities' retail consumers of
electricity. The Servicer deposits ITC monthly collections into a General
Subaccount maintained by the Trustee under the Indenture. The monthly ITC
collections from August 10, 1999 to November 30, 1999 were $83 million. Each
quarter, such monies are used to make principal and interest payments on the
Bonds, and to pay fees, costs and charges specified in the Indenture. The
Trustee made the first payment on the scheduled payment date of December 27,
1999. The Indenture also includes a Reserve Subaccount that is maintained for
the purpose of retaining any excess amount of ITC collections and investment
earnings not released to the Company. The Indenture also provides for an
Overcollateralization Subaccount. The funding level of this account is 0.5% of
the initial principal amount of the Series 1999-1 Bonds, funded ratably over the
life of the Bonds. The Company's required Overcollateralization Subaccount
level as of December 31, 1999 was $327,027. Additionally, an amount equal to
0.5% of the initial principal amount of the Bonds was deposited into the Capital
Subaccount under the Indenture on the date of issuance. If amounts available in
the General, Reserve, and Overcollateralization Subaccounts are not sufficient
on any payment date to make scheduled payments, the Trustee will draw on amounts
in the Capital Subaccount in excess of $100,000. The Trustee was required to
withdraw $8.6 million from the Capital Subaccount on December 27, 1999 to make
scheduled principal payments of $29.7 million on the Bonds. Any remaining
amounts collateralizing the Bonds will be released to the Company upon payment
of the Bonds.
<PAGE>
At December 31, 1999 the following balances were reflected in the Subaccounts
maintained by the Trustee:
<TABLE>
<CAPTION>
Subaccounts Balance
- --------------------------------- -------------
($ thousands)
<S> <C>
General $ 0
Reserve 0
Overcollateralization 0
Capital $3,473
</TABLE>
4. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Under the Servicing Agreement, PPL Electric Utilities, as Servicer, is
required to manage and administer the ITP of the Company and to collect the ITC
on behalf of the Company. The Company pays an annual servicing fee of $1.25
million to PPL Electric Utilities. For the period ended December 31, 1999, the
Company expensed servicing fees of approximately $469 thousand and other
administrative fees of approximately $38 thousand.
Debt issuance costs of approximately $16.3 million were incurred in
connection with the issuance of the Bonds. Of that amount, about $4.2 million
has been incurred by PPL Electric Utilities, with approximately $1.1 million to
be reimbursed by the Company.
At December 31, 1999, the Balance Sheet includes a receivable from PPL
Electric Utilities of approximately $69 million for ITC collections.
5. INCOME TAXES
In 1999, the corporate federal income tax rate was 35%, and the PA
corporate income tax rate was 9.99%.
The deferred income tax liability at December 31, 1999 was related to
timing differences associated with the amortization of ITP.
<PAGE>
Details of the components of income tax expense and a reconciliation of
federal income taxes, derived from statutory tax rates applied to income from
continuing operations for accounting purposes, follows (thousands of dollars):
<TABLE>
<CAPTION>
Income Tax Expense
- ------------------
1999
---------------------
Income Tax Expense
<S> <C> <C>
Provision-Federal $(4,635)
Provision-State (1,470)
----------------------
(6,105)
----------------------
Deferred-Federal 4,745
Deferred-State 1,505
----------------------
6,250
----------------------
$ 145
======================
Federal $ 110
State 35
----------------------
$ 145
======================
Reconciliation of Income Tax Expense
- ------------------------------------
1999
-------
Indicated federal income tax on
pre-tax income at statutory tax
rate - 35% $ 122
Increase due to State income taxes 23
----------------------
Total income tax expense $ 145
======================
Effective income tax rate 41.5%
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Omitted pursuant to Instruction I of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Omitted pursuant to Instruction I of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Omitted pursuant to Instruction I of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Omitted pursuant to Instruction I of Form 10-K.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements - included in response to Item 8.
Report of Independent Accountants
Statement of Operations and Changes in Member's Equity for the
period March 25, 1999 (inception) to December 31, 1999
Statement of Cash Flows for the period March 25, 1999
(inception) to December 31, 1999
Balance Sheet at December 31, 1999
2. Financial Statement Schedules.
None.
3. Exhibits.
See Exhibit Index which appears following the Signature page to
this report.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
PPL TRANSITION BOND COMPANY, LLC
--------------------------------
(Registrant)
By /s/ John R. Biggar
- ---------------------------------------
John R. Biggar, Manager
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
TITLE
-----
By /s/ John R. Biggar Manager
- ---------------------------------------
John R. Biggar
By /s/ James E. Abel Manager
- ---------------------------------------
James E. Abel
By /s/ James S. Pennington Manager
- ---------------------------------------
James S. Pennington
By /s/ Dwight Jenkins Manager
- ---------------------------------------
Dwight Jenkins
By /s/ Peter H. Sorensen Manager
- ---------------------------------------
Peter H. Sorensen
By /s/ Stephen C. May Treasurer
- ---------------------------------------
Stephen C. May
Date: March 10, 2000
<PAGE>
INDEX TO EXHIBITS
-----------------
The following Exhibits indicated by an asterisk preceding the Exhibit
number are filed herewith. The balance of the Exhibits have heretofore been
filed with the Commission and pursuant to Rule 12(b)-32 are incorporated herein
by reference.
Exhibits
Exhibit No. Description
- ----------- -----------
3.1 - Certificate of Formulation of PP&L Transition
Bond Company LLC (Exhibit 4.2 to Registration
Statement No. 333-75369)
3.2 - Amended and Restated Limited Liability Company
Agreement of PP&L Transition Bond Company LLC, dated
August 10, 1999 (Exhibit 4.1.2 to the Company's Form
8-K report (File No. #333-75369), dated August 17,
1999)
4.1 - Indenture dated as of August 10, 1999, between PP&L
Transition Bond Company LLC and the Bank of New York
(Exhibit 4.3.1 to the Company's Form 8-K report (File
No. #333-75369), dated August 17, 1999.
4.2 - Series Supplement, dated as of August 10, 1999, between
PP&L Transition Bond Company LLC and the Bank of New
York (Exhibit 4.3.2 to the Company's Form 8-K report
(File No. #333-75369), dated August 17, 1999)
10.1 - Intangible Transition Property Sale Agreement, dated
August 10, 1999, between PP&L Transition Bond Company
LLC and CEP Securities Co. LLC (Exhibit 10.1 to the
Company's Form 8-K report (File No. #333-75369), dated
August 17, 1999)
10.2 - Amendment Number 1 to the Intangible Transition
Property Contribution Agreement among PP&L, Inc., CEP
Group, Inc., CEP Reserves, Inc. and PP&L Transition
Bond Company LLC dated August 10, 1999 (Exhibit 10.2
to the Company's Form 8-K report (File No. #333-75369)
dated August 17, 1999)
10.3 - Intangible Transition Property Servicing Agreement
dated August 10, 1999, between PP&L Transition Bond
Company LLC and PP&L, Inc. (Exhibit 10.3 to the
Company's Form 8-K report (File No. #333-75369), dated
August 17, 1999)
*23 - Consent of PricewaterhouseCoopers LLP
*27 - Financial Data Schedule
*99 - Quarterly Servicer's Certificate
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-75369) of PPL Transition Bond Company, LLC of our
report dated January 31, 2000 relating to the financial statements, which
appears in this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS AND CHANGES IN MEMBER'S EQUITY, THE STATEMENT OF CASH
FLOWS, AND THE BALANCE SHEET FOR THE FORM 10-K DATED DECEMBER 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001083000
<NAME> PPL TRANSITION BOND CO INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-25-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 77,497
<TOTAL-DEFERRED-CHARGES> 14,865
<OTHER-ASSETS> 2,230,499
<TOTAL-ASSETS> 2,412,861
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 12,101
<RETAINED-EARNINGS> 204
<TOTAL-COMMON-STOCKHOLDERS-EQ> 12,305
0
0
<LONG-TERM-DEBT-NET> 2,163,382
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 226,699
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,475
<TOT-CAPITALIZATION-AND-LIAB> 2,412,861
<GROSS-OPERATING-REVENUE> 151,201
<INCOME-TAX-EXPENSE> 145
<OTHER-OPERATING-EXPENSES> 85,606
<TOTAL-OPERATING-EXPENSES> 85,751
<OPERATING-INCOME-LOSS> 65,450
<OTHER-INCOME-NET> 0
<INCOME-BEFORE-INTEREST-EXPEN> 65,450
<TOTAL-INTEREST-EXPENSE> 65,246
<NET-INCOME> 204
0
<EARNINGS-AVAILABLE-FOR-COMM> 204
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 63,818
<CASH-FLOW-OPERATIONS> 22,460
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99
QUARTERLY SERVICER'S CERTIFICATE
PP&L TRANSITION BOND COMPANY LLC
$2,420,000,000 TRANSITION BONDS, SERIES 1999-1
Pursuant to Section 4 of Annex I of the Intangible Transition Property
Servicing Agreement dated as of August 10, 1999 (the "Servicing Agreement")
between PP&L, Inc., as Servicer and PP&L Transition Bond Company LLC, as Issuer,
the Servicer does hereby certify as follows:
Capitalized terms used in this Quarterly Servicer's Certificate (the
"Quarterly Certificate") have their respective meanings as set forth in the
Servicing Agreement. References herein to the "Indenture" are to the Indenture
dated as of August 10, 1999 between PP&L Transition Bond Company LLC, as issuer
and The Bank of New York as Trustee.
Billing Periods: August 1999, September 1999, October 1999, November 1999
Payment Date: December 27, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Collections Allocable and Aggregate Amounts Available for the Current Payment Date:
i. Remittances for the August 10, 1999 - September 30, 1999 Collection Period* $ 29,930,952.15
ii. Remittances for the October 1999 Collection Period $ 25,944,416.31
iii. Remittances for the November 1999 Collection Period $ 26,796,338.21
iv. Net Earnings on Collection Account $ 313,097.77
v. Net Earnings on Capital Subaccount $ 213,645.54
vi. Net Earnings on Overcollateralization Subaccount $ 0.00
vii. Net Earnings on Reserve Subaccount $ 0.00
--------------
viii. General Subaccount Balance $ 83,198,449.98
ix. Reserve Subaccount Balance $ 0.00
x. Overcollateralization Subaccount Balance $ 0.00
xi. Capital Subaccount Balance (less $100K) $ 12,000,000.00
-----------------
xii. Collection Account Balance $ 95,198,449.98
2. Outstanding Principal Balance and Collection Account Balance as of Prior Payment Date:
i. Class A-1 Principal Balance $293,000,000.00
ii. Class A-2 Principal Balance $178,000,000.00
iii. Class A-3 Principal Balance $303,000,000.00
iv. Class A-4 Principal Balance $201,000,000.00
v. Class A-5 Principal Balance $313,000,000.00
vi. Class A-6 Principal Balance $223,000,000.00
vii. Class A-7 Principal Balance $455,000,000.00
viii. Class A-8 Principal Balance $454,000,000.00
-----------------
ix. Transition Bond Principal Balance $2,420,000,000.00
x. Reserve Subaccount Balance $ 0.00
xi. Overcollateralization Subaccount Balance $ 0.00
xii. Capital Subaccount Balance $ 12,000,000.00
3. Required Funding/Payments as of Current Payment Date:
i. Projected Class A-1 Bond Balance $ 263,315,284.00
ii. Projected Class A-2 Bond Balance $ 178,000,000.00
iii. Projected Class A-3 Bond Balance $ 303,000,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
iv. Projected Class A-4 Bond Balance $ 201,000,000.00
v. Projected Class A-5 Bond Balance $ 313,000,000.00
vi. Projected Class A-6 Bond Balance $ 223,000,000.00
vii. Projected Class A-7 Bond Balance $ 455,000,000.00
viii. Projected Class A-8 Bond Balance $ 454,000,000.00
-----------------
ix. Projected Transition Bond Balance $2,390,315,284.00
* August collections totaled $8,549,873.35, September collections totaled $21,381,078.80.
x. Required Class A-1 Coupon (6.08% per annum rate) $ 6,680,400.00
xi. Required Class A-2 Coupon (6.41% per annum rate) $ 4,278,675.00
xii. Required Class A-3 Coupon (6.60% per annum rate) $ 7,499,250.00
xiii. Required Class A-4 Coupon (6.72% per annum rate) $ 5,065,200.00
xiv. Required Class A-5 Coupon (6.83% per annum rate) $ 8,016,712.50
xv. Required Class A-6 Coupon (6.96% per annum rate) $ 5,820,300.00
xvi. Required Class A-7 Coupon (7.05% per annum rate) $ 12,029,062.50
xvii. Required Class A-8 Coupon (7.15% per annum rate) $ 12,172,875.00
xviii. Required Overcollateralization Funding $ 327,027.03
xix. Required Capital Subaccount Funding $ 0.00
4. Allocation of Remittances as of Current Payment Date Pursuant to Section 8.02(d) of the Indenture:
i. Bond Trustee Fees and Expenses $ 5,625.00
ii. Independent Managers Fee $ 0.00
iii. Servicing Fee $ 468,750.00
iv. Quarterly Administration Fee $ 37,500.00
v. Operating Expenses (subject to $100,000 cap) $ 66,562.50
vi. Quarterly Interest $ 61,562,475.00
1. Class A-1 Bond Coupon Payment $ 6,680,400.00
2. Class A-2 Bond Coupon Payment $ 4,278,675.00
3. Class A-3 Bond Coupon Payment $ 7,499,250.00
4. Class A-4 Bond Coupon Payment $ 5,065,200.00
5. Class A-5 Bond Coupon Payment $ 8,016,712.50
6. Class A-6 Bond Coupon Payment $ 5,820,300.00
7. Class A-7 Bond Coupon Payment $ 12,029,062.50
8. Class A-8 Bond Coupon Payment $ 12,172,875.00
vii. Principal Due and Payable $ -
viii. Scheduled Quarterly Principal $ 29,684,716.00
1. Class A-1 Bond Principal Payment $ 29,684,716.00
2. Class A-2 Bond Principal Payment $ 0.00
3. Class A-3 Bond Principal Payment $ 0.00
4. Class A-4 Bond Principal Payment $ 0.00
5. Class A-5 Bond Principal Payment $ 0.00
6. Class A-6 Bond Principal Payment $ 0.00
7. Class A-7 Bond Principal Payment $ 0.00
8. Class A-8 Bond Principal Payment $ 0.00
ix. Operating Expenses (in excess of $100,000) $ 0.00
x. Funding of Capital Subaccount (to required level) $ 0.00
xi. Funding of Overcollateralization Subaccount (to required level) $ 0.00
xii. Net Earnings on Capital Subaccount Released to Issuer $ 0.00
xiii. Deposits to Reserve Subaccount $ 0.00
xiv. Released to Issuer upon Series Retirement: Collection Account $ 0.00
5. Outstanding Principal Balance and Collection Account Balance as of Current Payment Date: (After giving effect to payments to be
made on such payment date):
i. Class A-1 Principal Balance $ 263,315,284.00
ii. Class A-2 Principal Balance $ 178,000,000.00
iii. Class A-3 Principal Balance $ 303,000,000.00
iv. Class A-4 Principal Balance $ 201,000,000.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
v. Class A-5 Principal Balance $ 313,000,000.00
vi. Class A-6 Principal Balance $ 223,000,000.00
vii. Class A-7 Principal Balance $ 455,000,000.00
viii. Class A-8 Principal Balance $ 454,000,000.00
-----------------
ix. Transition Bond Principal Balance $2,390,315,284.00
x. Reserve Subaccount Balance $ 0.00
xi. Overcollateralization Subaccount Balance $ 0.00
xii. Capital Subaccount Balance $ 3,372,821.48
6. Subaccount Draws as of Current Payment Date (if Applicable) Pursuant to Section 8.02(d) of the Indenture:
i. Reserve Subaccount $ 0.00
ii. Overcollateralization Subaccount $ 0.00
iii. Capital Subaccount $ 8,627,178.52
-----------------
iv. Total Draws $ 8,627,178.52
7. Shortfalls in Interest and Principal Payments as of Current Payment Date:
i. Quarterly Interest $ 0.00
1. Class A-1 Bond Coupon Payment $ 0.00
2. Class A-2 Bond Coupon Payment $ 0.00
3. Class A-3 Bond Coupon Payment $ 0.00
4. Class A-4 Bond Coupon Payment $ 0.00
5. Class A-5 Bond Coupon Payment $ 0.00
6. Class A-6 Bond Coupon Payment $ 0.00
7. Class A-7 Bond Coupon Payment $ 0.00
8. Class A-8 Bond Coupon Payment $ 0.00
ii. Quarterly Principal $ 0.00
1. Class A-1 Bond Principal Payment $ 0.00
2. Class A-2 Bond Principal Payment $ 0.00
3. Class A-3 Bond Principal Payment $ 0.00
4. Class A-4 Bond Principal Payment $ 0.00
5. Class A-5 Bond Principal Payment $ 0.00
6. Class A-6 Bond Principal Payment $ 0.00
7. Class A-7 Bond Principal Payment $ 0.00
8. Class A-8 Bond Principal Payment $ 0.00
8. Shortfalls in Required Subaccount Levels as of Current Payment Date:
i. Overcollateralization Subaccount $ 327,027.03
ii. Capital Subaccount $ 8,627,178.52
</TABLE>
IN WITNESS HEREOF, the undersigned has duly executed and delivered this
Quarterly Servicer's Certificate this 22nd day of December, 1999.
PP&L, Inc., as Servicer
by: /s/ James E. Abel
--------------------------
James E. Abel
Vice President Finance and Treasurer
