<PAGE>
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, 1997 Commission File Number 33-59960
Sithe/Independence Funding Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3677475
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
450 Lexington Avenue, New York, NY 10017
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(Address of principal executive offices) (Zip code)
(212)-450-9000
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(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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
450 Lexington Avenue, New York, NY 10017
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(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, 1997 and
December 31, 1996 (Unaudited)....................................... 3
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1997 and 1996 (Unaudited)................ 4
Consolidated Statement of Partners' Capital for the Nine
Months Ended September 30, 1997 (Unaudited)......................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited)....................... 6
Notes to Consolidated Financial Statements (Unaudited)................ 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.................................. 11
Signatures................................................................. 12
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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,
1997 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 3,886 $ 4
Restricted cash and cash equivalents...... 111,852 73,412
Restricted investments.................... 21,114 14,610
Accounts receivable--trade................ 30,200 39,782
Fuel inventory and other current assets... 1,600 2,887
-------- --------
Total current assets.................... 168,652 130,695
Property, plant and equipment, at cost:
Land...................................... 5,010 5,875
Electric and steam generating facilities.. 764,373 755,020
-------- --------
769,383 760,895
Accumulated depreciation.................. (52,459) (37,707)
-------- --------
716,924 723,188
Debt issuance costs........................ 9,467 10,265
Other assets............................... 2,282 3,323
-------- --------
Total assets.............................. $897,325 $867,471
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade payables............................. $ 20,827 $ 24,264
Accrued interest.......................... 15,216 174
Current portion of long-term debt......... 14,529 10,202
Accrued construction costs and
retentions............................... 2,515 9,249
-------- --------
Total current liabilities............... 53,087 43,889
Long-term debt:
7.90% secured notes due 2002.............. 119,325 128,753
8.50% secured bonds due 2007.............. 150,839 150,839
9.00% secured bonds due 2013.............. 408,609 408,609
-------- --------
678,773 688,201
Other liabilities.......................... 2,701 11,682
Commitments and contingencies
Partners' capital.......................... 162,764 123,699
-------- --------
Total liabilities and partners' capital.... $897,325 $867,471
-------- --------
-------- --------
</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,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue................................................... $ 91,108 $ 91,212 $275,903 $286,794
-------- -------- -------- --------
Cost of sales:
Fuel.................................................... 53,418 50,567 157,347 148,747
Operations and maintenance.............................. 10,329 9,651 23,147 29,969
Depreciation............................................ 4,918 4,695 14,752 14,084
-------- -------- -------- --------
68,665 64,913 195,246 192,800
-------- -------- -------- --------
Operating income.......................................... 22,443 26,299 80,657 93,994
Interest income (expense):
Interest expense........................................ (15,502) (15,799) (46,962) (47,488)
Interest income......................................... 1,781 743 5,370 2,173
-------- -------- -------- --------
Net income................................................ $ 8,722 $ 11,243 $ 39,065 $ 48,679
-------- -------- -------- --------
-------- -------- -------- --------
</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)
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
------- -------- ---------
Balance, January 1, 1997...................... $1,312 $122,387 $123,699
Net income.................................... 391 38,674 39,065
------ -------- --------
Balance, September 30, 1997................... $1,703 $161,061 $162,764
------ -------- --------
------ -------- --------
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)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income............................................. $ 39,065 $ 48,679
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation......................................... 14,752 14,084
Amortization of deferred financing costs............. 798 814
Changes in operating assets and liabilities:
Accounts receivable--trade......................... 9,582 2,419
Fuel inventory and other current assets............ 1,287 396
Other assets....................................... 1,041 1,041
Trade payables..................................... (3,437) 2,070
Accrued interest payable........................... 15,042 (15,709)
Other liabilities.................................. (8,116) 4,569
-------- --------
Net cash provided by operating activities............... 70,014 58,363
-------- --------
Cash flows from investing activities:
Capital expenditures................................... (16,087) (9,475)
Restricted funds....................................... (44,944) (40,290)
-------- --------
Net cash used in investing activities................... (61,031) (49,765)
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt................... (5,101) (9,419)
-------- --------
Net cash used in financing activities................... (5,101) (9,419)
-------- --------
Net increase (decrease) in cash and cash equivalents.... 3,882 (821)
Cash and cash equivalents at beginning of period........ 4 942
-------- --------
Cash and cash equivalents at end of period.............. $ 3,886 $ 121
-------- --------
-------- --------
Supplemental cash flow information
Cash payments:
Interest............................................. $ 30,228 $ 61,179
See notes to consolidated financial statements.
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<PAGE>
Sithe/Independence Power Partners, L.P.
(a Delaware Limited Partnership)
Notes to Consolidated Financial Statements (Unaudited)
1. The Partnership
Sithe/Independence Power Partners, L.P. (the "Partnership"), in which
Sithe Energies, Inc. ("Sithe Energies") 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 Project commenced commercial
operation for financial reporting purposes on December 29, 1994 and on September
10, 1997, the Partnership notified the Trustee under the Indenture that final
completion of construction had been achieved. 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, 1997 and
December 31, 1996 and the consolidated statements of operations for the three
and nine months ended September 30, 1997 and 1996 and cash flows for the nine
months ended September 30, 1997 and 1996 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, 1996 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, 1997 are not necessarily indicative of the results to be expected
for the full year. The unaudited financial information at September 30, 1997
and for the three and nine months ended September 30, 1997 and 1996 contains all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of the operating results for such
periods.
Effective January 1, 1997, the Partnership entered into a twelve-year
service agreement with General Electric Company ("GE") under which the
Partnership will pay GE specified amounts per megawatt-hour of net generation
to perform all scheduled major equipment overhauls for the Project's gas
turbines, steam turbines and generators (the "covered units") during such
period. As a result of such agreement, which, among other things, was
entered into to lock in the cost of future major overhauls for the covered
units, the Partnership discontinued the application of its major overhaul
cost
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<PAGE>
normalization policy for the covered units as of the beginning of the first
quarter of 1997. In that connection, in the first quarter of 1997, the
Partnership was required to reverse to income as a credit to maintenance expense
the $8.2 million of major overhaul reserves for the covered units that had been
established in prior years under that policy.
During the second quarter of 1997, the Partnership obtained from the
Trustee a release of the lien and transferred ownership of approximately 160
acres of land to a wholly-owned subsidiary of Sithe Energies. The land, which
is not required for operation of the Project or for any potential future Project
expansion, was transferred at book value (approximately $.9 million) and no gain
or loss was recorded by the Partnership.
-8-
<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 for the third quarter of 1997 was $91.1 million compared with
$91.2 million in the third quarter of 1996.
Cost of sales for the third quarter of 1997 of $68.7 million was $3.8
million (6%) higher than in the third quarter of 1996 due to higher fuel costs
($2.9 million), increased operations and maintenance expense ($.7 million) and
higher depreciation expense ($.2 million). The increase in fuel costs was due
primarily to a scheduled price increase under the Partnership's long-term gas
supply contract.
Revenue for the first nine months of 1997 of $275.9 million was $10.9
million (4%) lower than in the first nine months of 1996 reflecting lower first
quarter incremental revenue from selling gas instead of electricity as the mild
1997 winter and resultant low gas prices afforded fewer arbitrage opportunities
than in the 1996 period; the fact that the 1996 period included a 1995 tariff
adjustment payment from Con Edison; one less day of generation than in 1996
which was a leap year; and a change in the mix of sales due to certain
curtailments on transmission of energy deliveries to Con Edison.
Cost of sales for the first nine months of 1997 of $195.2 million was
$2.4 million (1%) higher than in the first nine months of 1996 reflecting higher
fuel cost as a result of a scheduled price increase under the Partnership's
long-term gas supply contract, increased maintenance expense and higher
depreciation expense, partially offset by an $8.2 million credit to maintenance
expense that the Partnership was required to record in connection with the
discontinuance of its major overhaul costs normalization policy for its gas
turbines, steam turbines and generators.
Interest expense for the third quarter and first nine months of 1997
decreased by $.3 million and $.5 million, respectively, from the corresponding
periods of last year due to the lower outstanding amount of long-term debt.
Interest income for the third quarter and first nine months of 1997 increased by
$1.0 million and $3.2 million, respectively, over the corresponding periods of
last year due to the higher average balances of restricted funds.
Liquidity and Capital Resources
Under a credit facility obtained by the Partners, one or more letters
of credit may be issued in connection with their obligations pursuant to certain
Project contracts, and, as of September 30, 1997, letters of credit aggregating
$16.0 million were outstanding in connection with such obligations. Also, the
Partnership secured the Project's debt service obligations with a letter of
credit in the amount of $50 million and as of September 30, 1997,
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<PAGE>
the Project's cumulative additional debt service and major overhaul reserve
requirements of $33.0 million and $5.4 million, respectively, were fully funded.
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
pay future Project debt service.
Although the Partnership's net income could decline through the fourth
quarter of 1999 due largely to Tier I gas pricing increasing at a greater rate
than increases in the energy component of billings to Con Edison, the
Partnership believes that cash flow will be more than sufficient to pay
scheduled debt service.
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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, 1997.
(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 12, 1997 /s/ Richard J. Cronin III
--------------------------------------
Richard J. Cronin III
Chief Financial Officer and
Senior 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 12, 1997 /s/ Richard J. Cronin III
----------------------------------
Richard J. Cronin III
Chief Financial Officer and
Senior Vice President
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE PARTNERSHIP'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK>0000899281
<NAME>SITHE/INDEPENDENCE FUNDING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,886
<SECURITIES> 132,966
<RECEIVABLES> 30,200
<ALLOWANCES> 0
<INVENTORY> 1,600
<CURRENT-ASSETS> 168,652
<PP&E> 769,383
<DEPRECIATION> 52,459
<TOTAL-ASSETS> 897,325
<CURRENT-LIABILITIES> 53,087
<BONDS> 678,773
0
0
<COMMON> 0
<OTHER-SE> 162,764
<TOTAL-LIABILITY-AND-EQUITY> 897,325
<SALES> 275,903
<TOTAL-REVENUES> 275,903
<CGS> 195,246
<TOTAL-COSTS> 195,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,962
<INCOME-PRETAX> 39,065
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,065
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
