SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P. (Exact name of co-registrant as
specified in its charter)
Delaware 52-1722490 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
INDIANTOWN COGENERATION FUNDING CORPORATION (Exact name of
co-registrant as specified in its charter)
Delaware 52-1889595 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor Bethesda, Maryland 20814-6161
(Registrants' address of principal executive offices)
(301)-718-6800 (Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. [ X ] Yes [ ] No
Indiantown Cogeneration, L.P. Indiantown Cogeneration Funding
Corporation
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements: Consolidated Balance Sheets as of
September 30, 1998 (Unaudited) and December 31,
1997..................................................1
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1998 (Unaudited) and September 30, 1997
(Unaudited)...........................................3
Consolidated Statements of Operations for the Three Months Ended
September 30, 1998 (Unaudited) and September 30, 1997
(Unaudited)........................................4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 (Unaudited) and September 30, 1997
(Unaudited)...........................................5
Consolidated Statements of Cash Flows for the Three Months Ended
September 30, 1998 (Unaudited) and September 30, 1997
(Unaudited) ...................................... .6
Notes to
Consolidated Financial Statements (Unaudited)............7
Item
2 Management's Discussion and Analysis of Financial Condition
and Results of
Operations..............................................11
PART II OTHER INFORMATION
Item 1 Legal
Proceedings.................................................16
Item 5 Other
Information.................................................16
Item 6 Exhibits and Reports on Form
8-K.........................................................18
Signatures..................................................21
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
<S> <C> <C>
ASSETS September 30, 1998 December 31, 1997
(Unaudited)
CURRENT ASSETS:
Cash and cash
equivalents $ 1,672,051 $ 3,234,379
Accounts receivable
- -trade 13,734,420 14,483,090
Inventories 1,070,991 337,001
Prepaids 605,715 1,025,372
Deposits 44,000 193,357
Investments held by
Trustee, including
restricted funds of
$19,231,205 and
$2,764,745,
respectively 27,299,567 13,009,289
Total current assets 44,426,744 32,282,488
INVESTMENTS HELD
BY TRUSTEE,
restricted funds 13,769,070 13,501,000
DEPOSITS 70,000 65,000
PROPERTY, PLANT
& EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam
generating facilities696,898,380 695,386,424
Less accumulated
depreciation (46,691,371) (35,504,414)
Net property, plant
& equipment 658,789,372 668,464,373
FUEL RESERVE 3,428,403 3,140,989
DEFERRED FINANCING
COSTS, net of
accumulated amortization
of $42,809,979 and
$42,172,755,
respectively 17,376,937 18,014,161
Total assets $ 737,860,526 $ 735,468,011
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
<S> <C> <C>
LIABILITIES AND
PARTNERS' CAPITAL September 30, 1998 December 31, 1997
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 3,617,843 $ 238,526
Accrued liabilities 8,940,030 9,785,093
Accrued interest 16,236,954 2,337,078
Current portion -
First Mortgage Bonds 10,131,000 10,265,000
Current portion lease
payable - railcars 281,914 267,058
Total current
liabilities 39,207,741 22,892,755
LONG TERM DEBT:
First Mortgage Bonds 471,241,000 476,239,000
Tax Exempt Facility
Revenue Bonds 125,010,000 125,010,000
Lease payable
- - railcars 4,657,415 4,870,747
Total long term debt 600,908,415 606,119,747
Reserve-Major
Maintenance 466,303 329,945
Total liabilities 640,582,459 629,342,447
PARTNERS' CAPITAL:
Toyan Enterprises 29,232,060 53,062,783
Palm Power Corporation 9,727,806 10,612,556
TIFD III-Y, Inc. 38,911,227 42,450,225
Indiantown Project
Investment Partnership19,406,974 --
Total partners'
capital 97,278,067 106,125,564
Total liabilities
and partners'
capital $737,860,526 $735,468,011
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1998 and September 30, 1997
<S> <C> <C>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and
capacity bonus revenue $92,577,872 $91,453,854
Electric energy revenue 29,188,679 29,168,878
Steam revenue 139,476 100,000
Total operating revenues 121,906,027 120,722,732
Cost of Sales:
Fuel and ash 29,563,460 32,212,057
Operating and maintenance 13,370,864 11,639,412
Depreciation 11,321,461 11,671,841
Total cost of sales 54,255,785 55,523,310
Gross Profit 67,650,242 65,199,422
Other Operating Expenses:
General and administrative 2,538,779 2,081,092
Insurance and taxes 5,063,310 5,158,623
Total other operating expenses 7,602,089 7,239,715
Operating Income 60,048,153 57,959,707
Non-Operating Income (Expenses):
Interest expense (44,233,638) (43,670,510)
Interest/Other income 1,817,987 1,882,279
Net non-operating expense (42,415,651) (41,788,231)
Net Income $17,632,502 $16,171,476
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Three Months Ended September 30, 1998 and September 30, 1997
<S> <C> <C>
ThreeMonths Ended Three Months Ended
September 30, 1998 September 30, 1997
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and
capacity bonus revenue $ 30,867,890 $ 30,816,388
Electric energy revenue 12,394,748 13,871,898
Steam revenue 33,333 33,333
Total operating revenues $ 43,295,971 $ 44,721,619
Cost of Sales:
Fuel and ash $ 11,624,907 $ 14,491,836
Operating and maintenance 4,555,656 3,918,401
Depreciation 3,773,365 3,892,003
Total cost of sales $ 19,953,928 $ 22,302,240
Gross Profit $ 23,342,043 $ 22,419,379
Other Operating Expenses:
General and administrative $ 1,133,109 $ 703,104
Insurance and taxes 1,702,076 1,740,938
Total other operating expenses $ 2,835,185 $ 2,444,042
Operating Income $ 20,506,858 $ 19,975,337
Non-Operating Income (Expenses):
Interest expense $(14,628,961) $(14,501,666)
Interest/Other income 559,729 600,702
Net Income $ 6,437,626 $ 6,074,373
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
<S> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, 1998 September 30, 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 17,632,502 $ 16,171,476
Adjustments to reconcile
net income to net
Cash provided by operating
activities:
Depreciation and amortization 11,824,181 11,959,510
Decrease (Increase) in accounts
receivable 748,670 (1,119,640)
(Increase) Decrease in
inventories and fuel reserves (1,021,404) 882,557
Decrease (Increase) in deposits
and prepaids 564,014 (899,997)
Increase in accounts payable,
accrued liabilities and
accrued interest 16,434,130 19,716,483
Increase in major
maintenance reserve 136,358 132,389
Decrease in lease payable (198,476) (184,654)
Net cash provided by operating
activities 46,119,975 46,658,124
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
& equipment (1,511,955) (1,480,224)
Increase in investment
held by trustee (14,558,348) (24,217,234)
Net cash used in investing
activities (16,070,303) (25,697,458)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of bonds (5,132,000) (4,850,000)
Capital distributions (26,480,000) (16,278,047)
Net cash used in financing
activities (31,612,000) (21,128,047)
CHANGE IN CASH AND CASH
EQUIVALENTS (1,562,328) (167,381)
CASH and CASH EQUIVALENTS,
beginning of year 3,234,379 344,323
CASH and CASH EQUIVALENTS,
end of period $1,672,051 $ 176,942
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 1998 and 1997
<S> <C> <C>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 6,437,626 $ 6,074,373
Adjustments to reconcile net
income to net
Cash provided by operating
activities:
Depreciation and amortization 3,984,778 3,987,893
Decrease (Increase) in
accounts receivable 796,886 (1,728,851)
(Increase) Decrease in
inventories and fuel reserves (1,146,097) 402,997
Decrease (Increase) in
deposits and prepaids 264,492 (771,300)
Increase in accounts payable,
accrued liabilities and
accrued interest 14,789,388 19,654,909
Increase in major maintenance
reserve 45,453 44,130
Decrease in lease payable (67,356) (62,665)
Net cash provided by operating
activities 25,105,170 27,601,486
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant
& equipment (1,068,266) (522,986)
Decrease (Increase) in
investment held by trustee (24,763,440) (27,224,872)
Net cash used in investing
activities (25,831,706) (27,747,858)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of bonds - -
Capital distributions - -
Net cash used in financing
activities - -
CHANGE IN CASH AND CASH
EQUIVALENTS (726,536) (146,372)
CASH and CASH EQUIVALENTS,
beginning of year 2,398,587 323,314
CASH and CASH EQUIVALENTS,
end of period $1,672,051 $ 176,942
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements As of September 30, 1998
(Unaudited)
1. ORGANIZATION AND BUSINESS: Indiantown Cogeneration, L.P. (the
"Partnership") is a special purpose Delaware limited partnership
formed on October 4, 1991. The general partners are Indiantown
Project Investment Partnership, L.P., a Delaware limited
partnership ("IPILP") and Palm Power Corporation ("Palm"), a
Delaware corporation and a special purpose indirect subsidiary
of Cogentrix Energy, Inc. ("Cogentrix"). The limited partners
are TIFD III-Y, Inc. ("TIFD"), a special purpose indirect
subsidiary of General Electric Capital Corporation ("GECC") and
Toyan Enterprises ("Toyan"), a California corporation and
wholly-owned subsidiary of U.S. Generating Company, LLC. Recent
changes to the ownership structure of the Partnership are
detailed below. During 1994, the Partnership formed its sole,
wholly owned subsidiary, Indiantown Cogeneration Funding
Corporation ("ICL Funding"), to act as agent for, and co-issuer
with, the Partnership in accordance with the 1994 bond offering
discussed in Note 4. ICL Funding has no separate operations and
has only $100 in assets and capitalization.
The Partnership was formed to develop, construct, and operate an
approximately 330 megawatt (net) pulverized coal-fired cogeneration
facility (the "Facility") located on an approximately 240 acre site
in southwestern Martin County, Florida. The Facility was designed
to produce electricity for sale to Florida Power & Light Company
("FPL") and will also supply steam to Caulkins Indiantown Citrus Co.
("Caulkins") for its plant located near the Facility.
The Partnership is managed by U.S. Generating Company ("USGen")
pursuant to a Management Services Agreement (the "MSA"). The
Facility is operated by U.S. Operating Services Company ("USOSC")
pursuant to an Operation and Maintenance Agreement (the "O&M
Agreement"). USGen and USOSC are general partnerships originally
formed between affiliates of PG&E Enterprises and Bechtel
Enterprises. On September 19, 1997, USGen and USOSC each separately
redeemed Bechtel Enterprises, Inc.' interests in USGen and USOSC so
that U.S. Generating Company, LLC now indirectly owns all of the
interests in USGen and USOSC. This will not affect USGen's
obligations under the MSA or USOSC's obligations under the O&M
Agreement. Also on September 19, 1997, Toyan purchased 16.67% of
Palm's interest in the Partnership, which represents a 2% ownership
in the Partnership.
On August 21, 1998, Toyan consummated the transactions contemplated
in the Purchase Agreement dated as of May 29, 1998, with DCC Project
Finance Twelve, Inc. ("PFT"), whereby PFT formed IPILP with Toyan.
IPILP became a new general partner in the Partnership by acquiring a
19.95% interest in the Partnership from Toyan. Prior to the PFT
transaction, Toyan converted its remaining partnership interest from
a general partnership interest into a limited partnership interest
such that Toyan now directly holds only a limited partnership
interest in the Partnership. Separately, Bechtel Generating
Company, Inc. ("Bechtel Generating"), a subsidiary of Bechtel
Enterprises, entered into a Purchase Agreement dated as of March 6,
1998, with Cogentrix whereby a wholly owned subsidiary of Cogentrix
purchased from Bechtel Generating, on October 20, 1998, among other
things, 100% of the stock of Palm. Palm holds a 10% interest in the
Partnership. In addition, on October 27, 1998, PFT and Toyan
entered into an Asset Purchas e Agreement pursuant to which, upon
the satisfaction of certain conditions, Toyan will transfer a
portion of its interest in IPILP to PFT such that PFT will own
75.188% of IPILP representing a 15% interest in the Partnership.
The net profits and losses of the Partnership are allocated to
Toyan, Palm, TIFD and, if applicable, IPILP (collectively, the
"Partners") based on the following ownership percentages:
From September From August From October
20, 1997 28, 1998 20, 1998
Toyan 50% 30.05% 30.05%
Palm 10% 10% 10%*
IPILP -- 19.95%** 19.95%**
TIFD 40% 40% 40%
* Now beneficially owned by Cogentrix. ** PFT's beneficial
ownership in the Partnership through IPILP is equal to 10%;
provided, however, that if the pending sale described above occurs,
this interest will be equal to 15%.
The change in ownership as a result of the consummated PFT
transaction was the subject of a notice of self-recertification of
Qualifying Facility status filed by the Partnership with the Federal
Energy Regulatory Commission on August 20, 1998. Another notice of
self-recertification will be filed for the pending PFT transaction.
The Cogentrix transaction was the subject of a similar filing.
All distributions other than liquidating distributions will be
made based on the Partners' percentage interest as shown above, in
accordance with the project documents and at such times and in such
amounts as the Board of Control of the Partnership determines. The
Partners contributed, pursuant to an equity commitment agreement,
approximately $140,000,000 of equity when commercial operation of
the Facility commenced in December 1995.
The Partnership was in the development stage through December
21, 1995 and commenced commercial operations on December 22, 1995
(the "Commercial Operation Date"). The Partnership's continued
existence is dependent on the ability of the Partnership to sustain
successful operations. Management of the Partnership is of the
opinion that the assets of the Partnership are realizable at their
current carrying value.
2. FINANCIAL STATEMENTS: The consolidated balance sheet as of
September 30, 1998, and the consolidated statements of
operations and cash flows for the nine months ended on September
30, 1998 and 1997, have been prepared by the Partnership,
without audit and in accordance with the rules and regulations
of the Securities and Exchange Commission. In the opinion of
management, these financial statements include all adjustments
(consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Partnership as of
September 30, 1998, and the results of operations and cash flows
for the nine months ended September 30, 1998 and 1997.
The financial statements and related notes contained herein
should be read in conjunction with the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1997.
Investments Held by Trustee The investments held by trustee
represent bond and equity proceeds and revenue funds held by a
bond trustee/disbursement agent and are carried at cost which
approximates market. All funds are invested in either Nations
Treasury Fund-Class A or other permitted investments for longer
periods. The Partnership also maintains restricted investments
covering a portion of the Partnership's debt as required by the
financing documents. The proceeds include $12,501,000 of
restricted tax-exempt debt service reserve required by the
financing documents and is classified as a noncurrent asset on
the accompanying balance sheets. All other investments are
classified as current assets in the accompanying consolidated
balance sheets. In addition, a qualifying facility ("QF")
reserve of $1.3 million is also held long term. Property, Plant
and Equipment Property, plant and equipment, which consist
primarily of the Facility, are recorded at actual cost. The
Facility is depreciated on a straight-line basis over 35 years.
As of January 1, 1997, the Partnership prospectively revised its
calculation of depreciation to include a residual value on the
Facility approximating 25 percent of the gross Facility costs.
Other property and equipment are depreciated on a straight-line
basis over the estimated economic or service lives of the respective
assets (ranging from five to seven years). Routine maintenance and
repairs are charged to expense as incurred.
Equity Contribution Agreement Pursuant to an Equity Contribution
Agreement, dated as of November 1, 1994, between TIFD and
NationsBank of Florida, N.A. (succeeded by The Bank of New York
Trust Company of Florida, N.A.) (the "Trustee"), the Partners
contributed approximately $140,000,000 of equity on December 26,
1995. Proceeds were used to repay the $139,000,000 balance
outstanding under the Equity Loan Agreement. The remaining
$1,000,000 was deposited with the Trustee according to a
disbursement agreement among the Partnership, the Trustee and
the other lenders to the Partnership and is included in
investments held by trustee in the accompanying consolidated
balance sheets as of December 31, 1997. The funds were released
and subsequently (on June 15, 1998) distributed in accordance
with the Disbursement Agreement.
3. DEPOSITS: In 1991, in accordance with a contract between the
Partnership and Martin County, the Partnership provided Martin
County with a security deposit in the amount of $149,357 to
secure installation and maintenance of required landscaping
materials. In January 1998, the Partnership received a refund
of funds in excess of the required deposit as security for the
first year maintenance as set forth in the contract between the
Partnership and Martin County. The deposit, net of any refund,
is included in current assets at June 30, 1998 and December 31,
1997. The remaining funds were returned in September 1998 when
the Partnership submitted a surety bond for the required amount.
In 1991, in accordance with the Planned Unit Development Zoning
Agreement between the Partnership and Martin County, the Partnership
deposited $1,000,000 in trust with the Board of County Commissioners
of Martin County (the "PUD Trustee"). Income from this trust will
be used solely for projects benefiting the community of Indiantown.
On July 23, 2025, the PUD Trustee is required to return the deposit
to the Partnership. As of September 30, 1998 and 1997, the
estimated present value of this deposit was $70,000 and $65,000,
respectively, and has been included in deposits in the accompanying
balance sheets. The remaining balance has been included in property
plant, and equipment as part of total construction expenses. 4.
FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the
carrying amounts and estimated fair values of the Partnership's
financial instruments at September 30, 1998. Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", defines the fair market value of a financial
instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties.
Carrying Amount Fair Value
Financial Liabilities
Tax-Exempt Bonds $125,010,000 $146,036,145
Taxable Bonds $481,372,000 $567,594,191
For the Tax Exempt Bonds and First Mortgage Bonds, the fair
values of the Partnership's bonds payable are based on the stated
rates of the Tax Exempt Bonds and First Mortgage Bonds and current
market interest rates to estimate market values for the Tax Exempt
Bonds and the First Mortgage Bonds.
The carrying amounts of the Partnership's cash and cash
equivalents, accounts receivable, deposits, prepaid expenses,
investments held by trustee, accounts payable, accrued liabilities
and accrued interest approximate fair value because of the short
maturities of these instruments.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Partnership and the notes
thereto included elsewhere in this report.
General
The Partnership is primarily engaged in the ownership and
operation of a non-utility electric generating facility. Since its
inception, and until December 21, 1995, the Partnership was in the
development stage and had no operating revenues or expenses. On
December 22, 1995 the Facility commenced commercial operation. As
of September 30, 1998, the Partnership had approximately $659
million of property, plant and equipment (net of accumulated
depreciation) consisting primarily of purchased equipment,
construction-related labor and materials, interest during
construction, financing costs and other costs directly associated
with the construction of the Facility. For the nine months ended
September 30, 1998, the Partnership had total operating revenues of
approximately $121.9 million, total operating costs of $61.9
million, and total net interest expenses of approximately $42.4
million resulting in net income of approximately $17.6 million.
The Partnership has obtained all material environmental permits
and approvals required as of September 30, 1998 for the operation
of the Facility. Certain of these permits and approvals are
subject to periodic renewal. Certain additional permits and
approvals will be required in the future for the continued
operation of the Facility. The Partnership is not presently aware
of any technical circumstances that would prevent the issuance of
such permits and approvals or the renewal of currently existing
permits. The Partnership timely filed its application for a Title
V air permit on May 24, 1996. The air construction permit will
continue in effect until the Title V permit is issued. A draft
permit has been issued by the Florida Department of Environmental
Protection. A final permit is expected by the next six months.
Results of Operations
For the nine months ending September 30, 1998 and 1997, the
Facility achieved an average Capacity Billing Factor of 101.26% and
97.52%, respectively. This resulted in earning monthly capacity
payments aggregating $84.2 million and $83.9 million, and bonuses
aggregating $8.4 million and $7.5 million for the nine months ended
September 30, 1998 and 1997, respectively. The Capacity Billing
Factor measures the overall availability of the Facility, but gives
a heavier weighting to on-peak availability. During the nine months
ended September 30, 1998, the Facility was dispatched by FPL and
generated 1,207,564 megawatt-hours which is comparable to the
1,220,675 megawatt-hours during the same period in 1997. The
monthly dispatch rate for the first nine months of 1998 ranged from
35% to 79%, as compared to a range of 40% to 84% for the
corresponding period in 1997.
Net income for the nine months ended September 30, 1998, was
approximately $17.6 million compared to the net income of
approximately $16.2 million for the corresponding period in the
prior year. The $1.4 million increase is primarily attributable to
a higher Capacity Billing Factor and the corresponding increases in
capacity payments and bonuses.
Electric Energy Revenues
For the nine months ended
September 30, 1998 September 30, 1997
Revenues $29.2 million $29.2 million
KWhs 1,207.6 1,220.7
Average Capacity
Billing Factor 101.26% 97.52%
Average Dispatch Rate 59.0% 59.3%
For the nine months ended September 30, 1998, the Partnership
had total operating revenues of approximately $121.9 million as
compared to $120.7 million for the corresponding period in the prior
year. The $1.2 million increase in operating revenue is primarily
due to a $1.1 million increase in electric capacity and bonus
revenue resulting from higher availability levels during the nine
months ended September 30, 1998.
Costs of revenues for the nine months ended September 30, 1998,
were approximately $54.3 million on sales of 1,207,564 MWhs as
compared to $55.5 million on sales of 1,220,675 MWhs for the
corresponding period in the prior year. This decrease is largely
attributable to a $2.6 million decrease in fuel and ash disposal
costs resulting from savings on the new ash disposal agreement and a
$.35 million decrease in depreciation, offset by $1.76 million
higher operating and maintenance costs because of increased costs
for parts and contract labor on the baghouse, increased mobile
equipment rental and routine maintenance.
Total other operating expenses for the nine months ended
September 30, 1998, were approximately $7.6 million compared to the
$7.2 million of total other operating expenses for the corresponding
period in the prior year. The $.4 million increase is due to higher
general and administrative expenses because of year 2000 costs and
additional corporate support in the environmental and safety areas.
Net interest expense for the nine months ended September 30,
1998, of approximately $42.4 million compared to the $41.8 million
of net interest expense for the same period in the prior year. The
$.6 million increase was caused by a decrease in interest expense
due to the maturity of the Series A-4 and A-5 First Mortgage Bonds
offset by railcar interest and deferred financing amortization which
were reclassified in December 1997 from fuel and depreciation to
interest expense.
Liquidity and Capital Resources
On November 22, 1994 the Partnership and ICL Funding issued
first mortgage bonds in an aggregate principal amount of $505
million (the "First Mortgage Bonds"), $236.6 million of which bear
an average interest rate of 9.26% and $268.4 million of which bear
an interest rate of 9.77%. Concurrently with the Partnership's
issuance of its First Mortgage Bonds, the Martin County Industrial
Development Authority issued $113 million of Industrial Development
Refunding Revenue Bonds (Series 1994A) which bear an interest rate
of 7.875% (the "1994A Tax Exempt Bonds"). A second series of tax
exempt bonds (Series 1994B) in the approximate amount of $12
million, which bear an interest rate of 8.05%, were issued by the
Martin County Industrial Development Authority on December 20, 1994
(the "1994B Tax Exempt Bonds" and, together with the 1994A Tax
Exempt Bonds, the "1994 Tax Exempt Bonds"). The First Mortgage
Bonds and the 1994 Tax Exempt Bonds are hereinafter collectively
referred to as the "Bonds."
Certain proceeds from the issuance of the First Mortgage Bonds
were used to repay $421 million of the Partnership's indebtedness
and financing fees and expenses incurred in connection with the
development and construction of the Facility and the balance of the
proceeds were deposited in various restricted funds that are being
administered by an independent disbursement agent pursuant to trust
indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These
funds together with other funds available to the Partnership were
being used: (i) to finance completion of construction, testing, and
initial operation of the Facility; (ii) to finance construction
interest and contingency; and (iii) to provide for initial working
capital.
The proceeds of the 1994 Tax Exempt Bonds were used to refund
$113 million principal amount of Industrial Development Revenue
Bonds (Series 1992A and Series 1992B) previously issued by the
Martin County Industrial Development Authority for the benefit of
the Partnership, and to fund, in part, a debt service reserve
account for the benefit of the holders of its tax-exempt bonds and
to complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through
September 1998 were $769 million. The equity loan of $139 million
was repaid on December 26, 1995. As of September 30, 1998, the
borrowings included $125 million from the 1994 Tax Exempt Bonds and
all of the available First Mortgage Bond proceeds. The First
Mortgage Bonds have matured as follows:
Series Aggregate Principal Amount Date Matured and Paid
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
The weighted average interest rate paid by the Partnership on its
debt for the nine months ended September 30, 1998 and 1997, was
9.176% and 9.175%, respectively.
The Partnership, pursuant to certain of the Project Contracts,
is required to post letters of credit which, in the aggregate, will
have a face amount of no more than $65 million. Certain of these
letters of credit have been issued pursuant to a Letter of Credit
and Reimbursement Agreement with Credit Suisse and the remaining
letters of credit will be issued when required under the Project
Contracts, subject to conditions contained in such Letter of Credit
and Reimbursement Agreement. As of September 30, 1998, no drawings
have been made on any of these letters of credit. The Letter of
Credit and Reimbursement Agreement has a term of seven years subject
to extension at the discretion of the banks party thereto.
The Partnership entered into a debt service reserve letter of
credit and reimbursement agreement, dated as of November 1, 1994,
with Banque Nationale de Paris pursuant to which a debt service
reserve letter of credit in the amount of approximately $60 million
was issued. Such agreement has a rolling term of five years,
subject to extension at the discretion of the banks party thereto.
Drawings on the debt service reserve letter of credit became
available on the Commercial Operation Date of the Facility to pay
principal and interest on the First Mortgage Bonds, the 1994 Tax
Exempt Bonds and interest on any loans created by drawings on such
debt service reserve letter of credit. Cash and other investments
held in the debt service reserve account will be drawn on for the
Tax Exempt Bonds prior to any drawings on the debt service reserve
letter of credit. As of September 30, 1998, no drawings have been
made on the debt service reserve letter of credit.
In order to provide for the Partnership's working capital needs,
the Partnership entered into a Revolving Credit Agreement with
Credit Suisse dated as of November 1, 1994. Such Agreement has a
term of seven years subject to extension at the discretion of the
banks party thereto. The revolving credit agreement has a maximum
available amount of $15 million and may be drawn on by the
Partnership from time to time. The interest rate is based upon
various short term indices at the Partnership's option and is
determined separately for each draw. As of September 30, 1998, five
working capital loans had been made to the Partnership under the
working capital loan facility. All working capital loans were
repaid.
Year 2000
The Partnership is, with the assistance of USOSC and USGen,
conducting a review of its computer systems to identify the systems
that could be affected by the new millennium. The year 2000 may
pose problems in software applications because many computer systems
and applications currently use two-digit date fields to designate a
year. As the century date occurs, date sensitive systems may
recognize the year 2000 as 1900 or not at all. This potential
inability to recognize or properly treat the year 2000 may cause
systems to process financial or operational information incorrectly.
Management has inventoried those systems which it reasonably
believes may be adversely affected and prioritized them based on the
extent of any potential disruption in operations and the resulting
potential impact on the Partnership's ability to generate and
deliver electricity or steam. To date, the Partnership has
inventoried ninety-one potentially affected systems, of which
forty-eight have been classified as having the highes t priority
based upon likelihood and extent of impact. Among these priority
systems is the Facility's Distributed Control System ("DCS"), which
is the primary computerized control system for the Facility. The
manufacturer of the Facility's DCS is Westinghouse Electric
Corporation ("Westinghouse"). Westinghouse visited the Facility to
determine what remediation would be required for the DCS to be
insulated from disruptions due to the year 2000 and installed
hardware and software code as required to address the year 2000
issue. On October 17, the Partnership conducted a year 2000 test on
the DCS by, among other things, manually resetting the internal
calendar to experience the transition from December 31, 1999 to
January 1, 2000. The DCS handled this simulated transition with no
significant interruptions in power production or ordinary operation.
Through September 30, 1998, the Partnership spent approximately
$168,622 on year 2000 related projects. The Partnership currently
estimates that the completion of its year 2000 efforts will cost
approximately $300,000 (including amounts spent to date),
encompassing remediation and replacement of equipment (including the
DCS described above), the performance of Facility testing,
communication with and evaluation of third party readiness and the
development of required contingency plans. Of course, this estimate
is based solely upon information currently available to the
Partnership and is likely to be revised as more information becomes
available.
In addition, the Partnership recognizes that it is dependent upon
numerous third parties in the conduct of its business. A
significant interruption in services or resources provided by such
third parties could have material adverse financial consequences on
the Partnership. These third parties include especially those
supplying fuel and other operating supplies, as well as FPL and its
ability to continue to accept the output of the Facility.
Therefore, the Partnership has sent out 187 inquiries to vendors,
suppliers, customers and other businesses seeking information on the
status of such companies' equipment and year 2000 remediation
efforts. To date, the responses have not identified any year 2000
issues of which the Partnership had been unaware. However, the
responses have also not been sufficient to ensure that there will be
no impacts on the Partnership as a result of the year 2000 affecting
third parties doing business with the Partnership. To the extent
that the Partnership is not able to gain su ch adequate assurances,
the Partnership anticipates developing contingency plans to mitigate
the consequences of potential disruptions.
These contingency plans are also required because, until the year
2000 occurs, no certainty can be assured with respect to test
results and third party preparedness. The Partnership's contingency
plans will take into account the possibility of multiple system
failures, both internal and external, due to the year 2000. These
contingency plans will build upon existing emergency and business
restoration plans. Although no definitive list of scenarios for
this planning has yet been developed, the events that the
Partnership is considering for planning purposes include increased
frequency and duration of interruptions of the power, computing,
financial and communications infrastructure. Due to the speculative
nature of contingency planning, it is uncertain whether the
Partnership's contingency plans to address failure of external
parties or internal systems will be sufficient to reduce the risk of
material impacts on the Partnership's operations due to year 2000
problems.
Notwithstanding the Partnership's efforts, management of the
Partnership is unable to determine whether or not, as a result of
the year 2000, disruptions will occur or whether such disruptions,
if they do occur, will materially impair the ability of the
Partnership to conduct its business.
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Partnership is not currently aware of any pending or
threatened litigation that it anticipates would have a material
adverse effect on the Partnership. The Partnership has recently
been contacted by the local Martin County property appraiser
concerning the proper qualification of some its pollution control
equipment, which equipment receives reduced valuation for property
tax purposes. To the extent that some of the equipment is
ultimately deemed to be improperly classified as pollution control
equipment, the Partnership would be subject to additional property
tax each year. The amount of property at issue is valued at
approximately $25 to 31 million, which, if all of it is ultimately
deemed not to be pollution control equipment, would lead to
approximately $425,000 to $525,000 in additional property tax each
year . This matter is currently being reviewed by the Partnership.
Item 5 OTHER INFORMATION
Governmental Approvals
The Partnership has obtained all material environmental permits
and approvals required, as of September 30, 1998, in order to
continue commercial operation of the Facility. Certain of these
permits and approvals are subject to periodic renewal. Certain
additional permits and approvals will be required in the future for
the continued operation of the Facility. The Partnership is not
aware of any technical circumstances that would prevent the issuance
of such permits and approvals or the renewal of currently issued
permits. The Partnership timely filed its application for a Title V
air permit on May 24, 1996. A draft permit has been issued by the
Florida Department of Environmental Protection. The Partnership
provided comments on the permit and a final permit is expected
within six months.
Energy Prices
In September 1997, FPL filed with the Florida Public Service
Commission its projections for its 1997-1999 "as available" energy
costs (in this context, "as available" energy costs reflect actual
energy production costs avoided by FPL resulting from the purchase
of energy from the Facility and other Qualifying Facilities). The
projections filed by FPL are lower for certain periods than the
energy prices specified in the Power Purchase Agreement for energy
actually delivered by the Facility. At other times, the projections
exceed the energy prices specified in the Power Purchase Agreement.
Should FPL's "as available" energy cost projections prove to reflect
actual rates, FPL may elect, pursuant to its dispatch and control
rights over the Facility set forth in the Power Purchase Agreement,
to run the Facility less frequently or at lower loads than if the
Facility's energy prices were lower than the cost of other energy
sources available to FPL. Because capacity payments under the Power
Purchase Agreement ar e not affected by FPL's dispatch of the
Facility and because capacity payments are expected by the
Partnership to cover all of the Partnership's fixed costs, including
debt service, the Partnership currently expects that, if the filed
projections prove to reflect actual rates, such rates and the
resulting dispatch of the Facility will not have a material adverse
effect on the Partnership's ability to service its debt. To the
extent the Facility is not operated by FPL during Caulkins'
processing season (November to June), the Partnership may elect to
run the Facility at a minimum load or shut down the Facility and run
auxiliary boilers to produce steam for Caulkins in amounts required
under the Partnership's steam agreement with Caulkins. Such
operations may result in decreased net operating income for such
periods. The Partnership expects that the decrease, if any, will
not be material. For the nine months ended September 30, 1998, FPL
requested the Partnership to decommit the Facility numerous times
and the Partnership has typically exercised its rights to operate at
minimum load (100MW) during such decommit requests. The
Partnership's election to operate at minimum load has not had a
material impact on the Partnership or its financial condition
although energy delivered during such operations is sold at reduced
prices. Based upon FPL's projections, the Partnership does not
expect that, if the filed projections prove to reflect actual rates,
its dispatch rate will change materially during the period covered
by such projections.
Debt Service Reserve Account
As permitted by the Partnership's financing arrangements, on
August 19, 1998, the Partnership requested that the balance in the
Debt Service Reserve Account be reduced to the Debt Service Reserve
Account Required Balance by reducing the Debt Service Reserve Letter
of Credit. After such reduction, the Debt Service Reserve Account
will contain the $29,609,840 Debt Service Reserve Letter of Credit
and $12,500,000 of cash (available only as a debt service reserve
for the Tax Exempt Bonds).
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K: The Partnership filed Reports on Form
8-K on July 15, 1998, and September 10, 1998, regarding changes in
the ownership of the Partnership.
b) Exhibits:
Exhibit No. Description 3.1 Certificate of
Incorporation of Indiantown Cogeneration Funding Corporation.*
3.2 By-laws of Indiantown Cogeneration Funding Corporation.*
3.3 Certificate of Limited Partnership of Indiantown Cogeneration,
L.P.*
3.4 Amended and Restated Limited Partnership Agreement of Indiantown
Cogeneration, L.P., among Palm Power Corporation, Toyan Enterprises
and TIFD III-Y Inc.*
3.5 Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*
4.1 Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P., and
NationsBank of Florida, N.A., as Trustee, and First Supplemental
Indenture thereto.**
4.2 Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing among
Indiantown Cogeneration, L.P., as Mortgagor, and Bankers Trust
Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth therein,
as Mortgagee with respect to the Accounts, dated as of November 1,
1994.**
4.3 Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as Secured
Party, and NationsBank of Florida, N.A., as Disbursement Agent and,
as when, and to the extent set forth therein, a Secured Party with
respect to the Accounts, dated as of November 1, 1994.**
10.1.1 Amended and Restated Indenture of Trust between Martin
County Industrial Development Authority, as Issuer, and NationsBank
of Florida, N.A., as Trustee, dated as of November 1, 1994.**
10.1.2 Amended and Restated Authority Loan Agreement by and between
Martin County Industrial Development Authority and Indiantown
Cogeneration, L.P., dated as of November 1, 1994.**
10.1.3 Letter of Credit and Reimbursement Agreement among
Indiantown Cogeneration, L.P., as Borrower, and the Banks Named
Therein, and Credit Suisse, as Agent, dated as of November 1,
1994.**
10.1.4 Disbursement Agreement, dated as of November 1, 1994, among
Indiantown Cogeneration, L.P., Indiantown Cogeneration Funding
Corporation, NationsBank of Florida, N.A., as Tax-Exempt Trustee,
NationsBank of Florida, N.A., as Trustee, Credit Suisse, as Letter
of Credit Provider, Credit Suisse, as Working Capital Provider,
Banque Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Bankers Trust Company, as Collateral Agent, Martin County
Industrial Development Authority, and NationsBank of Florida, N.A.,
as Disbursement Agent.**
10.1.5 Revolving Credit Agreement among Indiantown Cogeneration,
L.P., as Borrower, and the Banks Named Therein, and Credit Suisse,
as Agent, dated as of November 1, 1994.**
10.1.6 Collateral Agency and Intercreditor Agreement, dated as of
November 1, 1994, among NationsBank of Florida, N.A., as Trustee
under the Trust Indenture, dated as of November 1, 1994, NationsBank
of Florida, N.A., as Tax-Exempt Trustee under the Tax Exempt
Indenture, dated as of November 1, 1994, Credit Suisse, as letter of
Credit Provider, Credit Suisse, as Working Capital Provider, Banque
Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Indiantown Cogeneration, L.P., Indiantown Cogeneration
Funding Corporation, Martin County Industrial Development Authority,
NationsBank of Florida, N.A., as Disbursement Agent under the
Disbursement Agreement dated as of November 1, 1994, and Bankers
Trust Company, as Collateral Agent.**
10.1.7 Amended and Restated Equity Loan Agreement dated as of
November 1, 1994, between Indiantown Cogeneration, L.P., as the
Borrower, and TIFD III-Y Inc., as the Equity Lender.**
10.1.8 Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**
10.1.9 GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**
10.1.11 Debt Service Reserve Letter of Credit and Reimbursement
Agreement among Indiantown Cogeneration, L.P., as Borrower, and the
Banks Named Therein, and Banque Nationale de Paris, as Agent, dated
as of November 1, 1994.**
10.2.18 Amendment No. 2 to Coal Purchase Agreement, dated as of
April 19, 1995.***
10.2.19 Fourth Amendment to Energy Services Agreement, dated as of
January 30, 1996.*****
21 Subsidiaries of Registrant*
27 Financial Data Schedule. (For electronic filing purposes
only.)*****
99 Copy of Registrants' press release dated January 3, 1996.****
* Incorporated by reference from the Registrant Statement on Form
S-1, as amended, file no. 33-82034 filed by the Registrants with
the SEC in July 1994. ** Incorporated by reference from the
quarterly report on Form 10-Q, file no. 33-82034 filed by the
Registrants with the SEC in December 1994. *** Incorporated by
reference from the quarterly report on Form 10-Q, file no. 33-82034
filed by the Registrants with the SEC in May 1995. ****
Incorporated by reference from the current report on Form 8-K, file
no. 33-82034 filed by the Registrants with the SEC in January 1996.
***** Incorporated by reference from the quarterly report on Form
10-Q, file no. 33-82034 filed by the Registrants with the SEC in
May 1996.
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
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: November 13, 1998 _________________________
John R. Cooper
Vice President and
Chief Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: November 13, 1998 ________________________
John R. Cooper
Vice President and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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Exhibit 27: Financial Data Schedule
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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