<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Date of Report: June 2, 1998; Date of Earliest Event Reported: March 20, 1998)
Commission File Number: 33-74254
COGENTRIX ENERGY, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1853081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9405 Arrowpoint Boulevard, Charlotte, North Carolina 28273-8110
(Address of principal executive offices) (Zipcode)
(704) 525-3800
(Registrant's telephone number, including area code)
<PAGE> 2
Item 7. Financial Statements and Exhibits
This report is an amendment to the Cogentrix Energy, Inc. report on Form 8-K
filed on April 6, 1998. The report is being amended to (i) include LSP-Cottage
Grove, L.P. and LSP-Whitewater Limited Partnership's audited financial
statements as of December 31, 1997 and 1996 and for the years ended December 31,
1997, 1996 and 1995, (ii) include LS Power Funding Corporation's audited
financial statements as of December 31, 1997 and 1996 and for the years ended
December 31, 1997 and 1996 and for the period from inception (June 23, 1995) to
December 31, 1995, and (iii) provide the unaudited pro forma consolidated
financial statements of Cogentrix Energy, Inc. as of and for the six-month
period ended December 31, 1997 and for the twelve-month period ended June 30,
1997.
The following financial statements and unaudited pro forma financial information
are filed as part of this Form 8-K/A:
<TABLE>
<CAPTION>
(a) Financial Statements
Page
--------
<S> <C>
LS POWER FUNDING CORPORATION
Reports of Independent Public Accountants 4
Balance Sheets as of December 31, 1997 and 1996 6
Statements of Income for the Years Ended December 31, 1997 and 1996
and for the Period from Inception (June 23, 1995) to December 31, 1995 7
Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1997
and 1996 and for the Period from Inception (June 23, 1995) to December 31, 1995 8
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996
and for the Period from Inception (June 23, 1995) to December 31, 1995 9
Notes to Financial Statements 10
LSP-COTTAGE GROVE, L.P.
Reports of Independent Public Accountants 14
Balance Sheets as of December 31, 1997 and 1996 16
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 17
Statements of Changes in Partners' Capital for the Years Ended December 31, 1997,
1996 and 1995 18
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 19
Notes to Financial Statements 20
LSP-WHITEWATER LIMITED PARTNERSHIP
Reports of Independent Public Accountants 30
Balance Sheets as of December 31, 1997 and 1996 32
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 33
Statements of Changes in Partners' Capital for the Years Ended December 31, 1997,
1996 and 1995 34
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 35
Notes to Financial Statements 36
(b) Unaudited Pro Forma Financial Information
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997 47
Notes to Unaudited Pro Forma Consolidated Balance Sheet 48
Unaudited Pro Forma Consolidated Statement of Income for the Six-Month Period 49
Ended December 31, 1997
Notes to Unaudited Pro Forma Consolidated Statement of Income for the Six-Month
Period Ended December 31, 1997 50
Unaudited Pro Forma Consolidated Statement of Operations for the Twelve-Month 51
Period Ended June 30, 1997
Notes to Unaudited Pro Forma Consolidated Statement of Operations for the
Twelve-Month Period Ended June 30, 1997 52
</TABLE>
2
<PAGE> 3
Effective March 20, 1998, Cogentrix Energy, Inc. (the "Company")
acquired from LS Power Corporation (the "LS Acquisition") an
approximate 74% ownership interest in two power generation facilities
in Whitewater, Wisconsin (the "Whitewater Facility") and in Cottage
Grove, Minnesota (the "Cottage Grove Facility"). The unaudited pro
forma consolidated balance sheet as of December 31, 1997 gives effect
to the LS Acquisition as if such acquisition had occurred on December
31, 1997. The unaudited pro forma consolidated statement of income for
the six-month period ended December 31, 1997 gives effect to the LS
Acquisition as if such acquisition had occurred on July 1, 1997. The
unaudited pro forma consolidated statement of operations for the
twelve-month period ended June 30, 1997 gives effect to the LS
Acquisition as if such acquisition had occurred on July 1, 1996. The
unaudited pro forma consolidated statement of income for the six-month
period ended December 31, 1997 and the unaudited pro forma consolidated
statement of operations for the twelve-month period ended June 30, 1997
do not give effect to a full year of operating results of the acquired
facilities since the Whitewater Facility and the Cottage Grove Facility
did not commence commercial operations until September 18, 1997 and
October 1, 1997, respectively.
The unaudited pro forma consolidated financial information and
accompanying notes should be read in conjunction with the Company's
consolidated financial statements and related notes thereto for the
six-month period ended December 31, 1997 contained in the Company's
Form 10-K filed with the U.S. Securities and Exchange Commission on
March 31, 1998. The pro forma adjustments are based upon available
information and certain assumptions that management believes are
reasonable and are described in the notes accompanying the unaudited
pro forma consolidated financial information. The unaudited pro forma
consolidated financial information is presented for informational
purposes only and does not purport to represent what the Company's
results of operations or financial position would actually have been
had such an acquisition in fact occurred at such dates, or to project
the Company's results of operations or financial position at any future
date or for any future period. In the opinion of management, all
adjustments necessary to present fairly such unaudited pro forma
consolidated financial information have been made.
------------------------------
SIGNATURE
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.
COGENTRIX ENERGY, INC.
(Registrant)
Date: June 2, 1998 /s/ JAMES R. PAGANO
-------------------------
James R. Pagano
Group Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
3
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the accompanying balance sheet of LS Power Funding
Corporation as of December 31, 1997 and the related statements of income,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LS Power Funding Corporation
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
4
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
LS Power Funding Corporation:
We have audited the accompanying balance sheet of LS Power Funding
Corporation as of December 31, 1996 and the related statements of income,
changes in stockholders' equity, and cash flows for the year ended December 31,
1996 and for the period from inception (June 23, 1995) to December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LS Power Funding Corporation
as of December 31, 1996, and the results of its operations and its cash flows
for the year ended December 31, 1996 and the period from inception (June 23,
1995) to December 31, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
5
<PAGE> 6
LS POWER FUNDING CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSET - Cash $ 1 $ 1
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
-------- --------
Total Assets $332,001 $332,001
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITY - Senior Secured Bonds Payable $332,000 $332,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000 shares authorized,
100 shares issued and outstanding 0 0
Additional paid-in capital 1 1
-------- --------
Total Stockholders' Equity 1 1
-------- --------
Total Liabilities and Stockholders' Equity $332,001 $332,001
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
6
<PAGE> 7
LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 23, 1995)
TO DECEMBER 31,
1997 1996 1995
------- ------- ---------------
<S> <C> <C> <C>
Interest Income $25,886 $25,886 $12,943
Interest Expense 25,886 25,886 12,943
------- ------- -------
Net Income $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
7
<PAGE> 8
LS POWER FUNDING CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL STOCKHOLDERS'
STOCK PAID-IN CAPITAL EQUITY
------ --------------- -------------
<S> <C> <C> <C>
Sale of Common Stock at Inception (June 23, 1995) $0 $1 $1
-- -- --
Balance, December 31, 1997, 1996 and 1995 $0 $1 $1
== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
8
<PAGE> 9
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE PERIOD FROM INCEPTION (JUNE 23, 1995) TO DECEMBER 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
INCEPTION
(JUNE 23, 1995)
TO DECEMBER 31,
1997 1996 1995
---- ---- ---------------
<S> <C> <C> <C>
Cash flows from Investing Activities:
Cash paid for investment in First Mortgage Bonds $0 $0 $(332,000)
-- -- ---------
Cash used in investing activities 0 0 (332,000)
-- -- ---------
Cash flows from Financing Activities:
Proceeds from Senior Secured Bonds 0 0 332,000
Proceeds from sale of common stock 0 0 1
-- -- ---------
Cash provided by financing activities 0 0 332,001
-- -- ---------
Increase in cash 0 0 1
Cash, beginning of period 1 1 0
-- -- ---------
Cash, end of period $1 $1 $ 1
== == =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
9
<PAGE> 10
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
LS Power Funding Corporation ("Funding") was established on June 23, 1995 as
a special purpose funding corporation to issue debt securities in connection
with financing construction of two gas fired cogeneration facilities, one
located in Cottage Grove, Minnesota and the other located in Whitewater,
Wisconsin. LSP-Cottage Grove, L.P.("Cottage Grove") and LSP-Whitewater Limited
Partnership ("Whitewater") are single purpose Delaware limited partnerships
established to develop, finance, construct and own the facilities at Cottage
Grove and Whitewater, respectively. Cottage Grove and Whitewater each own 50% of
the outstanding stock of Funding. Funding's sole business activities are limited
to maintaining its organization, the offering of the Senior Secured Bonds, and
its acquisition of the First Mortgage Bonds issued by Cottage Grove and
Whitewater.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash includes short-term
investments with original maturities of three months or less.
INCOME TAXES
Funding does not record a tax provision as it has no reportable book or
taxable income and there is no difference between Funding's book bases and tax
bases of its existing assets and liabilities. Due to the nature of Funding's
structure as a single purpose funding corporation, Funding is not expected to
produce book or taxable income in future periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
3. INVESTMENT IN FIRST MORTGAGE BONDS
Investment in First Mortgage Bonds consists of the following at December 31,
1997 and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% Cottage Grove First Mortgage Bonds
due June 30, 2010 $ 49,278
8.08% Cottage Grove First Mortgage Bonds
due December 30, 2016 105,722
7.19% Whitewater First Mortgage Bonds
due June 30, 2010 56,273
8.08% Whitewater First Mortgage Bonds
due December 30, 2016 120,727
--------
$332,000
========
</TABLE>
The First Mortgage Bonds issued by Cottage Grove and Whitewater are secured
by substantially all of the assets of the respective partnership. The collateral
securing the obligations of one partnership does not secure the obligations of
the other partnership. The fair value of Funding's investment in the First
Mortgage Bonds at December 31, 1997 is $30,375,000 higher than the historical
carrying value of $332,000,000. At December 31, 1996, the fair value of
Funding's investment in First Mortgage Bonds approximated carrying value.
10
<PAGE> 11
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
The following are summarized balance sheets and statements of income of
Cottage Grove and Whitewater as of and for the year ended December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>
Cottage Grove Whitewater
------------- ----------
<S> <C> <C>
BALANCE SHEETS:
Current assets $ 18,791 $ 17,402
Restricted investments 11,475 13,752
Net investment in lease 234,034 262,072
Greenhouse facility, net 0 8,281
Debt issuance and financing costs 6,517 6,607
Other non-current assets 1 1
--------- ---------
Total Assets $ 270,818 $ 308,115
========= =========
Current liabilities $ 8,432 $ 11,556
First Mortgage Bonds payable 155,000 177,000
Partners' capital 107,386 119,559
--------- ---------
Total Liabilities and Partners' Capital $ 270,818 $ 308,115
========= =========
STATEMENTS OF INCOME:
Operating revenues $ 10,738 $ 13,348
Operating expenses 5,851 7,747
--------- ---------
Operating income 4,887 5,601
Gain on sales-type capital lease 87,056 97,042
Interest expense (3,087) (4,024)
Interest income 362 383
--------- ---------
Net Income $ 89,218 $ 99,002
========= =========
</TABLE>
4. SENIOR SECURED BONDS PAYABLE
Senior Secured Bonds Payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% Senior Secured Bonds due
June 30, 2010 ("2010 Bonds") $105,551
8.08% Senior Secured Bonds due
December 30, 2016 ("2016 Bonds") 226,449
--------
$332,000
========
</TABLE>
On June 30, 1995, Funding issued and sold $332,000,000 of Senior Secured
Bonds. All of the First Mortgage Bonds issued by Cottage Grove and Whitewater
were purchased with the entire proceeds from the Senior Secured Bonds. The
repayment terms of the First Mortgage Bonds collectively coincide with those of
the Senior Secured Bonds. Interest is payable semi-annually on June 30 and
December 30 of each year, commencing December 30, 1995. Principal on the bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
11
<PAGE> 12
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Collective future maturities of the Senior Secured Bonds as of December 31,
1997 are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 2,323
2001 3,314
2002 4,559
Thereafter 321,804
--------
$332,000
========
</TABLE>
The Senior Secured Bonds are secured primarily by a pledge of Funding's
investment in the First Mortgage Bonds. Since Funding is a special purpose
corporation formed to issue the Senior Secured Bonds, Funding's ability to make
payments of principal and interest on the Senior Secured Bonds is entirely
dependent on Cottage Grove's and Whitewater's performance of its obligations
under its First Mortgage Bonds. The obligations of Cottage Grove and Whitewater
under their First Mortgage Bonds are obligations solely of the respective
partnerships.
12
<PAGE> 13
LS POWER FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
The trust indenture for the Senior Secured Bonds contains certain covenants
including, among others, limitations or restrictions relating to the use of the
proceeds of the Senior Secured Bonds, actions with respect to the First Mortgage
Bonds, and additional debt other than the Senior Secured Bonds. The trust
indenture also describes events of default of the Senior Secured Bonds which
include, among others, events involving bankruptcy of Funding and the failure of
Cottage Grove and Whitewater to own 100 percent of the capital stock of Funding.
The fair value of Funding's Senior Secured Bonds at December 31, 1997, is
$30,375,000 higher than the historical carrying value of $332,000,000. At
December 31, 1996, the fair value of Funding's Senior Secured Bonds approximated
carrying value.
13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P. (a
Delaware limited partnership) as of December 31, 1997 and the related statements
of income, changes in partners' capital, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
14
<PAGE> 15
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Cottage Grove, L.P.:
We have audited the accompanying balance sheet of LSP-Cottage Grove, L.P.
as of December 31, 1996, and the related statements of income, changes in
partners' capital and cash flows for each of the years in the two-year period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Cottage Grove, L.P. as
of December 31, 1996, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
15
<PAGE> 16
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,816 $ 103
Accounts receivable - trade 4,598 0
Accounts receivable - other 3,012 0
Fuel inventories 1,869 0
Spare parts inventories 443 0
Other current assets 53 0
-------- --------
Total current assets 18,791 103
-------- --------
Restricted investments 11,475 28,108
Net investment in lease (Notes 2 and 6) 234,034 0
Construction in process 0 125,597
Debt issuance and financing costs, net of accumulated
amortization of $605 in 1997 and $348 in 1996 6,517 6,774
Investment in unconsolidated affiliate 1 1
-------- --------
Total assets $270,818 $160,583
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 8,360 $ 5,582
Accrued expenses 72 0
-------- --------
Total current liabilities 8,432 5,582
First Mortgage Bonds payable 155,000 155,000
-------- --------
Total liabilities 163,432 160,582
Commitments and contingencies (Note 11)
Partners' capital 107,386 1
-------- --------
Total liabilities and partners' capital $270,818 $160,583
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
16
<PAGE> 17
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---- ----
<S> <C> <C> <C>
Operating revenues:
Lease revenue $ 5,265 $0 $0
Service revenue 4,879 0 0
Other 594 0 0
-------- -- --
10,738 0 0
-------- -- --
Operating expenses:
Cost of services 5,851 0 0
-------- -- --
Operating income 4,887 0 0
Non-operating income (expense):
Gain on sales-type capital lease 87,056 0 0
Interest expense (3,087) 0 0
Interest income 362 0 0
-------- -- --
Net income $ 89,218 $0 $0
======== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
17
<PAGE> 18
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
LIMITED PARTNERS GENERAL
---------------- PARTNER
TPC COTTAGE GRANITE POWER LSP-COTTAGE
GROVE, INC. PARTNERS, L.P. GROVE, INC. TOTAL
----------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Capital contributions at inception $ 0 $ 1 $ 0 $ 1
------- ------- ---- --------
Balance, December 31, 1995 and 1996 0 1 0 1
Capital contributions 18,167 0 0 18,167
Net income 23,893 64,433 892 89,218
------- ------- ---- --------
Balance, December 31, 1997 $42,060 $64,434 $892 $107,386
======= ======= ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
18
<PAGE> 19
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 89,218 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease (87,056) 0 0
Amortization of unearned lease income (5,265) 0 0
Amortization of debt issuance and financing costs 66 0 0
Minimum lease payments received 4,866 0 0
Increase in accounts receivable - trade (4,598) 0 0
Increase in fuel inventories (1,648) 0 0
Increase in spare parts inventories (134) 0 0
Increase in other current assets (53) 0 0
Increase in accounts payable 2,032 0 0
Increase in accrued expenses 72 0 0
--------- -------- ---------
Cash used in operating activities (2,500) 0 0
--------- -------- ---------
Cash Flows from Investing Activities:
Acquisition of land and improvements 0 0 (97)
Payments on construction in process (24,771) (87,157) (40,289)
Investments held by Trustee (18,167) 0 (155,000)
Investments drawn 35,984 87,358 47,410
Investment in Funding 0 0 (1)
--------- -------- ---------
Cash provided by (used in) investing activities (6,954) 201 (147,977)
--------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs 0 (153) (6,969)
Proceeds from First Mortgage Bonds 0 0 155,000
Capital contributions 18,167 0 0
--------- -------- ---------
Cash provided by (used in) financing activities 18,167 (153) 148,031
--------- -------- ---------
Increase in cash and cash equivalents 8,713 48 54
Cash and cash equivalents, beginning of period 103 55 1
--------- -------- ---------
Cash and cash equivalents, end of period $ 8,816 $ 103 $ 55
========= ======== =========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ 125,499 $(82,877) $ (42,622)
Construction in process sold in lease transaction (146,481) 0 0
Amortization of debt issuance and financing costs 191 239 109
Interest income on investments held by Trustee (1,184) (4,163) (3,713)
Increase in accounts receivable-other (3,012) 0 0
Decrease (increase) in other current assets 0 13 (13)
Increase in fuel inventories (221) 0 0
Increase in spare parts inventories (309) 0 0
Increase (decrease) in accounts payable 746 (369) 5,950
--------- -------- ---------
Payments on construction in process $ (24,771) $(87,157) $ (40,289)
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 12,085 $ 12,085 $ 6,043
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
19
<PAGE> 20
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Cottage Grove, L.P. (the "Partnership") is a Delaware limited partnership
that was formed on December 14, 1993 to develop, finance, construct and own a
gas fired cogeneration facility with a design capacity of approximately 245
megawatts located in Cottage Grove, Minnesota (the "Facility"). Construction and
start-up of the Facility was substantially completed and commercial operation
commenced October 1, 1997 (the "Commercial Operations Date"). As of December 31,
1997, the 1% general partner of the Partnership was LSP-Cottage Grove, Inc., a
wholly owned subsidiary of Granite Power Partners, L.P., a Delaware limited
partnership ("Granite"). Granite and TPC Cottage Grove, Inc., a Delaware
corporation ("TPC"), were the sole limited partners of the Partnership, owning
approximately 72% and 27% limited partnership interests, respectively. The
general partner of Granite is LS Power Corporation ("LS Power"), a Delaware
corporation. See Note 15 for discussion of a change in ownership which occurred
on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose funding corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas fired cogeneration facility located in Whitewater, Wisconsin (the
"Whitewater Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $155 million of First Mortgage Bonds issued simultaneously by the
Partnership.
All of the electric capacity and energy generated by the Facility is
sold to Northern States Power Company ("NSP" or, as the context requires, the
"Utility") under a 30-year power purchase agreement (the "Power Purchase
Agreement"). The thermal energy generated by the Facility is sold in the form of
steam to Minnesota Mining and Manufacturing Company ("3M" or, as the context
requires, the "Steam Purchaser") under a 30-year thermal energy sales agreement
(the "Steam Supply Agreement").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted Investments represent overnight repurchase obligations secured by
U.S. Treasury notes. These investments are carried at cost, which approximated
market at December 31, 1997 and 1996. Amounts held by the trustee under the
trust indenture for the First Mortgage Bonds (the "Trustee") in accounts
designated for debt service, major maintenance and construction, which might
otherwise be considered cash equivalents, are treated as restricted investments.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 11 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
"sales-type" capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
20
<PAGE> 21
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs were included in the historical cost basis of the
Facility. All interest costs subsequent to the Commercial Operations Date have
been charged to expense. As of December 31, 1996, capitalized interest including
amortization of debt issuance and financing costs was $10,600,000, ($10,251,000,
before amortization).
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and other financing costs are deferred and amortized over the
term of the related debt. Amortization of deferred financing costs was
capitalized as part of construction in process prior to commercial operations
and is included in interest expense subsequent to commercial operations in the
accompanying financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $6,328,000 and $5,582,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs incurred
to operate the Facility and to provide variable electric energy to the Utility
and thermal energy to the Steam Purchaser.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchaser.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
21
<PAGE> 22
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This pronouncement establishes
standards for reporting information about operating segments in annual and
interim financial statements. SFAS No. 131 will be adopted by the Partnership
effective January 1, 1998. The Partnership believes this pronouncement will not
have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE - OTHER
Accounts Receivable-Other represents amounts due from Westinghouse
Electric Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility by May 31, 1997. Such liquidated damages and extension fees were
capitalized as a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Natural Gas $1,490 $0
Fuel Oil 379 0
------ --
$1,869 $0
====== ==
</TABLE>
Natural Gas is stated at weighted average cost and fuel oil is stated at
cost based on the first-in first-out method.
22
<PAGE> 23
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Overnight repurchase obligations $ 19,908 $28,108
Less: Unrestricted accounts (8,433) 0
-------- -------
Restricted accounts $ 11,475 $28,108
======== =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
23
<PAGE> 24
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease $ 567,415
Unearned Income on Lease (333,381)
---------
Net Investment in Lease $ 234,034
=========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998 $ 19,609
1999 20,175
2000 21,140
2001 21,058
2002 22,109
Thereafter 463,324
--------
Total $567,415
========
</TABLE>
7. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended Inception (June 23, 1995)
December 31, December 31, to December 31,
1997 1996 1995
------------------ ------------------ -------------------------
<S> <C> <C> <C>
Interest income $25,886 $25,886 $12,943
Interest expense 25,886 25,886 12,943
------- ------- -------
Net income $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
24
<PAGE> 25
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
1997 and 1996
-------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
--------
Total assets $332,001
========
Senior Secured Bonds payable $332,000
Stockholders' equity 1
--------
Total liabilities and stockholders' equity $332,001
========
</TABLE>
8. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997
and 1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 49,278
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 105,722
--------
$155,000
========
</TABLE>
On June 30, 1995, the Partnership issued and sold $155,000,000 of First
Mortgage Bonds to Funding. The bonds are secured by substantially all assets of
the Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
Collective future maturities of the First Mortgage Bonds as of December 31,
1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 1,084
2001 1,547
2002 2,129
Thereafter 150,240
--------
$155,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
25
<PAGE> 26
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
9. CREDIT AGREEMENT
The Partnership has a Credit Agreement which provides for working capital
loans of up to $3,000,000 and letter of credit commitments of up to $5,500,000.
The interest rate for loans made under the Credit Agreement is based upon
various short-term indices at the Partnership's option and is determined
separately for each draw. These commitments expire on June 30, 2000. The Credit
Agreement includes commitment fees, payable quarterly in arrears, ranging from
.25% to .375% on the daily average unused amount of the commitment until the
Credit Agreement is terminated. For all periods through December 31, 1997, no
working capital loans had been issued under the Credit Agreement. In October
1997, a $500,000 letter of credit, in favor of NSP pursuant to the Power
Purchase Agreement, was issued under the Credit Agreement.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (NSP) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments held by Trustee, accounts payable and
accrued expenses approximate fair value. The fair value of the Partnership's
First Mortgage Bonds at December 31, 1997, is $14,181,000 higher than the
historical carrying value of $155,000,000. At December 31, 1996, the fair value
of the Partnership's First Mortgage Bonds approximated carrying value.
11. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $107 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under the Power Purchase
Agreement with NSP, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $1,333,000 and
$5,073,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $3,012,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $267,000 and delay liquidated damages of $2,745,000 (see Note
3).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase all of the electric capacity made available to it and
all associated energy which the Utility chooses to dispatch from the Facility
beginning on the Commercial Operations Date. Payments by the Utility to the
Partnership under the Power Purchase Agreement consist of capacity payments and
energy payments which fluctuate based upon published indices and/or a fixed
schedule.
26
<PAGE> 27
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
THERMAL ENERGY SALES
The Steam Supply Agreement obligates the Partnership to supply all of
the Steam Purchaser's steam requirements up to a maximum of 664 million pounds
of steam annually at a rate not to exceed 190,000 pounds per hour when the
Facility's cogeneration process is operating and 160,000 pounds per hour when
the steam is generated by the Facility's auxiliary boilers.
GAS SUPPLY
The Partnership has 20-year gas supply contracts with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts each provide for the sale of up to 17,060 MMBtu per day of gas to the
Partnership. The price paid by the Partnership under the gas supply contracts
fluctuates based upon published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has various gas transportation agreements with fuel
transportation companies which provide for delivery of gas to the Facility. The
price paid by the Partnership under the gas transportation contracts fluctuate
based on published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and
maintenance agreement with Westinghouse Operating Services Company, Inc.
("Westinghouse Services"). Under the terms of the operations and maintenance
agreement, the Partnership is required to pay Westinghouse Services an annual
management fee of $350,000 as well as reimbursement of payroll, fringe benefits,
insurance and certain subcontractor costs and a bonus based on a targeted plant
performance. If targeted plant performance is not attained, Westinghouse
Services is required to pay a performance penalty to the Partnership. The
management fee is adjusted annually based on certain published indices. The term
of the operations and maintenance agreement extends for an initial period of
seven years (through October, 2004). The Partnership has the option to extend
the term of the agreement for two additional seven-year terms, provided that the
Partnership and Westinghouse Services mutually agree in writing as to the terms
of such extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based on published indices) payable for 12 years.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation will
have a material adverse effect on the financial position or results of
operations of the Partnership.
12. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, a single operator to
perform the operation and maintenance of its Facility, and a single steam
purchaser for purchases of thermal energy. In addition, the Partnership has
contracted with two gas companies to supply the gas requirements of the
Facility,
27
<PAGE> 28
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
and has contracted with a single interstate gas transporter to transport gas.
Any material breach by any one of these parties of their respective obligations
to the Partnership could affect the ability of the Partnership to make payments
under its First Mortgage Bonds. In addition, bankruptcy or insolvency of certain
other parties or defaults by such parties relative to their contractual or
regulatory obligations could adversely affect the ability of the Partnership to
make payments under its First Mortgage Bonds. If an agreement were to be
terminated due to a breach of such agreement, the Partnership's ability to enter
into a substitute agreement having substantially equivalent terms and
conditions, or with an equally creditworthy third party, is uncertain.
13. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally of
site development costs, engineering fees, legal fees, permitting costs, interest
and LS Power employee costs, were incurred by Granite. At June 30, 1995, the
Partnership paid development fees and reimbursed certain costs totaling
approximately $11,730,000 to Granite. These payments were capitalized and
included in construction in process.
LS Power provided certain management services to the Partnership pursuant to
management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Cottage Grove Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,406,000,
$1,391,000 and $515,000 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Partnership recorded
accounts payable to LS Power of approximately $231,000 and $57,000,
respectively. See Note 15 for discussion of assignment of the management
services agreements which occurred on March 20, 1998.
14. PARTNERS' CAPITAL
In 1997, TPC contributed $18,167,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 27% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
28
<PAGE> 29
LSP-COTTAGE GROVE, L.P.
NOTES TO FINANCIAL STATEMENTS
15. SUBSEQUENT EVENT - CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid America, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly - owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of LSP Cottage Grove, Inc., and
all of the Sellers' limited partnership interest in the Partnership to the
Purchasers. As a result, Cogentrix Cottage Grove, LLC, a wholly-owned subsidiary
of CMA, acquired all of the capital stock of LSP-Cottage Grove, Inc., the 1%
general partner of the Partnership, as well as a 72.22% limited partnership
interest in the Partnership for a combined total ownership interest of 73.22%
in the Partnership.
On the same date that the wholly-owned indirect subsidiaries of Cogentrix
Energy identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
services agreements between LS Power and each of LSP-Cottage Grove, Inc. and the
Partnership.
29
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership (a Delaware limited partnership) as of December 31, 1997 and the
related statements of income, changes in partners' capital, and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LSP-Whitewater Limited
Partnership as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 9, 1998.
30
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Partners
LSP-Whitewater Limited Partnership:
We have audited the accompanying balance sheet of LSP-Whitewater Limited
Partnership as of December 31, 1996 and the related statements of income,
changes in partners' capital and cash flows for each of the years in the
two-year period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LSP-Whitewater Limited
Partnership as of December 31, 1996 and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Billings, Montana,
February 13, 1997.
31
<PAGE> 32
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,749 $ 101
Accounts receivable - trade 4,983 0
Accounts receivable - other 2,195 0
Fuel inventories 1,361 0
Spare parts inventories 432 0
Other current assets 682 1
-------- --------
Total current assets 17,402 102
======== ========
Restricted investments 13,752 34,415
Net investment in lease (Notes 2 and 6) 262,072 0
Construction in process 0 149,232
Greenhouse facility, net 8,281 0
Debt issuance and finance costs, net of accumulated
amortization of $616 in 1997 and $355 in 1996 6,607 6,868
Investment in unconsolidated affiliate 1 1
-------- --------
Total assets $308,115 $190,618
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 11,492 $ 13,617
Accrued expenses 64 0
-------- --------
Total current liabilities 11,556 13,617
First Mortgage Bonds payable 177,000 177,000
-------- --------
Total liabilities 188,556 190,617
Commitments and contingencies (Note 12)
Partners' capital 119,559 1
-------- --------
Total liabilities and partners' capital $308,115 $190,618
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
32
<PAGE> 33
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Lease revenue $ 6,579 $0 $0
Service revenue 5,944 0 0
Other 825 0 0
-------- -- --
13,348 0 0
-------- -- --
Operating expenses:
Cost of services 6,948 0 0
Greenhouse operating expenses 799 0 0
-------- -- --
7,747 0 0
-------- -- --
Operating income 5,601 0 0
Non-operating income (expense):
Gain on sales-type capital lease 97,042 0 0
Interest expense (4,024) 0 0
Interest income 383 0 0
-------- -- --
Net income $ 99,002 $0 $0
======== == ==
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
33
<PAGE> 34
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
GENERAL
PARTNER
LIMITED PARTNERS -------
---------------- LSP-
TPC GRANITE POWER WHITEWATER I,
WHITEWATER, INC. PARTNERS, L.P. INC. TOTAL
---------------- -------------- ---- -----
<S> <C> <C> <C> <C>
Capital contributions at inception $ 0 $ 1 $ 0 $ 1
------- ------- ---- --------
Balance, December 31, 1995 and 1996 0 1 0 1
Capital contributions 20,556 0 0 20,556
Net income 25,572 72,440 990 99,002
------- ------- ---- --------
Balance, December 31, 1997 $46,128 $72,441 $990 $119,559
======= ======= ==== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
34
<PAGE> 35
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 99,002 $ 0 $ 0
Adjustments to reconcile net income to net
cash used in operating activities
Gain on sales-type capital lease (97,042) 0 0
Amortization of unearned lease income (6,579) 0 0
Amortization of debt issuance and finance costs 76 0 0
Minimum lease payments received 6,247 0 0
Depreciation 112 0 0
Increase in accounts payable - trade (4,983) 0 0
Increase in fuel inventories (984) 0 0
Increase in spare parts inventories (136) 0 0
Increase in other current assets (682) 0 0
Increase in accounts payable 2,865 0 0
Increase in accrued expenses 64 0 0
--------- -------- ---------
Net cash used in operating activities (2,040) 0 0
--------- -------- ---------
Cash Flows from Investing Activities:
Sales (acquisition) of land and improvements 939 (146) (3,394)
Payments on construction in process (33,847) (96,746) (43,983)
Investments held by Trustee (20,556) 0 (177,000)
Investments drawn 42,596 97,075 54,518
Investment in Funding 0 0 (1)
--------- -------- ---------
Net cash provided by (used in) investing activities (10,868) 183 (169,860)
--------- -------- ---------
Cash Flows from Financing Activities:
Debt issuance and financing costs 0 (153) (7,070)
Proceeds from First Mortgage Bonds 0 0 177,000
Capital contributions 20,556 0 0
--------- -------- ---------
Net cash provided by (used in) financing activities 20,556 (153) 169,930
--------- -------- ---------
Net increase in cash and cash equivalents 7,648 30 70
Cash and cash equivalents, beginning of year 101 71 1
--------- -------- ---------
Cash and cash equivalents, end of year $ 7,749 $ 101 $ 71
========= ======== =========
RECONCILIATION OF CHANGES IN
CONSTRUCTION IN PROCESS
Decrease (increase) in total construction in process $ 145,694 $(99,555) $ (46,139)
Construction in process sold in lease transaction (170,493) 0 0
Amortization of debt issuance and financing costs 185 244 111
Increase in accounts receivable-other (2,195) 0 0
Interest income on investments held by Trustee (1,375) (4,802) (4,206)
Increase in fuel inventories (378) 0 0
Increase in spare parts inventories (296) 0 0
Decrease in other current assets 1 0 1
Increase (decrease) in accounts payable (4,990) 7,367 6,250
--------- -------- ---------
Payments on construction in process $ (33,847) $(96,746) $ (43,983)
========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest during the year $ 13,801 $ 13,801 $ 6,900
========= ======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
35
<PAGE> 36
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
LSP-Whitewater Limited Partnership (the "Partnership") is a Delaware
limited partnership that was formed on December 14, 1993 to develop, finance,
construct and own a gas-fired cogeneration facility with a design capacity of
approximately 245 megawatts located in Whitewater, Wisconsin (the "Facility ").
Construction and start-up of the Facility was substantially completed and
commercial operation commenced September 18, 1997 (the "Commercial Operations
Date"). As of December 31, 1997, the 1% general partner of the Partnership was
LSP-Whitewater I, Inc., a wholly owned subsidiary of Granite Power Partners,
L.P., a Delaware limited partnership ("Granite"). Granite and TPC Whitewater,
Inc., a Delaware corporation ("TPC"), were the sole limited partners of the
Partnership, owning approximately 73% and 26% limited partnership interests,
respectively. The general partner of Granite is LS Power Corporation ("LS
Power"), a Delaware corporation. See Note 16 for discussion of a change in
ownership which occurred on March 20, 1998.
The Partnership holds a 50% equity ownership interest in LS Power Funding
Corporation ("Funding"), which was established on June 23, 1995 as a special
purpose Delaware corporation to issue debt securities (the "Senior Secured
Bonds") in connection with financing construction of the Facility and a similar
gas-fired cogeneration facility located in Cottage Grove, Minnesota (the
"Cottage Grove Facility"). On June 30, 1995, a portion of the proceeds from the
offering and sale of the Senior Secured Bonds issued by Funding was used to
purchase $177 million of First Mortgage Bonds issued simultaneously by the
Partnership.
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
which is not dispatched by WEPCO. The thermal energy generated by the Facility
is provided in the form of steam to the University of Wisconsin - Whitewater
under a steam supply agreement expiring on June 30, 2005 and in the form of hot
water to a greenhouse (the "Greenhouse") owned by the Partnership (collectively,
the "Steam Purchasers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include unrestricted
short-term investments with original maturities of three months or less.
RESTRICTED INVESTMENTS
Restricted investments represent overnight repurchase obligations secured by
U.S. Treasury notes. These investments are carried at cost, which approximated
market at December 31, 1997 and 1996. Amounts held by the trustee under the
trust indenture for the First Mortgage Bonds (the "Trustee") in accounts
designated for debt service, major maintenance and construction, which might
otherwise be considered cash equivalents, are treated as restricted investments.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Power Purchase Agreement described in Note 12 has characteristics
similar to a lease in that the agreement confers to the purchasing utility the
right to use specific property, plant and equipment. At the Commercial
Operations Date, the Partnership accounted for the Power Purchase Agreement as a
sales type capital lease in accordance with Statement of Financial Accounting
Standards (SFAS) No. 13, "Accounting for Leases" (see Note 6).
CONSTRUCTION IN PROCESS
Prior to commercial operation, all costs incurred to develop and construct
the Facility, including net costs associated with performance testing prior to
the Commercial Operation Date, as well as interest costs (including amortization
of debt issuance and financing costs), net of interest income on excess
proceeds, were capitalized and classified as construction in process.
36
<PAGE> 37
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
In recording the Partnership's gain on sales-type capital lease, all
construction in process costs related to the Facility were included in the
historical cost basis of the Facility. All interest costs subsequent to the
Commercial Operations Date have been charged to expense. As of December 31,
1996, capitalized interest including amortization of debt issuance and financing
costs was $12,048,000 ($11,694,000, before amortization).
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is computed
using the straight-line method over 25 years and 10 years, respectively (see
Note 7).
37
<PAGE> 38
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DEBT ISSUANCE AND FINANCING COSTS
Debt issuance and financing costs are deferred and amortized over the term
of the related debt. Amortization of deferred financing costs was capitalized as
part of construction in process prior to commercial operations and is included
in interest expense subsequent to commercial operations in the accompanying
financial statements.
CURRENT LIABILITIES
As of December 31, 1997 and 1996, $8,632,000 and $13,617,000 of current
liabilities were considered project costs and were eligible for payment from
funds held by the Trustee included in restricted investments in the accompanying
balance sheets.
LEASE REVENUE
Lease revenue represents the amortization of unearned income on lease
using the effective interest rate method as well as contingent rentals that
result from changes in payment escalators occurring subsequent to the Commercial
Operations Date. These contingent rentals are not expected to materially change
the lease revenue recognized over the life of the Power Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs incurred
to operate the Facility and to provide variable electric energy to the Utility
and thermal energy to the Steam Purchasers.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural gas
fuel inventory, including amounts remarketed directly to third parties, as well
as sales of horticultural products produced by the Partnership's Greenhouse
Facility.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility and
providing variable electric energy to the Utility as well as thermal energy to
the Steam Purchasers.
GREENHOUSE OPERATING EXPENSES
Greenhouse operating expenses include all operating costs specifically
related to greenhouse activities including depreciation on the Greenhouse
Facility.
INCOME TAXES
Under current tax laws, income or loss of partnerships is included in the
income tax returns of the partners. Accordingly, the Partnership makes no
provision for federal and state income taxes. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations occur and result in changes with respect to the Partnership
qualification, or in changes in distributable partnership income or loss, the
tax liability of the partners would be changed accordingly.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
38
<PAGE> 39
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This pronouncement establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income is defined as the total of net income and all
other non-owner changes in equity. This statement will be adopted by the
Partnership effective January 1, 1998. The Partnership believes this
pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This pronouncement establishes
standards for reporting information about operating segments in annual and
interim financial statements. SFAS No. 131 will be adopted by the Partnership
effective January 1, 1998. The Partnership believes this pronouncement will not
have a material effect on its financial statements.
3. ACCOUNTS RECEIVABLE - OTHER
Accounts Receivable-Other represents amounts due from Westinghouse Electric
Corporation ("Westinghouse Electric"), the Partnership's construction
contractor, for delay liquidated damages and extension fees due as a result of
Westinghouse Electric's failure to complete the construction and start-up of the
Facility by May 31, 1997. Such liquidated damages and extension fees were
capitalized as a reduction of construction in process.
4. FUEL INVENTORIES
Fuel inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Natural Gas $ 983 $ 0
Fuel Oil 378 0
------ ------
$1,361 $ 0
====== ======
</TABLE>
Natural gas inventory is stated at weighted average cost and fuel oil
inventory is stated at cost based on the first-in first-out method.
39
<PAGE> 40
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
5. RESTRICTED INVESTMENTS
Restricted investments consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31 December 31
1997 1996
---- ----
<S> <C> <C>
Overnight repurchase obligations $21,070 $34,415
Less: Unrestricted accounts (7,318) 0
------- -------
Restricted accounts $13,752 $34,415
======= =======
</TABLE>
Overnight repurchase obligations are secured by U.S. Treasury notes. The
majority of revenue received by the Partnership is required to be deposited into
accounts administered by the Trustee. The Trustee invests funds held in these
accounts at the direction of the Partnership. These accounts are established for
the purpose of depositing all receipts and monitoring all disbursements of the
Partnership. In addition, special accounts are established to provide for debt
service reserves and payments and major maintenance reserves. The use of funds
held by the Trustee prior to the Commercial Operations Date was restricted to
payment of project costs, including payment of interest on the First Mortgage
Bonds. Debt service reserves, major maintenance reserves and construction fund
account balances are reflected as restricted investments, whereas all other
account balances are classified as cash and cash equivalents in the accompanying
balance sheets.
6. SALES-TYPE CAPITAL LEASE
Upon the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sale-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 9.79%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at December
31, 1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
Gross Investment in Lease $ 615,489
Unearned Income on Lease (353,417)
---------
Net Investment in Lease $ 262,072
=========
</TABLE>
Gross investment in lease represents total capacity payments receivable over
the life of the Power Purchase Agreement, net of executory costs, which are
considered minimum lease payments in accordance with SFAS No. 13.
Estimated minimum lease payments over the remaining term of the Power
Purchase Agreement as of December 31, 1997, are as follows (dollars in
thousands):
<TABLE>
<S> <C>
1998 $ 22,392
1999 22,944
2000 24,036
2001 24,132
2002 25,140
Thereafter 496,845
--------
Total $615,489
========
</TABLE>
40
<PAGE> 41
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
7. GREENHOUSE FACILITY
Greenhouse Facility consists of (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Building $7,488
Equipment 905
------
8,393
Less: Accumulated Depreciation (112)
------
$8,281
======
</TABLE>
Building and equipment comprise the cost of the Greenhouse under a
turnkey construction contract inclusive of change orders and interest
capitalized during the construction period.
8. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in unconsolidated affiliate represents the Partnership's 50%
ownership interest in Funding. The Partnership's investment in Funding is
accounted for using the equity method. The following is summarized financial
information for Funding (dollars in thousands):
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
For the Year For the Year Inception
Ended Ended (June 23, 1995)
December 31, December 31, to December 31,
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Interest income $ 25,886 $ 25,886 $ 12,943
Interest expense 25,886 25,886 12,943
-------- -------- --------
Net income $ 0 $ 0 $ 0
======== ======== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
1997 and 1996
-------------
<S> <C>
Current assets $ 1
Investment in First Mortgage Bonds 332,000
---------
Total assets $ 332,001
=========
Senior Secured Bonds payable $ 332,000
Stockholders' equity 1
---------
Total liabilities and stockholders' equity $ 332,001
=========
</TABLE>
9. FIRST MORTGAGE BONDS PAYABLE
First Mortgage Bonds payable consists of the following at December 31, 1997 and
1996 (dollars in thousands):
<TABLE>
<S> <C>
7.19% First Mortgage Bonds
due June 30, 2010 ("2010 Bonds") $ 56,273
8.08% First Mortgage Bonds
due December 30, 2016 ("2016 Bonds") 120,727
--------
$177,000
========
</TABLE>
41
<PAGE> 42
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
On June 30, 1995, the Partnership issued and sold $177,000,000 of First Mortgage
Bonds to Funding. The bonds are secured by substantially all assets of the
Partnership. Interest is payable semi-annually on June 30 and December 30 of
each year, commencing December 30, 1995. Principal on the First Mortgage Bonds
is also payable semi-annually in varying amounts beginning on June 30, 2000 for
the 2010 Bonds, and beginning on December 30, 2010 for the 2016 Bonds.
Collective future maturities of the First Mortgage Bonds as of December 31,
1997, are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 0
1999 0
2000 1,239
2001 1,767
2002 2,430
Thereafter 171,564
--------
$177,000
========
</TABLE>
The trust indenture and other financing documents for the First Mortgage
Bonds include a number of covenants with which the Partnership must comply.
These covenants include, among others, compliance with certain reporting
requirements and limitations of activities relating to the bond proceeds,
additional debt, new and existing agreements, partnership distributions and
other activities. The trust indenture also describes events of default of the
First Mortgage Bonds which include, among others, certain events involving
bankruptcy of the Partnership and failure to maintain and comply with agreements
made by the Partnership.
10. CREDIT AGREEMENT
The Partnership has entered into a Credit Agreement which provides for
working capital loans of up to $3,000,000 and letter of credit commitments of up
to $5,000,000. The interest rate for loans made under the Credit Agreement is
based upon various short-term indices at the Partnership's option and is
determined separately for each draw. These commitments expire on June 30, 2000.
The Credit Agreement includes commitment fees, payable quarterly in arrears,
ranging from .25% to .375% on the daily average unused amount of the commitment
until the Credit Agreement is terminated. There were no letters of credit
outstanding under the Credit Agreement at December 31, 1997 and 1996. For all
periods through December 31, 1997, no working capital loans had been made to the
Partnership under the Credit Agreement.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISKS
The majority of the Company's accounts receivables are from a major
regulated utility (WEPCO) and the associated credit risk is considered limited.
The carrying amounts of the Partnership's cash and cash equivalents, accounts
receivables, restricted investments, accounts payable and accrued expenses
approximate fair value. The fair value of the Partnership's First Mortgage Bonds
at December 31, 1997, is $16,194,000 higher than the historical carrying value
of $177,000,000. At December 31, 1996, the fair value of the Partnership's First
Mortgage Bonds approximated carrying value.
42
<PAGE> 43
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION
The Partnership has a $115 million turnkey construction contract (inclusive
of executed change orders) with Westinghouse Electric. Westinghouse Electric had
committed to complete the construction and start-up of the Facility to specified
performance levels by May 31, 1997 and is required under the contract to
reimburse the Partnership for extension fees paid under its Power Purchase
Agreement with WEPCO, and to pay certain liquidated damages in the event of a
delay. During 1997, Westinghouse Electric was required to pay $110,000 and
$4,539,000 of reimbursable extension fees and delay liquidated damages,
respectively. The Partnership has recorded receivables from Westinghouse
Electric of $2,195,000 at December 31, 1997, which is comprised of reimbursable
extension fees of $35,000 and delay liquidated damages of $2,160,000 (see Note
3).
POWER PURCHASE AGREEMENT
Under and subject to the terms of the Power Purchase Agreement, the Utility
is obligated to purchase the electric capacity made available to it up to 236.5
megawatts and associated energy which the Utility chooses to dispatch from the
Facility beginning on the Commercial Operations Date. Payments by the Utility to
the Partnership under the Power Purchase Agreement consist of capacity payments
and energy payments which fluctuate based upon published indices and/or a fixed
schedule.
In accordance with the Power Purchase Agreement, the Partnership was
responsible for reimbursing the Utility for the actual increased costs of
capacity and energy acquired to replace the capacity and energy, which were to
be provided by the Facility. The Partnership's obligation to reimburse the
Utility for these "Replacement Power" costs began on June 23, 1997 and continued
through September 17, 1997. The Partnership had an obligation for Replacement
Power costs if the Utility's actual costs of capacity and energy exceeded the
amounts, which would have been paid to the Partnership under the Power Purchase
Agreement. For the period from June 23, 1997 through September 17, 1997, the
Partnership was required to pay the Utility approximately $3,300,000 for
Replacement Power costs. The Partnership has recorded remaining accounts payable
to the Utility of $2,060,000 at December 31, 1997 for Replacement Power in the
accompanying balance sheet.
43
<PAGE> 44
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
THERMAL ENERGY SALES
The Partnership has a thermal energy sales agreement with the Department of
Administration of the State of Wisconsin ("DOA") which provides for the
Partnership to supply the steam requirements of UWW (the "Thermal Energy
Agreement"). The initial term of the agreement runs through June 30, 2005. The
DOA has the option to extend the agreement for up to four extension periods of
four years each. The Thermal Energy Agreement obligates the Partnership to
supply all of UWW's steam requirements up to a maximum of 350 million pounds of
steam annually at a rate not to exceed 100,000 pounds per hour.
GAS SUPPLY
The Partnership has 20-year gas supply agreements with two fuel suppliers
to provide 100% of the Facility's natural gas requirements. The gas supply
contracts provide for the sale of up to 11,855 MMBtu per day of gas to the
Partnership. The price paid by the Partnership to the fuel suppliers under the
gas supply contracts fluctuate based on published indices.
Under the gas supply contracts, the Partnership is subject to annual
minimum take requirements which may be satisfied by delivering gas to the
Facility, taking gas into storage or remarketing gas to third parties.
GAS TRANSPORTATION
The Partnership has entered into various gas transportation agreements
with fuel transportation companies which provide for delivery of gas to the
Facility. The price paid by the Partnership under the gas transportation
contracts fluctuate based upon published indices.
OPERATIONS AND MAINTENANCE
The Facility is operated and maintained under an operations and
maintenance agreement with Westinghouse Operating Services Company, Inc.
("Westinghouse Services"). Under the terms of the operations and maintenance
agreement, the Partnership is required to pay Westinghouse Services an annual
management fee of $350,000, reimbursement of payroll, fringe benefits,
insurance, and certain subcontractor costs and a bonus based on target plant
performance. If targeted plant performance is not attained, Westinghouse
Services is required to pay a performance penalty to the Partnership. The
management fee is adjusted annually based on certain published indices. The term
of the operations and maintenance agreement extends for an initial period of
seven years (through September, 2004). The Partnership has the option to extend
the term of the agreement for two additional seven-year terms, provided that the
Partnership and Westinghouse Services mutually agree in writing as to the terms
of such extension.
PARTS AGREEMENT
The Partnership has a spare parts agreement (the "Parts Agreement") with
Westinghouse Electric. Under the terms of the Parts Agreement, Westinghouse
Electric provides (i) certain combustion turbine parts and refurbishment
services, (ii) other spare parts at discounted prices and (iii) other repair
services at direct cost plus a percent mark-up to the Partnership. The
compensation payable to Westinghouse Electric is an annual fee of $977,000
(escalated annually based upon published indices) payable for 12 years.
44
<PAGE> 45
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
GREENHOUSE
Construction of the Greenhouse was substantially complete on June 2, 1997.
The Partnership has an operational services agreement with Floriculture, Inc.
("Floriculture"), an affiliate of the Partnership, which operates the
Greenhouse for the benefit of the Partnership. Under the terms of the
operational services agreement, Floriculture is required to provide all the
services to produce, market, and sell horticulture products and maintain the
Greenhouse. As compensation for its services Floriculture is reimbursed on a
monthly basis for its approved costs in connection with conducting the
Greenhouse business and operating the Greenhouse, and will receive an annual
management fee equal to 12% of the Partnership's net profit from the operation
of the Greenhouse. The term of the operational services agreement will expire
on May 31, 2002. For the year ended December 31, 1997, Floriculture received
payments pursuant to the operations services agreement of approximately
$669,000. The Partnership has recorded accounts payable to Floriculture of
approximately $197,000 at December 31, 1997.
LITIGATION
The Partnership experiences routine litigation in the normal course of
business. Management is of the opinion that none of this routine litigation
will have a material adverse effect on the financial position or results of
operations of the Partnership.
13. DEPENDENCE ON THIRD PARTIES
The Partnership is highly dependent on a single utility for purchases of
electric generating capacity and energy from its Facility, and a single
operator to perform the operation and maintenance of its Facility. In addition,
the Partnership has contracted with two gas companies to supply the gas
requirements of the Facility, and has contracted with a single interstate gas
transporter to transport gas. Any material breach by any one of these parties
of their respective obligations to the Partnership could affect the ability of
the Partnership to make payments under its First Mortgage Bonds. In addition,
bankruptcy or insolvency of certain other parties or defaults by such parties
relative to their contractual or regulatory obligations could adversely affect
the ability of the Partnership to make payments under its First Mortgage Bonds.
If an agreement were to be terminated due to a breach of such agreement, the
Partnership's ability to enter into a substitute agreement having substantially
equivalent terms and conditions, or with an equally creditworthy third party,
is uncertain.
14. RELATED PARTY TRANSACTIONS
The initial costs incurred to develop the Facility, consisting principally
of site acquisition and development costs, engineering fees, legal fees,
permitting costs, interest and LS Power employee and office costs, were
incurred by Granite. At June 30, 1995, the Partnership paid development fees
and reimbursed certain costs totaling approximately $12,160,000 to Granite.
These payments were capitalized and included in construction in process.
LS Power provided certain management services to the Partnership pursuant to
management services agreements. Under these agreements, LS Power managed the
business affairs of the Partnership during construction and operation of the
Whitewater Project. As compensation for its services, LS Power received a
monthly management fee of $60,000 during construction, and $50,000 during
operation (both in 1995 dollars). These fees were escalated annually beginning
on January 1, 1996 pursuant to the rate of change in a consumer-price related
index. LS Power was also reimbursed for its reasonable and necessary expenses
incurred in performing its services, including salaries of its personnel to the
extent related to services provided under the agreements. Under these
agreements, the Partnership incurred expenses of approximately $1,534,000,
$1,392,000 and $544,000 during the years ended December 31, 1997, 1996 and
1995, respectively. At December 31, 1997 and 1996, the Partnership recorded
accounts payable to LS Power of
45
<PAGE> 46
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
approximately $235,000 and $53,000, respectively. See Note 16 for discussion of
assignment of the management services agreements which occurred on March 20,
1998.
15. PARTNERS' CAPITAL
In 1997, TPC, contributed $20,556,000 of equity for financing the
construction of the Facility. TPC received a limited partner interest in the
Partnership of approximately 26% and equity commitment fees of $350,000.
Profits, losses and distributions will be allocated based on the respective
partnership interests. Distributions will be made in accordance with the trust
indenture and other financing documents. Such distributions are subject to the
prior satisfaction of a number of conditions including, among others,
maintenance of required funding levels in various Trustee accounts and
compliance with minimum levels of current and projected debt service coverage.
16. SUBSEQUENT EVENT - CHANGE IN CONTROL
On March 6, 1998, LS Power and Granite (collectively, the "Sellers")
entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with Cogentrix Mid American, Inc. (CMA) and Cogentrix Cottage Grove,
LLC (collectively, the "Purchasers") and Cogentrix Energy, Inc. ("Cogentrix
Energy") which controls each of the Purchasers as wholly-owned indirect
subsidiaries.
On March 20, 1998, pursuant to the Securities Purchase Agreement, the
Sellers sold all of the Sellers' capital stock of Floriculture, Inc.
("Floriculture") and LSP-Whitewater I, Inc., as well as all of the Sellers'
limited partnership interest in the Partnership to the Purchasers. As a result,
CMA acquired all of the capital stock of Floriculture, and Cogentrix Whitewater,
LLC, a wholly-owned subsidiary of CMA, acquired all of the capital stock of
LSP-Whitewater I, Inc., the 1% general partner of the Partnership, as well as a
73.17% limited partnership interest in the Partnership for a combined total
ownership interest of 74.17% in the Partnership.
On the same date that the indirect subsidiaries of Cogentrix Energy
identified above acquired their ownership interests in the Partnership,
Cogentrix Energy and LS Power entered into an Assignment and Assumption
Agreement, by the terms of which LS Power assigned, and Cogentrix Energy
assumed, all of the rights and obligations of LS Power under certain management
service agreements between LS Power and LSP-Whitewater, Inc. and the
Partnership.
46
<PAGE> 47
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
LS Pro Forma
Actual (a) Acquisition (b) Adjustments Pro Forma
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 71,833 $ 16,565 $ (62,968)(c) $ 25,430
Restricted cash 27,742 -- -- 27,742
Marketable securities 42,118 -- (42,118)(d) --
Restricted investment -- -- -- --
Accounts receivable 49,781 14,788 -- 64,569
Inventories 15,210 4,105 -- 19,315
Other current assets 2,465 735 -- 3,200
-------- --------- ----------- ----------
Total current assets 209,149 36,193 (105,086) 140,256
PROPERTY, PLANT AND EQUIPMENT, NET 496,589 8,281 -- 504,870
LAND AND IMPROVEMENTS 2,540 -- -- 2,540
DEFERRED FINANCING, START-UP AND
ORGANIZATION COSTS, NET 21,085 13,124 -- 34,209
RESTRICTED INVESTMENTS -- 25,227 -- 25,227
NET INVESTMENT IN LEASE -- 496,106 -- 496,106
NATURAL GAS RESERVES 2,384 -- -- 2,384
INVESTMENTS IN UNCONSOLIDATED AFFILIATES 79,072 2 -- 79,074
OTHER ASSETS 12,155 -- 7,781 (e) 19,936
-------- --------- ----------- ----------
$822,974 $ 578,933 $ (97,305) $1,304,602
======== ========= =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 74,680 $ -- $ -- $ 74,680
Accounts payable 13,755 19,852 -- 33,607
Accrued compensation 4,923 136 -- 5,059
Accrued interest payable 2,935 -- -- 2,935
Accrued dividends payable 2,140 -- -- 2,140
Other accrued liabilities 8,182 -- -- 8,182
-------- --------- ----------- ----------
Total current liabilities 106,615 19,988 -- 126,603
LONG-TERM DEBT 595,112 332,000 70,000 (f) 997,112
DEFERRED INCOME TAXES 25,872 -- -- 25,872
MINORITY INTERESTS 15,131 -- 59,640 (g) 74,771
OTHER LONG-TERM LIABILITIES 21,946 -- -- 21,946
-------- --------- ----------- ----------
764,676 351,988 129,640 1,246,304
PARTNERS' CAPITAL -- 226,945 (226,945)(h) --
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value, 300,000 shares authorized;
282,000 shares issued and outstanding 130 -- -- 130
Net unrealized gain on available for sale securities 26 -- -- 26
Accumulated earnings 58,142 -- -- 58,142
-------- --------- ----------- ----------
58,298 -- -- 58,298
-------- --------- ----------- ----------
$822,974 $ 578,933 $ (97,305) $1,304,602
======== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma consolidated balance sheet.
47
<PAGE> 48
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) This column represents the historical consolidated results of
operations and consolidated financial position of Cogentrix Energy,
Inc. (the "Company").
(b) This column represents the historical results of operations and
financial position of the Cottage Grove Facility and the Whitewater
Facility on a combined basis.
(c) Reflects (i) $70,000,000 of proceeds from borrowings under a corporate
credit facility and a revolving credit facility (see (d) below), (ii)
$42,118,000 of proceeds from the liquidation of marketable securities,
and (iii) $175,086,000 of cash disbursed to fund the LS Acquisition
purchase price and related acquisition costs.
(d) Represents the liquidation of marketable securities, which provided
cash required to fund a portion of the LS Acquisition purchase price
and related acquisition costs.
(e) Represents the excess of the cost of the LS Acquisition over the fair
market value of the net assets acquired.
(f) Represents $50,000,000 of indebtedness incurred by Cogentrix Energy,
Inc. under its corporate credit facility and $20,000,000 of
indebtedness incurred by Cogentrix Virginia Leasing Corporation, an
indirect wholly-owned subsidiary of Cogentrix Energy, Inc., under its
revolving credit facility. The proceeds of the borrowings were used to
fund a portion of the LS Acquisition purchase price and related
acquisition costs.
(g) Represents the minority partner's approximate 26% ownership interest in
the Cottage Grove Facility and the Whitewater Facility.
(h) Reflects the removal of partner's capital associated with the Company's
and the minority partner's share of the net assets of the partnerships.
48
<PAGE> 49
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Six-Month Period Ended December 31, 1997
(dollars in thousands, except for earnings per common share)
<TABLE>
<CAPTION>
LS Pro Forma
Actual (a) Acquisition (b) Adjustments Pro Forma
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Electric $ 154,810 $ -- $ -- $ 154,810
Steam 12,721 -- -- 12,721
Lease revenue -- 11,844 -- 11,844
Service revenue under sales-type capital leases -- 10,823 -- 10,823
Income from unconsolidated investments in power projects 1,186 -- -- 1,186
Other 9,229 1,419 -- 10,648
--------- --------- --------- ---------
177,946 24,086 -- 202,032
--------- --------- --------- ---------
OPERATING EXPENSES:
Fuel expense 60,500 -- -- 60,500
Operations and maintenance 33,189 799 -- 33,988
General, administrative and development expenses 18,242 -- -- 18,242
Depreciation and amortization 20,407 -- 93 (c) 20,500
Cost of services under sales-type capital leases -- 12,799 -- 12,799
--------- --------- --------- ---------
132,338 13,598 93 146,029
--------- --------- --------- ---------
OPERATING INCOME 45,608 10,488 (93) 56,003
OTHER INCOME (EXPENSE):
Gain on sales-type capital lease -- 184,098 (184,098)(d) --
Interest expense (25,680) (7,111) (2,245)(e) (35,036)
Investment and other income, net 4,334 745 (3,067)(f) 2,012
Equity in net loss of affiliates, net (1,813) -- -- (1,813)
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS 22,449 188,220 (189,503) 21,166
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS (2,273) -- (1,085)(g) (3,358)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 20,176 188,220 (190,588) 17,808
BENEFIT (PROVISION) FOR INCOME TAXES (7,971) -- 936 (h) (7,035)
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 12,205 188,220 (189,652) 10,773
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and income tax benefit of $473 (1,502) -- -- (1,502)
--------- --------- --------- ---------
NET INCOME $ 10,703 $ 188,220 $(189,652) $ 9,271
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss $ 43.28 $ 38.20
Extraordinary loss (5.33) (5.33)
--------- ---------
$ 37.95 $ 32.87
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000
========= =========
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma consolidated statement of income.
49
<PAGE> 50
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
(a) This column represents the historical consolidated results of
operations of the Company.
(b) This column represents the historical results of operations of the
Cottage Grove Facility and the Whitewater Facility on a combined basis.
This column does not give effect to a full year of operating results of
the acquired facilities since the Whitewater Facility and the Cottage
Grove Facility did not commence commercial operations until September
18, 1997 and October 1, 1997, respectively.
(c) Represents amortization of the excess of the cost of the LS Acquisition
over the fair market value of the net assets acquired using the
straight line method over the life of the power purchase agreements.
(d) Represents the elimination of the gain on sales-type capital lease
recorded at each facility. This is a non-recurring item which will not
have a continuing impact on the statement of income.
(e) Represents the recognition of interest expense on the additional
borrowings of the Company used to finance a portion of the LS
Acquisition purchase price and related acquisition costs.
(f) Represents a reduction in investment income as a result of the use of
cash and marketable securities to fund a portion of the LS Acquisition
purchase price and related acquisition costs.
(g) Represents the minority partner's share of income of the Cottage Grove
and Whitewater Facilities.
(h) Represents the income tax effect due to pro forma adjustments which
affect taxable income.
50
<PAGE> 51
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Twelve-Month Period Ended June 30, 1997
(dollars in thousands, except for earnings per common share)
<TABLE>
<CAPTION>
LS Pro Forma
Actual (a) Acquisition (b) Adjustments Pro Forma
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Electric $ 315,203 $ -- $ -- $ 315,203
Steam 26,686 -- -- 26,686
Income from unconsolidated investments in power projects 574 -- -- 574
Other 10,343 -- -- 10,343
--------- ----------- --------- ---------
352,806 -- -- 352,806
--------- ----------- --------- ---------
OPERATING EXPENSES:
Fuel expense 131,405 -- -- 131,405
Operations and maintenance 73,041 -- -- 73,041
General, administrative and development expenses 39,425 -- -- 39,425
Depreciation and amortization 40,047 -- -- 40,047
Loss on impairment and cost of removal of cogeneration facilities 65,628 -- -- 65,628
--------- ----------- --------- ---------
349,546 -- -- 349,546
--------- ----------- --------- ---------
OPERATING INCOME 3,260 -- -- 3,260
OTHER INCOME (EXPENSE):
Interest expense (56,328) -- (4,347)(c) (60,675)
Investment and other income, net 13,184 -- (5,585)(d) 7,599
Equity in net loss of affiliates, net (813) -- -- (813)
--------- ----------- --------- ---------
LOSS BEFORE MINORITY INTERESTS IN INCOME,
INCOME TAXES AND EXTRAORDINARY LOSS (40,697) -- (9,932) (50,629)
MINORITY INTERESTS IN INCOME BEFORE
EXTRAORDINARY LOSS (4,013) -- -- (4,013)
--------- ----------- --------- ---------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS (44,710) -- (9,932) (54,642)
INCOME TAX BENEFIT 17,112 -- 3,923 (e) 21,035
--------- ----------- --------- ---------
LOSS BEFORE EXTRAORDINARY LOSS (27,598) -- (6,009) (33,607)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, net of minority interest and income tax benefit of $473 (703) -- -- (703)
--------- ----------- --------- ---------
NET LOSS $ (28,301) $ -- $ (6,009) $ (34,310)
========= =========== ========= =========
EARNINGS PER COMMON SHARE:
Income before extraordinary loss $ (97.87) $ (119.17)
Extraordinary loss (2.49) (2.49)
--------- ---------
$ (100.36) $ (121.66)
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 282,000 282,000
========= =========
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma consolidated statement of operations.
51
<PAGE> 52
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE-MONTH PERIOD ENDED JUNE 30, 1997
(a) This column represents the historical consolidated results of
operations of the Company.
(b) This column represents the historical results of operations of the
Cottage Grove Facility and the Whitewater Facility on a combined basis.
There were no results of operations to report from the acquired
facilities for the twelve-month period ending June 30, 1997 since the
Whitewater Facility and the Cottage Grove Facility did not commence
commercial operations until September 18, 1997 and October 1, 1997,
respectively.
(c) Represents the recognition of interest expense on the additional
borrowings of the Company used to finance a portion of the LS
Acquisition purchase price and related acquisition costs.
(d) Represents a reduction in investment income as a result of the use of
cash and marketable securities to fund a portion of the LS Acquisition
purchase price and related acquisition costs.
(e) Represents the income tax effect due to pro forma adjustments which
affect taxable income.
52
