<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 June 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
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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
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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 June 30, 1997 and
December 31, 1996 (Unaudited)..........................................3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1997 and 1996 (Unaudited)........................4
Consolidated Statement of Partners' Capital for the Six
Months Ended June 30, 1997 (Unaudited).................................5
Consolidated Statements of Cash Flows for the Six Months
Ended June 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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SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,010 $ 4
Restricted cash and cash equivalents 81,079 73,412
Restricted investments 27,184 14,610
Accounts receivable - trade 28,857 39,782
Fuel inventory and other current assets 1,862 2,887
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TOTAL CURRENT ASSETS 141,992 130,695
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 5,010 5,875
Electric and steam generating facilities 764,289 755,020
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769,299 760,895
Accumulated depreciation (47,541) (37,707)
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721,758 723,188
Debt Issuance Costs 9,733 10,265
Other Assets 2,628 3,323
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TOTAL ASSETS $ 876,111 $ 867,471
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Trade payables $ 18,676 $ 24,264
Accrued interest 174 174
Current portion of long-term debt 14,529 10,202
Accrued construction costs and retentions 5,045 9,249
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TOTAL CURRENT LIABILITIES 38,424 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
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678,773 688,201
Other Liabilities 4,872 11,682
Commitments and Contingencies
Partners' Capital 154,042 123,699
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 876,111 $ 867,471
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</TABLE>
See notes to consolidated financial statements.
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SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
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1997 1996 1997 1996
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<S> <C> <C> <C> <C>
REVENUE $ 79,328 $ 82,172 $ 184,795 $ 195,582
------------ ------------ ------------ ------------
COST OF SALES:
Fuel 50,550 44,953 103,929 98,180
Operations and maintenance 10,812 9,985 12,818 20,318
Depreciation 4,917 4,694 9,834 9,389
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66,279 59,632 126,581 127,887
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OPERATING INCOME 13,049 22,540 58,214 67,695
INTEREST INCOME (EXPENSE):
Interest expense (15,763) (15,887) (31,460) (31,689)
Interest income 1,930 966 3,589 1,430
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NET INCOME (LOSS) $ (784) $ 7,619 $ 30,343 $ 37,436
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
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SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
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<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 1,312 $ 122,387 $ 123,699
Net income 303 30,040 30,343
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BALANCE, JUNE 30, 1997 $ 1,615 $ 152,427 $ 154,042
========== ============= ==============
</TABLE>
See notes to consolidated financial statements.
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SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 30,343 $ 37,436
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,834 9,389
Amortization of deferred financing costs 532 543
Changes in operating assets and liabilities:
Accounts receivable - trade 10,925 2,947
Fuel inventory and other current assets 1,025 731
Other assets 695 694
Trade payables (5,588) 1,038
Accrued interest payable - (450)
Other liabilities (5,945) 3,304
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NET CASH PROVIDED BY OPERATING ACTIVITIES 41,821 55,632
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,473) (9,310)
Restricted funds (20,241) (38,193)
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NET CASH USED IN INVESTING ACTIVITIES (33,714) (47,503)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt (5,101) (7,455)
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NET CASH USED IN FINANCING ACTIVITIES (5,101) (7,455)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 3,006 674
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4 942
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,010 $ 1,616
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments:
Interest $ 30,228 $ 30,736
</TABLE>
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. 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 June 30, 1997 and
December 31, 1996 and the consolidated statements of operations for the three
and six months ended June 30, 1997 and 1996 and cash flows for the six months
ended June 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 six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year. The unaudited financial information at June 30, 1997 and for the three
and six months ended June 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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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 under the Indenture (the "Securities Indenture"), pursuant to which the
Partnership issued long term debt (the "Securities"), 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.
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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 second quarter of 1997 of $79.3 million was $2.8
million (3%) lower than in the second quarter of 1996 primarily because the
second quarter of 1996 reflected the benefit of a 1995 tariff adjustment payment
received from Con Edison, partially offset by a first quarter 1996 tariff
adjustment payment made to Niagara Mohawk.
Cost of sales for the second quarter of 1997 of $66.3 million was $6.6
million (11%) higher than in the second quarter of 1996 due to higher fuel costs
($5.6 million), increased operations and maintenance expense ($.8 million) and
higher depreciation expense ($.2 million). The increase in fuel costs was due
partly to a scheduled price increase under the Partnership's long-term gas
supply contract as well as to the fact that the 1996 second quarter reflected a
rebate of first-quarter 1996 fuel costs resulting from the Niagara Mohawk tariff
adjustment discussed above.
Revenue for the first six months of 1997 of $184.8 million was $10.8
million (6%) lower than in the first six 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; 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 six months of 1997 of $126.6 million was
$1.3 million (1%) lower than in the first six months of 1996 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,
partially offset by higher fuel costs as a result of a scheduled price increase
under the Partnership's long-term gas supply contract, increased operations and
maintenance expense and higher depreciation expense.
Interest expense for the second quarter and first six months of 1997
decreased by $.1 million and $.2 million, respectively, from the corresponding
periods of last year due to lower outstanding amount of long-term debt.
Interest income for the second quarter and first six months of 1997 increased by
$1.0 million and $2.2 million, respectively, over the corresponding periods of
last year due to the higher average balances of restricted funds.
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<PAGE>
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 June 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 June 30, 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.
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 two
and one-half 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
27 ---- Article 5 Financial Data Schedule of
Sithe/Independence Power Partners, L.P. for the
quarter ended June 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)
August 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
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,010
<SECURITIES> 108,263
<RECEIVABLES> 28,857
<ALLOWANCES> 0
<INVENTORY> 1,862
<CURRENT-ASSETS> 141,992
<PP&E> 769,299
<DEPRECIATION> 47,541
<TOTAL-ASSETS> 876,111
<CURRENT-LIABILITIES> 38,424
<BONDS> 678,773
0
0
<COMMON> 0
<OTHER-SE> 154,042
<TOTAL-LIABILITY-AND-EQUITY> 876,111
<SALES> 184,795
<TOTAL-REVENUES> 184,795
<CGS> 126,581
<TOTAL-COSTS> 126,581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,460
<INCOME-PRETAX> 30,343
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,343
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
