<PAGE>
Page 1 of 12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000
Commission File Number: 333-79619
WEST PENN FUNDING LLC
(Exact name of registrant as specified in its charter)
Delaware 25-1843349
(State of Incorporation) (I.R.S. Employer Identification No.)
2325B-2 Renaissance Drive, Las Vegas, NV 89119
Telephone Number - (702) 895-6752
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 3
months and (2) has been subject to such filing requirements for the past 90
days.
West Penn Funding LLC (the Registrant) is a Delaware limited liability
company, whose sole member is West Penn Funding corporation.
<PAGE>
- 2 -
WEST PENN FUNDING LLC
Form 10-Q for Quarter Ended September 30, 2000
Index
Page
No.
PART I--FINANCIAL INFORMATION:
Statement of Operations - Three and nine months
ended September 30, 2000 3
Statement of Member's Equity - September 30, 2000 3
Balance Sheet - September 30, 2000
and December 31, 1999 4
Statement of Cash Flows - Nine months ended
September 30, 2000 5
Notes to Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
PART II--OTHER INFORMATION 12
<PAGE>
- 3 -
WEST PENN FUNDING LLC
Statement of Operations
(Thousands of Dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
2000 2000
OPERATING REVENUES:
<S> <C> <C>
Intangible transition charges 23,849 72,410
Interest income 119 368
Total Operating Revenues 23,968 72,778
OPERATING EXPENSES:
Amortization of intangible transition property 13,695 40,909
Interest on transition bonds 9,563 29,970
Amortization of debt issuance costs 288 833
Administrative and general expense 353 1,023
Total Operating Expenses 23,899 72,735
Operating Income 69 43
Federal and state income taxes 24 14
NET INCOME 45 29
See accompanying notes to financial statements.
WEST PENN FUNDING LLC
Statement of Member's Equity
(Thousands of Dollars)
Unaudited
September 30,
2000
Member's equity at January 1 3,031
Net income 29
Investment from member 792
Member's equity at September 30 3,852
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- 4 -
WEST PENN FUNDING LLC
Balance Sheet
(Thousands of Dollars)
Unaudited Audited
September 30, December 31,
2000 1999
ASSETS:
Current Assets:
Cash and temporary cash investments 185 1,003
Accounts receivable from parent 15,156 7,474
Restricted funds 226 3,006
Intangible transition property 55,466 52,779
Other prepaid accounts 775 -
71,808 64,262
Noncurrent Assets:
Intangible transition property 496,242 539,838
Unamortized debt issuance expense 5,077 4,453
501,319 544,291
Total Assets 573,127 608,553
LIABILITIES AND MEMBER'S EQUITY:
Current Liabilities:
Long-term debt due within one year 60,005 49,734
Accounts payable to parent 1,614 633
Accounts payable other 482 -
Federal and state income taxes accrued - 4
Interest accrued 415 4,944
62,516 55,315
Long-term Debt, net of discount 506,759 550,207
Member's Equity 3,852 3,031
Total Liabilities and Member's Equity 573,127 608,553
See accompanying notes to financial statements.
<PAGE>
- 5 -
WEST PENN FUNDING LLC
Statement of Cash Flows
(Thousands of Dollars)
Unaudited
Nine Months Ended
September 30,
2000
CASH FLOWS FROM OPERATIONS:
Net income 29
Amortization of intangible transition property 40,909
Changes in certain assets and liabilities:
Accounts receivable from parent (7,682)
Restricted funds 2,780
Unamortized debt issuance expense (624)
Other prepaid accounts (775)
Interest and taxes accrued (3,741)
Accounts payable to parent 981
Accounts payable other 482
32,359
CASH FLOWS FROM FINANCING:
Retirement of transition bonds (33,177)
(33,177)
NET CHANGE IN CASH AND TEMPORARY CASH INVESTMENTS (818)
Cash and temporary cash investments at January 1 1,003
Cash and temporary cash investments at September 30 185
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest 34,500
Income taxes -
See accompanying notes to financial statements.
<PAGE>
- 6 -
WEST PENN FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements
The West Penn Funding LLC's (the Company) Notes to Financial Statements
in its Annual Report on Form 10-K for the year ended December 31, 1999
should be read with the accompanying financial statements and the notes.
With the exception of the December 31, 1999 balance sheet in the
aforementioned annual report on Form 10-K, the accompanying financial
statements appearing on pages 3 through 5 and these notes to financial
statements are unaudited. In the opinion of the Company, such financial
statements together with these notes contain all adjustments (which consist
only of normal recurring adjustments) necessary to present fairly the
Company's financial position as of September 30, 2000 and the results of
operations for the three and nine months ended September 30, 2000, and cash
flows for the nine months ended September 30, 2000.
2. Nature of Operations
The Company is a Delaware limited liability company whose sole member
is West Penn Funding Corporation, a wholly owned subsidiary of West Penn
Power Company (West Penn).
The Company was organized in May 1999, for the sole purpose of
purchasing and owning Intangible Transition Property (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 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 West Penn or West Penn Funding Corporation in the
event that West Penn or West Penn Funding Corporation becomes subject to a
bankruptcy proceeding.
The ITP represents the irrevocable right of West Penn, or its
successor or assignee, to collect a non-bypassable Intangible Transition
Charge (ITC) from customers pursuant to the Qualified Rate Order issued
November 19, 1998, and supplemented by order dated August 12, 1999, by the
Pennsylvania Public Utility Commission (PUC) in accordance with the
Pennsylvania Electricity Generation Customer Choice Order and Competition
Act enacted in Pennsylvania in December 1996.
The Qualified Rate Order authorized West Penn to securitize up to $670
million of its stranded costs and authorized any assignee of West Penn to
sell Bonds secured by ITP.
In November 1999, the Company acquired ITP from West Penn Funding
Corporation, issued $600 million of Bonds, and used the proceeds to pay
expenses of issuance and to purchase the ITP from West Penn Funding
Corporation.
The principal amount of the Bonds, interest, fees, and
overcollateralization for the Bonds will be recovered through ITC payable
by retail customers within West Penn's service territory who receive
electricity delivery service from West Penn.
<PAGE>
- 7 -
West Penn, as Servicer, collects the ITC from its retail customers of
electricity and deposits monthly collections into the General Subaccount
held by the Trustee. Each quarter, the Trustee (Bankers Trust Company, a
New York banking corporation) uses these funds to make principal and
interest payments on the Bonds and to pay fees specified in the Indenture.
The Reserve Subaccount maintained by the Trustee consists of funds
remaining after required allocations on the quarterly payment dates. The
Overcollateralization Subaccount held by the Trustee will be funded from
collections of ITC over the term of the Bonds and is expected to reach 0.5%
of the initial principal balance. The Capital Subaccount held by the
Trustee was initially funded by a contribution to the Company by West Penn
Funding Corporation on the date of issuance of Bonds in an amount equal to
0.5% of the initial principal amount of the Bonds. The Capital Subaccount
is the last account the Trustee will draw if amounts in the General
Subaccount, Reserve Subaccount, and Overcollateralization Subaccount are
insufficient to make payments specified in the Indenture. If the Capital
Subaccount is used, it will be replenished to its original level from ITC
remittances through the periodic ITC reconciliation process.
The Company has no employees. Under the Servicing Agreement, West
Penn is required to manage and administer the ITP of the Company and to
collect the ITC on behalf of the Company. The Servicing Agreement also
requires West Penn to file requests for annual adjustments to the ITC, and
the Competition Act and the Qualified Rate 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
West Penn of projected customer use of electricity, expected delinquencies
and write-offs, and future expenses relating to the ITP and the Bonds.
3. Summary of Significant Accounting Policies
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reported period, which in the
normal course of business are subsequently adjusted to actual results.
Cash and Temporary Cash Investments
For purposes of the Balance Sheet and Statement of Cash Flows,
temporary cash investments with original maturities of three months or less
are considered to be the equivalent of cash. Cash and Temporary Cash
Investments include amounts in the Subaccounts held by the Trustee except
for amounts in the Capital Subaccount which are reported as Restricted
Funds.
Restricted Funds
In November 1999, the Company deposited an amount equal to 0.5% of the
initial principal amount of the Bonds into the Capital Subaccount held by
the Trustee. This account is the last account drawn if funds in the
General Subaccount, Reserve Subaccount, and Overcollateralization
Subaccount are insufficient to make payments specified in the Indenture.
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.
<PAGE>
- 8 -
Revenue
The Company recognizes ITC revenue in the period billed by West Penn
as Servicer and records interest income earned on the Capital Subaccount
maintained by the Trustee.
Amortization of Intangible Transition Property
The ITP was recorded at acquired cost and is being amortized over the
life of the Bonds, based on estimated ITC revenues, interest accruals and
other expenses.
Amortization of Debt Issuance Costs and Discount on Debt
The costs associated with the issuance of the Bonds are being amortized
over the life of the Bonds utilizing the effective interest method.
Income Taxes
The Company joins with its Parent and affiliates in filing a
consolidated federal income tax return. The consolidated tax liability is
allocated among the participants generally in proportion to the taxable
income of each participant, except that no subsidiary pays tax in excess of
its separate return tax liability.
4. Long-Term Debt
In November 1999, the Company issued $600.0 million of Bonds. The
Company used the proceeds from the Bonds to purchase ITP from West Penn
Funding Corporation. The ITP and other assets of the Company collateralize
the Bonds.
Scheduled maturities and interest rates for the Bonds at September 30, 2000
are:
Principal Expected Final Final
Class Bond Rate Balance Payment Date Maturity Date
($Thousands)
A-1 6.320% $40,823 June 25, 2001 June 25, 2003
A-2 6.630% 172,000 December 26, 2003 December 26, 2005
A-3 6.810% 198,000 September 25, 2006 September 25, 2008
A-4 6.980% 156,000 June 25, 2008 December 26,2008
Total $566,823
Current Maturities (60,005)
Unamortized Discount (59)
Long-term Debt $506,759
The current maturities stated above are based on the expected final payment
dates rather than the final maturity dates.
<PAGE>
- 9 -
5. Significant Agreements and Related Party Transactions
Under the Servicing Agreement, West Penn 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 a maximum annual service fee of
$1.25 million to West Penn. For the nine month period ended September 30,
2000, the Company recorded servicing fees of $0.94 million.
At September 30, 2000, the Balance Sheet includes a receivable from
West Penn of $15.16 million for ITC collections. The Balance Sheet also
includes a payable to West Penn of $1.61 million for servicing fees and
debt issuance costs it incurred for the Bonds.
During September 2000, the Company recorded $792,000 investment from
member for an income tax payment made by its parent.
<PAGE>
- 10 -
WEST PENN FUNDING LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Information
Management's discussion and analysis of financial condition and results
of operations contains forecast information items that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of
1995. All such forward-looking information is necessarily only estimated.
There can be no assurance that actual results will not materially differ
from expectations. Actual results have varied from past expectations.
Factors that could cause actual results to differ materially from those
described in forward-looking statements include, among other matters,
ongoing state and federal activities, developments in legislative,
regulatory, and competitive environments, regulatory changes, future
economic conditions, and other circumstances such as weather that could
affect timing of anticipated revenues and costs.
Review of Operations
West Penn Funding LLC, (the Company) is a Delaware limited liability
company whose sole member is West Penn Funding Corporation, a wholly owned
subsidiary of West Penn. In November 1999, the Company issued the Bonds
and transferred the proceeds in exchange for all rights, title and interest
in the Intangible Transition Property (ITP) from West Penn Funding
Corporation.
Bond principal, interest, fees, and funding of overcollateralization
will be recovered through Intangible Transition Charge (ITC) payable by
retail customers within West Penn Power Company's (West Penn) service
territory who receive electric delivery service from West Penn.
During the three months ended September 30, 2000, the Company recorded
$23.85 million ITC revenue and $.12 million interest income. The Company
accrued $9.56 million interest expense on the Bonds, amortized $.29 million
debt issuance expenses and discounts, incurred $.31 million servicing fees
and $.04 million other administrative expenses, and recorded $13.70 million
ITP amortization.
During the nine months ended September 30, 2000, the Company recorded
$72.41 million ITC revenue and $.37 million interest income. The Company
accrued $29.97 million interest expense on the Bonds, amortized $.83
million debt issuance expenses and discounts, incurred $.94 million
servicing fees and $.06 million other administrative expenses, and recorded
$40.91 million ITP amortization.
West Penn as Servicer remitted to the Trustee $20.88 million of ITC
collections for the period December 1, 1999 to February 29, 2000, $20.93
million of ITC collections for the period March 1, 2000 to May 31, 2000,
and $23.55 million of ITC collections for the period June 1, 2000 to August
31, 2000.
<PAGE>
- 11 -
On scheduled payment dates in March, June and September 2000, the
Trustee made quarterly payment of Bond principal, interest and related
expenses. ITC collections were sufficient to pay interest and a portion of
the scheduled principal payment on the Bonds. However, due to the lag in
ITC billed by West Penn to its customers and collections from customers
during the implementation of the ITC, the Trustee was required to withdraw
$3.00 million from the Capital Subaccount and principal payments on the
Bonds were $3.61 million less than scheduled. This shortfall does not
constitute an Event of Default under the Indenture.
Under the Competition Act and the Qualified Rate Order, withdrawals
from the Capital Subaccount must be replenished and shortfalls in the
scheduled principal payments must be made up by increases in the ITC. West
Penn, as Servicer, filed its initial Intangible Transition Charge
Reconciliation Statement with the Pennsylvania Public Utility Commission
(PUC) on October 1, 2000. The ITC Reconciliation Statement provides
additional revenues sufficient to replenish the Capital Subaccount, to fund
the Overcollateralization Subaccount, to make up shortfalls in scheduled
principal payments prior to the December 2001 quarterly payment date, and
to service the transition bonds for the year 2001. A Commission order
authorizing a change in rates to reflect the year 2000 reconciliation and
the year 2001 ITC will permit the new ITC rate to be effective on January
1, 2001.
The Company currently anticipates that there will be sufficient ITC
collection to pay interest and scheduled principal payments on the Bonds.
Amortization of intangible transition property expense for the three
months ended September 30, 2000, and for the nine months ended September
30, 2000 were based on projected revenues and expenses previously submitted
to the PUC and not adjusted for the planned request to adjust the ITC to
produce additional revenue.
<PAGE>
- 12 -
WEST PENN FUNDING LLC
Part II - Other Information to Form 10-Q
for Quarter Ended September 30, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(99) Quarterly Servicer's Certificate
(b) No reports on Form 8-K were filed on behalf of the company for the
quarter ended September 30, 2000.
Signature
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.
WEST PENN FUNDING LLC
/s/ Keith L. Warchol
Keith L. Warchol, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
November 14, 2000
<PAGE>
Quarterly Servicer's Certificate
West Penn Funding LLC.
$600,000,000 Transition Bonds, Series 1999-A
Pursuant to section 3.04 of the Servicing Agreement dated as of November 16,
1999 (the "Servicing Agreement") between West Penn Power Company, as Servicer
and West Penn Funding, LLC, as Issuer, the Servicer does hereby certify as
follows: Capitalized terms used in the Quarterly Servicer's Certificate (the
"Quarterly Certificate") have their respective meanings as set forth in the
Servicing Agreement. References herein to certain sections and subsections
are references to the respective sections of the Servicing Agreement.
Billing Periods: June, July and August 2000
Payment Date: September 25, 2000
1.Collections Allocable and Aggregate Amounts Available for the Current Payment
Date:
<TABLE>
<S> <C>
i. Remittances for the June 2000 Collection Period $7,689,071.07
ii. Remittances for the July 2000 Collection Period $8,104,802.96
iii.Remittances for the August 2000 Collection Period $7,752,297.07
iv. Net Earnings on General Subaccount $112,042.84
v. Net Earnings on Capital Subaccount $0.00
vi. Net Earnings on Overcollateralization Subaccount $36.83
vii.Net Earnings on Reserve Subaccount $0.00
viiiGeneral Subaccount Balance $23,658,250.77
ix. Reserve Subaccount Balance $0.00
x. Overcollateralization Subaccount Balance $0.00
xi. Capital Subaccount Balance $0.00
xii.Collection Account Balance $23,658,250.77
2.Outstanding Principal Balance and Collection Account Balance as of Prior Payment Date:
i. Class A-1 Principal Balance $54,345,152.03
ii. Class A-2 Principal Balance $172,000,000.00
iii.Class A-3 Principal Balance $198,000,000.00
iv. Class A-4 Principal Balance $156,000,000.00
v. Transition Bond Principal Balance $580,345,152.03
vi. Reserve Subaccount Balance $0.00
vii.Overcollateralization Subaccount Balance $0.00
viiiCapital Subaccount Balance $0.00
3.Required Funding/Payments as of Current Payment Date:
i. Projected Class A-1 Bond Balance $37,210,888.78
ii. Projected Class A-2 Bond Balance $172,000,000.00
iii.Projected Class A-3 Bond Balance $198,000,000.00
iv. Projected Class A-4 Bond Balance $156,000,000.00
v. Projected Transition Bond Balance $563,210,888.78
<PAGE>
vi. Required Class A-1 Coupon (6.32% per annum rate) $858,653.40
vii.Required Class A-2 Coupon (6.63% per annum rate) $2,850,900.00
viiiRequired Class A-3 Coupon (6.81% per annum rate) $3,370,950.00
ix. Required Class A-4 Coupon (6.98% per annum rate) $2,722,200.00
x. Required Overcollateralization Funding $264,705.88
xi. Required Capital Subaccount Funding $3,000,000.00
4.Allocation of Remittances as of Current Payment Date Pursuant to 8.02d of the Indenture:
i. Cumulative Monthly Administration Fee during Relevant Quarter $20,000.00
ii. Bond Trustee Fees and Expenses * $0.00
iii.Independent Directors' Fee ** $0.00
iv. Servicing Fee $312,500.00
v. Operating Expenses (subject to $100,000 cap) $725.15
vi. Quarterly Interest $9,802,703.40
1.Class A-1 Bond Coupon Payment $858,653.40
2.Class A-2 Bond Coupon Payment $2,850,900.00
3.Class A-3 Bond Coupon Payment $3,370,950.00
4.Class A-4 Bond Coupon Payment $2,722,200.00
vii.Principal Due and Payable $ -
viiiScheduled Quarterly Principal $13,522,322.22
1.Class A-1 Bond Principal Payment $13,522,322.22
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
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
xiiiDeposits 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 $40,822,829.81
ii. Class A-2 Principal Balance $172,000,000.00
iii.Class A-3 Principal Balance $198,000,000.00
iv. Class A-4 Principal Balance $156,000,000.00
v. Transition Bond Principal Balance $566,822,829.81
</TABLE>
* 1 Year Bond Trustee Fees and Expenses paid in advance at closing.
**Independent Directors' Fee is $300/Quarter. Fee was overpaid by $575
in June 2000.
<PAGE>
<TABLE>
<S> <C>
vi. Reserve Subaccount Balance $0.00
vii Overcollateralization Subaccount Balance $0.00
viiiCapital Subaccount Balance $0.00
6.Subaccount Draws as of Current Payment Date (if applicable, pursuant to
Section 8.02d of the Indenture):
i. Reserve Subaccount $0.00
ii. Overcollateralization Subaccount $0.00
iii.Capital Subaccount $0.00
iv. Total Draws $0.00
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
ii. Quarterly Principal $3,611,941.03
1.Class A-1 Bond Principal Payment $3,611,941.03
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
8.Shortfalls in Required Subaccount Levels as of Current Payment Date:
i. Overcollateralization Subaccount $264,705.88
ii. Capital Subaccount $3,000,000.00
</TABLE>
IN WITNESS HEREOF, the undersigned has duly executed and delivered this
Quarterly Servicer's Bond this 20th day of September, 2000.
West Penn Power Company, as Servicer
by: /s/ M. P. Morrell by: /s/ R. F. Binder
M. P. Morrell R. F. Binder
Vice President Treasurer
