<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
---------------------------------------
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 333-92047
Edison Mission Holdings Co.
(Exact name of registrant as specified in its charter)
California 33-0826940
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18101 Von Karman Avenue, Suite 1700
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 752-5588
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
----- -----
Number of shares outstanding of the registrant's Common Stock as of
November 10, 2000: 100 shares (all shares held by an affiliate of the
registrant).
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TABLE OF CONTENTS
Item Page
---- ----
PART I - Financial Information
1. Financial Statements............................................. 1
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 6
PART II - Other Information
6. Exhibits and Reports on Form 8-K................................. 27
PART III
Signatures....................................................... 28
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDISON MISSION HOLDINGS CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 123,041 $ 44,511
Due from affiliates 46,058 35,082
Fuel inventory 14,508 21,336
Spare parts inventory 23,954 23,349
Other current assets 6,244 1,301
---------- ----------
Total current assets 213,805 125,579
---------- ----------
Property, Plant and Equipment 1,999,075 1,899,955
Less accumulated depreciation 72,375 37,198
---------- ----------
Net property, plant and equipment 1,926,700 1,862,757
---------- ----------
Other Assets
Deferred financing charges, net 11,647 11,766
---------- ----------
Total Assets $2,152,152 $2,000,102
========== ==========
Liabilities and Shareholder's Equity
Current Liabilities
Accounts payable $ 12,865 $ 1,789
Accrued liabilities 28,282 38,264
Interest payable 37,870 18,433
Other current liabilities 2,047 --
---------- ----------
Total current liabilities 81,064 58,486
---------- ----------
Long-term Debt 990,000 907,000
Deferred Taxes 53,751 28,924
Benefits Plans 17,625 17,625
---------- ----------
Total Liabilities 1,142,440 1,012,035
---------- ----------
Commitments and Contingencies (Note 2)
Shareholder's Equity
Common stock, no par value; 10,000 shares
authorized; 100 shares issued and
outstanding -- --
Additional paid-in-capital 960,795 960,442
Retained earnings 48,917 27,625
---------- ----------
Total Shareholder's Equity 1,009,712 988,067
---------- ----------
Total Liabilities and Shareholder's Equity $2,152,152 $2,000,102
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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EDISON MISSION HOLDINGS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues from Marketing Affiliate
Capacity revenues $ 14,906 $ 11,366 $ 36,735 $ 22,010
Energy revenues 111,422 145,946 290,567 223,794
-------- -------- -------- --------
Total operating revenues 126,328 157,312 327,302 245,804
-------- -------- -------- --------
Operating Expenses
Fuel 47,430 42,882 125,015 84,391
Plant operations 13,932 19,601 59,399 40,786
Depreciation and amortization 12,377 11,805 35,379 25,280
Administrative and general 41 256 99 542
-------- -------- -------- --------
Total operating expenses 73,780 74,544 219,892 150,999
-------- -------- -------- --------
Income from operations 52,548 82,768 107,410 94,805
-------- -------- -------- --------
Other Income (Expense)
Interest and other income 4,297 222 5,228 613
Interest expense (18,563) (13,538) (56,418) (35,302)
-------- -------- -------- --------
Total other expense (14,266) (13,316) (51,190) (34,689)
-------- -------- -------- --------
Income Before Income Taxes and Extraordinary Loss 38,282 69,452 56,220 60,116
Provision for Income Taxes before Extraordinary Loss (15,754) (27,691) (24,827) (24,315)
-------- -------- -------- --------
Income Before Extraordinary Loss 22,528 41,761 31,393 35,801
-------- -------- -------- --------
Extraordinary loss on early extinguishment of debt, -- (2,865) -- (2,865)
net of income tax benefit of $2,081 -------- -------- -------- --------
Net Income $ 22,528 $ 38,896 $ 31,393 $ 32,936
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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EDISON MISSION HOLDINGS CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 31,393 $ 32,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of
debt, net of tax -- 2,865
Depreciation and amortization 36,457 25,639
Deferred tax provision 24,827 14,623
Loss on asset disposal 760 --
Increase in due from affiliates (10,976) (18,972)
Decrease (increase) in inventory 6,223 (1,260)
Increase in prepaid and other (4,943) (1,376)
Increase in accounts payable 11,076 8,497
(Decrease) increase in accrued liabilities (9,982) 26,134
Increase in interest payable 19,437 24,856
Increase in other liabilities 2,047 1,349
--------- -----------
Net cash provided by operating activities 106,319 115,291
--------- -----------
Cash Flows From Investing Activities:
Purchase of Homer City facility -- (1,818,962)
Capital expenditures (100,090) (75,601)
--------- -----------
Net cash used in investing activities (100,090) (1,894,563)
--------- -----------
Cash Flows From Financing Activities:
Capital contribution from parent 353 1,066,916
Borrowings on long-term obligations 83,000 885,000
Borrowings under Acquisition Facility -- 800,000
Repayments on debt obligations -- (800,000)
Financing costs (951) (17,308)
Cash dividends to parent (10,101) (29,999)
--------- -----------
Net cash provided by financing activities 72,301 1,904,609
--------- -----------
Net increase in cash and cash equivalents 78,530 125,337
Cash and cash equivalents, beginning of period 44,511 --
--------- -----------
Cash and cash equivalents, end of period $ 123,041 $ 125,337
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
EDISON MISSION HOLDINGS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. General
All adjustments, including recurring accruals, have been made that are
necessary to present fairly the consolidated financial position and results of
operations for the periods covered by this report. The results of operations
for the nine months ended September 30, 2000, are not necessarily indicative of
the operating results for the full year.
Our significant accounting policies are described in Note 2 to our
Consolidated Financial Statements as of December 31, 1999, included in our Form
S-4 filed with the Securities and Exchange Commission on June 12, 2000. We
follow the same accounting policies for interim reporting purposes. This
quarterly report should be read in connection with such financial statements.
Note 2. Commitments and Contingencies
EME Homer City derives revenues from sales of electric energy and capacity.
Pricing provisions are individually negotiated with customers by its marketing
affiliate and may include fixed prices or prices based on a daily or monthly
market index. EME Homer City may benefit from forward energy sales contracts
entered into by its marketing affiliate depending on market conditions. At
September 30, 2000, our affiliate had:
. sold forward contracts to third parties for 6,259 GWh of energy for
various periods from September 30, 2000 to December 31, 2001 at a
weighted average price of $31.9/MWh.
. sold call options to third parties for 753 GWh of energy for various
periods from September 30, 2000 to December 31, 2001 at a weighted average
price of $32.1/MWh.
Under the contract with our marketing affiliate, we receive the net transaction
price from forward energy sales contracts and receive the benefit or pay the
obligation related to financial transactions entered into by the marketing
affiliate and designated on our behalf.
We have entered into a transition contract with Pennsylvania Electric
Company ("Penelec Transition Contract"), pursuant to which EME Homer City
Generation L.P. ("EME Homer City") may exercise a put option to sell certain
quantities of capacity to Penelec, and Penelec may exercise call options to
purchase certain quantities of capacity. The terms of the Penelec Transition
Contract continue until May 31, 2001, respectively. EME Homer City has exercised
a put option to sell 942 MW of capacity to Penelec for the period from March 18,
1999 through May 31, 2001 under the Penelec Transition Contract for a price of
$49.90/MW-day from March 18, 1999 through May 31, 1999, $59.90/MW-day for the
year ending May 31, 2000 and $77.40/MW-day for the year ending May 31, 2001. We
have also entered into capacity contracts for the majority of our remaining
capacity for an average price of $72.87/MW-day.
Ash Disposal Site
The Pennsylvania Department of Environmental Protection ("PaDEP")
regulations governing ash disposal sites require, among other things,
groundwater assessments of landfills if existing groundwater monitoring
indicates the possibility of degradation. The assessments could lead to the
installation of additional monitoring wells and if degradation of the
groundwater is discovered, we would be required to develop abatement plans,
which may include the lining of unlined sites. To date, the Homer City
facilities' ash disposal site has not shown any signs that would require
remediation. Management does not believe that the costs of maintaining and
abandoning the ash disposal site will have a material impact on our results of
operations or financial position.
Two Lick Creek Reservoir Deep Mine Discharges
In connection with its purchase of the Homer City facilities on March 18,
1999, we acquired the Two Lick Creek Dam and Reservoir. Acid discharges from
two inactive deep mines were being collected and partially treated on the
reservoir property by a mining company before being pumped off the property for
additional treatment at a
4
<PAGE>
nearby treatment plant. The mining company, which filed for bankruptcy,
operated the collection and treatment system until May 1999, when its assets
were allegedly depleted.
The PaDEP initially advised us that we were potentially responsible for
treating the discharges by virtue of our alleged ownership of the property of
which the discharges allegedly emanated. Without any admission of our
liability, we voluntarily agreed through a letter agreement to fund the
operation of the treatment plant for an interim period while the agency
continued its investigation. The cost of operating the treatment plant, which
was initially approximately $11,000 per month, increased to $13,000 per month in
2000. The agency has recently notified us that we are responsible for treatment
of one of the discharges. It has also advised the owner of the mineral rights
and three former operators of the mine that they are liable and has requested
them to cooperatively develop and implement a plan with us to treat the
discharge. We estimate the cost of a passive treatment system to be
approximately $1.0 million. The cost of operating a passive treatment system
would be considerably less than the cost of operating the current treatment
plant.
Environmental Matters or Regulations
We are subject to environmental regulation by federal, state, and local
authorities in the United States and foreign regulatory authorities with
jurisdiction over projects located outside the United States. We believe that
as of the filing date of this report, we are in substantial compliance with
environmental regulatory requirements and that maintaining compliance with
current requirements will not materially affect our financial position or
results of operations.
We expect that the implementation of Clean Air Act Amendments will result
in increased capital expenditures and operating expenses. For example, we expect
to spend approximately $140 million in 2000 and $46 million in 2001 to install
upgrades to the environmental controls at the Homer City facilities to control
sulfur dioxide and nitrogen oxide emissions. We do not expect these capital
expenditures and operating expenses to have a material effect on our financial
position or results of operation.
Credit Support
We provide credit support for an affiliate that enters into various
electric energy transactions, including futures and swap agreements. These
credit support guarantees are not subordinate to the bonds and are senior
unsecured obligations of Edison Mission Holdings. At September 30, 2000, we
provided guarantees totaling $178.4 million as credit support for financial and
energy contracts entered into by affiliates. This guarantee provides that we
will perform the obligations of affiliates in the event of non-performance by
them. We could be exposed to the risk of higher electric energy prices in the
event of non-performance by a counter party. However, we do not anticipate non-
performance by a counter party and the marketing affiliate. Total amounts due at
September 30, 2000 from third parties from sales made by the marketing affiliate
were $54.2 million.
Note 3. Supplemental Statements of Cash Flows Information
(In thousands)
(Unaudited)
Nine months ended September 30, 2000 1999
-------------------------------- ------ ------
Cash paid:
Interest $48,587 $10,191
Details of facility acquisition:
Fair value of assets acquired -- $1,835,538
Liabilities assumed -- 16,576
-------- -----------
Net cash paid for acquisition -- $1,818,962
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that reflect
Edison Mission Holdings Co.'s current expectations and projections about future
events based on our knowledge of present facts and circumstances and our
assumptions about future events. In this discussion, the words "expects,"
"believes," "anticipates," "estimates," "intends," "plans" and variations of
these words and similar expressions are intended to identify forward-looking
statements. These statements necessarily involve risks and uncertainties that
could cause actual results to differ materially from those anticipated. The
information contained in this discussion is subject to change without notice.
Unless otherwise indicated, the information presented in this section is with
respect to Edison Mission Holdings Co. and its consolidated subsidiaries.
GENERAL
Edison Mission Holdings Co. is a special-purpose California corporation
formed on October 7, 1998 for the purpose of facilitating the financing of the
acquisition and, through its wholly-owned subsidiaries, acquiring, making
improvements to and operating its three coal-fired electric generating units and
related facilities. EME Homer City Generation L.P. ("EME Homer City"), an
indirect subsidiary of Edison Mission Holdings, acquired the Homer City
facilities on March 18, 1999 for a purchase price of approximately $1.8 billion,
with adjustments for changes in the book value of inventories and prorations
related to specified items including but not limited to taxes, rents and fees
under transferred permits. Although Edison Mission Holdings Co. was incorporated
in 1998, it had no significant activity prior to the acquisition of the Homer
City facilities.
EME Homer City derives revenue from the sale of energy and capacity into
the Pennsylvania-New Jersey-Maryland power market ("PJM") and the New York
independent system operator ("NYISO") and from bilateral contracts with power
marketers and load serving entities within PJM, NYISO and the surrounding
markets. EME Homer City has entered into a contract with a marketing affiliate
for the sale of energy and capacity produced by the Homer City facilities, which
enables this marketing affiliate to engage in forward sales and hedging. EME
Homer City will pay the marketing affiliate a nominal fee for the performance of
marketing services.
EME Homer City believes there may also be opportunities to derive revenue
from the sale of installed capacity and ancillary services. Under the terms of
the Pennsylvania Electric Company and New York State Electric & Gas Transition
Contracts, EME Homer City has elected to exercise several options to sell
capacity. These contracts expire mid-year 2001. EME Homer City also has the
option to sell non-contracted capacity in PJM and NYISO. It is believed the
Homer City units should be capable of producing revenues from the sale of
voltage support based on previous utilization of the Homer City units.
RESULTS OF OPERATIONS
The results of operations for the nine months ended September 30, 1999
represent operations from the acquisition date of the Homer City facilities,
March 18, through September 30, 1999 (we refer to this as the "short 1999
period"). Accordingly, during the nine months ended September 30, 1999 we did
not have a full nine months of operations that are comparable to the nine months
ended September 30, 2000.
Prior to March 18, 1999, we had engaged in no operations since our
formation in October 1998. There are no separate financial statements available
with regard to the operations of the Homer City facilities prior to our taking
ownership because their operations were fully integrated with, and their results
of operations were consolidated into, the former owners of the Homer City
facilities. In addition, the electric output of the Homer City units was sold
based on rates set by regulatory authorities. As a result of the above factors
and because electricity rates will now be set by the operation of market forces,
the historical financial data with respect to the Homer City facilities are not
meaningful or indicative of our future results. Our results of operations in the
future will depend primarily on revenues from the sale of energy, capacity and
other related products, and the level of our operating expenses.
6
<PAGE>
Operating Revenues
Revenues decreased $30.9 million and increased $81.5 million for the third
quarter and nine months ended September 30, 2000, respectively, compared with
the corresponding periods of 1999 primarily due to lower energy and capacity
prices, and, with respect to the prior year nine month period, the impact of the
short 1999 period. Revenues primarily consist of energy revenue of $111.4
million and $290.5 million and capacity revenue of $14.9 million and $36.7
million for the quarter and nine months ended September 30, 2000, respectively.
These sales were made through a contract with a marketing affiliate, which
enables the affiliate to engage in forward sales and hedging transactions. The
Homer City facilities generated 3,525 and 9,595 GWhr of electricity in the third
quarter and nine months ended September 30, 2000, respectively. Revenues for
the quarter and period from acquisition to September 30, 1999 were $157.3
million and $245.8 million, respectively, which primarily consist of energy
revenue of $145.9 million and $223.8 million and capacity revenue of $11.4
million and $22.0 million, respectively. The Homer City facilities generated
3,498 GWhr and 6,973 GWhr of electricity in the third quarter of 1999 and the
short 1999 period, respectively. The availability factor for the nine months
ended September 30, 2000 was 84.1% compared to 85% during the short 1999 period.
Due to warmer weather during the summer months, electric revenues generated
from the Homer City facilities are usually higher during the third quarter of
each year.
Operating Expenses
Operating expenses consist of expenses for fuel, plant operations,
depreciation and amortization and administrative and general expenses. Fuel
expense was $47.4 million and $125 million, including $42.5 million and $116.5
million of coal, for the third quarter and nine months ended September 30, 2000,
respectively. Fuel expense was $42.9 million and $84.4 million, including $42.7
million and $84.0 million of coal, for the third quarter of 1999 and the short
1999 period, respectively. The Homer City units benefit from access by truck to
significant native coal reserves located within the western Pennsylvania portion
of the North Appalachian region. Up to 95% of the coal used by Units 1 and 2 is
supplied under existing contracts with regional mines which are located within
50 miles of the facility, while the remainder is purchased on the spot market.
The coal for these units is cleaned by the coal cleaning facility to reduce
sulfur content. Unit 3 utilizes lower sulfur coal which is blended at an on-site
coal blending facility.
Plant operations expense decreased $5.7 million and increased $18.6 million
in the third quarter and nine month period ended September 30, 2000 million from
the third quarter of 1999 and the short 1999 period due to lower maintenance
expenses incurred during planned outages in 2000 and, with respect to the prior
year nine month period, the impact of the short 1999 period.
Depreciation and amortization expense was $12.4 million and $35.4 million
for the quarter and nine months ended September 30, 2000 and $11.8 and $25.3
million for the quarter ended September 30, 1999 and the short 1999 period.
Depreciation expense primarily relates to the acquisition of the Homer City
facilities, which is being depreciated over thirty-nine years.
Other Income (Expense)
Interest expense for the third quarter and the nine-month period ended
September 30, 2000 was $18.6 million and $56.4 million, which primarily consists
of interest on the $830 million bonds. Interest expense for the third quarter
ended September 30, 1999 and the short 1999 period was $13.5 million and $35.3
million, primarily related to interest on $800 million term loan that was
subsequently refinanced with the $830 million bonds.
Extraordinary Loss
The early repayment of the $800 million term loan in May 1999 resulted in
an extraordinary loss of $2.9 million, net of income tax benefit of $2.1
million, attributable to the write-off of unamortized debt issue costs.
Provision (Benefit) for Income Taxes
We had an estimated annual effective tax rate of 44% for the first nine
months of 2000. The effective tax rate was higher than the federal statutory
rate of 35% due to state income taxes.
7
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LIQUIDITY AND CAPITAL EXPENDITURES
Net cash provided by Operating Activities for the nine month period ended
September 30, 2000 was $106.3 million. Net cash provided by Operating
Activities for the period from acquisition to September 30, 1999 was $115.3
million. The decrease in cash flow was due primarily to an increase in working
capital requirements.
In March 1999, EME Homer City completed the acquisition of the 1,884 MW
Homer City Electric Generating Station and related facilities from GPU, Inc.,
New York State Electric & Gas Corporation and their respective affiliates.
Consideration for the purchase was a cash payment of approximately $1.8 billion.
In order to finance the acquisition, we entered into a Credit Agreement,
dated as of March 18, 1999 with 25 banks and other financial institutions. The
Credit Agreement provided for:
. a 364-day term loan facility in an amount up to $800 million,
. a five-year term loan facility in an amount up to $250 million and
. a five-year revolving credit facility in an amount up to $50
million.
On March 18, 1999, we borrowed $800 million of term loans and used the
proceeds of these loans, together with equity contributions from Edison Mission
Energy of approximately $1 billion, to fund the purchase price for the Homer
City facilities.
On May 27, 1999, we completed a private offering of $300 million aggregate
principal amount of the Series A bonds and $530 million aggregate principal
amount of the Series B bonds. The net proceeds of the sale of the bonds were
used to repay the outstanding principal of, and to permanently reduce the bank
commitments associated with the term loans, and to repay a portion of Edison
Mission Energy's equity investment in us in the form of a distribution. We
intend to use amounts available under the $250 million five-year term loan
facility to fund the environmental capital improvements to the Homer City units;
we had drawn $160 million under the facility at September 30, 2000. We may use
amounts available under the $50 million five-year revolving credit facility for
general working capital purposes. All outstanding amounts under the $50 million
five-year revolving credit facility will be repaid each year on the anniversary
of the issuance of the bonds. As of September 30, 2000, there were no
outstanding amounts under the $50 million five-year revolving credit facility.
Under specified conditions, we may have access to additional liquidity in a debt
service reserve account and under a credit support guarantee provided by Edison
Mission Energy.
We intend to invest approximately $258 million for the environmental
capital improvements to the Homer City units, including a selective catalytic
reduction system on all three units and a flue gas desulfurization system on
Unit 3, under a fixed price, turnkey engineering, procurement and construction
contract. The selective catalytic reduction system on Unit 2 is expected to be
ready for service in December 2000, the selective catalytic reduction systems on
Units 1 and 3 are expected to be ready for service by May 2001 and the flue gas
desulfurization system is expected to be ready for service by September 2001.
Capital expenditures for the nine month period ended September 30, 2000 and 1999
were $100.1 million and $75.6 million, respectively, primarily related to the
flue gas desulfurization system on Unit 3 and the selective catalytic reduction
systems. The environmental improvements will enhance the economics of the Homer
City units by reducing fuel costs, nitrogen oxide allowance purchases and sulfur
dioxide allowance purchases. We expect capital expenditures for environmental
capital improvements to the Homer City facility to be $140 million for 2000 and
$46 million for 2001.
Changes in Interest Rates, Changes in Electricity Market Pricing and Other
Operating Risks
Interest rate changes affect the cost of capital needed to operate the
Homer City facilities. We have mitigated the risk of interest rate fluctuations
by arranging for fixed rate financing for the majority of our project
financings. We do not believe that interest rate fluctuations will have a
materially adverse effect on our financial position or results of operations.
8
<PAGE>
Changes in electricity pool pricing can have a significant impact on our
results of operations. With the exception of revenue generated by the
Pennsylvania Electric Company and New York State Electric & Gas Transition
Contracts, which expire in 2001, and from bilateral contracts for the sale of
electricity with third-party load serving entities and power marketers, our
revenues and results of operations are dependent upon prevailing market prices
for energy, capacity, ancillary services in the PJM, NYISO and other competitive
markets. Among the factors that will influence the market prices for energy,
capacity and ancillary services in PJM and NYISO are:
. prevailing market prices for fuel oil, coal and natural gas and
associated transportation costs;
. the extent of additional supplies of capacity, energy and ancillary
services from current competitors or new market entrants, including
the development of new generation facilities that may be able to
produce electricity at a lower cost;
. transmission congestion in PJM and/or NYISO;
. the extended operation of nuclear generating plants in PJM and NYISO
beyond their presently expected dates of decommissioning;
. weather conditions prevailing in PJM and NYISO from time to time;
and
. the projected rate of growth in electricity usage as a result of
factors such as regional economic conditions and the implementation of
conservation programs.
EME Homer City derives revenues from sales of electric energy. Pricing
provisions are individually negotiated with customers by its marketing affiliate
and may include fixed prices or prices based on a daily or monthly market index.
EME Homer City may benefit from forward energy sales contracts entered into by
its marketing affiliate depending on market conditions.
EME Homer City derives revenues from sales of electric energy and capacity.
Pricing provisions are individually negotiated with customers by its marketing
affiliate and may include fixed prices or prices based on a daily or monthly
market index. EME Homer City may benefit from forward energy sales contracts
entered into by its marketing affiliate depending on market conditions. At
September 30, 2000, our affiliate had:
. sold forward contracts to third parties for 6,259 GWh of energy for
various periods from September 30, 2000 to December 31, 2001 at a
weighted average price of $31.9/MWh.
. sold call options to third parties for 753 GWh of energy for various
periods from September 30, 2000 to December 31, 2001 at a weighted
average price of $32.1/MWh.
Under the contract with our marketing affiliate, we receive the net transaction
price from forward energy sales contracts and receive the benefit or pay the
obligation related to financial transactions entered into by the marketing
affiliate and designated on our behalf.
We have entered into a transition contract with Pennsylvania Electric
Company ("Penelec Transition Contract"), pursuant to which EME Homer City
Generation L.P. ("EME Homer City") may exercise a put option to sell certain
quantities of capacity to Penelec, and Penelec may exercise call options to
purchase certain quantities of capacity. The terms of the Penelec Transition
Contract continue until May 31, 2001, respectively. EME Homer City has exercised
a put option to sell 942 MW of capacity to Penelec for the period from March 18,
1999 through May 31, 2001 under the Penelec Transition Contract for a price of
$49.90/MW-day from March 18, 1999 through May 31, 1999, $59.90/MW-day for the
year ending May 31, 2000 and $77.40/MW-day for the year ending May 31, 2001. We
have also entered into capacity contracts for the majority of our remaining
capacity for an average price of $72.87/MW-day.
We provide credit support for an affiliate that enters into various
electric energy transactions, including futures and swap agreements. These
credit support guarantees are not subordinate to the bonds and are senior
unsecured obligations of Edison Mission Holdings. At September 30, 2000, we
provided guarantees totaling $178.4 million as credit support for financial and
energy contracts entered into by affiliates. This guarantee provides that we
will perform the obligations of affiliates in the event of non-performance by
them. We could be exposed to the risk of
9
<PAGE>
higher electric energy prices in the event of non-performance by a counter
party. However, we do not anticipate non-performance by a counter party and the
marketing affiliate. Total amounts due at September 30, 2000 from third parties
from sales made by the marketing affiliate were $54.2 million.
Environmental Matters or Regulations
We are subject to environmental regulation by federal, state and local
authorities in the United States. We believe that we are in substantial
compliance with environmental regulatory requirements and that maintaining
compliance with current requirements will not materially affect its financial
position or results of operations.
The Pennsylvania Department of Environmental Protection ("PaDEP")
regulations governing ash disposal sites require, among other things,
groundwater assessments of landfills if existing groundwater monitoring
indicates the possibility of degradation. The assessments could lead to the
installation of additional monitoring wells and if degradation of the
groundwater is discovered, we would be required to develop abatement plans,
which may include the lining of unlined sites. To date, the Homer City
facilities' ash disposal site has not shown any signs that would require
remediation. Management does not believe that the costs of maintaining and
abandoning the ash disposal site will have a material impact on our results of
operations or financial position.
In connection with our purchase of the Homer City facilities on March 18,
1999, we acquired the Two Lick Creek Dam and Reservoir. Acid discharges from two
inactive deep mines were being collected and partially treated on the reservoir
property by a mining company before being pumped off the property for additional
treatment at a nearby treatment plant. The mining company, which filed for
bankruptcy, operated the collection and treatment system until May 1999, when
its assets were allegedly depleted.
The PaDEP initially advised us that we were potentially responsible for
treating the discharges by virtue of our alleged ownership of the property of
which the discharges allegedly emanated. Without any admission of our
liability, we voluntarily agreed through a letter agreement to fund the
operation of the treatment plant for an interim period while the agency
continued its investigation. The cost of operating the treatment plant, which
was initially approximately $11,000 per month, increased to $13,000 per month in
2000. The agency has recently notified us that we are responsible for treatment
of one of the discharges. It has also advised the owner of the mineral rights
and three former operators of the mine that they are liable and has requested
them to cooperatively develop and implement a plan with us to treat the
discharge. We estimate the cost of a passive treatment system to be
approximately $1.0 million. The cost of operating a passive treatment system
would be considerably less than the cost of operating the current treatment
plant.
Statements of Financial Accounting Standards No. 133 and No. 138
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS")No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
This statement addresses a limited number of issues causing implementation
difficulties for entities applying SFAS No. 133. If certain conditions are met,
a derivative may be specifically designated as (i) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (ii) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (iii) a hedge of the foreign currency exposure of a
net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company is currently evaluating the effects of this
Statement.
10
<PAGE>
CHESTNUT RIDGE ENERGY CO.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE
The financial statements of Chestnut Ridge Energy Co. are provided under
Rule 3-10 of Regulation S-X as such securities represent a substantial portion
of the collateral for Edison Mission Holdings Co.'s $830 million bonds.
11
<PAGE>
CHESTNUT RIDGE ENERGY CO.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Assets
Current Assets
Due from affiliate under tax sharing agreement $ 77 $ 416
-------- --------
Total current assets 77 416
-------- --------
Investment in EME Homer City Generation L.P. 202,779 197,987
-------- --------
Total Assets $202,856 $198,403
======== ========
Liabilities and Shareholder's Equity
Current Liabilities
Due to affiliate $ -- $ 184
-------- --------
Total current liabilities -- 184
-------- --------
Deferred Taxes 3,971 2,168
-------- --------
Total Liabilities 3,971 2,352
-------- --------
Shareholder's Equity
Common stock, $1 par value; 10,000 shares authorized;
100 shares issued and outstanding -- --
Additional paid-in capital 199,993 198,794
Retained deficit (1,108) (2,743)
-------- --------
Total Shareholder's Equity 198,885 196,051
-------- --------
Total Liabilities and Shareholder's Equity $202,856 $198,403
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CHESTNUT RIDGE ENERGY CO.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------- ------- -------
Equity in income from EME Homer City Generation L.P. $13,437 $28,883 $4,792 $12,467
Administrative and general expense -- 60 -- 130
Capital taxes 201 -- 1,015 --
------- ------- ------ --------
Income Before Income Taxes 13,236 28,823 3,777 12,337
Provision for Income Taxes 652 12,811 2,142 6,674
------- ------- ------ -------
Net Income $12,584 $16,012 $1,635 $ 5,663
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
CHESTNUT RIDGE ENERGY CO.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
---------------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,635 $ 5,663
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred tax provision 1,802 1,483
Equity in income from EME Homer City Generation L.P. (7,005) (12,467)
Decrease in due from affiliate under tax sharing agreement 339 5,190
(Decrease) increase in due to affiliate (184) 130
------- ---------
Net cash used in operating activities (3,413) (1)
------- ---------
Cash Flows From Investing Activities:
Investment in EME Homer City Generation L.P. 2,214 (270,576)
Cash dividends from EME Homer City Generation L.P. -- 29,700
------- ---------
Net cash provided by/(used in) investing activities 2,214 (240,876)
------- ---------
Cash Flows From Financing Activities:
Cash contribution 1,124 270,576
Cash dividends 75 (29,699)
------- ---------
Net cash provided by financing activities 1,199 240,877
------- ---------
Net increase in cash and cash equivalents -- --
Cash and cash equivalents, beginning of period -- --
------- ---------
Cash and cash equivalents, end of period $ -- $ --
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
CHESTNUT RIDGE ENERGY CO.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. General
All adjustments, including recurring accruals, have been made that are
necessary to present fairly the consolidated financial position and results of
operations for the periods covered by this report. The results of operations
for the nine months ended September 30, 2000, are not necessarily indicative of
the operating results for the full year.
Chestnut Ridge Energy Co.'s significant accounting policies are described
in Note 2 to our Consolidated Financial Statements as of December 31, 1999,
included in the Edison Mission Holdings Co. Form S-4 filed with the Securities
and Exchange Commission on June 12, 2000. We follow the same accounting
policies for interim reporting purposes. This quarterly report should be read
in connection with such financial statements.
Note 2. Investment in EME Homer City Generation L.P. ("HCGLP")
We own a 99 percent limited partnership interest in HCGLP. As a limited
partner, we do not have a controlling financial interest in HCGLP, in accordance
with the provisions of the Accounting Principles Board Opinion No. 18, we
account for our investment in HCGLP under the equity method. Accordingly the
investment in HCGLP was recorded at cost with adjustments made to the carrying
amount of the investment to recognize our share of the earnings, losses or
distributions of HCGLP after the date of the investment. The following table
presents summarized financial information for HCGLP:
<TABLE>
<CAPTION>
Unaudited (In Thousands)
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues $130,487 $158,142 $323,486 $244,329
Operating expenses 73,738 74,288 219,791 150,457
Income (loss) before
Extraordinary Item 13,573 32,041 4,840 15,459
Extraordinary Item - (2,865) - (2,865)
Net income (loss) 13,573 29,176 4,840 12,594
</TABLE>
15
<PAGE>
EME HOMER CITY GENERATION L.P.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE
The financial statements of EME Homer City Generation L.P. are provided under
Rule 3-10 of Regulation S-X as such securities represent a substantial portion
of the collateral for Edison Mission Holdings Co.'s $830 million bonds.
16
<PAGE>
EME HOMER CITY GENERATION L.P.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 122,983 $ 44,454
Due from affiliates 66,860 57,292
Fuel inventory 14,508 21,336
Spare parts inventory 23,954 23,349
Other current assets 6,244 1,301
---------- ----------
Total current assets 234,549 147,732
---------- ----------
Property, Plant and Equipment 1,998,675 1,899,555
Less accumulated depreciation 72,369 37,195
---------- ----------
Net property, plant and equipment 1,926,306 1,862,360
---------- ----------
Deferred financing charges, net 11,647 11,766
---------- ----------
Total Assets $2,172,502 $2,021,858
========== ==========
Liabilities and Partners' Equity
Current Liabilities
Accounts payable $ 12,865 $ 1,789
Accrued liabilities 28,278 38,264
Interest payable 89,656 34,648
Other current liabilities 2,047 --
---------- ----------
Total current liabilities 132,846 74,701
---------- ----------
Long-term debt to affiliate 1,783,829 1,700,819
Deferred taxes 33,375 28,726
Benefits plans and other 17,625 17,625
---------- ----------
Total Liabilities 1,967,675 1,821,871
---------- ----------
Commitments and Contingencies (Note 2)
Partners' Equity 204,827 199,987
---------- ----------
Total Liabilities and Partners' Equity $2,172,502 $2,021,858
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
EME HOMER CITY GENERATION L.P.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating Revenues from Marketing Affiliate
Capacity revenues $ 14,906 $ 11,366 $ 36,735 $ 22,010
Energy revenues 115,581 146,776 286,751 222,319
-------- -------- --------- --------
Total operating revenues 130,487 158,142 323,486 244,329
-------- -------- --------- --------
Operating Expenses
Fuel 47,429 42,882 125,015 84,391
Plant operations 13,932 19,601 59,399 40,786
Depreciation 12,377 11,805 35,377 25,280
-------- -------- --------- --------
Total operating expenses 73,738 74,288 219,791 150,457
-------- -------- --------- --------
Income from operations 56,749 83,854 103,695 93,872
-------- -------- --------- --------
Other Income (Expense)
Interest and other income (expense) 2,424 (1,019) 15,062 (3,861)
Interest expense from affiliate (36,636) (29,430) (109,268) (63,573)
-------- -------- --------- --------
Total other expense (34,212) (30,449) (94,206) (67,434)
-------- -------- --------- --------
Income Before Income Taxes and Extraordinary Loss 22,537 53,405 9,489 26,438
Provision for Income Taxes Before Extraordinary Loss (8,964) (21,364) (4,649) (10,979)
-------- -------- --------- --------
Income Before Extraordinary Loss 13,573 32,041 4,840 15,459
Extraordinary Loss on Early Extinguishment of Debt, Net of -- (2,865) -- (2,865)
Income Tax Benefit of $2,081 -------- -------- --------- --------
Net Income $ 13,573 $ 29,176 $ 4,840 $ 12,594
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
EME HOMER CITY GENERATION L.P.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
-------------------------
2000 1999
--------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 4,840 $ 12,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss on early extinguishment
of debt, net of tax -- 2,865
Depreciation and amortization 35,384 25,640
Deferred tax provision 4,649 15,457
Loss on asset disposal 760 --
Increase in due from affiliates (9,568) (34,102)
Decrease (increase) in inventory 6,223 (1,260)
Increase in prepaid and other (4,943) (1,376)
Increase in accounts payable 11,077 8,497
(Decrease) increase in accrued liabilities (9,986) 26,134
Increase in interest payable 55,007 58,802
Increase in other liabilities 2,047 1,349
--------- -----------
Net cash provided by operating activities 95,490 114,600
--------- -----------
Cash Flows from Investing Activities:
Purchase of Homer City facility -- (1,818,962)
Capital expenditures (100,090) (75,601)
--------- -----------
Net cash used in investing activities (100,090) (1,894,563)
--------- -----------
Cash Flows from Financing Activities:
Capital contribution from partners -- 273,309
Borrowings on long-term obligations 83,010 2,479,246
Repayments on debt obligations -- (800,000)
Financing costs 119 (17,308)
Cash dividends to partners -- (30,000)
--------- -----------
Net cash provided by financing activities 83,129 1,905,247
--------- -----------
Net increase in cash 78,529 125,284
Cash and cash equivalents, beginning of period 44,454 --
--------- -----------
Cash and cash equivalents, end of period $ 122,983 $ 125,284
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
EME HOMER CITY GENERATION L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. General
All adjustments, including recurring accruals, have been made that are
necessary to present fairly the consolidated financial position and results of
operations for the periods covered by this report. The results of operations
for the nine months ended September 30, 2000, are not necessarily indicative of
the operating results for the full year.
EME Homer City Generation L.P.'s significant accounting policies are
described in Note 2 to our Consolidated Financial Statements as of December 31,
1999, included in Edison Mission Holdings Co. Form S-4 filed with the Securities
and Exchange Commission on June 12, 2000. We follow the same accounting
policies for interim reporting purposes. This quarterly report should be read
in connection with such financial statements.
Note 2. Commitments and Contingencies
EME Homer City derives revenues from sales of electric energy and capacity.
Pricing provisions are individually negotiated with customers by its marketing
affiliate and may include fixed prices or prices based on a daily or monthly
market index. EME Homer City may benefit from forward energy sales contracts
entered into by its marketing affiliate depending on market conditions. At
September 30, 2000, our affiliate had:
. sold forward contracts to third parties for 6,259 GWh of energy for various
periods from September 30, 2000 to December 31, 2001 at a weighted average
price of $31.9/MWh.
. sold call options to third parties for 753 GWh of energy for various
periods from September 30, 2000 to December 31, 2001 at a weighted average
price of $32.1/MWh.
Under the contract with our marketing affiliate, we receive the net transaction
price from forward energy sales contracts and receive the benefit or pay the
obligation related to financial transactions entered into by the marketing
affiliate and designated on our behalf.
We have entered into a transition contract with Pennsylvania Electric
Company ("Penelec Transition Contract"), pursuant to which EME Homer City
Generation L.P. ("EME Homer City") may exercise a put option to sell certain
quantities of capacity to Penelec, and Penelec may exercise call options to
purchase certain quantities of capacity. The terms of the Penelec Transition
Contract continue until May 31, 2001, respectively. EME Homer City has exercised
a put option to sell 942 MW of capacity to Penelec for the period from March 18,
1999 through May 31, 2001 under the Penelec Transition Contract for a price of
$49.90/MW-day from March 18, 1999 through May 31, 1999, $59.90/MW-day for the
year ending May 31, 2000 and $77.40/MW-day for the year ending May 31, 2001. We
have also entered into capacity contracts for the majority of our remaining
capacity for an average price of $72.87/MW-day.
Ash Disposal Site
Pennsylvania Department of Environmental Protection ("PaDEP") regulations
governing ash disposal sites require, among other things, groundwater
assessments of landfills if existing groundwater monitoring indicates the
possibility of degradation. The assessments could lead to the installation of
additional monitoring wells and if degradation of the groundwater is discovered,
we would be required to develop abatement plans, which may include the lining of
unlined sites. To date, the facilities' ash disposal site has not shown any
signs that would require abatement. Management does not believe that the costs
of maintaining and abandoning the Ash Disposal Site will have a material impact
on the our results of operations or financial position.
Two Lick Creek Reservoir Deep Mine Discharges
In connection with its purchase of the facilities on March 18, 1999, we
acquired the Two Lick Creek Dam and Reservoir. Acid discharges from two inactive
deep mines were being collected and partially treated on the reservoir property
by a mining company before being pumped off the property for additional
treatment at a nearby
20
<PAGE>
treatment plant. The mining company, which filed for bankruptcy, operated the
collection and treatment system until May 1999, when its assets were allegedly
depleted.
The PaDEP initially advised us that we were potentially responsible for
treating the discharges by virtue of our alleged ownership of the property of
which the discharges allegedly emanated. Without any admission of our
liability, we voluntarily agreed through a letter agreement to fund the
operation of the treatment plant for an interim period while the agency
continued its investigation. The cost of operating the treatment plant, which
was initially approximately $11,000 per month, increased to $13,000 per month in
2000. The agency has recently notified us that we are responsible for treatment
of one of the discharges. It has also advised the owner of the mineral rights
and three former operators of the mine that they are liable and has requested
them to cooperatively develop and implement a plan with us to treat the
discharge. We estimate the cost of a passive treatment system to be
approximately $1.0 million. The cost of operating a passive treatment system
would be considerably less than the cost of operating the current treatment
plant.
Environmental Matters or Regulations
We are subject to environmental regulation by federal, state, and local
authorities in the United States and foreign regulatory authorities with
jurisdiction over projects located outside the United States. We believe that
as of the filing date of this report, we are in substantial compliance with
environmental regulatory requirements and that maintaining compliance with
current requirements will not materially affect our financial position or
results of operations.
We expect that the implementation of Clean Air Act Amendments will result
in increased capital expenditures and operating expenses. For example, we expect
to spend approximately $140 million for 2000 and $46 million in 2001 to install
upgrades to the environmental controls at the facilities to control sulfur
dioxide and nitrogen oxide emissions. We do not expect these capital
expenditures and operating expenses to have a material effect on our financial
position or results of operation.
Note 3. Supplemental Statements of Cash Flows Information
(In thousands)
(Unaudited)
Nine months ended September 30, 2000 1999
-------------------------------- ------ ------
Cash paid:
Interest $60,063 $10,705
Details of facility acquisition:
Fair value of assets acquired -- $1,835,538
Liabilities assumed -- 16,576
-------- ----------
Net cash paid for acquisition -- $1,818,962
21
<PAGE>
EDISON MISSION FINANCE CO.
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE
The financial statements of Edison Mission Finance Co. are provided under
Rule 3-10 of Regulation S-X as such securities represent a substantial portion
of the collateral for Edison Mission Holdings Co.'s $830 million bonds.
22
<PAGE>
EDISON MISSION FINANCE CO.
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Interest receivable--EME Homer City Generation L.P. $ 89,655 $ 34,648
---------- ----------
Total current assets 89,655 34,648
---------- ----------
Other Assets:
Loan receivable--EME Homer City Generation L.P. 1,783,830 1,700,819
Deferred taxes -- 1,236
---------- ----------
Total Assets $1,873,485 $1,736,703
========== ==========
Liabilities and Shareholder's Equity
Current Liabilities:
Due to affiliates $ 21,016 $ 21,233
Interest Payable--Edison Mission Holdings 37,870 18,433
---------- ----------
Total current liabilities 58,886 39,666
---------- ----------
Other Liabilities
Loan payable--Edison Mission Holdings 990,000 907,000
Deferred taxes 17,167 --
---------- ----------
Total Liabilities 1,066,053 946,666
---------- ----------
Shareholder's Equity
Common stock, $1 par value; 10,000 shares authorized;
100 shares issued and outstanding -- --
Additional paid--in capital 759,885 759,874
Retained earnings 47,547 30,163
---------- ----------
Total Shareholder's Equity 807,432 790,037
---------- ----------
Total Liabilities and Shareholder's Equity $1,873,485 $1,736,703
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
EDISON MISSION FINANCE CO.
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income from affiliate $ 36,636 $ 34,376 $109,268 $ 68,519
Interest expense from affiliate (20,649) (18,283) (61,351) (34,573)
-------- -------- -------- --------
Net interest income 15,987 16,093 47,917 33,946
Operating expenses (17) (76) (51) (152)
-------- -------- -------- --------
Income Before Income Taxes 15,970 16,017 47,866 33,794
Provision for Income Taxes 6,140 6,342 18,403 13,381
-------- -------- -------- --------
Net Income $ 9,830 $ 9,675 $ 29,463 $ 20,413
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
EDISON MISSION FINANCE CO.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
September 30,
------------------------
2000 1999
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 29,463 $ 20,413
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred tax provision 18,403 (836)
Increase in interest receivable--EME Homer City Generation L.P. (55,007) (58,803)
(Decrease) increase in due to affiliates (217) 14,370
Increase in interest payable--Edison Mission Holdings 19,437 24,856
-------- ---------
Net cash provided by operating activities 12,079 --
-------- ---------
Cash Flows from Investing Activities:
Issuance of subordinated loan--EME Homer City Generation L.P. -- (885,000)
Proceeds from repayment of subordinated
loan--EME Homer City Generation L.P. -- 800,000
Increase in subordinated revolving loan
receivable--EME Homer City Generation L.P. (83,010) (794,246)
-------- ---------
Net cash used in investing activities (83,010) (879,246)
-------- ---------
Cash Flows from Financing Activities:
Cash contribution 10 794,246
Proceeds from subordinated loan--Edison Mission Holdings 83,000 885,000
Repayment of subordinated loan--Edison Mission Holdings -- (800,000)
Cash dividends (12,079) --
-------- ---------
Net cash provided by financing activities 70,931 879,246
-------- ---------
Net increase in cash -- --
Cash and cash equivalents, beginning of period -- --
-------- ---------
Cash and cash equivalents, end of period $ -- $ --
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
EDISON MISSION FINANCE CO.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1. General
All adjustments, including recurring accruals, have been made that are
necessary to present fairly the consolidated financial position and results of
operations for the periods covered by this report. The results of operations
for the nine months ended September 30, 2000, are not necessarily indicative of
the operating results for the full year.
Edison Mission Finance Co.'s significant accounting policies are described
in Note 2 to our Consolidated Financial Statements as of December 31, 1999,
included in Edison Mission Holdings Form S-4 filed with the Securities and
Exchange Commission on June 12, 2000. We follow the same accounting policies
for interim reporting purposes. This quarterly report should be read in
connection with such financial statements.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Edison Mission Holdings Co.
---------------------------
(Registrant)
Date: November 10, 2000 /s/ KEVIN M. SMITH
----------------------- ------------------
Kevin M. Smith
Vice President
28
