<PAGE>
File No. 69-370
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM U-3A-2
STATEMENT BY HOLDING COMPANY CLAIMING EXEMPTION UNDER
RULE U-2 FROM THE
PROVISIONS OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF
1935
ROSEBUD ENERGY CORP.
--------------------
hereby files with the Securities and Exchange Commission,
pursuant to Rule U-2, its statement claiming exemption as a
holding company from the provisions of the Public Utility Holding
Company Act of 1935. In support of such claim for exemption the
following information is submitted:
1. Name, State of organization, location and nature of
business of claimant and every subsidiary thereof.
Rosebud Energy Corp. ("Rosebud") is a corporation
incorporated in Montana. Rosebud's address is 314 N. Last Chance
Gulch, Helena, Montana 59624, c/o Doney, Crowley & Bloomquist,
LLP. Rosebud was formed to own a general partnership interest in
and be the sole general partner of Colstrip Energy Limited
Partnership ("Colstrip"). Colstrip is a Montana limited
<PAGE>
partnership, with the same address as Rosebud, and was formed to
own and operate a 35 megawatt electric generation facility
("Facility") located near Colstrip, Montana.
2. A brief description of the properties of claimant and
each of its subsidiary public utility companies used for the
generation, transmission, and distribution of electric energy for
sale, or for the production, transmission, and distribution of
natural or manufactured gas, indicating the location of principal
generating plants, transmission lines, producing fields, gas
manufacturing plants, and electric and gas distribution
facilities, including all such properties which are outside the
State in which claimant and its subsidiaries are organized and
all transmission or pipelines which deliver or receive electric
energy or gas at the borders of such State.
Rosebud owns no property used for the generation,
transmission and distribution of electricity for sale, or for the
production, transmission, and distribution of natural or
manufactured gas. The only property owned by Colstrip is the
Facility, which is located near Colstrip, Montana, and which
sells all of its output at wholesale to the Montana Power
Company, an investor owned utility.
<PAGE>
3. The following information for the last calendar year
with respect to claimant and each of its subsidiary public
utility companies:
(a) Number of kwh. of electric energy sold (at retail
or wholesale), and Mcf. of natural or manufactured gas
distributed at retail.
The total number of kwh sold in calendar year 1997 was
310,334,312.
(b) Number of kwh. of electric energy and Mcf. of
natural or manufactured gas distributed at retail outside the
State in which each such company is organized.
None.
(c) Number of kwh. of electric energy and Mcf. of
natural or manufactured gas sold at wholesale outside the State
in which each such company is organized, or at the State line.
None.
(d) Number of kwh. of electric energy and Mcf. of
natural or manufactured gas purchased outside the State in which
each such company is organized or at the State line.
None.
4. The following information for the reporting period with
respect to claimant and each interest it holds directly or
indirectly in an EWG or a foreign utility company, stating
monetary amounts in United States dollars:
<PAGE>
(a) Name, location, business address and description
of the facilities used by the EWG or foreign utility company for
the generation, transmission and distribution of electric energy
for sale or for the distribution at retail of natural or
manufactured gas.
Rosebud owns no interest in an EWG.
(b) Name of each system company that holds an interest
in such EWG or foreign utility company; and description of the
interest held.
None.
(c) Type and amount of capital invested, directly or
indirectly, by the holding company claiming exemption; any direct
or indirect guarantee of the security of the EWG or foreign
utility company by the holding company claiming exemptions; and
any debt or other financial obligation for which there is
recourse, directly or indirectly, to the holding company claiming
exemption or another system company, other than the EWG or
foreign utility company.
None.
(d) Capitalization and earnings of the EWG or foreign
utility company during the reporting period.
None.
(e) Identify any service, sales or construction
contract(s) between the EWG or foreign utility company and a
<PAGE>
system company, and describe the services to be rendered or goods
sold and fees or revenues under such agreement(s).
None.
The above-named claimant has caused this statement to be
duly executed on its behalf by its authorized officer on this
26th day of February, 1998.
ROSEBUD ENERGY CORP.
By: /s/ R. Lee Roberts
--------------------------
R. Lee Roberts
President
CORPORATE SEAL
Attest: Subscribed and Sworn to before me this 26th day of
February, 1998.
/s/ Shannon Morgan
-----------------------------
Residing at Boise, Idaho
Expiration Date 6/28/2000
Name, title, and address of Officer of whom notices and
correspondence concerning this statement would be addressed:
R. Lee Roberts President
-----------------------------------------------------------------
(Name) (Title)
314 N. Last Chance Gulch, Box 1185, Helena, Montana 59624
-----------------------------------------------------------------
(Address)
Please send additional copy to:
Mr. Matthew W. S. Estes, Esq.
Skadden, Arps, Slate, Meagher & Flom, LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
<PAGE>
EXHIBIT A
Claimant has no subsidiary companies. The claimant's
Balance Sheet and Statement of Operations as of December 31, 1997
are attached. In addition, inasmuch as claimant is general
partner of Colstrip, Colstrip's Balance Sheet, Statement of
Operations, Statement of Cash Flows, and Statement of Partners'
Capital as of December 31, 1997 are attached.
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/97
<S> <C> <C>
ASSETS
CASH
Rosebud Fee Ckng - West One $ 1,068.85
Rosebud Oper Acct - West One 74,343.38
--------------
TOTAL CASH $ 75,412.23
-------------
TOTAL CURRENT ASSETS $ 75,412.23
PROPERTY, PLANT & EQUIPMENT
Land 1,000.00
Office Furniture and Fixtures 5,604.83
Computer Equipment & Software 2,158.80
Acct. Deprec. - Office F & F (5,604.83)
Acct. Depr. - Computer Equip. (115.14)
--------------
TOTAL PROPERTY, PLANT & EQUIPMENT $ 3,043.66
OTHER ASSETS
Other investments $(3,965,686.87)
==============
TOTAL OTHER ASSETS $(3,965,686.87)
--------------
TOTAL ASSETS $(3,887,230.98)
==============
</TABLE>
1
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/97
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Other Payable $ 77,343.38
--------------
TOTAL CURRENT LIABILITIES $ 77,343.38
--------------
TOTAL LIABILITIES $ 77,343.38
SHAREHOLDERS' EQUITY
Shareholders' Equity $(1,115,854.04)
Retained Earnings (2,222,788.19)
YTD Net Income (625,932.13)
--------------
TOTAL SHAREHOLDERS' EQUITY $(3,964,574.36)
--------------
TOTAL LIABILITY/SHAREHOLDERS' EQUITY $(3,887,230.98)
==============
</TABLE>
2
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
STATEMENT OF OPERATIONS
For the Period Through 12/31/97
Year-To-Date
<S> <C>
REVENUES
Professional Fees 416647.68
OPERATING EXPENSES
Accounting/Auditing Fees 1850.00
Legal Fees 4908.64
Travel Expenses 19918.19
Business Meals & Entertainment 1816.32
Telephone Expense 9464.73
Fees & Licenses 630.00
Rent Expense 29851.80
Dues & Subscriptions 248.50
Employee Benefits 26651.67
Employee Relations 1380.74
Payroll & Payroll Tax Exp. 287844.75
Office Supplies 8785.27
Outside Services - Admin. 3873.53
Outside Services - Fin. 775692.08
Postage / Freight 2776.96
Insurance 5300.00
Charitable Contribution 205.00
Community Relations 350.00
Continuing Education 2913.00
Dues & Publications 4415.59
Miscellaneous 2180.68
Taxes 41.13
Depreciation 115.14
--------------
TOTAL OPERATING EXPENSES 1191213.72
--------------
TOTAL OPERATING INCOME -774566.04
(Gain) Loss - Other Invest. - CELP 148633.91
--------------
NET INCOME -625932.13
==============
</TABLE>
3
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
BALANCE SHEETS
as of December 31,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Designated and restricted cash equivalents $ 4,195,726 $ 4,419,398
Liquid investments 1,514,063 1,503,281
Receivable from Montana Power Company 1,692,775 1,615,560
Prepaid expenses 112,944 164,854
Special reserve account investments 504,688 501,094
Other 159,979 119,180
----------- -----------
Total current assets 8,180,175 8,323,367
Property, plant and equipment, net 73,545,027 75,087,033
Bond reserve fund investments 6,128,810 6,028,593
Deferred charges 3,209,941 3,600,243
Limestone inventory 628,248 644,558
----------- -----------
Total assets $91,692,201 $93,683,794
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,038,936 $ 991,620
Accrued interest 204,905 189,665
Current portion of term notes payable 1,920,000 1,680,000
----------- -----------
Total current liabilities 3,163,841 2,861,285
Bond payable 60,800,000 60,800,000
Term notes payable 7,680,000 9,600,000
---------- -----------
Total liabilities 71,643,841 73,261,285
Commitment (Note 10) and contingency (Note 12)
Partners' equity:
Partners' capital 20,030,551 20,422,655
Unrealized gain (loss) on investments 17,809 (146)
available for sale ----------- -----------
Total liabilities and partners' equity $91,692,201 $93,683,794
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
for the years ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Energy $13,991,993 $13,540,385
Capacity 2,904,364 2,812,038
Interest Income 560,353 581,607
Other 14,348 -
----------- -----------
$17,471,058 $16,934,030
----------- -----------
Raw materials:
Coal 1,315,769 1,197,782
Coal transport 439,878 420,551
Coal royalty 240,475 200,630
Limestone processing charge 76,950 73,845
Limestone transport 245,225 263,002
Limestone usage 21,139 21,098
Fuel oil 81,323 121,740
Operating expenses:
Operations and maintenance 2,047,405 2,056,343
(O&M) contract labor
O&M nonlabor 855,655 834,858
Professional fees 941,395 636,650
Property, license and other taxes 470,181 516,835
Insurance 205,069 324,497
Management fee to operator 225,547 221,558
Other 146,722 251,402
----------- -----------
7,312,733 7,140,791
----------- -----------
Operating revenues available for debt service 10,158,325 9,793,239
and other expenses ----------- -----------
Debt service expenses:
Interest 3,027,211 3,064,812
Loan fees 894,890 894,268
Expenses subordinate to debt service:
Bonus to operator 173,272 176,725
Depreciation and amortization 2,347,104 2,417,685
----------- -----------
Total debt service and other expenses 6,442,477 6,553,490
----------- -----------
Net income $ 3,715,848 $ 3,239,749
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
for the year ended December 31, 1997 and 1996
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995 $ (370,008) $22,491,318 $22,121,310
Net income 129,590 3,110,159 3,239,749
Capital withdrawn (Note 9) (1,960,188) (2,978,216) (4,938,404)
----------- ----------- -----------
Balance at December 31, 1996 $(2,200,606) $22,623,261 $20,422,655
Net income 148,634 3,567,214 3,715,848
Capital withdrawn (Note 9) (1,913,714) (2,194,238) (4,107,952)
----------- ----------- -----------
Balance at December 31, 1997 $(3,965,686) $23,996,237 $20,030,551
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
for the years ended December 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,715,848 $ 3,239,749
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,347,104 2,417,685
Loss on sale of available for sale investment securities - 23,379
Amortization of investment discount/premiums (314,533) (69,866)
(Gain) loss on disposal of equipment (14,349) 1,043
Change in assets and liabilities:
Receivable from Montana Power Company (77,215) (185,997)
Prepaid expenses and other assets 11,111 (15,765)
Inventory 16,310 21,099
Accounts payable and accrued expenses 47,316 (39,255)
Accrued interest 15,240 (46,122)
------------ -----------
Net cash provided by operating activities 5,746,832 5,345,950
------------ -----------
Cash flows from investing activities:
Proceeds from maturities or sales of available for sale 14,216,280 7,572,891
investment securities
Purchase of available for sale investment securities (13,998,385) (5,992,697)
Expenditures for property, plant and equipment (408,232) (710,510)
Proceeds from sale of property, plant and equipment 19,335 4,127
------------ -----------
Net cash provided by (used for) investing activities (171,002) 873,811
------------ -----------
Cash flows from financing activities:
Partner capital withdrawn (4,107,952) (4,938,404)
Principal payments on term notes (1,680,000) (720,000)
Debt refinancing costs (11,550) (2,088,681)
Proceeds from term notes - 12,000,000
Repayment of original term notes - (10,319,416)
------------ ------------
Net cash used for financing activities (5,799,502) (6,066,501)
------------ ------------
Net increase (decrease) in designated and restricted cash and equivalents (223,672) 153,260
Designated and restricted cash and equivalents, beginning of year 4,419,398 4,266,138
------------ ------------
Designated and restricted cash and equivalents, end of year 4,195,726 4,419,398
============ ============
Interest paid $ 3,011,971 $ 3,109,273
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
D R A F T
COLSTRIP ENERGY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Colstrip Energy Limited Partnership (the Partnership) owns and operates
a 35-megawatt electric generation facility (the Project) near Colstrip,
Montana. Commercial operations of the Project commenced on May 3, 1990.
The Partnership consists of Rosebud Energy Corp. (Rosebud), the general
partner, and two limited partners: Harrier Power Corporation
(wholly-owned by PG&E Enterprises) and Spruce Limited Partnership. The
general partner of Spruce Limited Partnership is Spruce Power
Corporation (which PG&E Enterprises purchased from Bechtel Enterprises,
Inc. effective September 5, 1997) and the limited partner is Pitney
Bowes Credit Corp. The life of the Partnership is 40 years expiring in
2030.
The project is a Federal Energy Regulatory Commission (FERC) certified
Small Power Production Facility consisting of a circulating fluidized
bed combustion boiler, an extraction/condensing steam turbine generator
unit and related auxiliary equipment. The unit is fired by waste coal
in the form of sub-bituminous coal refuse. Montana Power Company has
contracted to purchase all of the electricity to be generated by the
Project through June, 2025.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
Property, Plant and Equipment is stated at historical cost net of
-----------------------------
accumulated depreciation. When property, plant and equipment is
disposed of, the net book value of the asset is removed from the
Partnership's books and the net gain or loss is included in operations.
Depreciation is provided using the straight-line method over estimated
useful lives of fifty years for plant and systems, seven years for heavy
operating equipment, five to seven years for periodic scheduled overhaul
costs, and five years for furniture, computer equipment, small tools and
vehicles.
Deferred Charges - Costs of issuing bonds and notes are amortized using
----------------
the interest method over the term of the related financing. The cost
of entering into interest rate cap transactions is amortized on a
straight-line basis over the term of the related financing.
8
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
Inventory - consists of limestone to be used in the power generation
---------
process and is stated at cost.
Investments - The Partnership classifies liquid investments, special
-----------
reserve and contingency loan reserve account investments and bond
reserve fund investments as available-for-sale securities which are
stated at fair value. Net unrealized gain or loss on available for
sale securities is reported as a component of Partners' Equity.
Income Taxes - The Partnership is subject to the partnership provisions
------------
of the Internal Revenue Code and, accordingly, incurs no federal or
state income taxes. Individual partners report their respective share
of the Partnership's taxable income, loss, deductions and credits.
Financial Instruments - Designated and restricted cash equivalents
---------------------
include highly liquid investments with original maturities of three
months or less, readily convertible to known amounts of cash. The
amounts reported as restricted and designated cash and
equivalents, receivables, other assets, accounts payable
and accrued expenses, bonds payable and term notes payable
are considered to be reasonable approximations of their
fair values. The fair value estimates presented herein
were based on market information available to management
as of December 31, 1997. The use of different market
assumptions and estimation methodologies could have a
material effect on the estimated fair value amounts. The
reported fair values do not take into consideration other
expenses that would be incurred in an actual settlement.
Accounting Standard - The Partnership adopted Statement of
-------------------
Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to Be Disposed Of," for the year
ended December 31, 1996. Adoption of SFAS 121 had no
impact on the financial statements.
Revenue Recognition - MPC has contracted to purchase all of
-------------------
the electricity to be generated by the Project through
June 2025. Revenue is recorded based on power generation
at rates established by the power purchase agreement.
9
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. DESIGNATED AND RESTRICTED CASH AND EQUIVALENTS:
Partnership revenues are deposited with an agent bank for disbursement
in accordance with the terms of the partnership and credit agreements.
Designated and restricted funds were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
----------- -----------
<S> <C> <C>
Designated cash and equivalents:
Cash available for operations:
First Interstate O&M nonlabor $ 208,671 $ 181,748
Monthly operating fund 1,200,000 1,200,000
Savings reserve 1,047,150 603,225
Cash committed for accruals and reserves:
US Bank money market account 738,407 954,899
----------- ------------
3,194,228 2,939,872
----------- ------------
Restricted cash and equivalents:
Credit Suisse revenue holdings account 16,918 15,050
Credit Suisse O&M expenses account - 521,629
Credit Suisse debt service account 593,955 569,743
Credit Suisse revolving credit debt service account 14 14
Credit Suisse maintenance reserve account 270,465 188,321
Credit Suisse O&M bonus and sub fee account 120,146 101,571
Bond fund - 83,198
----------- -----------
1,001,498 1,479,526
----------- -----------
Total designated and restricted cash and equivalents $ 4,195,726 $4,419,398
========== ==========
</TABLE>
4. AVAILABLE-FOR-SALE SECURITIES:
The following is a summary of the Partnership's available-for-sale
securities, by contractual maturities.
<TABLE>
<CAPTION>
GROSS
MATURITY AMORTIZED UNREALIZED FAIR
DECEMBER 31, 1997 YEAR COST GAINS VALUE
-------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Liquid Investments:
U.S. Treasury Notes 1999 $ 1,500,665 $ 13,398 $ 1,514,063
Special reserve account investments:
U.S. Treasury Notes 1999 $ 500,277 $ 4,441 $ 504,688
Bond reserve fund investments:
U.S. Treasury Bills 1998 $ 6,128,810 $ - $ 6,128,810
</TABLE>
10
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. AVAILABLE-FOR-SALE SECURITIES - CONTINUED:
<TABLE>
<CAPTION>
GROSS
MATURITY AMORTIZED UNREALIZED FAIR
DECEMBER 31, 1996 YEAR COST GAINS VALUE
-------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Liquid Investments:
U.S. Treasury Notes 1997 $ 1,503,391 $ (110) $ 1,503,281
Special reserve account investments:
U.S. Treasury Notes 1997 $ 501,130 $ (36) $ 501,094
Bond reserve fund investments:
U.S. Treasury Bills 1997 $ 6,028,593 $ - $ 6,028,593
</TABLE>
The change in the unrealized gain (loss) on investments
available for sale during the years ended December 31,
1997 and 1996 was $17,955 and $(23,103), respectively.
During 1996, the Partnership entered into a Credit And
Reimbursement Agreement (Note 8), which resulted in the
elimination of the contingency loan reserve account.
Funds from this account totaling $1,593,118 were
distributed to the partners during 1996.
5. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996
------------ ------------
<S> <C> <C>
Land Improvements $ 5,917 $ -
Land 496,240 496,240
Plant, equipment and systems 86,230,300 85,897,277
Heavy operating equipment 1,225,135 1,247,735
Small tools and equipment 140,603 137,049
Office furniture and equipment 168,795 144,033
Vehicles 85,095 79,060
------------ -------------
Property, plant and equipment, at cost 88,352,085 88,001,394
Less accumulated depreciation (14,807,058) (12,914,361)
------------ ------------
Property, plant and equipment, net $ 73,545,027 $ 75,087,033
</TABLE>
Depreciation of property, plant and equipment was $1,945,252 for 1997 and
$1,995,438 for 1996.
11
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. DEFERRED CHARGES:
Deferred charges, net of accumulated amortization, were as follows:
DECEMBER 31, 1997 1996
---------- ----------
Bond financing $1,554,114 $1,668,810
Notes financing 1,655,828 1,931,433
---------- ----------
$3,209,942 $3,600,243
========== ==========
7. BONDS PAYABLE:
The 1989 Series tax-exempt bonds were issued October, 1989
in the amount of $60,800,000. The bonds bear interest at
weekly, monthly, semiannual, annual or term rates set at
the option of the Partnership or, upon termination of a
letter of credit, at a fixed interest rate until maturity.
Interest is at market rates for equivalent bonds at each
repricing date and is payable monthly. The interest rate
for the week including December 31 was 3.75% for 1997 and
4.25% for 1996. The weighted average interest rate for the
year was 3.76% for 1997 and 3.67% for 1996.
The bonds mature December, 2015 and are subject to
mandatory and optional redemption prior to maturity.
Optional redemption, in whole or in part, may be made at
the election of the Partnership at a redemption price of up
to 102% of face value. The bonds are subject to mandatory
redemption through a sinking fund requiring annual payments
by the Partnership in years 2001 through 2014 in amounts
ranging from $1,700,000 to $4,200,000. The bonds are
payable from revenues of the Partnership or from a letter
of credit.
The Partnership has a letter of credit in the amount of
$61,960,000 collateralizing the bonds payable (Note 8).
Substantially all of the Partnership assets are pledged as
collateral for the letter of credit and the term notes
payable (Note 8). The credit agreements provide for no
recourse by the lenders against the Partnership or any partner.
The bond and term note credit agreement covenants require
the Partnership, among other requirements, to maintain
specific debt service coverage ratios and insurance coverages.
12
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. TERM NOTES PAYABLE:
In 1996, the Partnership entered into a Credit And
Reimbursement Agreement ("Credit Agreement") providing for a
Letter of Credit ("LOC") for $61,960,000, issuance of new
term loans of $12,000,000 in repayment of the existing term
loans and additional credit facilities in the form of
revolving credit loans of $1,000,000 and capacity expansion
loans of $2,000,000.
The LOC expires in June, 2006, but can be extended for a
period of not less than five years. Aggregate annual fees on
the LOC is approximately 1.17% through June, 2001 and 1.29%
thereafter. The Partnership paid LOC fees of $737,231 and
$729,173 in 1997 and 1996, respectively.
Term loans payable bear interest from 1% to 1.25% above
the London Interbank Offering Rate ("LIBOR"). The interest
rate in effect at December 31, 1997 was 6.75%. At December
31, 1997 there were no borrowings outstanding under the
capacity expansion loans and the revolving credit loans.
Capacity expansion loans bear interest from 1.125% to
1.25% above LIBOR and mature in June, 2006. Borrowings
under the capacity expansion loans are available through
June, 1999.
Revolving credit loans bear interest at 1.25% above LIBOR
with an initial term expiring in June, 1999, but can be
extended for additional three-year periods until the
letter of credit expiration date.
The Partnership agreed to pay an annual commitment fee of
0.5% on the unutilized commitments for the capacity
expansion loans and the revolving credit loans plus
certain other annual administrative fees which totaled
$96,859 during 1997 and $104,295 during 1996.
In 1996, the Partnership purchased an interest rate cap
for $209,760 protect against the impact of changes in market
intererst rates. The effect of this contract is to limit the
interest the Partnership would pay to no more than
approximately 10.667% on $45.6 million. The interest rate
cap was effective June 30, 1996 and expires on June 30, 2001.
Scheduled principal payments for the term notes are due as follows:
1998 $ 1,920,000
1999 2,280,000
2000 2,640,000
2001 1,200,000
2002 1,560,000
-----------
$ 9,600,000
===========
13
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
9. RELATED PARTY TRANSACTIONS:
Rosebud and an affiliate provide management and
administrative services and, after June 15, 1996, coal
transportation services to the Partnership, and are also
reimbursed for expenses incurred on behalf of the
Partnership. Fees earned by Rosebud and affiliate during
1997 and 1996 were $869,744 and $727,218, respectively, of
which $42,854 and $50,845 were payable at December 31, 1997
and 1996, respectively. The Partnership had receivables from
Rosebud of $74,343 and $64,343 as of December 31, 1997 and 1996,
respectively.
Pursuant to the Partnership Agreement, the general
partner is entitled to receive an Incentive Operating
Performance Distribution (IOPD) which is subordinated to
certain other distributions of gross receipts. The IOPD paid
to the general partner was $1,182,302 and $967,446 in 1997
and 1996, respectively, and is reported as a withdrawal of
partnership capital in each respective year. IOPD earned,
but undistributed at December 31, 1997 and 1996 was $252,977
and $394,013, respectively. IOPD amounts not distributed
bear interest at prime plus 1%.
Legal fees, including expenses incurred on behalf of the
Partnership, in the amount of $217,019 and $247,781 were
earned by the law firms of Orndorff & Trout and R. Lee
Roberts in 1997 and 1996, respectively. Certain principals
of these firms serve as officers and are shareholders of
Rosebud. Consulting fees, including expenses incurred on
behalf of the Partnership, in the amount of $18,847 and
$99,151 were earned by Jeffrey L. Smith and James P.
Sletteland, shareholders of Rosebud, in 1997 and 1996,
respectively. Amounts payable to these related parties total
$41,887 and $40,514 at December 31, 1997 and 1996,
respectively.
10. COMMITMENTS:
The Partnership has entered into the following long-term operating
commitments:
o A cogeneration and long-term power purchase agreement with Montana
Power Company to sell and deliver capacity and energy until 2025;
o A refuse coal supply and backup coal supply agreements with Western
Energy Company (WECo) to purchase all of the Partnership's coal
requirements until 2025;
o A 1988 limestone supply agreement, amended in 1992, with
Montana Limestone Company with an initial term
ending in 2005, renewable for up to five
additional five-year terms. A processing
charge is paid by the Partnership in the
amount of $3.00 per ton, increased by a 4%
compounded annual escalation beginning January
1, 1993 ($3.64 per ton at December 31, 1997);
14
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
10. COMMITMENTS - CONTINUED:
o A 1991 limestone supply agreement with Montana Limestone Company
with an initial term ending in 2021. A processing charge is paid
by the Partnership in the amount of $3.00 per ton, increased by a
4% compounded annual escalation beginning September 1, 1990. The
processing charge may be renegotiated in 2006. No limestone was
processed under this agreement during 1997;
o A services agreement with Constellation Operating Services for
operations and maintenance of the Facility until 2010, renewable
for up to three five-year terms. The Partnership may terminate the
agreement at its sole discretion at December 31, 2000 or
December 31, 2005;
o A coal transport agreement with WECo, whereby the Partnership
leases trucks to WECo for coal delivery. The agreement provides
for WECo to operate and maintain the trucks and deliver coal
through 2023. On June 15, 1996, WECo entered into a contract with
Rosebud Operating Services, Inc. ("Rosebud Operating"), where
Rosebud Operating performs WECo's duties and obligations until the
earlier of either the expiration of the subcontract on June 30,
2001 or the date when Rosebud Operating and the Partnership enter
into a new transportation agreement, which would terminate the
agreement with WECo.
11. CONCENTRATIONS OF CREDIT RISK:
The Partnership has concentrations of credit risk, generally does not
require collateral, and does not anticipate credit losses related to
cash balances in bank accounts, which may exceed federally insured
amounts, and receivables from Montana Power.
12. CONTINGENCY:
The Partnership's 1989 series tax-exempt bonds are subject
to Internal Revenue Code SECTION148 regarding arbitrage rebate
requirements. The rebate, if any, will be calculated
based on earnings on non-purpose investments in excess of
interest incurred on the tax-exempt bonds for the 5-year
period ending October, 1999. As of December 31, 1997,
management believes that no rebate will be due for such
period. Rebate amounts, if any, are due after each 5-year
period the tax-exempt bonds are outstanding.
The Partnership has filed a complaint against Montana
Power Company (MPC) relating to a 1997 curtailment of
capacity and energy purchases by MPC. The outcome of this
litigation cannot be determined at this time and,
accordingly, no accrual has been recorded.
