<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, 2000
[ ] 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
--------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
335 MADISON AVENUE, NEW YORK, NY 10017
-------------------------------- -----
(Address of principal executive offices) (Zip code)
(212)-351-0000
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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
--------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
335 MADISON AVENUE, NEW YORK, NY 10017
-------------------------------- -----
(Address of principal executive offices) (Zip code)
(212)-351-0000
--------------
(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
<TABLE>
<CAPTION>
Page No.
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PART I FINANCIAL INFORMATION
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(a Delaware Limited Partnership)
Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999 (Unaudited)......................................... 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (Unaudited)...................... 4
Condensed Consolidated Statement of Partners' Capital for the Three
Months Ended March 31, 2000 (Unaudited)............................... 5
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited)............................. 6
Notes to Condensed 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
</TABLE>
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,675 $ 6,076
Restricted cash and cash equivalents 70,323 40,112
Restricted investments 36,070 35,621
Accounts receivable - trade 31,239 30,315
Fuel inventory and other current assets 3,715 3,113
--------- ---------
TOTAL CURRENT ASSETS 146,022 115,237
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 5,010 5,010
Electric and steam generating facilities 777,429 777,356
--------- ---------
782,439 782,366
Accumulated depreciation (101,603) (96,604)
--------- ---------
680,836 685,762
DEBT ISSUANCE COSTS 6,981 7,213
OTHER ASSETS 7,960 5,257
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TOTAL ASSETS $ 841,799 $ 813,469
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Trade payables $ 24,402 $ 27,945
Accrued interest 14,202 173
Current portion of long-term debt 19,296 19,296
--------- ---------
TOTAL CURRENT LIABILITIES 57,900 47,414
LONG-TERM DEBT:
7.90% secured notes due 2002 63,190 63,190
8.50% secured bonds due 2007 150,839 150,839
9.00% secured bonds due 2013 408,609 408,609
--------- ---------
622,638 622,638
OTHER LIABILITIES 3,463 3,607
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 157,798 139,810
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 841,799 $ 813,469
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
2000 1999
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<S> <C> <C>
REVENUE $ 97,106 $ 111,362
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COST OF SALES:
Fuel 49,123 62,744
Operations and maintenance 11,028 11,000
Depreciation 4,999 4,962
--------- ---------
65,150 78,706
OPERATING INCOME 31,956 32,656
NON-OPERATING INCOME (EXPENSE):
Interest expense (14,391) (15,132)
Other income, net 423 1,113
--------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
MAJOR OVERHAUL COSTS 17,988 18,637
Cumulative effect of change in accounting for major overhaul costs 0 3,775
--------- ---------
NET INCOME $ 17,988 $ 22,412
========= =========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONDENSED 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> <C>
BALANCE, JANUARY 1, 2000 $ 1,198 $138,612 $139,810
Net income and total comprehensive income 180 17,808 17,988
-------- -------- --------
BALANCE, MARCH 31, 2000 $ 1,378 $156,420 $157,798
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,988 $ 22,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,999 4,962
Amortization of deferred financing costs 232 251
Unrealized loss on marketable securities 862 0
Cumulative effect of change in accounting 0 (3,775)
for major overhaul costs
Changes in operating assets and liabilities:
Accounts receivable - trade (924) (26,894)
Fuel inventory and other current assets (602) (1,222)
Other assets (2,703) 347
Trade payables (3,543) 10,359
Accrued interest payable 14,029 14,569
Other liabilities (144) 763
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NET CASH PROVIDED BY OPERATING ACTIVITIES 30,194 21,772
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (73) (1,097)
Restricted funds (31,522) (21,354)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (31,595) (22,451)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,401) (679)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,076 2,147
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,675 $ 1,468
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments:
Interest $ 0 $ 0
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
SITHE/INDEPENDENCE POWER PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONDENSED 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, 2000 and
December 31, 1999 and the consolidated statements of operations and cash flows
for the three months ended March 31, 2000 and 1999 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, 1999 for the Partnership and its
wholly-owned subsidiary, Sithe/Independence Funding Corporation ("Sithe
Funding").
The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full year. The
unaudited financial information at March 31, 2000 and for the three months ended
March 31, 2000 and 1999 contains all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and operating results for such periods.
Consistent with positions expressed by the Securities and Exchange
Commission, in 1999, the Partnership changed its method of accounting for major
overhaul costs for major equipment not covered by a service agreement (the
"Non-covered Units"), whereby the Partnership expenses such costs as incurred.
Previously, the Partnership normalized major overhaul costs by establishing
maintenance reserves during the operating period prior to the major overhaul. As
a result of this change in accounting for major overhaul costs, the
Partnership reversed to income approximately $3.8 million, reported as the
cumulative effect of a change in accounting on the 1999 consolidated statement
of operations, representing the balance of the major overhaul reserve for
Non-covered Units as of January 1, 1999. Results of operations for the three
months ended March 31, 1999 have been restated, giving effect to this change in
accounting as if it had occurred on January 1, 1999.
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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 2000 of $97.1 million was $14.3 million
(13%) lower than in the corresponding period of last year due largely to the
scheduled change effective November 1, 1999 in pricing for the second
fifteen-year period ("Second Period") of the 40-year Con Edison Energy Purchase
Agreement. The decline in revenue was largely offset by a reduction in fuel
expense as discussed below. During the Second Period, Con Edison pays a price
equal to 93.75% of the Con Edison SC No. 11 Buy Back Energy Rate (the "Energy
Rate") plus a fixed monthly capacity charge of $6.7455/kilowatt based on the
Project's availability and capacity dedicated to deliveries of electric energy
to Con Edison and an operations and maintenance payment of $0.01/kilowatt hour
("kwh") that escalates annually with inflation. Previously, Con Edison paid a
price equal to 100% of the Energy Rate plus $0.026/kwh of net generation sold to
Con Edison. Effective January 17, 2000, the Energy Rate is the locational based
marginal price at Pleasant Valley, New York as determined by the New York
Independent System Operator.
Cost of sales for the first quarter of 2000 of $65.1 million was $13.7
million (17%) lower than in the corresponding period of last year, largely
reflecting a $13.6 million decrease in fuel expense resulting from a scheduled
contractual change under the Partnership's long term gas supply agreement,
effective January 1, 2000, in the method of pricing fuel associated with energy
deliveries to Con Edison from fixed prices to lower variable prices based on the
prices paid by Con Edison to the Partnership for capacity and electric energy.
Interest expense for the first quarter of 2000 of $14.4 million was $.7
million (5%) lower than in the corresponding period of last year as a result of
lower outstanding amounts of long-term debt.
For the first quarter of 2000, other income, net of $.4 million consisted
of $1.3 million of interest income and $.9 million of unrealized losses on
restricted investments held as trading securities. For the first quarter of
1999, other income, net of $1.1 million consisted entirely of interest income.
Based on temperatures in the region of the Project to date and projects
completed in 1999 to increase thermal energy deliveries to Alcan, the
Partnership believes that the Project is well positioned from a qualifying
facility standpoint in 2000.
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<PAGE>
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 (the "Securities") 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, 2000, letters of
credit aggregating $13.6 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, 2000, the Partnership had restricted funds and investments
aggregating $106.4 million, including the Project's cumulative cash debt
service reserve and major overhaul reserve of $33.0 million and $5.7 million,
respectively. In addition, these restricted funds included $17.0 million that
was utilized for April 2000 operating expenses, $9.9 million in the
Partnership distribution account and the balance reserved for the June 2000
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.
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 $70.3 million of restricted cash and cash
equivalents and $36.1 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 $.5 million.
The Partnership's outstanding long-term debt at March 31, 2000 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.
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<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
27---- Article 5 Financial Data Schedule of
Sithe/Independence Power Partners, L.P. for the
quarter ended March 31, 2000.
</TABLE>
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the quarter covered by this
report.
-10-
<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 15, 2000 /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 15, 2000 /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 OEPRATIONS FOUND ON
PAGES 3 AND 4 OF THE PARTNERSHIP'S FORM 10Q FOR THE YEAR-TO-DATE, AND IS
QUALFIED 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-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,675
<SECURITIES> 0
<RECEIVABLES> 31,239
<ALLOWANCES> 0
<INVENTORY> 3,715
<CURRENT-ASSETS> 146,022
<PP&E> 782,439
<DEPRECIATION> (101,603)
<TOTAL-ASSETS> 841,799
<CURRENT-LIABILITIES> 57,900
<BONDS> 622,638
0
0
<COMMON> 0
<OTHER-SE> 157,798
<TOTAL-LIABILITY-AND-EQUITY> 841,799
<SALES> 97,106
<TOTAL-REVENUES> 97,106
<CGS> 65,150
<TOTAL-COSTS> 65,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,391
<INCOME-PRETAX> 17,988
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,988
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
