SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File Number 33-59960
SITHE/INDEPENDENCE FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3677475
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
450 Lexington Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
(212)-450-9000
(Registrant's telephone number, including area code)
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 33-0468704
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
450 Lexington Avenue, New York, NY 10017
(Address of principal executive offices) (Zip code)
(212)-450-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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.
[ X ] Yes [ ] No
<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
SITHE/INDEPENDENCE FUNDING CORPORATION
Page No.
Part I Financial Information
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
Financial Statements:
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 (Unaudited)........................................ 3
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1996 and 1995 (Unaudited)............ 4
Consolidated Statement of Partners' Capital for the Nine
Months Ended September 30, 1996 (Unaudited).......................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited)........................ 6
Notes to Consolidated Financial Statements (Unaudited)................. 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.............................. 10
Signatures ........................................................ 11
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 121 $ 942
Restricted funds 96,334 56,036
Accounts receivable - trade 32,902 35,321
Fuel inventory and other current assets 2,466 2,862
---------- -----------
Total current assets 131,823 95,161
Property, plant and equipment, at cost:
Land 5,875 5,875
Electric and steam generating facilities 752,906 750,769
---------- -----------
758,781 756,644
Accumulated depreciation (33,012) (18,928)
---------- -----------
725,769 737,716
Debt issuance costs 10,536 11,350
Other assets 620 1,661
---------- -----------
Total assets $ 868,748 $ 845,888
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade payables $ 22,260 $ 20,190
Accrued interest 15,201 30,910
Current portion of long-term debt 7,066 11,382
Accrued construction costs and retentions 9,249 16,587
---------- -----------
Total current liabilities 53,776 79,069
Long-term debt:
7.90% secured notes due 2002 133,854 138,957
8.50% secured bonds due 2007 150,839 150,839
9.00% secured bonds due 2013 408,609 408,609
---------- -----------
693,302 698,405
Other liabilities 10,249 5,680
Commitments and contingencies
Partners' capital 111,421 62,734
---------- -----------
Total liabilities and partners' capital $ 868,748 $ 845,888
========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 91,212 $ 82,904 $ 286,794 $ 252,459
------------ ------------ ------------ ------------
Cost of sales:
Fuel 50,567 48,084 148,747 142,860
Operations and maintenance 9,651 9,691 29,969 29,216
Depreciation 4,695 4,705 14,084 14,115
------------ ------------ ------------ ------------
64,913 62,480 192,800 186,191
------------ ------------ ------------ ------------
Operating income 26,299 20,424 93,994 66,268
Non-operating income (expenses):
Interest expense (15,799) (16,002) (47,488) (48,262)
Other income, net 743 398 2,173 3,809
------------ ------------ ------------ ------------
Net income $ 11,243 $ 4,820 $ 48,679 $ 21,815
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Loss on Total
General Limited Marketable Partners'
Partner Partners Securities Capital
------------ ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 702 $ 62,040 $ (8) $ 62,734
Net income 487 48,192 - 48,679
Change in unrealized loss
on marketable securities - - 8 8
---------- ------------- ------------ --------------
Balance, September 30, 1996 $ 1,189 $ 110,232 $ - $ 111,421
========== ============= ============ ==============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 48,679 $ 21,815
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 14,084 14,115
Amortization of deferred financing costs 814 824
Changes in operating assets and liabilities:
Accounts receivable - trade 2,419 (18,579)
Fuel inventory and other current assets 396 (2,355)
Other assets 1,041 --
Trade payables 2,070 17,272
Accrued interest payable (15,709) 15,369
Other liabilities 4,569 4,275
-------- --------
Net cash provided by operating activities 58,363 52,736
-------- --------
Cash flows from investing activities:
Construction costs (9,475) (63,580)
Restricted funds (40,290) 393
Investment of funds designated for construction -- (21,981)
-------- --------
Net cash used in investing activities (49,765) (85,168)
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt (9,419) (7,454)
Capital contribution -- 40,000
-------- --------
Net cash provided by (used in) financing activities (9,419) 32,546
-------- --------
Net increase (decrease) in cash and cash equivalents (821) 114
Cash and cash equivalents at beginning of period 942 4
-------- --------
Cash and cash equivalents at end of period $ 121 118
======== ========
Supplement cash flow information
Cash payments:
Interest (net of amounts capitalized) $ 61,179 31,031
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The Partnership
Sithe/Independence Power Partners, L.P. (the "Partnership"), in which Sithe
Energies, Inc. and certain of its direct and indirect wholly owned subsidiaries
(the "Partners") hold all the partnership interests, is a Delaware limited
partnership that was formed in November 1990 for a term of 50 years to develop,
construct and own a gas-fired cogeneration facility with a design capacity of
approximately 1,000 megawatts (the "Project") located in the Town of Scriba,
County of Oswego, New York. The Partnership commenced commercial operation for
financial reporting purposes on December 29, 1994. The majority of the capacity
and electric energy generated by the Project is sold to Consolidated Edison
Company of New York, Inc. ("Con Edison") and Alcan Aluminum Corporation with the
remainder of the electric energy being sold to Niagara Mohawk Power Corporation
("Niagara Mohawk").
2. Basis of Presentation
The accompanying consolidated balance sheets at September 30, 1996 and
December 31, 1995 and the consolidated statements of operations for the three
and nine months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 30, 1996 and 1995 should be read in conjunction with the
audited consolidated financial statements included in the Annual Report on Form
10-K for the year ended December 31, 1995 for the Partnership and its
wholly-owned subsidiary, Sithe/Independence Funding Corporation.
The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the full
year. The unaudited financial information at September 30, 1996 and for the
three and nine months ended September 30, 1996 and 1995 contains all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the operating results for such
periods.
3. Litigation and Claims
On March 30, 1995, the Partnership filed a petition with the Federal Energy
Regulatory Commission ("FERC") alleging Niagara Mohawk has been overcharging for
the transmission of electricity in violation of FERC policy by calculating
transmission losses on an incremental basis. The Partnership believes that
transmission losses should be calculated on an average basis. As of September
30, 1996, the Partnership estimates it was owed approximately $5.0 million for
transmission overcharges. The Partnership has been recording its transmission
expense at the disputed, higher rate. The Partnership requested that FERC order
Niagara Mohawk to recalculate the transmission losses beginning in October 1994,
when it began wheeling power from the Project. On September 16, 1996, FERC
issued its Order Dismissing Complaint and Directing Provision of Additional
Information. On October 16, 1996, the Partnership filed a Request for Rehearing
which is pending.
-7-
<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenue and cost of sales for the third quarter of 1996 increased by $8.3
million (10%) and $2.4 million (4%), respectively, over the corresponding
quarter of last year. Revenue increased as a result of higher avoided cost based
tariff prices on energy deliveries to Con Edison, overall higher plant
availability and incremental revenue from selling gas instead of generating
electricity at certain times during the third quarter of 1996. The increase in
cost of sales was attributable to higher fuel costs largely reflecting the
scheduled increase in the price of gas associated with energy deliveries to Con
Edison. As a result of these factors, operating income for the third quarter
increased by $5.9 million (29%) over the corresponding quarter of last year.
Revenue, cost of sales and operating income for the first nine months of
1996 increased by $34.3 million (14%), $6.6 million (4%), and $27.7 million
(42%), respectively, over the corresponding period of last year. Revenue
increased as a result of higher avoided cost based tariff prices on energy
deliveries to Con Edison, a 1995 tariff adjustment payment from Con Edison,
overall higher plant availability and incremental revenue from selling gas
instead of generating electricity at certain times during the first and third
quarters of 1996. The increase in cost of sales was primarily attributable to
higher fuel costs reflecting higher quantities and the scheduled increase in the
price of gas associated with energy deliveries to Con Edison.
Interest expense for the third quarter of 1996 decreased by $.2 million
(1%) from the corresponding quarter of last year as a result of lower
outstanding amounts of long-term debt. Other income, net, for the third quarter
of 1996 and 1995 consisted of interest income.
Interest expense for the first nine months of 1996 decreased by $.8 million
(2%) from the corresponding period of last year as a result of lower outstanding
amounts of long-term debt. Other income, net, for the first nine months of 1996
consisted of interest income. Other income, net, for the first nine months of
1995 consisted of $1.9 million of interest income, $2.1 million of income from a
natural gas arbitrage transaction and $.2 million of realized losses on
short-term investments designated for construction.
Liquidity and Capital Resources
The Partners have obtained a credit facility under which one or more
letters of credit may be issued in connection with their obligations pursuant to
certain Project contracts, and, as of September 30, 1996, letters of credit
aggregating $16.0 million were outstanding in connection with such obligations.
-8-
<PAGE>
The Partnership secured the Project's debt service obligations with a
letter of credit in the amount of $50 million. To secure the Partnership's
obligation to pay any amounts drawn under the debt service letter of credit, the
letter of credit provider has been assigned a security interest and lien on all
of the collateral in which the holders of the Partnership's long-term debt
issued to finance the development and construction of the Project have been
assigned a security interest and lien.
The Partnership presently believes that funds available from cash on hand,
restricted funds, operations and the debt service letter of credit will be more
than sufficient to liquidate Partnership obligations as they come due and to pay
1996 Project debt service. The Partnership is required to fund reserves for debt
service and major overhauls from available cash flow after debt service as
follows: $32.3 million in 1996, $16.4 million in 1997 and approximately $6
million annually thereafter.
Changes in the avoided-cost-based energy component of billings by the
Partnership to Con Edison will impact the Partnership's profitability,
particularly through December 1999 when the price for gas associated with energy
deliveries to Con Edison is fixed.
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<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
27 ---- Article 5 Financial Data Schedule of Sithe/
Independence Power Partners, L.P. for the quarter
ended September 30, 1996.
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter covered by this
report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sithe/Independence Funding Corporation
(Registrant)
November 14, 1996 /s/ Richard J. Cronin III
-----------------------------
Richard J. Cronin III
Chief Financial Officer and
Vice President
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
co-registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sithe/Independence Power Partners, L.P.
(Registrant)
By: Sithe/Independence, Inc.
General Partner
November 14, 1996 /s/ Richard J. Cronin III
-------------------------
Richard J. Cronin III
Chief Financial Officer and
Vice President
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
page 3 and 4 of the Partnership's Form 10Q for the year-to-date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000899281
<NAME> Quarterly Report
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 121
<SECURITIES> 0
<RECEIVABLES> 32,902
<ALLOWANCES> 0
<INVENTORY> 2,466
<CURRENT-ASSETS> 131,823
<PP&E> 758,781
<DEPRECIATION> 33,012
<TOTAL-ASSETS> 868,748
<CURRENT-LIABILITIES> 53,776
<BONDS> 693,302
0
0
<COMMON> 0
<OTHER-SE> 111,421
<TOTAL-LIABILITY-AND-EQUITY> 868,748
<SALES> 286,794
<TOTAL-REVENUES> 286,794
<CGS> 192,800
<TOTAL-COSTS> 192,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,488
<INCOME-PRETAX> 48,679
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,679
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
