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, 1998 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.
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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, 1998 and
December 31, 1997 (Unaudited)..................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997 (Unaudited).................. 4
Consolidated Statement of Partners' Capital for the Three
Months Ended March 31, 1998 (Unaudited)........................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (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............................. 9
Signatures ............................................................. 10
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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,
1998 1997
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 712 $ 3
Restricted cash and cash equivalents 68,019 40,643
Restricted investments 36,134 34,674
Accounts receivable - trade 34,450 33,384
Fuel inventory and other current assets 6,672 1,872
--------- ---------
Total current assets 145,987 110,576
Property, plant and equipment, at cost:
Land 5,010 5,010
Electric and steam generating facilities 765,241 765,239
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770,251 770,249
Accumulated depreciation (62,314) (56,975)
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707,937 713,274
Debt issuance costs 8,974 9,212
Other assets 4,637 4,985
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Total assets $ 867,535 $ 838,047
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Trade payables $ 20,992 $ 20,823
Accrued interest 14,378 174
Current portion of long-term debt 18,856 18,856
Accrued construction costs and retentions 161 443
--------- ---------
Total current liabilities 54,387 40,296
Long-term debt:
7.90% secured notes due 2002 109,897 109,897
8.50% secured bonds due 2007 150,839 150,839
9.00% secured bonds due 2013 408,609 408,609
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669,345 669,345
Other liabilities 5,185 7,842
Commitments and contingencies
Partners' capital 138,618 120,564
--------- ---------
Total liabilities and partners' capital $ 867,535 $ 838,047
========= =========
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,
--------------------------
1998 1997
--------- ---------
Revenue $ 103,027 $ 105,467
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Cost of sales:
Fuel 55,810 53,379
Operations and maintenance 10,480 2,006
Depreciation 5,339 4,917
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71,629 60,302
--------- ---------
Operating income 31,398 45,165
Non-operating income (expense):
Interest expense (14,607) (15,697)
Other income, net 1,263 1,659
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Net income $ 18,054 $ 31,127
========= =========
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, 1998 $ 1,280 $119,284 $120,564
Net income 181 17,873 18,054
-------- -------- --------
Balance, March 31, 1998 $ 1,461 $137,157 $138,618
======== ======== ========
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,
---------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net income $ 18,054 $ 31,127
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,339 4,917
Amortization of deferred financing costs 238 271
Changes in operating assets and liabilities:
Accounts receivable - trade (1,066) 4,763
Fuel inventory and other current assets (4,800) (1,972)
Other assets 348 348
Trade payables 169 (70)
Accrued interest payable 14,204 15,143
Other liabilities (2,657) (8,020)
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Net cash provided by operating activities 29,829 46,507
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Cash flows from investing activities:
Capital expenditures (284) (12,694)
Restricted funds (28,836) (33,108)
-------- --------
Net cash used in investing activities (29,120) (45,802)
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Net increase in cash and cash equivalents 709 705
Cash and cash equivalents at beginning of period 3 4
-------- --------
Cash and cash equivalents at end of period $ 712 $ 709
======== ========
Supplemental cash flow information
Cash payments:
Interest $ -- $ --
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.
2. Basis of Presentation
The accompanying consolidated balance sheets at March 31, 1998 and
December 31, 1997 and the consolidated statements of operations and cash flows
for the three months ended March 31, 1998 and 1997 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, 1997 for the Partnership and its
wholly-owned subsidiary, Sithe/Independence Funding Corporation.
The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full year. The
unaudited financial information at March 31, 1998 and for the three months ended
March 31, 1998 and 1997 contains all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the operating results for such periods.
Operations and maintenance expense for the first quarter of 1997 reflects
an $8.2 million credit as a result of the Partnership's discontinuance of its
major overhaul cost normalization policy for its gas turbines, steam turbines
and generators (the "covered units"). This policy was discontinued effective
January 1, 1997, when the Partnership entered into a twelve-year service
agreement with General Electric Company ("GE"), under which GE performs all
scheduled major overhauls of the covered units.
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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 1998 of $103.0 million was $2.4 million
(2%) lower than in the first quarter of 1997 principally reflecting lower Con
Edison tariffs in the first quarter of 1998 compared to the same period of last
year.
Cost of sales for the first quarter of 1998 of $71.6 million was $11.3
million (19%) higher than in the first quarter of 1997 principally reflecting
higher fuel costs due to a contractual price increase under the Partnership's
long-term gas supply contract and the fact that the first quarter of 1997
included an $8.2 million credit to maintenance expense associated with the
discontinuance of the Partnership's major overhaul cost normalization policy for
the covered units.
Interest expense for the first quarter of 1998 decreased by $1.1 million
from the corresponding quarter of last year due to the lower outstanding amounts
of long-term debt.
Other income, net, consisted of interest income for both periods, and for
the first quarter of 1998 decreased by $.4 million from the corresponding
quarter of last year due to lower average balances of restricted cash and
investments.
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, 1998, letters of credit aggregating
$14.1 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, 1998, the Project's
cumulative additional debt service reserve and major overhaul reserve
requirements of $33.0 million and $5.6 million, respectively, were fully funded.
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 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 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 March 31,
1998.
(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, 1998 /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
May 14, 1998 /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 10Q 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.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 712
<SECURITIES> 0
<RECEIVABLES> 34,450
<ALLOWANCES> 0
<INVENTORY> 6,672
<CURRENT-ASSETS> 145,987
<PP&E> 770,251
<DEPRECIATION> (62,314)
<TOTAL-ASSETS> 867,535
<CURRENT-LIABILITIES> 54,387
<BONDS> 669,345
0
0
<COMMON> 0
<OTHER-SE> 138,618
<TOTAL-LIABILITY-AND-EQUITY> 867,535
<SALES> 103,027
<TOTAL-REVENUES> 103,027
<CGS> 71,629
<TOTAL-COSTS> 71,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,607
<INCOME-PRETAX> 18,054
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<INCOME-CONTINUING> 18,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,054
<EPS-PRIMARY> 0
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</TABLE>
