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 March 31, 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
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(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.
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Part I Financial Information
Sithe/Independence Power Partners, L.P.
(a Delaware Limited Partnership)
Financial Statements:
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 (Unaudited)..................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 (Unaudited).................. 4
Consolidated Statement of Partners' Capital for the Three
Months Ended March 31, 1997 (Unaudited)........................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 (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)
March 31, December 31,
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 709 $ 4
Restricted cash and cash equivalents 104,350 73,412
Restricted investments 16,780 14,610
Accounts receivable - trade 35,019 39,782
Fuel inventory and other current assets 4,859 2,887
--------- ---------
Total current assets 161,717 130,695
Property, plant and equipment, at cost:
Land 5,875 5,875
Electric and steam generating facilities 764,088 755,020
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769,963 760,895
Accumulated depreciation (42,624) (37,707)
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727,339 723,188
Debt issuance costs 9,994 10,265
Other assets 2,975 3,323
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Total assets $ 902,025 $ 867,471
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade payables $ 24,194 $ 24,264
Accrued interest 15,317 174
Current portion of long-term debt 10,202 10,202
Accrued construction costs and retentions 5,623 9,249
--------- ---------
Total current liabilities 55,336 43,889
Long-term debt:
7.90% secured notes due 2002 128,753 128,753
8.50% secured bonds due 2007 150,839 150,839
9.00% secured bonds due 2013 408,609 408,609
--------- ---------
688,201 688,201
Other liabilities 3,662 11,682
Commitments and contingencies
Partners' capital 154,826 123,699
--------- ---------
Total liabilities and partners' capital $ 902,025 $ 867,471
========= =========
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)
Three Months
Ended March 31,
--------------------------
1997 1996
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Revenue $ 105,467 $ 113,410
--------- ---------
Cost of sales:
Fuel 53,379 53,227
Operations and maintenance 2,006 10,333
Depreciation 4,917 4,695
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60,302 68,255
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Operating income 45,165 45,155
Non-operating income (expense):
Interest expense (15,697) (15,802)
Other income, net 1,659 464
--------- ---------
Net income $ 31,127 $ 29,817
========= =========
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 311 30,816 31,127
------ -------- --------
Balance, March 31, 1997 $1,623 $153,203 $154,826
====== ======== ========
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)
Three Months
Ended March 31,
-------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 31,127 $ 29,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,917 4,695
Amortization of deferred financing costs 271 273
Changes in operating assets and liabilities:
Accounts receivable - trade 4,763 (13,857)
Fuel inventory and other current assets (1,972) (3,135)
Other assets 348 347
Trade payables (70) 9,715
Accrued interest payable 15,143 (15,515)
Other liabilities (8,020) 1,652
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Net cash provided by operating activities 46,507 13,992
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Cash flows from investing activities:
Capital expenditures (12,694) (16,092)
Restricted funds (33,108) 8,799
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Net cash used in investing activities (45,802) (7,293)
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Cash flows from financing activities:
Principal payments of long-term debt -- (7,455)
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Net cash used in financing activities -- (7,455)
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Net increase (decrease) in cash and cash equivalents 705 (756)
Cash and cash equivalents at beginning of period 4 942
-------- --------
Cash and cash equivalents at end of period $ 709 $ 186
======== ========
Supplemental cash flow information
Cash payments:
Interest (net of amounts capitalized) $ -- $ 30,736
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. 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. 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 March 31, 1997 and
December 31, 1996 and the consolidated statements of operations and cash flows
for the three months ended March 31, 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 months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year. The
unaudited financial information at March 31, 1997 and for the three months ended
March 31, 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 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.
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<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 first quarter of 1997 of $105.4 million was $7.9 million
(7%) lower than in the first quarter of 1996 reflecting lower 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
first quarter of 1996; one less day of generation than in the first quarter of
1996 which was a leap year; a change in the mix of sales due to certain
curtailments on transmission of energy deliveries to Con Edison; and lower
Niagara Mohawk tariffs.
Cost of sales for the first quarter of 1997 of $60.3 million declined by
$8.0 million from the corresponding quarter of last year reflecting an $8.2
million credit to maintenance expense that the Partnership was required to
record in connection with the discontinuance of its major overhaul cost
normalization policy for its gas turbines, steam turbines and generators as
discussed in Note 2 to the unaudited financial statements included in this
Quarterly Report on Form 10-Q.
Interest expense for the first quarter of 1997 decreased by $.1 million
from the corresponding quarter of last year due to the lower outstanding amount
of long-term debt. Other income, net, which consisted of interest income for
both periods, increased by $1.2 million over the comparable quarter 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 March 31, 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 March 31, 1997 had sufficient
restricted cash on hand to meet its cumulative additional debt service reserve
and major overhaul reserve funding requirements pursuant to the Securities
Indenture as of such date of $33.0 million and $5.4 million, respectively. 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
Securities have been assigned a security interest and lien.
-8-
<PAGE>
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, pay
future Project debt service and make future required contributions to project
reserve accounts.
Although the Partnership's net income could decline over the next three
years 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
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27 ---- Article 5 Financial Data Schedule of
Sithe/Independence Power Partners, L.P.
for the quarter ended March 31, 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)
May 14, 1997 /s/ Richard J. Cronin III
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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
May 14, 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>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 709
<SECURITIES> 121,130
<RECEIVABLES> 35,019
<ALLOWANCES> 0
<INVENTORY> 4,859
<CURRENT-ASSETS> 161,717
<PP&E> 769,963
<DEPRECIATION> 42,624
<TOTAL-ASSETS> 902,025
<CURRENT-LIABILITIES> 55,336
<BONDS> 688,201
0
0
<COMMON> 0
<OTHER-SE> 154,826
<TOTAL-LIABILITY-AND-EQUITY> 902,025
<SALES> 105,467
<TOTAL-REVENUES> 105,467
<CGS> 60,302
<TOTAL-COSTS> 60,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,697
<INCOME-PRETAX> 31,127
<INCOME-TAX> 0
<INCOME-CONTINUING> 31,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,127
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
