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FORM 10-Q/A
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 March 31, 2000
Commission File Number: 333-79619
WEST PENN FUNDING LLC
(Exact name of registrant as specified in its charter)
2325B-2 Renaissance Drive, Las Vegas, NV 89119
Telephone Number - (702) 895-6752
Delaware 25-1843349
State of Incorporation) I.R.S. Employer Identification No.)
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.
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THE WEST PENN FUNDING LLC
Form 10-Q for Quarter Ended March 31, 2000
Index
Page
PART I--FINANCIAL INFORMATION: No.
Statement of Income - Three months ended
March 31, 2000 3
Statement of Cash Flows - Three months ended
March 31, 2000 4
Balance Sheet - March 31, 2000
And December 31, 1999 5
Notes to Financial Statements 6 - 9
Management's Discussion and Analysis of Financial
Condition and Results or Operations 10
PART II--OTHER INFORMATION:
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WEST PENN FUNDING LLC
Statement of Income
(Thousands of Dollars)
Three Months Ended
March 31,
2000
Revenues:
Intangible transition charges..........................$25,505
Interest income........................................ 152
Total Revenues....................................... 25,657
Operating Expenses:
Amortization of intangible transition property......... 14,733
Interest expense....................................... 10,217
Amortization of debt issuance costs.................... 260
Administrative and general expense..................... 336
Total operating expenses............................... 25,546
Operating income..................................... 111
Income tax expense....................................... 48
Net income...............................................$ 63
STATEMENT OF MEMBER'S EQUITY
Balance at January 1, 2000...............................$ 3,031
Add:
Net income ............................................ 63
Balance at March 31......................................$ 3,094
See accompanying notes to financial statements.
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WEST PENN FUNDING LLC
Statement of Cash Flows
(Thousands of Dollars)
Three Months Ended
March 31,
2000
Cash Flows from Operations:
Net income ............................................$ 63
Amortization of intangible transition property......... 14,733
Changes in certain current assets and liabilities:
Unamortized debt issuance expenses................... (908)
Accounts receivable from parent...................... (4,940)
Restricted funds..................................... 2,995
Interest accrued .................................... (4,504)
Taxes accrued........................................ 48
Accounts payable to parent........................... 692
8,179
Cash Flows from Financing:
Repayment of transition bonds.......................... (8,628)
(8,628)
Net Change in Cash and Temporary Cash Investments........ ( 449)
Cash and Temporary Cash Investments at January 1......... 1,003
Cash and Temporary Cash Investments at March 31..........$ 554
Supplemental Cash Flow Information
Cash paid during the period for:
Interest.............................................$14,720
Income taxes.........................................$ 0
See accompanying notes to financial statements.
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WEST PENN FUNDING LLC
Balance Sheet
(Thousands of Dollars)
March 31, December 31,
2000 1999
ASSETS
Current Assets:
Cash and temporary cash investments.......$ 554 $ 1,003
Accounts receivable from parent........... 12,414 7,474
Restricted funds.......................... 11 3,006
Intangible transition property............ 54,946 52,779
67,925 64,262
Noncurrent Assets:
Intangible transition property............ 522,939 539,838
Unamortized debt issuance expense......... 5,360 4,453
528,299 544,291
Total.......................................$596,224 $608,553
LIABILITIES AND MEMBER'S EQUITY
Current Liabilities:
Long-term debt due within one year........$ 56,284 $ 49,734
Accounts payable to parent................ 1,325 633
Federal and state income taxes accrued.... 52 4
Interest accrued.......................... 440 4,944
58,101 55,315
Long-term debt, net of discount............. 535,029 550,207
Member's Equity ............................ 3,094 3,031
Total.......................................$596,224 $608,553
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements
The Company's 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 following 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 March 31, 2000 and the results of operations and cash flows for the
three months ended March 31, 2000.
2. Nature 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 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 the 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. West Penn, or any assignee of West Penn to
whom ITP is sold, may issue and sell, in reliance on the Qualified Rate
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
November 1999. The principal amount of the Bonds, interest, fees, and
funding of the Overcollateralization Subaccount will be recovered through
ITC payable by retail customers of electricity within West Penn's service
territory who receive electricity delivery service from West Penn.
In November 1999, the Company acquired ITP from West Penn Funding
Corporation and issued $600 million of Bonds, Series 1999-A, Class A-1
through Class A-4.
The Company used the proceeds of the issuance of the Bonds to pay
expenses of issuance and the purchase the ITP from West Penn Funding
Corporation.
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The source of repayment for the Bonds is the ITC. West Penn as
Servicer collects this non-bypassable charge from its retail customers of
electricity and deposits ITC monthly collections into the General
Subaccount maintained by the Trustee under the Indenture. Each quarter, the
Trustee uses these funds to make principal and interest payments on the
Bonds and to pay fees, costs and charges specified in the Indenture. The
Reserve Subaccount held by the Trustee consists of remaining funds
available after required allocations on the quarterly payment dates. The
Overcollateralization Subaccount held by the Trustee will be funded ratably
from collections of ITC over the term of each series of 1999-A 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
West Penn Funding LLC by West Penn Funding Corporation on the date of
issuance of each series 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 available in the General Subaccount,
Reserve Subaccount, and the Overcollateralization Subaccount are
insufficient to make payments specified in the Indenture. If the Capital
Subaccount is used, it will be replenished from the ITC remittances to its
original level through the periodic reconciliation process.
The Company has no employees. West Penn, as Servicer under the
Servicing Agreement, is required to manage, service, administer and make
collections of the ITP. The Servicing Agreement also requires West Penn,
as Servicer, 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 the Servicer
as to projected future use of electricity by customers, expected
delinquencies and write-offs, and future payments and expenses relating to
the ITP and the Bonds. The Servicer has not yet filed any such adjustment
request.
3. 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 that
affect the reported amounts of assets, liabilities, revenues, expenses, and
disclosures of contingencies during the reporting period. Actual results
could differ from these estimates.
Cash and Temporary Cash Investments
For purposes of the statement of cash flows, temporary cash investments
with original maturities of three months or less, generally in the form of
commercial paper, certificates of deposit, and repurchase agreements, are
considered to be the equivalent of cash.
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 (Bankers Trust Company, a New York banking corporation). This
account is the last account drawn if amounts available in the General
Subaccount, Reserve Subaccount, and the Overcollateralization Subaccount
are insufficient to make payments specified in the Indenture. If the
Capital Subaccount is used, it will be replenished from the ITC remittances
to its original level through the periodic reconciliation process.
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Accordingly, the Capital Subaccount is classified as Restricted Funds on
the Balance Sheet. On March 27, 2000, the Trustee was required to withdraw
$3.0 million from the Capital Subaccount to make principal payments on the
Bonds.
Revenue
The Company records ITC in the period billed to customers by the
Servicer and interest income earned on the Capital Subaccount maintained by
the Trustee.
Amortization of Intangible Transition Property
The ITP is amortized over the life of the Bonds, based on ITC revenues,
interest accruals and other fees.
Amortization of Debt Issuance Costs and Discount on Debt
The costs associated with the issuance of the Bonds are amortized over
the life of the Bonds utilizing the effective interest method.
Income Taxes
The Company joins with its Parents 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 $600.0 million of Series 1999-A
Bonds. The Company used the proceeds from the Bonds to purchase ITP from
West Penn Funding Corporation. The ITP and other assets of the Company
collateralize the Bonds.
Scheduled maturities and interest rates for the Bonds at March 31, 2000
are:
Initial
Class Expected Final Final
Class Bond Rate Principal Payment Date Maturity Date
Balance
($Thousands)
A-1 6.320% $65,372 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 $591,372
Current Maturities (56,284)
Unamortized Discount (59)
Long-term Debt $535,029
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The current maturities stated above are based on the expected final payment
dates rather than the final maturity dates.
5. Significant Agreements and Related Party Transactions
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 Company will pay a maximum annual service fee of $1.25
million to West Penn. For the three month period ended March 31, 2000, the
Company recorded servicing fees of $0.31 million.
At March 31, 2000, the Balance Sheet includes a receivable from West
Penn of approximately $12.4 million for ITC collections. The Balance Sheet
also includes a payable to West Penn of approximately $1.33 million for
servicing fees and debt issuance costs it incurred for the Bonds.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Information
This 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.
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 anticipated revenues and costs.
Review 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.
In November 1999, the Company issued the Bonds and transferred the proceeds
in exchange for all rights, title and interest in the ITP from West Penn
Funding Corporation.
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 West Penn's service territory who
receive electric delivery service from West Penn.
The Trustee made the first quarterly payment of Bond principal,
interest and all related expenses on the scheduled payment date of March
27, 2000. 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
$3.0 million from the Capital Subaccount and principal payments were $1.5
million less than scheduled. This shortfall does not constitute an Event
of Default under the Indenture.
The Company currently anticipates that there will be sufficient ITC
collection going-forward to pay interest and the scheduled principal
payments on the Bonds, once the ITC implementation issues are resolved.
Under the Competition Act and the Qualified Rate Order, withdrawals
from the Capital Subaccount must be replenished by increases in the ITC.
Under the Servicing Agreement, West Penn, as Servicer, intends to file a
request for an adjustment to the ITC with the PUC on October 1, 2000 to
produce additional revenues sufficient to replenish the Capital Subaccount
prior to the December 2001 quarterly payment date. The adjustment will go
into effect on January 1, 2001.
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THE WEST PENN FUNDING LLC
Part II - Other Information to Form 10-Q/A
for Quarter Ended March 31, 2000
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed on behalf of the
company for the quarter ended March 31, 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, TREASURER
Keith L. Warchol, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
May 30, 2000
