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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 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.
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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
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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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West Penn Funding LLC
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<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 554
<SECURITIES> 0
<RECEIVABLES> 12,414
<ALLOWANCES> 0
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<CURRENT-ASSETS> 67,925
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 596,224
<CURRENT-LIABILITIES> 58,101
<BONDS> 535,029
0
0
<COMMON> 0
<OTHER-SE> 3,094
<TOTAL-LIABILITY-AND-EQUITY> 596,224
<SALES> 25,505
<TOTAL-REVENUES> 25,657
<CGS> 0
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<INTEREST-EXPENSE> 10,217
<INCOME-PRETAX> 111
<INCOME-TAX> 48
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<F1>All common stock is owned by parent, no EPS required.
</FN>
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