<PAGE> 1
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UNITED STATES
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: 001-16077
ORION POWER HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 52-2087649
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7 EAST REDWOOD STREET, 10TH FLOOR
BALTIMORE, MARYLAND 21202 21202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(410) 230-3500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all documents
and 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 [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date:
93,095,926 shares of common stock, $0.01 par value, outstanding as of
November 21, 2000.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets........................ 2
Consolidated Statements of Income.................. 3
Consolidated Statements of Cash Flows.............. 4
Notes to Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 19
Item 2. Changes in Securities and Use of Proceeds........... 19
Item 3. Defaults Upon Senior Securities..................... 20
Item 4. Submission of Matters to a Vote of Security
Holders............................................. 20
Item 5. Other Information................................... 20
Item 6. Exhibits and Reports on Form 8-K.................... 20
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 78,549 $ 17,375
Restricted cash........................................... 56,866 212,873
Accounts receivable....................................... 37,271 132,334
Inventories and supplies.................................. 10,427 51,034
Deferred income tax assets................................ 1,083 1,200
Prepaid expenses and other current assets................. 13,765 52,771
---------- ----------
Total current assets........................................ 197,961 467,587
PROPERTY AND EQUIPMENT:
Land...................................................... 53,314 64,553
Generation assets......................................... 931,389 2,650,541
Other equipment........................................... 9,207 36,943
Accumulated depreciation.................................. (18,075) (90,252)
---------- ----------
Net property and equipment.................................. 975,835 2,661,785
OTHER NONCURRENT ASSETS:
Prepaid expenses and other noncurrent assets................ 3,164 3,274
Identifiable purchased intangibles, net of accumulated
amortization of $857 and $3,652, respectively............. 59,284 70,560
Deferred financing costs, net of accumulated amortization of
$2,178 and $9,809, respectively........................... 15,763 39,666
---------- ----------
Total other noncurrent assets............................... 78,211 113,500
---------- ----------
Total assets................................................ $1,252,007 $3,242,872
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 23,643 $ 60,312
Accrued expenses.......................................... 14,420 36,806
Note payable -- current portion........................... 286 286
Interest payable.......................................... 3,573 31,977
Deferred revenue.......................................... 1,794 897
---------- ----------
Total current liabilities................................... 43,716 130,278
NOTE PAYABLE, LONG-TERM..................................... 308 333
NOTES PAYABLE TO STOCKHOLDERS............................... 71,086 --
LONG-TERM DEBT.............................................. 716,000 2,268,137
DEFERRED INCOME TAX LIABILITIES............................. 3,094 5,970
OTHER LONG-TERM LIABILITIES................................. 22,387 47,130
---------- ----------
Total liabilities.................................. 856,591 2,451,848
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
COMMON STOCK SUBJECT TO RELATED PARTY PUT RIGHTS, $.01 PAR
VALUE; 1,219,355 SHARES ISSUED AND OUTSTANDING............ -- 19,554
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 200 million shares
authorized; 36,162,629 and 67,597,539 shares issued and
outstanding, respectively............................... 362 676
Additional paid-in capital................................ 393,416 759,280
Deferred compensation..................................... (1,811) (3,770)
Notes receivable from officers............................ (671) (5,853)
Retained earnings......................................... 4,120 21,137
---------- ----------
Total stockholders' equity.................................. 395,416 771,470
---------- ----------
Total liabilities and stockholders' equity.................. $1,252,007 $3,242,872
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE> 4
ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
1999 2000 1999 2000
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUE.................................. $35,612 $343,010 $37,635 $684,684
------- -------- ------- --------
OPERATING EXPENSES:
Fuel............................................. -- 189,539 -- 317,245
Operations & maintenance......................... 4,005 32,569 5,970 68,122
General & administrative......................... 7,362 9,837 9,499 24,333
Property taxes................................... 6,886 18,336 7,166 45,352
Depreciation and amortization.................... 5,340 33,143 5,749 75,439
Charge for buyout of operations and
maintenance contracts with related party...... -- -- -- 19,000
------- -------- ------- --------
Total operating expenses........................... 23,593 283,424 28,384 549,491
------- -------- ------- --------
OPERATING INCOME................................... 12,019 59,586 9,251 135,193
Interest expense, net.............................. (7,471) (52,835) (7,508) (105,138)
------- -------- ------- --------
Income before provision for income taxes........... 4,548 6,751 1,743 30,055
Income tax expense................................. 1,865 2,830 739 12,384
------- -------- ------- --------
NET INCOME......................................... $ 2,683 $ 3,921 $ 1,004 $ 17,671
======= ======== ======= ========
Earnings per weighted average common share:
Basic............................................ $ 0.13 $ 0.05 $ 0.12 $ 0.31
======= ======== ======= ========
Diluted.......................................... $ 0.13 $ 0.05 $ 0.12 $ 0.29
======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 5
ORION POWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,004 $ 17,671
Adjustments to reconcile net income to net cash used in
operating activities --
Deferred income taxes................................... 739 2,759
Depreciation and amortization........................... 5,720 83,307
Gain on sale of fixed assets............................ -- (394)
Deferred compensation................................... -- 904
Charge for buyout of operations and maintenance
contracts.............................................. -- 18,900
Change in assets and liabilities:
Restricted cash....................................... 623 (101,007)
Accounts receivable................................... (22,377) (95,063)
Inventories and supplies.............................. (9,846) 1,777
Prepaid expenses and other assets..................... (31,223) (39,116)
Accounts payable...................................... 279 36,669
Accrued expenses...................................... 4,131 22,386
Other long-term liabilities........................... 36,945 958
Interest payable...................................... 2,326 28,223
Deferred revenue...................................... -- (897)
----------- -----------
Net cash used in operating activities....................... (11,679) (22,923)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and related assets in
acquisitions (see Note 3)............................... (1,052,822) (1,728,741)
Disposal of fixed assets.................................. -- 5,606
Purchase of property and equipment in operations.......... -- (67,880)
----------- -----------
Net cash used in investing activities....................... (1,052,822) (1,791,015)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net............................. 265,316 304,278
Distribution to stockholders.............................. -- (17,050)
Proceeds from long-term debt.............................. 720,000 1,593,137
Payments on long-term debt................................ -- (41,000)
Proceeds from notes payable to stockholders............... 111,275 --
Funding of reserve accounts established with the Credit
Agreement (restricted cash)............................. -- (55,000)
Payment on note payable................................... (594) --
Payment of deferred financing costs....................... -- (31,601)
----------- -----------
Net cash provided by financing activities................... 1,095,997 1,752,764
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 31,496 (61,174)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 1,603 78,549
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 33,099 $ 17,375
=========== ===========
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1999 2000
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................... $5,870 $77,088
====== =======
Income taxes........................................... $ 629 $17,873
====== =======
Noncash disclosure --
Notes receivable from officers......................... $ -- $ 5,000
====== =======
Other long-term liabilities assumed in acquisitions.... $ -- $23,785
====== =======
Conversion of note payable to equity................... $ -- $71,086
====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 7
ORION POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2000
1. ORGANIZATION AND OPERATIONS OF THE COMPANY
Orion Power Holdings, Inc., a Delaware corporation (the "Company") directly
and through its subsidiaries owns, operates, acquires, and develops non-nuclear
electric power generating facilities in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF INTERIM PRESENTATION
The accompanying interim consolidated financial statements of the Company
have been prepared by the Company, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the consolidated financial
statements include the adjustments necessary to present fairly the information
required to be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted from these statements pursuant to such rules and regulations and,
accordingly, should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1999 and Form S-1,
Registration Statement, filed with the Securities and Exchange Commission on
November 13, 2000. The results of interim periods are not necessarily indicative
of the results for the entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The purchase prices of the acquisitions were allocated to the acquired
assets, including identifiable intangible assets and assumed liabilities.
Property and equipment and intangible assets were recorded based on the advice
of independent valuation experts. Certain assets and liabilities have been
recorded based on estimates and are subject to adjustment based upon receipt of
final information or resolution of uncertainties. During 2000, the Company has
reallocated certain identifiable intangible assets to generation assets based on
advice of independent valuation experts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards, requiring every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and require that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB No. 133 -- an Amendment of FASB Statement No. 133". The Statement amends
SFAS
6
<PAGE> 8
ORION POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 133 to defer its effective date to all fiscal quarters of all fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- An Amendment of FASB Statement No. 133", which clarified the
definition of the normal purchases and sales exemption contained in SFAS No.
133.
Orion Power Holdings has entered into interest rate swaps with financial
institutions and other similar contracts that may meet the definition of
derivative instruments under SFAS 133. However, certain of the other contracts
may meet the normal purchases and normal sales exemption under SFAS No. 138, and
therefore not require mark-to-market accounting as prescribed under SFAS No.
133. Orion Power Holdings is currently evaluating the impact of adopting SFAS
No. 133 and 138 on the financial statements.
3. ACQUISITIONS
On April 28, 2000, Orion Power Holdings, through its wholly owned
subsidiary Orion Power MidWest, LLC ("Orion Power MidWest"), purchased seven
power plants located in Ohio and Pennsylvania (the "Midwest Assets") with a
generating capacity of approximately 2,614 MW
from Duquesne Light Company. The net purchase price for the assets was
approximately $1.7 billion in cash, including $5.7 million in acquisition costs.
In association with the acquisition, Orion Power MidWest assumed certain
liabilities related to employee benefits and environmental remediation.
The acquisition of the Midwest Assets requires Orion Power MidWest to
assume Duquesne Light Company's responsibility of "provider of last resort." As
provider of last resort, Orion Power MidWest will be obligated to supply
electricity at predetermined tariff rates to all customers in Duquesne Light
Company's service area who do not select another electricity supplier. While
Orion Power MidWest should have the capacity to meet these obligations under the
Provider of Last Resort contract most of the time, there may be times when the
energy required to meet the obligation could exceed the amounts that can be
produced from the Midwest Assets. If the obligation exceeds Orion Power
MidWest's energy production levels, Orion Power MidWest will be required to
purchase additional energy from outside sources at market rates, and in certain
circumstances, pay a penalty as high as $1,000 per megawatt hour. The value of
this contract has been determined to be favorable. As such, an intangible asset
representing the favorable value of approximately $14.3 million was recorded at
the time of the purchase. The intangible asset is being amortized over the life
of the contract.
On April 26, 2000, Orion Power Holdings purchased all of the outstanding
stock of the three subsidiaries of Constellation Operating Services, Inc.
("COSI"), which pursuant to certain operation and maintenance service agreements
operated the New York Assets. COSI is a wholly-owned subsidiary of Constellation
Enterprises. Orion Power Holdings also acquired another subsidiary that was
established to perform operations and maintenance services for the Midwest
Assets following the completion of the acquisition. The following is a summary
of the terms and conditions of the acquisition:
- Purchase Price -- approximately $19 million payable at the time of the
acquisition by issuing COSI 1,219,355 shares of Orion Power Holdings
common stock valued at $15.50 per share plus $100,000 cash.
- Special Sale Rights -- COSI will be entitled to sell these shares at the
time of an initial public offering, to the extent permitted by Orion
Power Holdings' investment bankers. COSI's shares would be eligible for
sale at or after the Initial Public Offering ("IPO") in preference to the
shares of all of the other stockholders. In the event that COSI is not
7
<PAGE> 9
ORION POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
permitted to sell its shares at the time of an IPO, then COSI has the
right -- but not the obligation -- to require Orion Power Holdings to
repurchase these shares at the earlier of:
- 30 days after an IPO; or
- One year after the closing of this acquisition.
The repurchase price Orion Power Holdings would be required to pay for this
stock is $15.50 per share, plus interest at a rate of 8 percent per year from
the date of acquisition. As of September 30, 2000, the repurchase price would
have been approximately $19.6 million.
COSI fully exercised its right to sell its shares at the IPO date on
November 14, 2000 (Note 8).
COSI has agreed to assist in the transition process of operating Orion
Power Holdings' assets by cooperating with Orion Power Holdings for six months
following the closing by making its software available to Orion Power Holdings;
and providing technical support in the form of professional, supervisory,
managerial, administrative, and technical operating assistance, until the
earlier of December 31, 2002, or the date of repayment in full of the New York
Credit Agreement.
4. DEBT
LONG-TERM CREDIT FACILITIES
At September 30, 2000, under the New York Credit Agreement, Orion Power New
York had $690,000,000 of the Acquisition Loans and $0 of the Working Capital
Loans outstanding. In connection with the New York Credit Agreement, Orion Power
New York's total balance under the Deposit Account Agreement with Bank of
America, N.A. totaled $141,006,000 at September 30, 2000 and is included in
restricted cash on the accompanying consolidated balance sheet.
At September 30, 2000, under the Midwest Credit Agreement, Orion Power
MidWest had $1,178,137,000 of the Midwest Credit Agreement loans outstanding. In
connection with the Midwest Credit Agreement, Orion Power MidWest's total
balance under the Deposit Account Agreement with Bank of America, N.A. totaled
$71,867,000 at September 30, 2000 and is included in restricted cash on the
accompanying consolidated balance sheet.
REVOLVING CREDIT FACILITY
On July 27, 2000, Orion Power Holdings entered into a $75 million revolving
senior credit facility which includes a $40 million sublimit for letters of
credit. The credit facility matures in December 2002. Amounts outstanding under
the facility bear interest at Orion Power Holdings' option at either (1) the
greater of the lender's base rate and the federal funds effective rate, plus 0.5
percent and an additional margin of between 0.0 and 3.0 percent, or (2) LIBOR
for deposits in dollars, plus an additional margin of between 1.5 percent and
4.5 percent. Letters of credit used to satisfy financial obligations will have
the same applicable margin as Eurodollar rate loans while letters of credit to
satisfy other obligations will bear an applicable margin between 1.0 and 3.0
percent. The facility is unsecured and ranks pari passu with all of Orion Power
Holdings' senior debt. The credit facility contains financial and operating
covenants and other restrictions with which Orion Power Holdings must comply. At
September 30, 2000, Orion Power Holdings had no amounts outstanding under the
facility.
8
<PAGE> 10
ORION POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE SWAP AGREEMENTS
In September 2000, Orion Power MidWest entered into a fourth interest rate
swap agreement with a notional amount of $100 million. This agreement has a
commencement date of September 5, 2000 and will expire on September 5, 2003 with
a fixed interest rate of 6.9 percent.
5. RELATED-PARTY TRANSACTIONS:
STOCKHOLDER FEES
Under the Stockholders Agreement between Orion Power Holdings and its major
stockholders, Orion Power Holdings is required to pay a total of 1 percent of
the aggregate consideration paid in an acquisition to affiliates of GS Capital
Partners II, L.P. and other private investment partnerships affiliated with
Goldman, Sachs & Co., Constellation Enterprises, Mitsubishi Corporation and The
Tokyo Electric Power Company. Orion paid a total of $17,050,000 on June 8, 2000,
related to this fee for the Midwest Acquisition.
Additionally, Goldman, Sachs & Co. has the right to provide all investment
banking services to Orion Power Holdings on an arms' length basis with regard to
terms, conditions and pricing. In association with the investment by affiliates
of Mitsubishi and The Tokyo Electric Power Company for the Duquesne acquisition,
Orion Power Holdings is required to pay a 2 percent fee to Goldman, Sachs & Co.,
in accordance with the Second Amended and Restated Stockholder's Agreement. The
amount of this fee was approximately $4.0 million of which no amount was paid
during the nine months ended September 30, 2000.
Both of these rights and requirements terminated at the completion of the
IPO on November 14, 2000 (Note 8).
6. COMMITMENTS AND CONTINGENCIES
During 2000, Orion Power Holdings, through Orion Power New York, has
provided certain services to the operator of the New York City transmission
system (the "transmission operator") under the local electric system reliability
rules. The transmission operator has questioned its obligation to make separate
payment to Orion Power Holdings related to these services. As of September 2,
2000, the amount requested by Orion Power Holdings for these services was
approximately $21.3 million. Since Orion Power Holdings' management and its
counsel cannot reasonably estimate the amount Orion Power Holdings will
ultimately collect, no amount has been recognized in these financial statements.
Related to this dispute, the same transmission operator has asserted that Orion
Power Holdings owes it for providing electricity to Orion Power Holdings for
station service at retail tariff rates. Orion Power Holdings has disputed this
charge, which amounted to approximately $2.9 million at September 30, 2000.
Since Orion Power Holdings' management does not believe that it is required to
make such payment and cannot reasonably estimate the amount it will ultimately
be required to pay, if any, no amount has been accrued in these financial
statements. The parties are discussing resolution to these items under a common
process. At such time as these issues are resolved and payments are either
receivable or payable, Orion Power Holdings will recognize the revenue or
expense as appropriate.
In September 2000, the Company signed a letter of intent to purchase ten
combustion turbine generators for approximately $345,000,000. These generators
will be delivered at various times between 2003 and 2004.
In September 2000, the Company executed a stock purchase agreement with
Columbia Energy Group to purchase all of the outstanding stock of Columbia
Electric Corporation for $200 million in cash. The Company has also agreed to
assume a $334 million credit facility with
9
<PAGE> 11
ORION POWER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $101 million outstanding at September 30, 2000, in connection with
the acquisition. This acquisition is expected to close by the end of 2000.
The Company is involved in various other claims arising out of the normal
course of business. Litigation reserves are recorded when a loss is determined
to be probable and the amount can be reasonably estimated. The Company does not
expect that the outcome of these proceedings will have a materially adverse
effect on the Company's financial position or results of operations, although no
assurance can be given in this regard.
7. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. The
dilutive effect of the potential exercise of outstanding options to purchase
shares of common stock is calculated using the treasury stock method.
Diluted EPS assumes the issuance of common stock pursuant to stock options
and warrants at the beginning of the year. The following table shows the
computation of Orion's basic and diluted EPS for 1999 and 2000 (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
PER SHARE
NET INCOME SHARES AMOUNT
---------- ------ ---------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
Basic EPS --
Net income........................................ $ 3,921 68,816,894
Less: accretion of common stock subject to put
rights.......................................... (383)
Net income attributable to common stockholders.... 3,538 $0.05
Effect of dilutive securities..................... 3,114,695
Diluted EPS --
Net income attributable to common stockholders.... $ 3,538 71,931,589 $0.05
======= ========== =====
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2000:
Basic EPS --
Net income........................................ 17,671 55,289,366
Less: accretion of common stock subject to put
rights.......................................... (654)
Net income attributable to common stockholders.... 17,017 $0.31
Effect of dilutive securities..................... -- 2,654,091
Diluted EPS --
Net income attributable to common stockholders.... $17,017 57,943,457 $0.29
======= ========== =====
</TABLE>
8. SUBSEQUENT EVENT
Orion Power Holdings' registration statement for the sale of its common
stock was declared effective by the Securities Exchange Commission on November
13, 2000. On November 13, 2000, the Company offered 24,279,032 primary shares of
its common stock for an initial price of $20.00 per share. The selling
stockholders, Constellation Enterprises, Inc. and its affiliates, offered an
additional 3,220,968 shares. The offering was completed with all shares of
common stock having been sold on November 17, 2000. The net proceeds from the
offering, after deducting underwriting discounts and commissions payable by the
Company, was $452.2 million. The proceeds from the offering will be used to
acquire Columbia Electric Corporation, for other acquisitions and/or development
projects and for general corporate and working capital purposes.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements include, among others, statements concerning the
Company's outlook for 2000 and beyond, the Company's expectations, beliefs,
future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in or
implied by the statements.
OVERVIEW
Orion Power Holdings was incorporated in Delaware in March 1998 for the
purpose of acquiring, developing, owning, and operating non-nuclear electric
power generating facilities throughout North America. Commencing in November
1998, in four separate acquisitions, Orion Power Holdings directly or through
its wholly-owned subsidiaries (collectively, "Orion Power") acquired the
existing facilities with a total electric generating capacity of 5,396
megawatts.
Similar to other wholesale power generators, Orion Power typically sells
three types of products: energy, capacity, and ancillary services.
Energy. Energy refers to the actual electricity generated by Orion Power's
facilities and sold to intermediaries for ultimate transmission and distribution
to consumers of electricity. Energy is the only product that is subsequently
distributed to consumers by power retailers.
Capacity. Capacity refers to the physical capability of a facility to
produce energy. In some regional power markets, like the market managed by the
New York Independent System Operator ("NY-ISO"), a market for capacity exists
distinct from the market for the energy produced by that capacity. In other
power markets, like the ECAR region in the Midwest, there is no market for
capacity as a separate product, and the value of the underlying capacity is
included in the price of the energy produced.
In the New York market administered by the NY-ISO, wholesale power
generators sell capacity into a regional market to assure power retailers in
that region that they will have access to energy adequate to meet their retail
demand. The sale of capacity in New York represents a commitment by a wholesale
generator to make the energy it produces available to the relevant day-ahead
market, but does not commit the wholesale generator to sell that energy to any
particular power retailer or at any particular price. Power retailers are not
committed to acquire energy from the wholesale generators from whom they
purchase capacity. A wholesale generator will recognize additional revenue when
it sells its energy, either into the market administered by the independent
system operator or to any other third-party purchaser. Utilities and other power
retailers build the cost of acquiring capacity into the retail price for
electricity.
In markets like New York City, where there are constraints on the ability
to transmit power from outside the city into the city and reliability of the
power supply system is a high priority, capacity -- not the energy itself -- may
represent the principal product and significant source of revenue for local
wholesale generators.
Ancillary Services. Ancillary services generally are support products used
to ensure the safe and reliable operation of the electric power supply system.
Examples of ancillary services include:
- automatic generation control, which is used to balance energy supply with
energy demand, referred to in our industry as "load," on a real-time
basis;
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<PAGE> 13
- operating reserves, which are used on an hourly or daily basis to
generate additional energy if demand increases or if major generating
resources go off-line or if transmission facilities become unavailable;
- reactive supply and voltage support, which maintain voltages on the
transmission and distribution system within acceptable limits; and
- black start capability, which is used to restart generating facilities
without reliance on external energy sources.
Markets. Orion Power typically sells its products to electric power
retailers, which are the entities that supply power to consumers. Power
retailers include regulated utilities, municipalities, energy supply companies,
cooperatives, and retail "load" aggregators.
Orion Power may sell energy and ancillary services in advance under
bilateral supply contracts with specific buyers. Alternatively, Orion Power may
sell them into regionally operated day-ahead and real-time markets. Capacity may
be sold in monthly, semi-annual, or annual blocks in a competitive bid market or
in advance under bilateral contracts.
RECENT DEVELOPMENTS
In October 2000, the second and third auctions of capacity in New York City
were held by the NY-ISO relating to the winter 2000-2001 capacity season, which
runs from November 1, 2000 until April 30, 2001. Astoria Generating Company, a
wholly-owned subsidary of Orion Power New York, bid 2,305 megawatts of capacity
for assets located in New York City into the auction and was successful in
selling 2,131 megawatts of that capacity at an approximate average price of $105
per kilowatt year, for a total of approximately $111.8 million, which Orion
Power will recognize as revenue over that period.
In September 2000, Orion Power Holdings executed a stock purchase agreement
with Columbia Energy Group to purchase all of the outstanding stock of Columbia
Electric Corporation, a power generation company with natural gas fired projects
in various stages of construction and development. Orion Power Holdings has
agreed to pay approximately $200 million in cash, subject to adjustment. In
connection with this acquisition, we agreed to assume a $334 million credit
facility, of which approximately $101 million was outstanding as of September
30, 2000, and assume construction contract guarantee and equity investment
obligations from Columbia Energy Group. The closing of the sale currently
planned for December 2000, is conditioned on the satisfaction of customary
closing conditions, including receipt of material third-party consents and the
expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Columbia Electric Corporation currently owns partial interests in several
generating projects in commercial operation, which will be excluded from the
sale. The facilities of Columbia Electric that we are acquiring an interest in,
all of which are under construction or in various stages of development, include
the following:
<TABLE>
<CAPTION>
PLANNED
CAPACITY PRIMARY
PROJECT (MW) FUEL TYPE LOCATION SERVED STATUS
------- -------- --------- --------------- ------
<S> <C> <C> <C> <C>
Ceredo Generating Station............... 500 Natural Gas West Virginia Construction
Liberty Generating Station.............. 568 Natural Gas Philadelphia, PA Construction
Kelson Ridge Generating Station......... 1,650 Natural Gas Maryland/ Development
Washington, D.C.
Henderson Generating Station............ 500 Natural Gas Kentucky Development
-----
Total.............................. 3,218
=====
</TABLE>
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<PAGE> 14
RESULTS OF OPERATIONS
Generally. The principal factor affecting recent changes in our results
has been the timing of the acquisitions of our facilities. Orion Power acquired
the existing facilities on the following dates:
- Carr Street Generating Station -- November 19, 1998;
- Hydro Assets -- July 30, 1999;
- New York City Assets -- August 20, 1999; and
- Midwest Assets -- April 28, 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
1999 2000 1999 2000
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING DATA:
Consolidated EBITDA (in
thousands)....................... $ 17,359 $ 92,729 $ 15,000 $ 210,632
======== ========== ======== ===========
Megawatt hours produced during
period........................... 864,414 4,875,779 954,771 10,370,161
Net capacity owned at end of period
(megawatts)...................... 2,613 5,396 2,613 5,396
</TABLE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999
Revenue. Revenue was $343.0 million and $684.7 million for the three
months and nine months ended September 30, 2000, respectively as compared to
revenue of $35.6 million and $37.6 million for the three months and nine months
ended September 30, 1999, respectively. The increase is a result of the
ownership and operation of the Hydro Assets (acquired July 30, 1999), the New
York City Assets (acquired August 20, 1999) and the Midwest Assets (acquired
April 28, 2000) in the more recent period. The nine months ended September 30,
1999 reflects Carr Street for the period with partial periods for the Hydro and
New York City Assets. The revenue from each facility was determined at least in
part in accordance with the various interim capacity and energy agreements then
in place including the Provider of Last Resort ("POLR") contract in the Midwest.
The capacity sale agreement for the New York City Assets with Consolidated
Edison expired in April 2000, at which time Orion Power began selling capacity
into the market. The POLR contract is being revised and will be extended through
December 2004, subject to regulatory approval.
Operating Expenses. Operating expenses consisted of fuel expense
(including coal), operations and maintenance expense, taxes other than income
taxes (principally, property taxes), general and administrative expenses,
depreciation and amortization expense and a charge for buyout of operations and
maintenance contracts.
Fuel expenses were $189.5 million and $317.2 million for the three months
and nine months ended September 30, 2000, respectively as compared to no fuel
expenses for the three months and nine months ended September 30, 1999. The
increase is a result of the ownership and operation of the New York City Assets
and the Midwest Assets in the more recent period. The nine months ended
September 30, 1999 reflects Carr Street for the period with partial periods for
the Hydro Assets and New York City Assets. Carr Street and the New York City
Assets operated under a tolling agreement, which provided that the party buying
the power is responsible for supplying all necessary fuel. The Hydro Assets do
not require fuel.
Operations and maintenance expenses were $32.6 million and $68.1 million
for the three months and nine months ended September 30, 2000, respectively as
compared to $4.0 and $6.0 million for the three months and nine months ended
September 30, 1999, respectively. The
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<PAGE> 15
increase is a result of the ownership and operation of the Hydro Assets, the New
York City Assets and the Midwest Assets in the more recent period. The nine
months ended September 30, 1999 reflects the ownership of Carr Street for the
entire period with partial periods for the Hydro Assets and New York City
Assets.
Taxes other than income taxes amounted to $18.3 million and $45.4 million
for the three months and nine months ended September 30, 2000, respectively as
compared to $6.9 million and $7.2 million for the three months and nine months
ended September 30, 1999, respectively. The increase is a result of the
ownership and operation of the Hydro Assets, the New York City Assets and the
Midwest Assets in the more recent period. The nine months ended September 30,
1999 reflects the ownership of Carr Street for the entire period with partial
periods for the Hydro Assets and New York City Assets.
General and administrative expenses were $9.8 million and $24.3 million for
the three months and nine months ended September 30, 2000, respectively as
compared to $7.4 million and $9.5 million for the three months and nine months
ended September 30, 1999, respectively. The increase is the result of expanded
corporate infrastructure as well as the creation of two regional headquarters to
support our growth.
The charge for buyout of operations and maintenance contracts was the
result of the acquisition of the four subsidiaries of Constellation Operating
Services, in April 2000 that performed the operations and maintenance for our
facilities. Orion Power Holdings paid $19.0 million for the four subsidiaries by
issuing Constellation Operating Services 1,219,355 shares of Orion Power
Holdings common stock and paying $0.1 million in cash. There was no such loss
for the three months ended September 30, 2000, the three months ended September
30, 1999 or the nine months ended September 30, 1999.
Depreciation and amortization expense was $33.1 million and $75.4 million
for the three months and nine months ended September 30, 2000, respectively as
compared to $5.3 and $5.7 million for the three months and nine months ended
September 30, 1999. The increase is a result of the ownership and operation of
the Hydro Assets, the New York City Assets and the Midwest Assets in the more
recent period. The nine months ended September 30, 1999 reflects Carr Street for
the period with partial periods for the Hydro Assets and New York City Assets.
Operating Income. As a result of these factors, operating income was $59.6
million and $135.2 million for the three months and nine months ended September
30, 2000, respectively as compared to an operating income of $12.0 million for
the three months ended September 30, 1999 and operating income of $9.3 million
for the nine months ended September 30, 1999.
Interest Expense, Net. Interest expense, net was $52.8 million and $105.1
million for the three months and nine months ended September 30, 2000,
respectively as compared to $7.5 million for the three months and nine months
ended September 30, 1999. The increase in interest expense is due to the bank
credit agreements, senior notes and loans from stockholders to finance the
acquisition and operation of the Hydro Assets, the New York City Assets and the
Midwest Assets.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, Orion Power obtained cash
from operations and from borrowings under the New York Credit Facility and the
Midwest Credit Facility. This cash was used to fund operations, service debt
obligations, fund the acquisition of the Midwest Assets and meet other cash and
liquidity requirements.
Operating activities for the nine months ended September 30, 2000 used
$22.9 million. This resulted from a $233.4 million increase in operating assets,
including restricted cash balances. This was offset by $87.3 million increase in
operating liabilities, $83.3 million of depreciation and amortization, a $18.9
million charge on buyout for operations and maintenance contracts,
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<PAGE> 16
$17.7 million of net income, $2.8 million increase in deferred income taxes,
$0.9 million of deferred compensation and $0.4 million for a gain on sale of
fixed assets.
Investing activities for the nine months ended September 30, 2000 used
approximately $1.8 billion, primarily for the acquisition of the Midwest Assets.
Financing activities for the nine months ended September 30, 2000 provided
approximately $1.8 billion of cash, consisting of $1.6 billion of borrowings
under the New York Credit Facility, the Midwest Credit Facility and the senior
notes, of which $41.0 million was repaid in the period, and $304.3 million of
net proceeds from the issuance of common stock. This was offset by $55.0 million
used to fund restricted cash balances as required by the Midwest Credit
Facility, $31.6 million paid for financing costs under the Midwest Credit
Facility and the senior notes and $17.1 million of advisory fees paid to our
stockholders in connection with the acquisition of the Midwest Assets in
accordance with our stockholders' agreement. All of the remaining stockholder
loans were converted into common equity.
As of September 30, 2000, cash and cash equivalents were $17.4 million and
working capital was $337.3 million. Of this working capital, we had restricted
cash of $212.9 million that can only be used in certain circumstances to fund
the business activities of the subsidiaries that hold the New York Assets and
the Midwest Assets.
To supplement generating capacity and to reduce the risk that Orion Power
MidWest would not meet its forecasted obligation under the Provider of Last
Resort Contract, Orion Power MidWest entered into a contract to purchase 698,400
net megawatt hours for the period of May through October 2000. The cost to
purchase this was approximately $57 million and was paid upon delivery of the
energy. Through September 30, 2000, Orion Power MidWest had incurred $44.0
million of purchases. Orion Power MidWest resold any excess energy that was not
required to meet the provider of last resort responsibility into the market and
realized the prevailing price at that time. It resulted in a net loss after sale
of such power of $29.6 million through September 30, 2000.
Since inception, the principal need for capital has been in connection with
the financing of acquisitions of generating facilities. Orion Power has financed
the four asset acquisitions to date through stockholder capital contributions
and loans, the sale of senior notes and borrowings under the New York Credit
Facility and the Midwest Credit Facility. The New York Credit Facility is a
credit agreement between the subsidiary that holds the New York Assets and a
group of lending institutions. Under the New York Credit Facility agreement,
Orion Power New York incurred $700 million of indebtedness to finance the
acquisition of the New York Assets. In addition, the New York subsidiary has a
$30 million working capital revolving credit facility under the New York Credit
Facility, of which $0 million was outstanding as of September 30, 2000, and $10
million was used to provide a letter of credit in favor of Consolidated Edison
of New York. This facility is available only to that subsidiary and not for
Orion Power Holdings' operations. The terms of the facility provide, among other
things, that the cumulative amount of dividends and distributions that our New
York subsidiary may pay to Orion Power Holdings cannot exceed $100 million. As
of September 30, 2000, no dividends or distributions had been paid. The New York
Credit Facility has a maturity date of December 2002.
The Midwest Credit Facility is a credit agreement between the subsidiary
that holds the Midwest Assets and a group of lending institutions. Under the
Midwest Credit Facility, Orion Power MidWest incurred $1.11 billion of
indebtedness to finance the acquisition of the Midwest Assets. In addition, this
subsidiary has a $90 million working capital facility, of which $68.1 million
was outstanding as of September 30, 2000, and $10 million was used to provide a
letter of credit in favor of Duquesne Light Company. This facility is available
only to that subsidiary and not for Orion Power Holdings operations. It
provides, among other things, that the cumulative amount of dividends and
distributions that the Midwest subsidiary may pay to us cannot exceed
15
<PAGE> 17
$175 million. As of September 30, 2000, no dividends or distributions had been
paid. The Midwest Credit Facility has a maturity date of October 2002.
In April and May 2000, Orion Power Holdings sold $400 million aggregate
principal amount of 12% senior notes due May 1, 2010.
Orion Power will require cash to meet the debt service obligations under
the notes and credit facilities. Debt service obligations will fluctuate
depending on variations in the interest rate and the balance on the working
capital portion of the facilities. The following table summarizes the
outstanding indebtedness as of September 30, 2000:
<TABLE>
<CAPTION>
INTEREST
SOURCE AMOUNT RATE
------ -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
New York Credit Facility.................................... $ 690 8.21%
Midwest Credit Facility..................................... 1,178 8.95
12% Senior Notes due 2010................................... 400 12.00
------ ------
Total............................................. $2,268 9.26%(a)
====== ======
</TABLE>
---------------
(a) Weighted average interest rate.
In April 2000, Orion Power Holdings purchased all of the outstanding
capital stock of three subsidiaries of Constellation Operating Services, Inc.
("COSI") which, pursuant to our strategic alliance agreement, operated the New
York Assets. In addition, Orion Power Holdings acquired another subsidiary of
COSI that was established to operate the Midwest Assets. Orion Power Holdings
paid $19.0 million for the four subsidiaries by issuing COSI 1,219,355 shares of
common stock and paying $0.1 million in cash. Because the form of consideration
paid to COSI was largely shares of common stock rather than cash, it did not
meaningfully affect short-term liquidity requirements. Under the terms of the
agreement with COSI, if the shares of common stock issued to COSI are not
offered to be included in an initial public offering within one year of
issuance, COSI can require Orion Power Holdings to repurchase those shares for
$19 million in cash, plus interest at a rate of 8% per annum from the date of
the acquisition of the subsidiaries. In July 2000, Orion Power Holdings offered
COSI the right to sell shares in the initial public offering, and in November
2000, COSI exercised this right.
On July 27, 2000, Orion Power Holdings entered into a new Revolving Credit
Facility, which provides for up to $75 million of borrowings for general
corporate purposes. This facility matures in December 2002. There were no
amounts outstanding at September 30, 2000.
Orion Power reviews potential acquisition and development opportunities on
an on-going basis. In the near future, Orion Power will seek to acquire and/or
develop additional facilities, which, depending on the size and structure of
these acquisitions or development projects, may require significant cash
resources. Orion Power currently has not made any commitments or entered into
any binding agreements with respect to any such transaction. Orion Power may
incur substantial additional indebtedness to finance future acquisitions and
development opportunities. This indebtedness may be incurred by Orion Power
Holdings or by one or more of its subsidiaries. Any increase in the level of
indebtedness will increase the amount of interest paid. Orion Power may also
raise additional equity to assist in the financing of these acquisitions and/or
development projects.
In addition, Orion Power plans to seek to improve the operational
efficiency of its generating facilities and, in some cases, to expand its
facilities on-site. This on-site expansion may come either through the
construction of additional generating plants at existing sites, referred to in
the industry as "brownfield" development, or through the repowering of existing
plants. The ability to expand the capacity of our facilities is subject to
restrictions imposed by environmental regulations. Orion Power anticipates
approximately $30 million in total capital expenditures for the New York Assets
and $10 million for the Midwest Assets in 2000. Orion Power anticipates
maintenance capital expenditures of approximately $25 million
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<PAGE> 18
annually for the next several years in connection with the Midwest Assets. Orion
Power Holdings also may incur significant additional expenditures for capital
improvements following 2000.
Additionally, Orion Power expects that capital expenditures on
environmental projects alone will total approximately $300 million over the next
seven years, the majority of which is expected to be expended between 2002 and
2006. Orion Power believes that a substantial portion of this will be funded out
of operating cash flow. This amount may change, however, and the timing of any
necessary capital expenditures could be accelerated in the event of a change in
environmental regulations or any enforcement proceeding being commenced against
Orion Power.
The ability to meet the payment obligations under the indebtedness or to
fund capital expenditures will depend on the future performance, which is
subject to regulatory, economic, financial, competitive, legislative and other
factors that are beyond Orion Power's control. Orion Power believes that the
current financial resources, in combination with additional cash generated from
operations, will most likely be adequate to meet the cash needs for at least the
next 12 months, excluding cash that may be needed for acquisitions or new
development projects. In the event of an acquisition or new development project,
Orion Power is likely to need additional capital resources and may need to
borrow additional funds or sell additional equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards, requiring every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and require
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
The effective date of SFAS No. 133 was delayed by the FASB, and therefore
will not be effective for us until January 1, 2001. We have entered into
interest rate swaps with financial institutions and other contracts that may
meet the definition of derivatives instruments under SFAS 133. We have not yet
analyzed the impact of adopting SFAS No. 133 on the financial statements and
have not determined the timing of or method of the adoption of SFAS No. 133. The
statement, however, could increase the volatility of our earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL MARKET RISKS
Orion Power attempts to hedge some aspects of its operations against the
effects of fluctuations in inflation, interest rates, and commodity prices.
Because of the complexity and potential cost of hedging strategies and the
diverse nature of the operations, the results, although hedged, will likely be
somewhat materially affected by fluctuations in these variables and these
fluctuations may result in material improvement or deterioration of operating
results. Results would generally improve with lower interest rates and fuel
costs, and with higher prices for energy, capacity, and ancillary services,
except where we Orion Power MidWest is subject to fixed price agreements such as
the Provider of Last Resort Contract. Orion Power expects to incur significant
costs in connection with these hedging activities related to the Provider of
Last Resort Contract for the Summer 2000. Under the Provider of Last Resort
Contract, these risks should be substantially less in subsequent years, and
Orion Power does not anticipate similar hedging costs related to that contract
after 2000.
The operating results are also sensitive to the difference between
inflation and interest rates, and would generally improve when increases in
inflation are higher than increases in interest
17
<PAGE> 19
rates. Orion Power Holdings does not use derivative financial instruments for
speculative or trading purposes.
Orion Power New York was party to four interest rate swap agreements
designed to fix the variable rate of interest on $350 million of our New York
Credit Facility. The weighted average fixed rate of interest for the related
swap agreement is approximately 6.95%. In addition, Orion Power MidWest entered
into $600 million of interest rate swap agreements to fix the variable rate of
interest for the Midwest Credit Facility. The weighted average fixed rate of
interest for the related swap agreement is approximately 7.52%. As of September
30, 2000, if a 100 basis point change was sustained in interest rates for all
variable rate debt, the change would have affected net income by $9.1 million.
As of September 30, 2000, Astoria Generating Company, a wholly-owned
subsidiary of Orion Power New York, was party to a total of 23 forward sale
agreements to sell power forward for a fixed price. These are financial
transactions and actual deliver of energy will not be provided to the buyers.
Instead, the agreements will be settled by paying the buyers the daily index
price for the region in which the New York City Assets are located, and the
buyers paying the fixed price under the agreements. At the end of the term of
each of the agreements, the fluctuating rate paid to Astoria Generating Company,
and the fixed price received will be netted out for each hour of energy
delivery. Accordingly, Astoria Generating Company will either pay or receive any
price differences. Astoria Generating Company has purchased sufficient fuel to
produce the energy over these periods at a fixed price for delivery during the
period of the hedge agreements. Astoria Generating Company has sold a total of
232,000 megawatt hours for the fourth quarter of 2000 and locked in a net margin
(after fuel costs) of $3.9 million and 1,383,200 megawatt hours for 2001 for a
locked in net margin of $34.9 million. Orion Power may seek to enter into
additional similar agreements, however, the market for energy in New York is in
its early stages and Orion Power may not be able to find suitable
counterparties. At such times as Orion Power purchases the prices of energy,
Orion Power intends to purchase the associated fuel.
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<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective Date of the Company's
Registration Statement: November 13, 2000
Commission File Number: 333-44118
Date the Offering Commenced: November 14, 2000
Names of Managing Underwriters: Goldman, Sachs & Co., Credit Suisse
First Boston, Deutsche Banc Alex,
Brown, Merrill Lynch & Co. and Morgan
Stanley Dean Witter
Class of Securities Registered: Common Stock
Amount registered: 31,625,000 shares of Common Stock
(including 4,125,000 shares subject to
over-allotment option).
Amount sold by Company: 24,279,032 shares of Common Stock
Amount sold by selling
stockholders: 3,220,968 shares of Common Stock
Aggregate price of offering amount
registered: $550,000,000
Aggregate offering price of amount
sold: $455,231,850
Expenses: The expenses incurred for the
Company's account in connection with
the offering are as follows:
<TABLE>
<S> <C>
Underwriting Discounts and Commissions $34,375,000
Finders Fees $0
Expenses Paid to or for Underwriters $0
Other Expense $34,375,000
Total Expenses
</TABLE>
None of the expenses of the offering consisted of direct or indirect
payments to (i) directors, officers, general partners or affiliates of the
Company, (ii) persons owning 10 percent or more of any class of equity
securities of the Company, or (iii) affiliates of the Company, other than
$30,348,790 of the expenses of the offering which consisted of underwriting
discounts and commissions paid to Goldman, Sachs & Co., which is an affiliate of
the Company and an affiliate of persons owning 10 percent or more of the common
stock of the Company.
The net proceeds to the Company from the offering, after deducting the
total expenses described above, were approximately $455,231,850, $200,000,000 of
which will be used to acquire Columbia Electric Corporation, $255,231,850 will
be used for other acquisitions and/or development projects and for general
corporate purposes. The proceeds were invested in AAA-rated short term
securities and will continue to be until the funds are appropriately deployed.
None of such payments were made to directors, officers or 10% or more
stockholders or to any associates or affiliates of the foregoing.
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<PAGE> 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 -- Financial Data Schedule.
(b) Reports
None.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ORION POWER HOLDINGS, INC.
By: /s/ SCOTT B. HELM
------------------------------------
Scott B. Helm
Executive Vice President and Chief
Financial Officer
(principal accounting officer)
(authorized officer of registrant)
Dated: November 21, 2000
21
