<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ______________ to _____________
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 13-0468704
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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.
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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, 1999 and
December 31, 1998 (Unaudited)....................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 1998 (Unaudited).................... 4
Consolidated Statement of Partners' Capital for the Three
Months Ended March 31, 1999 (Unaudited)............................. 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 (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............................ 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>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,468 $ 2,147
Restricted cash and cash equivalents 64,164 39,522
Restricted investments 34,892 38,180
Accounts receivable - trade 38,632 11,738
Fuel inventory and other current assets 3,892 2,670
--------- ---------
TOTAL CURRENT ASSETS 143,048 94,257
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 5,010 5,010
Electric and steam generating facilities 775,154 774,057
--------- ---------
780,164 779,067
Accumulated depreciation (82,008) (77,046)
--------- ---------
698,156 702,021
DEBT ISSUANCE COSTS 7,946 8,197
OTHER ASSETS 6,298 6,645
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TOTAL ASSETS $ 855,448 $ 811,120
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Trade payables $ 26,933 $ 16,574
Accrued interest 14,742 173
Current portion of long-term debt 27,411 27,411
Accrued construction costs and retentions 1,476 1,476
--------- ---------
TOTAL CURRENT LIABILITIES 70,562 45,634
LONG-TERM DEBT:
7.90% secured notes due 2002 82,486 82,486
8.50% secured bonds due 2007 150,839 150,839
9.00% secured bonds due 2013 408,609 408,609
--------- ---------
641,934 641,934
OTHER LIABILITIES 5,885 5,020
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 137,067 118,532
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 855,448 $ 811,120
========= =========
</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
ENDED MARCH 31,
---------------------------
1999 1998
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<S> <C> <C>
REVENUE $111,362 $103,027
-------- --------
COST OF SALES:
Fuel 62,744 55,810
Operations and maintenance 11,102 10,480
Depreciation 4,962 5,339
-------- --------
78,808 71,629
-------- --------
OPERATING INCOME 32,554 31,398
NON-OPERATING INCOME (EXPENSE):
Interest expense (15,132) (14,607)
Other income, net 1,113 1,263
-------- --------
NET INCOME $ 18,535 $ 18,054
======== ========
</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>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS CAPITAL
------- -------- -------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1999 $ 985 $117,547 $118,532
Net income and total comprehensive income 185 18,350 18,535
------ -------- --------
BALANCE, MARCH 31, 1999 $1,170 $135,897 $137,067
====== ======== ========
</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>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,535 $ 18,054
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,962 5,339
Amortization of deferred financing costs 251 238
Changes in operating assets and liabilities:
Accounts receivable - trade (26,894) (1,066)
Fuel inventory and other current assets (1,222) (4,800)
Other assets 347 348
Trade payables 10,359 169
Accrued interest payable 14,569 14,204
Other liabilities 865 (2,657)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 21,772 29,829
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,097) (284)
Restricted funds (21,354) (28,836)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (22,451) (29,120)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (679) 709
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,147 3
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,468 $ 712
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments:
Interest $ - $ -
</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. 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
("Alcan") 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, 1999 and
December 31, 1998 and the consolidated statements of operations and cash flows
for the three months ended March 31, 1999 and 1998 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, 1998 for the Partnership and its
wholly-owned subsidiary, Sithe/Independence Funding Corporation.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full year. The
unaudited financial information at March 31, 1999 and for the three months ended
March 31, 1999 and 1998 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, 1999, the Partnership adopted Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities," which
was issued by the American Institute of Certified Public Accountants in April
1998. SOP 98-5 requires costs of start-up activities and organization costs
to be expensed as incurred. The adoption of SOP 98-5 had no effect on the
financial position or results of operations of 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 first quarter of 1999 of $111.4 million was $8.3
million (8%) higher than in the corresponding period of last year due largely
to higher Con Edison tariffs and higher net generation.
Cost of sales for the first quarter of 1999 of $78.8 million was $7.2
million (10%) higher than in the corresponding period of last year principally
reflecting higher fuel costs due to a contractual price increase under the
Partnership's long-term gas supply contract.
Based on temperatures in the region of the Project to date and a
recently completed project to increase thermal energy deliveries to Alcan,
the Partnership believes that the Project is well positioned from a
qualifying facility ("QF") standpoint in 1999. Furthermore, the partnership
presently estimates that, upon the scheduled August 1999 completion of a
second thermal project, its incremental annual thermal energy deliveries to
Alcan from such thermal projects will more than cover the thermal energy
shortfall experienced in 1998, which had the warmest weather in the previous
103 years.
LIQUIDITY AND CAPITAL RESOURCES
Financing for the Project consisted of a loan to the Partnership by
Sithe Funding of the proceeds of its issuance of $717.2 million of notes and
bonds and $60 million of capital contributions by the Partners. In addition,
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, 1999, letters of credit aggregating $13.5
million were outstanding in connection with such obligations. Also, the
Partnership has secured the Project's debt service reserve obligations with a
letter of credit in the amount of $50 million. As of March 31, 1999, the
Partnership had restricted funds and investments aggregating $99.1 million,
including the Project's cumulative cash debt service reserve and major overhaul
reserve of $33.0 million and $5.6 million, respectively. In addition, these
restricted funds included $24.5 million that was utilized for April 1999
operating expenses, $4.5 million in the Partnership distribution account and the
balance reserved for the June 1999 debt service payment. Funds in the
Partnership distribution account are available as additional operating and debt
service reserves until such time as certain coverage ratios are achieved. 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 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.
-8-
<PAGE>
YEAR 2000 COMPLIANCE
The Partnership utilizes a number of computerized operating and control
systems at the Project, including applications used in plant operations and
various administrative functions.
The Partnership has completed the inventory of systems and components
which could be affected by year 2000 non-compliance and has completed its
assessment of the state of year 2000 readiness of both its information
technologies and non-information technology systems. The Partnership engaged
Raytheon Engineers and Constructors Inc., an affiliate of one of the Project's
construction contractors, to perform an independent review of the inventory and
assessment activities. This independent review was completed and Raytheon
completed work with the Partnership to develop a comprehensive plan to
remediate, test and implement any necessary corrections. The Partnership joined
the Electric Power Research Institute Year 2000 Program to gain access to the
pooled expertise and databases of over 100 power generation companies and
utilities that participate in this program. As of March 31, 1999, the
Partnership's remediation and test program was 95% complete with final
completion expected by September 1999.
Based upon information currently available to the Partnership, the
Partnership anticipates that the cost of remediation will be less than $1
million, of which $.3 million was spent through the first quarter of 1999 with
the balance expected to be spent through the end of 1999.
The Partnership is also assessing its exposure to year 2000 issues of
the third parties with whom it has material contracts. Questionnaires have been
sent to these third parties to determine their year 2000 status. The Partnership
has not yet fully developed its contingency plans with respect to year 2000
compliance, but is currently in the process of doing so in order to deal with
any problems that are revealed as a result of the Partnership's internal and
external assessment. If the systems of the Partnership or the third parties on
which it relies fail because they are not year 2000 ready, such failures could
have a material adverse impact on the Partnership's financial position or
results of operations.
The dates on which the Partnership believes it will have achieved year
2000 compliance are based on the Partnership's best estimates which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, or that there will not be a delay in, or increased costs associated
with, the year 2000 issue. Specific factors that might cause differences between
the estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas, the ability to locate
and correct all relevant computer code, timely responses to and corrections by
third parties and suppliers, and similar uncertainties. Due to the general
uncertainty inherent in the year 2000 issue, resulting in part from the
uncertainty of the year 2000 readiness of third parties, the Partnership cannot
ensure its ability to timely and cost-effectively resolve problems associated
with the Year 2000 issue that may impact its operations and business, or expose
it to third party liability.
-9-
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements included in this Quarterly Report on Form 10-Q are
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934. The words "anticipate", "believe", "expect", "estimated" and
similar expressions generally identify forward-looking statements. While the
Partnership believes in the veracity of all statements made herein,
forward-looking statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by the Partnership, are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, the price of natural gas and the demand for and price of
electricity. These uncertainties and contingencies could cause the Partnership's
actual results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Partnership.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership has investments in financial instruments subject to
interest rate risk consisting of $64.2 million of restricted cash and cash
equivalents and $34.9 million of restricted investments. In the case of
restricted cash and cash equivalents, due to the short duration of these
financial instruments a 10% immediate change in interest rates would not have a
material effect on the Partnership's financial condition. In the case of
restricted investments, the resulting potential decrease in fair value from a
10% immediate change in interest rates would be approximately $.4 million.
The Partnership's outstanding long-term debt at March 31, 1999 bears
interest at fixed rates and therefore the Partnership's results of operations
would not be affected by changes in interest rates as they apply to borrowings.
-10-
<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, 1999.
(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, 1999 /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, 1999 /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 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,468
<SECURITIES> 0
<RECEIVABLES> 38,632
<ALLOWANCES> 0
<INVENTORY> 3,892
<CURRENT-ASSETS> 143,048
<PP&E> 780,164
<DEPRECIATION> (82,008)
<TOTAL-ASSETS> 855,448
<CURRENT-LIABILITIES> 70,562
<BONDS> 641,934
0
0
<COMMON> 0
<OTHER-SE> 137,067
<TOTAL-LIABILITY-AND-EQUITY> 855,448
<SALES> 111,362
<TOTAL-REVENUES> 111,362
<CGS> 78,808
<TOTAL-COSTS> 78,808
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,132
<INCOME-PRETAX> 18,535
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,535
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,535
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
