<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, locations and nature of business of
claimant and every subsidiary thereof.
Rosebud Energy Corp. ("Rosebud") is a corporation incorporated in
Montana. Rosebud's address is Diamond Block Building, Suite 210, 44 West 6th
Avenue, Helena, Montana 59624, c/o Doney, Crowley, Bloomquist & Uda, PC. 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
<PAGE>
Montana limited 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.
2
<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 1998 was 291,615,469.
(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:
3
<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 system company, and describe
4
<PAGE>
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 23rd day of February, 1999.
ROSEBUD ENERGY CORP.
By: /s/ R. Lee Roberts
-----------------------------------
R. Lee Roberts
President
CORPORATE SEAL
Attest: Subscribed and Sworn to before me this 23rd day of February, 1999.
/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)
Diamond Block Bldg. Ste. 210 44 W 6th Ave. Helena, Montana 59624
- --------------------------------------------------------------------------------
(Address)
Please send additional copy to:
Mr. Matthew W. S. Estes, Esq.
Skadden, Arps, Slate, Meagher & Flom
1440 New York Avenue, N.W.
Washington, D.C. 20005
5
<PAGE>
EXHIBIT A
Claimant has no subsidiary companies. The claimant's Balance Sheet and
Statement of Operations as of December 31, 1998 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, 1998 are attached.
6
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/98
<S> <C> <C>
CURRENT ASSETS:
Rosebud Fee Acct. - US Bank $ 31,827.19
Rosebud Operating Acct. - US Bank 66,079.46
--------------
TOTAL CURRENT ASSETS $ 97,906.65
PROPERTY, PLANT AND EQUIPMENT:
Land 1,000.00
Office Furniture and Fixtures 9,610.58
Computer Equipment and Software 2,158.80
Accum. Deprec. - Office Equip. (672.37)
Accum. Deprec. - Office F and F (5,604.83)
Accum. Deprec. - Computer Equip. (510.92)
--------------
TOTAL PROPERTY, PLANT AND EQUIPMENT $ 5,981.26
OTHER ASSETS:
Other Receivable - RDO 244,946.16
Other Investments (5,682,222.16)
--------------
TOTAL OTHER ASSETS $(5,437,276.00)
---------------
TOTAL ASSETS $(5,333,388.09)
===============
</TABLE>
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
Balance Sheet
As of 12/31/98
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 4,263.69
Other Payable 358,525.62
--------------
TOTAL CURRENT LIABILITIES $ 362,789.31
--------------
TOTAL LIABILITIES $ 362,789.31
SHAREHOLDERS' EQUITY:
Shareholders' Capital $(2,239,036.64)
Retained Earnings (2,848,720.32)
Net Loss (608,420.44)
--------------
TOTAL SHAREHOLDERS' EQUITY $(5,696,177.40)
---------------
TOTAL LIABILITIES/SHAREHOLDERS' EQUITY $(5,333,388.09)
===============
</TABLE>
<PAGE>
D R A F T
<TABLE>
<CAPTION>
Rosebud Energy Corp.
STATEMENT OF OPERATIONS
For the Period Ended 12/31/98
<S> <C>
REVENUES:
Professional Fees $ 411,666.91
OPERATING EXPENSES:
Accounting and Auditing Fees 1,850.00
Legal Fees 7,310.42
Travel Expenses 12,209.79
Business Meals and Entertainment 1,361.78
Telephone Expense 9,584.31
Fees and Licenses 10.00
Rent Expense 32,422.11
Dues and Subscriptions 84.25
Employee Benefits 51,396.68
Employee Relations 2,327.63
Payroll and Payroll Tax Expense 265,059.90
Office Supplies 7,692.29
Outside Services - Administrative 5,291.21
Outside Services - Finance 765,577.40
Postage and Freight 2,899.06
Insurance 2,853.50
Charitable Contribution 87.50
Community Relations 657.50
Continuing Education 1,877.00
Dues and Publications 5,289.15
Miscellaneous 15,392.43
Taxes 10.00
Depreciation 1,068.15
---------------
TOTAL OPERATING EXPENSES $ 1,192,312.06
---------------
TOTAL OPERATING LOSS (780,645.15)
Gain - Other Invest. - CELP 172,224.71
===============
NET LOSS $ (608,420.44)
===============
</TABLE>
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
BALANCE SHEETS
as of December 31,
ASSETS 1998 1997
---------------- ----------------
<S> <C> <C>
Current assets:
Designated and restricted cash equivalents $ 3,083,616 $ 4,195,726
Liquid investments 1,891,762 1,514,063
Receivable from Montana Power Company 1,737,074 1,692,775
Prepaid expenses 93,473 112,944
Special reserve account investments 503,125 504,688
Other 160,988 159,979
---------------- ----------------
Total current assets 7,470,038 8,180,175
Property, plant and equipment, net 71,928,155 73,545,027
Bond reserve fund investments 6,084,976 6,128,810
Deferred charges 2,823,534 3,209,941
Limestone inventory 595,310 628,248
----------------- ----------------
Total assets $ 88,902,013 $ 91,692,201
================ ================
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,120,953 $ 1,038,936
Accrued interest 178,153 204,905
Current portion of term notes payable 2,280,000 1,920,000
---------------- ---------------
Total current liabilities 3,579,106 3,163,841
Bond payable 60,800,000 60,800,000
Term notes payable 5,400,000 7,680,000
---------------- ---------------
Total liabilities 69,779,106 71,643,841
Commitment (Note 11) and contingencies (Note 13)
Partners' equity:
Partners' capital 19,110,624 20,030,551
Accumulated comprehensive income 12,283 17,809
---------------- ---------------
Total liabilities and partners' equity $ 88,902,013 $ 91,692,201
================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
for the years ended December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Revenues:
Energy $ 15,305,882 $ 13,991,993
Capacity 3,187,158 2,904,364
Interest Income 560,679 560,353
Other 79,015 14,348
---------------- ---------------
$ 19,132,734 $ 17,471,058
---------------- ---------------
Raw materials:
Coal 2,112,651 1,315,769
Coal transport 582,723 439,878
Coal royalty 361,651 240,475
Limestone processing charge 122,365 76,950
Limestone transport 410,100 245,225
Limestone usage 32,314 21,139
Fuel oil 13,607 81,323
Operating expenses:
Operations and maintenance (O&M) contract labor 2,273,873 2,047,405
O&M nonlabor 862,525 855,655
Professional fees 911,649 941,395
Property, license and other taxes 420,957 470,181
Insurance 173,168 205,069
Management fee to operator 230,960 225,547
Other 278,684 146,722
---------------- ---------------
8,787,227 7,312,733
---------------- ---------------
Operating revenues available for debt service and 10,345,507 10,158,325
other expenses
---------------- ---------------
Debt service expenses:
Interest 2,740,981 3,027,211
Loan fees 894,504 894,890
Expenses subordinate to debt service:
Bonus to operator 52,856 173,272
Depreciation and amortization 2,349,549 2,347,104
---------------- ---------------
Total debt service and other expenses 6,039,890 6,442,477
---------------- ---------------
Net income $ 4,305,617 $ 3,715,848
================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31,
<S> <C> <C>
1998 1997
---------------- ---------------
Net income $ 4,305,617 $ 3,715,848
Unrealized holding gain (loss) arising during period (5,526) 17,955
---------------- ---------------
Comprehensive income $ 4,300,091 $ 3,733,803
================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998 and 1997
GENERAL LIMITED
PARTNER PARTNERS TOTAL
---------------- ---------------- ---------------
<S> <C> <C> <C>
Balance at January 1, 1997 $ (2,200,606) $ 22,623,261 $20,422,655
Net income 148,634 3,567,214 3,715,848
Capital withdrawn (1,913,714) (2,194,238) (4,107,952)
---------------- ---------------- ---------------
Balance at December 31, 1997 $ (3,965,686) $ 23,996,237 $20,030,551
Net income 172,225 4,133,392 4,305,617
Capital withdrawn (1,888,760) (3,336,784) (5,225,544)
---------------- ---------------- ---------------
Balance at December 31, 1998 $ (5,682,221) $ 24,792,845 $ 19,110,624
================ ================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
D R A F T
<TABLE>
<CAPTION>
COLSTRIP ENERGY LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
for the years ended December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,305,617 $ 3,715,848
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,349,549 2,347,104
Amortization of investment discount (312,372) (314,533)
Gain on disposal of equipment - (14,349)
Change in assets and liabilities:
Receivable from Montana Power Company (44,299) (77,215)
Prepaid expenses and other assets 19,086 6,282
Inventory 32,314 21,139
Accounts payable and accrued expenses 81,453 47,316
Accrued interest (26,752) 15,240
---------------- ---------------
Net cash provided by operating activities 6,404,596 5,746,832
---------------- ---------------
Cash flows from investing activities:
Proceeds from maturities or sales of available-for-sale 18,556,632 14,216,280
investment securities
Purchase of available for sale investment securities (18,582,088) (13,998,385)
Expenditures for property, plant and equipment (345,706) (408,232)
Proceeds from sale of property, plant and equipment - 19,335
---------------- ---------------
Net cash used for investing activities (371,162) (171,002)
---------------- ---------------
Cash flows from financing activities:
Partner capital withdrawn (5,225,544) (4,107,952)
Principal payments on term notes (1,920,000) (1,680,000)
Debt refinancing costs - (11,550)
---------------- ---------------
Net cash used for financing activities (7,145,544) (5,799,502)
---------------- ---------------
Net decrease in designated and restricted cash and equivalents
(1,112,110) (223,672)
Designated and restricted cash and equivalents, beginning
of year 4,195,726 4,419,398
---------------- ---------------
Designated and restricted cash and equivalents, end of year $ 3,083,616 $ 4,195,726
================ ===============
Interest paid $ 2,767,733 $ 3,011,971
</TABLE>
The accompanying notes are an integral part of the financial statements.
<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 U.S. Generating Company, LLC) and Spruce Limited Partnership. The
general partner of Spruce Limited Partnership is Spruce Power Corporation
(which PG&E Generating Company purchased from Bechtel Enterprises, Inc.
effective September 19, 1997 and is wholly-owned by U.S. Generating
Company, LLC) and the limited partner is Pitney Bowes Credit Corp. The life
of the Partnership is 40 years expiring in 2028.
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 (MPC) 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.
Inventory - 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 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.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property, Plant and Equipment - 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.
The Partnership reviews the carrying value of property, plant and equipment
for impairment whenever events and circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash
flows expected to result from its use and eventual disposition. In cases
where undiscounted expected future cash flows are less than the carrying
value, an impairment loss is recognized equal to an amount by which the
carrying value exceeds the fair value of assets. No assets are considered
impaired as of December 31, 1998 or 1997.
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.
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, 1998. 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.
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.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. COMPREHENSIVE INCOME
During 1998, the Partnership adopted Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income. This statement
establishes standards for reporting and displaying comprehensive income and
its components in a full set of general purpose financial statements. This
statement also requires comprehensive income and its components to be
presented for all prior periods presented. The Partnership's components of
comprehensive income include unrealized holding gains and losses on
available-for-sale securities, changes for which have been displayed in the
Statement of Comprehensive Income.
4. 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, 1998 1997
---------------- ---------------
<S> <C> <C>
Designated cash and equivalents:
Cash available for operations:
First Interstate O&M nonlabor $ 31,750 $ 208,671
US Bank accounts 2,415,413 2,985,557
---------------- ---------------
2,447,163 3,194,228
---------------- ---------------
Restricted cash and equivalents:
Credit Suisse revenue holdings account 50 16,918
Credit Suisse debt service account 260,068 593,955
Credit Suisse revolving credit debt service account 14 14
Credit Suisse maintenance reserve account 232,133 270,465
Credit Suisse O&M bonus and sub fee account 128,738 120,146
Credit Suisse special reserve account 15,450 -
---------------- ---------------
636,453 1,001,498
---------------- ---------------
Total designated and restricted cash and equivalents 3,083,616 $ 4,195,726
================ ===============
</TABLE>
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. 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, 1998 YEAR COST GAINS VALUE
--------------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Liquid Investments:
U.S. Treasury Notes and Federal
Discount Notes 1999 $ 1,882,524 $ 9,238 $1,891,762
Special reserve account investments:
U.S. Treasury Notes 1999 $ 500,080 $ 3,045 $ 503,125
Bond reserve fund investments:
Federal Discount Notes 1999 $ 6,084,976 $ - $6,084,976
GROSS
MATURITY AMORTIZED UNREALIZED FAIR
DECEMBER 31, 1997 YEAR COST (LOSSES) VALUE
-------- ----------- ---------- -----------
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 $ 4,411 $ 504,688
Bond reserve fund investments:
U.S. Treasury Bills 1998 $ 6,128,810 $ - $6,128,810
</TABLE>
<TABLE>
<CAPTION>
6. PROPERTY, PLANT AND EQUIPMENT
<S> <C> <C>
DECEMBER 31, 1998 1997
---------------- ---------------
Land Improvements $ 80,674 $ 5,917
Land 496,240 496,240
Plant, equipment and systems 86,458,766 86,230,300
Heavy operating equipment 1,245,098 1,225,135
Small tools and equipment 156,136 140,603
Office furniture and equipment 176,345 168,795
Vehicles 85,095 85,095
---------------- ---------------
Property, plant and equipment, at cost 88,698,354 88,352,085
Less accumulated depreciation (16,770,199) (14,807,058)
---------------- ---------------
Property, plant and equipment, net $ 71,928,155 $ 73,545,027
================ ===============
</TABLE>
Depreciation of property, plant and equipment was $1,963,141 for 1998 and
$1,945,252 for 1997.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. DEFERRED CHARGES
Deferred charges, net of accumulated amortization, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
---------------- ---------------
<S> <C> <C>
Bond financing $ 1,439,418 $ 1,554,114
Notes financing 1,384,116 1,655,827
---------------- ---------------
$ 2,823,534 $ 3,209,941
================ ===============
</TABLE>
8. 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 4.05% for
1998 and 3.75% for 1997. The weighted average interest rate for the year
was 3.51% for 1998 and 3.76% for 1997.
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. The bonds are
payable from revenues of the Partnership or from a letter of credit.
Scheduled annual Bond sinking fund requirements are as follows:
<TABLE>
<CAPTION>
Year ending Amount Due
----------- ----------
<S> <C>
1999 $ -
2000 -
2001 1,700,000
2002 1,800,000
2003 2,000,000
Thereafter 35,200,000
</TABLE>
The remaining balance of bonds are payable upon maturity.
The Partnership has a letter of credit in the amount of $63,200,000
collateralizing the bonds payable (Note 9).
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
8. BONDS PAYABLE - CONTINUED
The bond agreement covenants require the Partnership, among other
requirements, to maintain specific insurance coverages.
9. 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, which was increased to $63,200,000 in 1998, 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
$738,299 and $737,231 in 1998 and 1997, 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, 1998 was 6.31% including the spread above LIBOR.
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. At December 31, 1998, there were no
borrowings outstanding under the capacity expansion loans.
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. At December 31, 1998,
there were no borrowings outstanding under the revolving credit loans.
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
$76,822 and $75,872 in 1998 and 1997, respectively.
In 1996, the Partnership purchased an interest rate cap for $209,760 to
protect against the impact of changes in market interest 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.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
9. TERM NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
Scheduled principal payments for the term notes are due as follows:
<S> <C>
1999 2,280,000
2000 2,640,000
2001 1,200,000
2002 1,560,000
-----------
$ 7,680,000
===========
</TABLE>
Substantially all of the Partnership assets are pledged as collateral for
the letter of credit and the term notes payable. The credit agreements
provide for no other recourse by the lenders against the Partnership or any
partner.
The Credit Agreement covenants require the Partnership, among other
requirements, to maintain specific debt service coverage ratios and
insurance coverages. Term notes payable are subject to an acceleration
clause upon default of the covenants.
10. 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 1998 and 1997 were $1,120,226
and $869,744, respectively, of which $58,078 and $42,854 were payable at
December 31, 1998 and 1997, respectively. The Partnership had receivables
from Rosebud of $66,079 and $74,343 as of December 31, 1998 and 1997,
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 minimum cash distributions starting in 2003.
The IOPD paid to the general partner was $776,498 and $1,182,302 in 1998
and 1997, respectively, and is reported as a withdrawal of partnership
capital in each respective year. Undistributed IOPD at December 31, 1998
and 1997 was $150,702 and $252,977, 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 $231,883 and $217,019 were earned by the law firms of
Orndorff Law Offices and R. Lee Roberts in 1998 and 1997, respectively.
Consulting fees, including expenses incurred on behalf of the Partnership,
in the amount of $39,469 and $18,847 were earned by Jeffrey L. Smith,
shareholder of Rosebud, in 1998 and 1997, respectively. Certain principals
of these firms and Jeffrey L. Smith serve as officers and are shareholders
of Rosebud. Amounts payable to these related parties total $29,354 and
$41,887 at December 31, 1998 and 1997, respectively.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
11. 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.
Charges include a fixed fee portion with a variable portion that is
negotiated each year;
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. Charges are modified in January and July of
each year and are based on various complex indices;
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 ($3.79 per ton
at December 31, 1998);
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 1998;
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. The charges are based on Constellation's labor costs and other
costs incurred with an additional markup; and
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. The
charges are based on WECo's costs incurred with an additional markup.
Rosebud Operating Services, Inc. performs maintenance on the trucks.
12. 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.
<PAGE>
D R A F T
NOTES TO FINANCIAL STATEMENTS - CONTINUED
13. CONTINGENCIES
The Partnership's 1989 series tax-exempt bonds are subject to Internal
Revenue Code Section 148 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, 1998, 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 State of Montana passed, in the 1997 session, legislation deregulating
the electrical generation industry. MPC publicly announced its intention to
sell its ownership interest in all power generating assets, including its
power purchase contracts. Any proposed sale of the Partnership's contract
with MPC must have Partnership approval (which cannot be unreasonably
withheld) and the Partnership cannot predict the impact, if any, that such
sale by MPC would have on its financial position, results of operation or
cash flows.
The Partnership had filed a complaint with the Montana Public Service
Commission against MPC claiming that, among other things, MPC violated the
power purchase agreement by wrongfully curtailing power and capacity
purchases during the period July 3, 1997 through July 18, 1997. The
Commission ruled that it did not have the proper jurisdiction to hear the
complaint. In November 1997, the Partnership then filed a complaint with
the First Judicial District Court of Montana, County of Lewis and Clark
("District Court") and asked such District Court to rule on whether the
Montana Public Service Commission has jurisdiction to hear the said
complaint. During 1998, MPC curtailed power and capacity purchases during
the period May 5, 1998 through June 17, 1998. In January 1999, the
Partnership filed a motion for summary judgment against MPC with the
District Court, which included the existing claim that MPC wrongfully
curtailed power and capacity purchases during the period July 3, 1997
through July 18, 1997, and an additional claim for the period May 5, 1998
through June 17, 1998. As of December 31, 1998, the outcome of this
litigation cannot be determined. Costs associated with the curtailment have
been included in results of operations as incurred.
