SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
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
Indicate by check mark if disclosure of delinquent filer pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
As of March 31, 1998, there were 100 shares of common stock of
Indiantown Cogeneration Funding Corporation, $1 par value
outstanding.
Indiantown Cogeneration, L.P. Indiantown Cogeneration Funding
Corporation
PART I Page Number
Item 1 Business................1
Item 2 Properties..............7
Item 3 Legal Proceedings.......7
Item 4 Submission of Matters
to a Vote of Security Holders...7
PART II
Item 5 Market for the Registrant's Common Stock and Related
Security Holder Matters.................... 7
Item 6 Selected Financial Data.................... 8
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations... 9
Item 8 Financial Statements and Supplementary Data 15
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure. 34
PART III
Item 10 Directors and Executive
Officers..................................... 35
Item 11 Remuneration of Directors and Officers......37
Item 12 Security Ownership of Certain Beneficial
Owners and Management............................. 37
Item 13 Certain Relationships and Related
Transactions........... 37
PART IV
Item 14 Exhibits, Financial Statement
Schedules and Reports on Form 8-K................. 38
Signatures........................................ 42
PART I
Item 1 BUSINESS
The Partnership
Indiantown Cogeneration, L.P. (the "Partnership") is a special
purpose Delaware limited partnership formed on October 4, 1991. The
general partners of the Partnership are Toyan Enterprises ("Toyan"),
a special purpose indirect subsidiary of PG&E Enterprises ("PG&E
Enterprises"), and Palm Power Corporation ("Palm"), a special
purpose indirect subsidiary of Bechtel Enterprises, Inc. ("Bechtel
Enterprises"). The sole limited partner of the Partnership is TIFD
III-Y, Inc. ("TIFD"), a special purpose indirect subsidiary of
General Electric Capital Corporation ("GECC") (Toyan, Palm and TIFD
are hereinafter referred to collectively as the "Partners").
Except for matters expressly reserved to the partners in the
Partnership, the Partnership's Board of Control has full and
exclusive power and authority in respect of the management of the
Partnership's business. However, the Board of Control may delegate
such authority to the Chief Executive Officer of the Partnership or
to a third party pursuant to a management services agreement, and
may authorize persons to execute documents on behalf of the
Partnership. Members of the Board of Control are appointed and may
be removed by the partners of the Partnership. No cash compensation
or non-cash compensation was paid in any prior year or will be paid
in the current calendar year to any members of the Board of Control.
In July 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 connection with the 1994 bond offering described below under Item
7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Although the Partnership has agreed to
indemnify ICL Funding for certain liabilities, 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
owned by the Partnership in southwestern Martin County, Florida.
The Facility was developed on behalf of the Partnership by U.S.
Generating Company ("USGen"), a California general partnership
formed in 1989 to develop and manage the construction and operation
of electric power generating facilities throughout the United States
owned by partnerships in which subsidiaries of PG&E Enterprises and
Bechtel Enterprises own equity interests. The Facility is operated
by U.S. Operating Services Company ("USOSC") pursuant to an
Operation and Maintenance Agreement (the "O&M Agreement"). USOSC
and USGen were affiliates of PG&E Enterprises and Bechtel
Enterprises until September 19, 1997.
On September 19, 1997, USGen and USOSC each separately redeemed
Bechtel Enterprises' interests so that USGen and USOSC are now
wholly owned indirectly by PG&E Enterprises. This will not affect
USGen's obligations under the Management Services Agreement ("MSA")
with the Partnership or USOSC's obligations under the O&M Agreement.
In addition, on September 19, 1997, Toyan acquired 16.67% of Palm's
interest in the Partnership, which represents approximately 2% of
the ownership interests in the Partnership. The Partnership's
Quarterly Report on Form 10-Q for the Third Quarter of 1997
erroneously reported that the transfer was retroactive to January 1,
1997. In fact, the transfer was not retroactive. On October 17,
1997, the Federal Energy Regulatory Commission ("FERC") recertified
the Facility as a Qualifying Facility with the revised ownership
interests.
The net profits and losses of the Partnership are allocated to
Toyan, Palm and TIFD (collectively, the "Partners") based on the
following ownership percentages subsequent to September 19, 1997:
Toyan 50%
Palm 10%
TIFD 40%
On March 6, 1998, Cogentrix Energy, Inc. ("Cogentrix") and
Bechtel Generating Company, Inc. entered into an agreement pursuant
to which, among other things, a subsidiary of Cogentrix will
purchase all of the outstanding stock of Palm. This transaction is
subject to receipt of necessary regulatory approvals, third party
consents and confirmation of the ratings on the Bonds (defined
below).
All distributions other than liquidating distributions will be
made based on the Partner's 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 began construction of the Facility in October
1992 and was in the development phase through the commencement of
commercial operation. The Facility commenced commercial operation
under its power purchase agreement (the "Power Purchase Agreement"
or "PPA") with Florida Power & Light Company ("FPL") on December 22,
1995. The Facility synchronized with the FPL system on June 30,
1995 and the Partnership sold to FPL electricity produced by the
Facility during startup and testing. The Partnership's continued
existence is dependent on the ability of the Partnership to maintain
successful commercial operation under the Power Purchase Agreement.
Management of the Partnership is of the opinion that the assets of
the Partnership are realizable at their current carrying value. The
Partnership has no assets other than the Facility site, contractual
arrangements relating to the Facility (the "Project Contracts") and
the stock of ICL Funding.
Certain Project Contracts
The Facility supplies (i) electric generating capacity and
energy to FPL pursuant to the Power Purchase Agreement and (ii)
steam to Caulkins Indiantown Citrus Company ("Caulkins") pursuant to
a long-term energy services agreement (the "Energy Services
Agreement").
Payments from FPL pursuant to the Power Purchase Agreement
provide approximately 99% of Partnership revenues. Under and
subject to the terms of the Power Purchase Agreement, FPL is
obligated to purchase electric generating capacity made available to
it and associated energy from the Facility beginning with the date
the Facility achieved commercial operation through December 22,
2025.
Payments by FPL consist of capacity payments and energy
payments. FPL is required to make capacity payments to the
Partnership on a monthly basis for electric generating capacity made
available to FPL during the preceding month regardless of the amount
of electric energy actually purchased. The capacity payments have
two components, an un-escalated fixed capacity payment and an
escalated fixed operation and maintenance payment, which together
are expected by the Partnership to cover all of the Partnership's
fixed costs, including debt service. Energy payments are made only
for the amount of electric energy actually delivered to FPL. The
energy payments made by FPL are expected by the Partnership to cover
the Partnership's variable costs of electric energy production but
will be insufficient to cover the variable costs of steam production
for steam supplied to Caulkins. The amount of this shortfall is not
expected by the Partnership to have a material adverse effect on its
ability to service its debt.
The Partnership supplies thermal energy to Caulkins in order for
the Facility to meet the operating and efficiency standards under
the Public Utility Regulatory Policy Act of 1978, as amended, and
the FERC's regulations promulgated thereunder (collectively,
"PURPA"). The Facility has been certified as a Qualifying Facility
under PURPA. Under PURPA, Qualifying Facilities are exempt from
certain provisions of the Public Utility Holding Company Act of
1935, as amended ("PUHCA"), most provisions of the Federal Power Act
(the "FPA"), and, except under certain limited circumstances, rate
and financial regulation under state law. The Energy Services
Agreement with Caulkins requires Caulkins to purchase the lesser of
(i) 525 million pounds of steam per year or (ii) the minimum
quantity of steam per year necessary for the Facility to maintain
its status as a Qualifying Facility under PURPA (currently estimated
by the Partnership not to exceed 525 million pounds per year).
The Partnership entered into a coal purchase agreement (the
"Coal Purchase Agreement") with Costain Coal, Inc. ("Costain Coal"),
pursuant to which Costain Coal supplies all of the Facility's coal
needs, which are estimated to be 1 million tons of coal per year.
The Partnership has no obligation to purchase a minimum quantity of
coal under the Coal Purchase Agreement. The fuel price escalation
provisions in the Coal Purchase Agreement are substantially the same
as escalation of the fuel price component of the energy price
contained in the Power Purchase Agreement with FPL. This mechanism
is intended to mitigate any mismatch between the price the
Partnership pays for coal and the energy payments received from FPL.
On September 9, 1994, Costain Group PLC, parent company of
Costain Coal, the Facility's primary fuel supplier, announced that
it was proceeding with the sale of its U.S. coal assets. On March
17, 1997, Costain Group PLC announced that it completed the sale of
Costain Coal to Rencoal Inc. for $44.7 million. Costain Coal was
subsequently renamed Lodestar Energy, Inc. ("Lodestar"). Lodestar
remains obligated under the Coal Purchase Agreement. In light of
the terms of the Coal Purchase Agreement compared with similar coal
supply and ash disposal agreements which the Partnership believes
are currently obtainable in the market, the Partnership currently
does not believe that the sale of Costain Coal will have an adverse
effect on the Partnership's ability to arrange for coal supply and
ash disposal services.
Coal ash produced during operation of the Facility is being
disposed of pursuant to the Coal Purchase Agreement and back-up
disposal arrangements with Chambers Waste Systems, Inc. of Florida
("Chambers"). The Partnership has been informed that both Lodestar
and Chambers have obtained the permits necessary to receive such
coal ash.
The Partnership entered into a lime purchase agreement (the
"Lime Purchase Agreement") with Chemical Lime Company ("Chemlime"),
an Alabama corporation, to supply the lime requirements of the
Facility's dry scrubber and sulfur dioxide removal system. The
initial term of the Lime Purchase Agreement is 15 years from the
commercial operation date. Chemlime is obligated to provide all of
the Facility's lime requirements, but the Partnership has no
obligation to purchase a minimum quantity of lime.
Competition
Because the Partnership has a long-term contract to sell
electric generating capacity and energy from the Facility to FPL, it
does not expect competitive forces to have a significant effect on
its business. As discussed under "Energy Prices" below, the cost of
power available to FPL from other sources will affect FPL's dispatch
of the Facility and, therefore, the amount of electric energy FPL
purchases from the Partnership. The Partnership expects that the
capacity payments under the Power Purchase Agreement, which are not
affected by the level of FPL's dispatch of the Facility, will cover
all of the Partnership's fixed costs, including debt service.
Energy Prices
On October 1, 1996, FPL filed with the Florida Public Service
Commission its most recent projections for its 1996-1999 "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 costs, 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 are 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 most recently 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 Energy
Services Agreement with Caulkins. Such operations may result in
decreased net operating income for such periods due to lower energy
rates under the PPA for such operations. The Partnership expects
that the decrease, if any, will not be material. In addition, in
1997, the Partnership entered into an arrangement with Lodestar and
the coal transporter to compensate the Partnership for reduced FPL
revenues when the Facility runs at minimum load during decommit
periods. In exchange for the Partnership's continued purchase and
transportation of coal during these periods, Lodestar and the coal
transporter each pay the Partnership a portion of the foregone FPL
revenues. During 1997, the Partnership received 130 requests from
FPL to decommit the Facility. The Partnership elected to operate at
minimum load for the duration of all of those requests except one.
During the decommit periods the energy revenues did not include
complete recovery from FPL of the incremental increase in variable
operating costs to operate the Facility at a lower, less efficient
load. The unit received 30 decommit requests in 1996 and elected to
run at minimum load for the duration of all such decommit requests.
Based upon FPL's projections, the Partnership does not expect that,
if the recently filed projections pro ve to reflect actual costs,
its dispatch rate will change materially during the period covered
by such projections.
Employees
The Partnership has no employees and does not anticipate having
any employees in the future because, under a management services
agreement, USGen acts as the Partnership's representative in all
aspects of managing construction and operation of the Facility as
directed by the Partnership's Board of Control. As noted above,
USOSC is providing operations and maintenance services for the
Partnership.
Business Strategy and Outlook
The Partnership's overall business plan is to safely produce
clean, reliable energy at competitive prices. The Facility
commenced commercial operation on December 22, 1995 and completed
its second full year of operation on December 31, 1997.
During 1997, the Facility produced 1,668,959 MW-hr of energy for
sale to FPL compared to 1,862,439 MW-hr in 1996. This decrease was
due primarily to FPL's reduced dispatch of the Facility. Dispatch
of the Facility by FPL averaged approximately 67.5% over the year
compared to 77% for 1996. The reduced dispatch was due primarily to
milder winter weather in 1997.
The Facility produced approximately 400 million pounds of steam for
sale to Caulkins in 1997 compared to approximately 340 million
pounds in 1996 thereby exceeding the minimum requirements to
maintain Qualifying Facility status. The 60 million pound increase
in steam deliveries was due primarily to two fewer months of
interconnected operations in 1996 than in 1997 (commercial
operations with Caulkins commenced on March 1, 1996).
The Facility ended the year with a twelve-month rolling average
Capacity Billing Factor of 100.89% in 1997 and 94.46% in 1996. This
increase of 6.43% was due primarily to better mechanical operation
of the plant and enhanced operating efficiency resulting from
certain capital improvements. Cash flows during 1997 were
sufficient to fund all operating expenses and debt repayment
obligations.
Forward Looking Statements
When used in this report, words or phrases which are predictions
of or indicate future events and trends are subject to a number of
risks and uncertainties which could cause actual results to differ
materially from those projected. Given such uncertainties, readers
are cautioned not to place undue reliance on such statements. The
Partnership undertakes no obligation to publicly update or revise
any forward looking statement to reflect current or future events or
circumstances.
The Partnership anticipates that, barring any unforeseeable
adverse events, the results for 1998 will be similar to the results
for 1997. Dispatch of the unit by FPL during the summer months is
expected to be similar to 1997 levels. Dispatch during the winter
is highly dependent on weather and FPL's cost of running its oil and
gas fired units. Caulkins expects a strong citrus crop for
processing in 1998 and steam demand from Caulkins is expected to be
similar to 1997 levels.
The Facility is planning on four weeks of scheduled outages
during 1998 to perform routine inspections and maintenance. The
primary outage is scheduled for October 1998 during the off-season
for citrus production.
The Partnership is not aware of any reason to expect coal
pricing during 1998 to substantially differ from 1997 levels.
In the absence of any major equipment failures, unit
availability is expected to be comparable to 1997 levels. If this
is achieved, the Capacity Billing Factor and associated capacity
bonuses would be similar.
The Partnership believes that its current financial resources
will be adequate to cover operating expenses and debt repayment
obligations in 1998.
Governmental Approvals
The Partnership has obtained all material environmental permits
and approvals required, as of the end of 1997, in order to continue
commercial operation of the Facility. Certain of such 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. The air construction permit will
continue in effect until the Title V permit is issued. A permit is
expected within the next year.
Beginning in late November 1997, the Partnership experienced a
number of opacity excursions related to degradation of the baghouse.
A consent order has been negotiated with the Florida Department of
Environmental Protection ("FDEP") obligating the Partnership to
implement repairs estimated to cost $500,000 as well as pay a
penalty of $11,040. The penalty was reduced by the FDEP because of
the Partnership's responsiveness and commencement of the repairs.
Item 2 PROPERTIES
The Facility is located in a predominantly industrial area in
southwestern Martin County, Florida, on approximately 240 acres of
land owned by the Partnership (the "Site"). Other than the
Facility, the Site, and the make-up water pipeline and associated
equipment, the Partnership does not own or lease any material
properties.
Item 3 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.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of
the Partnership during 1997.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Partnership is a Delaware limited partnership wholly owned
by Palm, Toyan and TIFD. Beneficial interests in the Partnership
are not available to other persons except with the consent of the
Partners.
There is no established public market for ICL Funding's common
stock. The 100 shares of $1 par common stock are owned by the
Partnership. ICL Funding has not, and does not, intend to pay
dividends on the common stock.
Item 6 SELECTED FINANCIAL DATA
The selected financial data of the Partnership presented below,
which consists primarily of certain summary consolidated balance
sheet information of the Partnership as of December 31, 1997, 1996,
1995, 1994 and 1993, should be read in conjunction with Item 7 of
this report, "Management's Discussion And Analysis Of Financial
Condition And Results Of Operations", and with the Partnership's
financial statements appearing elsewhere in this report. The
Partnership, which was in the development stage through December 21,
1995, began construction of the Facility in October 1992 and
declared commercial operation of the Facility on December 22, 1995.
The financial statements and supplementary data required by this
item are presented under Item 8.
The following is a summary of the quarterly results of
operations for the years ended December 31, 1995, 1996 and December
31, 1997.
<TABLE>
<CAPTION>
Three Months Ended (unaudited)
<S> <C> <C> <C> <C>
March 31 June 30 September 30 December 31
(in thousands)
Year Ended
December 31, 1995
Operating revenues (a) (a) (a) $4,565
Gross Profit (a) (a) (a) 2,421
Net income (a) (a) (a) 802
Year Ended
December 31, 1996
Operating revenues $38,767 $40,384 $42,571 $37,124
Gross Profit 20,314 18,555 19,272 19,197
Net income 4,005 2,493 2,894 2,398
Year Ended
December 31, 1997
Operating revenues 37,879 38,936 43,907 41,795
Gross Profit 20,581 22,199 22,419 19,124
Net income 3,950 6,147 6,092 1,838
<FN>
(a) Data not available as Commercial Operations commenced on
December 22, 1995.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
as of December 31,
<C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Total Assets $735,968,011 $753,669,863 $799,451,339 $637,944,198 $344,338,931
Long-Term Debt
606,119,747 616,651,805 626,601,265 630,010,000 337,816,000
Total Liabilities
629,842,447 637,472,694 658,649,167 637,944,098 344,338,831
Capital Distributions
28,080,382 36,395,054 -- -- --
Total Partners' Capital
106,125,564 116,197,169 140,802,172 100 100
Construction in Progress
0 0 0 515,298,762 256,643,224
Property, Plant & Equipment, Net
668,464,373 682,214,731 691,588,155 0 0
Operating Revenues
162,517,435 158,845,947 4,564,860 -- --
Net Income 18,008,777 11,790,051 802,172 -- --
</TABLE>
Item 7 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. Comparative figures for
1995 are for the ten (10) days from the Commercial Operation Date to
December 31, 1995.
General
Year Ended December 31, 1997 Compared to the Year Ended December 31,
1996
The Partnership is primarily engaged in the ownership and
operation of a non-utility electric generating facility. From 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 December 31, 1997 and 1996, the Partnership had approximately
$668.5 million and $682.2 million, respectively, of property, plant
and equipment 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. This decrease is due
primarily to depreciation of $15 million offset by $1.3 million of
capital improvements.
For the three months ended December 31, 1997 and 1996, the
Partnership had total operating revenues of approximately $41.8
million and $37.1 million, respectively. This $4.7 million increase
was due primarily to higher dispatch by FPL and a higher Capacity
Billing Factor under the PPA resulting in increased energy revenues
and bonuses of $2.9 million and $1.8 million, respectively. For the
three months ending December 31, 1997 and 1996, the Partnership had
total operating costs of $25.0 million and $20.3 million,
respectively. This $4.7 million increase was due primarily to
increased variable costs of $2.3 million associated with higher
dispatch by FPL and $2.2 million of equipment write-offs. Total net
interest expenses were approximately $15.0 million and $14.4 million
for the three months ended December 31, 1997 and 1996, respectively.
This increase was due primarily to the maturity of Series A-3 of the
First Mortgage Bonds on June 15, 1997 offset by lower interest
income. Net income was approximatel y $1.8 million and $2.4 million
for the three months ended December 31, 1997 and 1996, respectively.
This decrease was due primarily to the increase in net interest
expense.
For the years ended December 31, 1997 and 1996, the Partnership
had total operating revenues of $162.5 million and $158.8 million,
respectively. This increase was attributable primarily to a $7.0
million increase in the capacity bonus and higher capacity payments
of $0.3 million offset by a $3.7 million reduction in energy
revenues. The increased revenues from capacity is due primarily to
a higher Capacity Billing Factor under the PPA resulting from
improved plant performance. The lower energy revenues are due
primarily to reduced dispatch levels, especially in the second
quarter of 1997. Total operating costs were $87.7 million and
$91.6 million for the years ended December 31, 1997 and 1996,
respectively. This decrease was due primarily to a reduction of
$3.3 million in fuel and ash costs resulting from lower dispatch by
FPL, a decrease of $0.8 million in insurance premiums and a
decrease of $4.5 million in depreciation (due to a change in
estimate), partially offset by an increase of $2.2 million due to
equipment write-offs and an increase of $2.4 million due to
increases in operations and maintenance expenses. The change in
depreciation expense from 1996 to 1997 is not indicative of future
trends because it is the result of a change in estimate. The
depreciation expense is expected to remain comparable to 1997
levels in future years. For the years ended December 31, 1997 and
1996, the total net interest expense was approximately $56.8
million and $55.4 million, respectively. The increase was
primarily due to a $0.7 million reduction in bond interest expense,
a reduction of $1.6 million in interest income and an increase in
amortization of deferred financing costs of $0.4 million. Net
income was $18.0 million and $11.8 million for the twelve months
ended December 31, 1997 and 1996, respectively. This $6.2 million
increase was primarily attributable to the increased revenues and
decreased operating costs, offset by the increased net interest
expense.
Year Ended December 31, 1996 Compared to the Year Ended December 31,
1995
The Partnership is primarily engaged in the ownership and operation
of a non-utility electric generating facility. From 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 December
31, 1996, the Partnership had approximately $682.2 million of
property, plant and equipment 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 3 and 12 months
ended December 31, 1996, the Partnership had total operating
revenues of approximately $37.1 million and $158.8 million, total
operating costs of $20.3 million and $91.6 million, and total net
interest expenses of approximately $14.4 million and $55.4 million
resulting in net income of $2.4 million and $11.8 million,
respectively. Because the Partnership had o nly ten days of
operations in 1995, no comparable financial data is available with
which to compare operations in 1996 with any corresponding prior
period.
Results of Operations
Year Ended December 31, 1997 Compared to the Year Ended December 31,
1996
For the three months ending December 31, 1997 and 1996, the
Facility achieved an average Capacity Billing Factor of 100.89% and
93.87%, respectively. For the years ending December 31, 1997 and
1996, the Facility achieved an average Capacity Billing Factor of
98.29% and 93.75%, respectively. These increases were primarily
attributable to better mechanical operations. This resulted in
earning full monthly capacity payments aggregating $28.0 million for
the quarter and $112.0 million for the year in 1997 and $28.0
million for the quarter and $111.7 million for the year in 1996.
Bonuses aggregated $2.8 million for the quarter and $10.3 million
for the year in 1997 and $1.0 million for the quarter and $3.3
million for the year in 1996. These increases were due primarily to
a higher Capacity Billing Factor resulting from better plant
performance. The Capacity Billing Factor measures the overall
availability of the Facility, but gives a heavier weighting to
on-peak availability. During 1997 and 1996, the Fac ility was
dispatched by FPL and generated 1,668,959 megawatt-hours and
1,862,439 megawatt-hour, respectively. The monthly average dispatch
rate was 67.5% and 77% for the twelve months ended December 31, 1997
and 1996, respectively. The reduced dispatch levels were primarily
the result of milder winter weather in 1997.
Year Ended December 31, 1996 Compared to the Year Ended December 31,
1995
For its first ten days of operation ending December 31, 1995,
the Facility achieved an average Capacity Billing Factor of 99.86%.
For the three months ending December 31, 1996, the Facility achieved
an average Capacity Billing Factor of 93.87%. For its first full
year of commercial operation ending December 31, 1996, the Facility
achieved an average Capacity Billing Factor of 93.75%. This
resulted in earning full monthly capacity payments aggregating $28.0
million for the quarter and $111.7 million for the year and bonuses
aggregating $1.0 million for the quarter and $3.3 million for the
year. The Capacity Billing Factor measures the overall availability
of the Facility, but gives a heavier weighting to on-peak
availability. During the year, the Facility was dispatched by FPL
and generated 1,862,439 megawatt-hours. The monthly average
dispatch rate was 69% and 77% for the fourth quarter of 1996 and the
twelve months ended December 31, 1996, respectively.
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"). Of this amount, $236.6
million of the First Mortgage Bonds bear an average interest rate of
9.05% and $268.4 million of the First Mortgage Bonds 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 colle ctively
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
used: (i) to finance completion of construction, testing, and
initial operation of the Facility; (ii) to finance construction
interest and construction-related contingencies; and (iii) to
provide for initial working capital. In 1997, the Partnership used
$880,517 of the remaining construction funds for plant betterment
projects.
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 borrowings through 1997 were $770 million, of
which the $139 million equity loan was repaid by a $140 million
equity contribution on December 26, 1995. As of December 31, 1997,
the borrowings included all of the available $125 million of the
proceeds of the 1994 Tax Exempt Bonds and all of the available
First Mortgage Bond proceeds. Series A-1 of the First Mortgage
Bonds, in the aggregate principal amount of $4.4 million matured
and were repaid on June 15, 1996. Series A-2 of the first Mortgage
Bonds, in the aggregate principal amount of $4.4 million, matured
and were repaid on December 16, 1996. Series A-3 of the First
Mortgage Bonds, in the aggregate principal amount of $4,850,000,
matured and were repaid on June 15, 1997. Series A-4 of the First
Mortgage Bonds in the aggregate principal amount of $4,851,000,
matured and were repaid on December 15, 1997. The weighted average
interest rate paid by the Partnership on its debt for the 3 and 12
months ended December 31, 1997, was 9.175% and 9.176%,
respectively. The comparable rates were 9.08% and 9.13% for the
respective periods in 1996 and 9.82% and 9.57% in 1995 (including
the equity loan). Because interest rates on the Bonds are fixed,
the Partnership is insulated from risk associated with fluctuating
interest rates.
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 December 31, 1997, 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. This agreement has a 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 December 31, 1997, 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. This 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 December 31, 1997, no
working capital loans have been made to the Partnership under the
working capital loan facility.
Year 2000
The Partnership is, with the assistance of USOSC, 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
not yet determined which, if any, systems may be affected and, if
affected, 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. USOSC has been asked to
develop and, if required, implement a plan to remedy any potential
problems prior to the year 2000. Management expects to finalize
this plan, if required, and esti mate any potential expenses to
implement such plan, in 1998. Management has not yet assessed
expenses related to year 2000 compliance or the potential impacts of
this matter.
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Page
Report of Independent Public Accountants 16
Consolidated Balance Sheets 17
Consolidated Statements of Operations 19
Consolidated Statements of Changes in
Partners' Capital 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Indiantown Cogeneration, L.P.:
We have audited the accompanying consolidated balance sheets of
Indiantown Cogeneration, L.P., (a Delaware limited partnership), as
of December 31, 1997 and 1996, and the related consolidated
statements of operations for the years ended December 31, 1997 and
1996, and for the period from commercial operation (December 22,
1995) to December 31, 1995, and the related consolidated statements
of changes in partners' capital and cash flows for each of the three
years in the period ended December 31, 1997. 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
Indiantown Cogeneration, L.P. as of December 31, 1997 and 1996, and
the results of its operations for the years ended December 31, 1997
and 1996, and for the period from commercial operation (December 22,
1995) to December 31, 1995 and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Washington, D.C. January 15, 1998
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of December 31, 1997 and December 31, 1996
<S> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 3,234,379 $ 344,323
Accounts receivable-trade 14,483,090 14,859,879
Inventories 337,001 1,218,356
Prepaid expenses 1,025,372 560,368
Deposits 193,357 193,357
Investments held by Trustee,
including restricted funds
of $2,764,745 and $3,673,116
respectively 13,009,289 18,750,140
Total current assets 32,282,488 35,926,423
INVESTMENTS HELD BY TRUSTEE,
restricted funds 13,501,000 13,001,000
DEPOSITS 65,000 60,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,579,399
Electric and steam generating
facilities 695,386,424 694,051,333
Less accumulated depreciation (35,504,414) (20,416,001)
Net property, plant &
equipment 668,464,373 682,214,731
FUEL RESERVE 3,140,989 3,591,713
DEFERRED FINANCING COSTS,
net of accumulated amortization
of $42,173,149 and $41,311,314
respectively 18,014,161 18,875,996
Total assets $ 735,468,011 $ 753,669,863
<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 December 31, 1997 and December 31, 1996
<S> <C> <C>
LIABILITIES AND
PARTNERS' CAPITAL 1997 1996
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities $ 10,353,564 $ 8,502,479
Accrued interest 2,337,078 2,368,950
Current portion - First
Mortgage Bonds 10,265,000 9,701,000
Current portion lease
payable - railcars 267,058 248,460
Total current liabilities 23,222,700 20,820,889
LONG TERM DEBT:
First Mortgage Bonds 476,239,000 486,504,000
Tax Exempt Facility
Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,870,747 5,137,805
Total long term debt 606,119,747 616,651,805
Total liabilities 629,342,447 637,472,694
PARTNERS' CAPITAL:
Toyan Enterprises 53,062,783 55,774,642
Palm Power Corporation 10,612,556 13,943,660
TIFD III-Y, Inc. 42,450,225 46,478,867
Total partners' capital 106,125,564 116,197,169
Total liabilities and partners'
capital $735,468,011 $753,669,863
<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 Years Ended December 31, 1997 and 1996 and for the Period
from Commercial Operations (December 22, 1995) to December 31, 1995
<S> <C> <C> <C>
1997 1996 1995
Operating Revenues:
Electric capacity and
capacity bonus $122,285,655 $114,982,519 $3,361,877
Electric energy revenue 40,098,446 43,780,095 1,202,983
Steam 133,334 83,333 --
Total operating revenues 162,517,435 158,845,947 4,564,860
Cost of Sales:
Fuel and ash 43,505,182 46,841,508 1,253,449
Operating and maintenance 19,600,378 15,035,599 345,258
Depreciation 15,088,413 19,631,413 544,674
Total cost of sales 78,193,973 81,508,520 2,143,381
Gross Profit 84,323,462 77,337,427 2,421,479
Other Operating Expenses:
General and administrative 2,830,813 2,661,431 97,236
Insurance and taxes 6,705,113 7,482,925 222,191
Total other operating
expenses 9,535,926 10,144,356 319,427
Operating Income 74,787,536 67,193,071 2,102,052
Non-Operating Income
(Expense):
Interest expense (59,390,569) (59,648,059) (3,522,739)
Interest income 2,611,810 4,245,039 2,222,859
Net non-operating expense (56,778,759) (55,403,020) (1,299,880)
Net Income $18,008,777 $11,790,051 $ 802,172
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Statements of Changes in Partners' Capital
For the Years Ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C> <C>
Toyan Enterprises Palm Power TIFD III-Y TOTAL
Corporation INC.
Partners' capital,
December 31, 1994 $ 48 $ 12 $ 40 $ 100
Capital contributions 67,199,952 16,799,988 55,999,960 139,999,900
Net Income 385,042 96,261 320,869 802,172
Partners' capital,
December 31, 1995 $67,585,042 $16,896,261 $56,320,869 $140,802,172
Net income 5,659,225 1,414,806 4,716,020 11,790,051
Capital distributions(17,469,625) (4,367,407) (14,558,022)(36,395,054)
Partners' capital,
December 31, 1996 $55,774,642 $13,943,660 $46,478,867 $116,197,169
Net income (1/1/97
through 9/19/97) 7,390,612 1,847,654 6,158,843 15,397,109
Capital distributions (7,813,463) (1,953,365) (6,511,218) (16,278,046)
Partners' capital,
September 19, 1997 $55,351,791 $13,837,949 $46,126,492 $115,316,232
Transfer Palm Power
1/6 Interest to Toyan 2,306,325 (2,306,325) -- --
Net income (9/20/97
through 12/31/97) 1,305,835 261,166 1,044,667 2,611,668
Capital distributions (5,901,168) (1,180,234) (4,720,934) (11,802,336)
Partners' capital,
December 31, 1997 $53,062,783 $10,612,556 $42,450,225 $106,125,564
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<S> <C> <C> <C>
1997 1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $18,008,777 $11,790,051 $ 802,172
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Depreciation and
amortization 15,950,248 20,505,928 557,264
Decrease (Increase)
in accounts receivable
- -trade 376,789 (8,053,580) (4,608,986)
Decrease (Increase)
in inventories and
fuel reserve 1,332,079 (20,337) --
(Increase) Decrease
in deposits and
prepaid expenses (470,004) 1,283,960 --
Increase (Decrease)
in accounts payable,
accrued liabilities
and accrued interest 1,819,213 (12,150,315) 3,319,893
Net cash provided by
operating activities 37,017,102 13,355,707 70,343
CASH FLOWS FROM
INVESTING ACTIVITIES:
Cash paid for
construction
in progress -- -- (167,448,352)
Purchase of property,
plant & equipment (1,338,055) (10,257,989) --
Decrease in
investments held
by trustee 5,240,851 40,001,521 33,218,686
Net cash provided
by (used in) investing
activities 3,902,796 29,743,532 (134,229,666)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of debt issuance
and financing costs -- -- (5,287,362)
Proceeds from GECC loan -- -- 139,000,000
Payment of GECC loan -- -- (139,000,000)
Decrease in lease
payable-railcars (248,460) (231,158) --
Payment of bonds (9,701,000) (8,795,000) --
Capital contributions -- -- 139,999,900
Capital distributions (28,080,382) (36,395,054) --
Net cash (used in)
provided by financing
activities (38,029,842) (45,421,212) 134,712,538
INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 2,890,056 (2,321,973) 553,215
Cash and cash
equivalents, beginning
of year 344,323 2,666,296 2,113,081
Cash and cash
equivalents,
end of year $3,234,379 $ 344,323 $2,666,296
SUPPLEMENTAL DISCLOSURE
OF INVESTING ACTIVITIES:
Change in construction
in progress $ -- $ -- $515,298,762
Amortization of
deferred financing
costs during
construction -- -- 863,880
Increase in property,
plant & equipment -- -- (692,115,897)
Increase in accounts
receivable -- -- (2,197,213)
Increase in inventories
and fuel reserve -- -- (4,789,732)
Increase in deposits and
prepaid expenses -- -- (1,893,328)
Increase in accounts payable,
accrued liabilities and
accrued interest -- -- 11,767,753
Increase in lease payable -- -- 5,617,423
Cash paid for construction
in progress $ -- $ -- $(167,448,352)
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for interest $ 56,665,646 $ 57,349,533 $ 64,443,401
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
Indiantown Cogeneration, L.P. Notes to Consolidated Financial
Statements As of December 31, 1997 and 1996
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 Toyan
Enterprises ("Toyan"), a California corporation and a
wholly-owned special purpose indirect subsidiary of U.S.
Generating Company LLC ("USGenLLC"), and Palm Power Corporation
("Palm"), a Delaware corporation and a special purpose indirect
subsidiary of Bechtel Enterprises, Inc. ("Bechtel Enterprises").
The sole limited partner is TIFD III-Y, Inc. ("TIFD"), a special
purpose indirect subsidiary of General Electric Capital
Corporation ("GECC"). 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") in accordance with the Power Purchase Agreement discussed in
Note 6. The Facility also supplies steam to Caulkins Indiantown
Citrus Co. ("Caulkins") for its plant located near the Facility in
accordance with the Energy Services Agreement discussed in Note 6.
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.
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' interests in USGen and USOSC so that
PG&E Enterprises through USGenLLC 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. In addition, on September 19, 1997, Toyan purchased
16.67% of Palm's interest in the Partnership, which represents a 2%
ownership interest in the Partnership.
The net profits and losses of the Partnership are allocated to
Toyan, Palm and TIFD (collectively, the "Partners") based on the
following ownership percentages:
From Until
September September
20, 1997 20, 1997
Toyan 50% 48%
Palm 10% 12%
TIFD 40% 40%
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 commenced in December 1995. 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES: Presentation The Partnership's
financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect 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 revenue and
expenses during the reporting period. Actual results could
differ from those estimates. The accompanying consolidated
financial statements include the accounts of the Partnership and
ICL Funding. All significant intercompany balances have been
eliminated in consolidation.
Cash and Cash Equivalents For the purposes of reporting cash flows,
cash equivalents include short-term investments with original
maturities of three months or less.
Inventories Coal and lime inventories are stated at the lower of
cost or market using the average cost method.
Prepaid Expenses Prepaid expenses of $1,025,372 as of December 31,
1997, include $750,000 for operation and maintenance funding,
$212,986 for insurance costs related to property damage and
other general liability policies and $55,466 for prepayments of
the annual administrative fees for the letters of credit and for
the trustee.
Prepaid expenses of $560,368 as of December 31, 1996, include
$481,158 for insurance costs related to property damage and other
liability policies and $79,210 for prepayments of the annual
administrative fees for the letters of credit and for the trustee.
Deposits Deposits are stated at cost and include amounts required
under certain of the Partnership's agreements as described in
Note 3. Investments Held by Trustee The investments held by the
trustee represent bond and equity proceeds 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 proceeds include $12,501,000 of restricted
tax-exempt debt service reserve to be held long term, as
required by the financing documents. The Partnership maintains
restricted investments covering a portion of debt principal and
interest payable, as required by the financing documents. These
investments are classified as current assets in the accompanying
consolidated balance sheets. A qualifying facility ("QF")
reserve of $1 million is also held long term (see Note 4).
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. This change increased net income for 1997 by
approximately $4.5 million.
Other property, plant and equipment are depreciated on a
straight-line basis over the estimated economic or service lives of
the respective assets (ranging from 5 to 7 years). Routine
maintenance and repairs are charged to expense as incurred.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" ("SFAS No. 121"). SFAS No. 121, which was adopted by
the Partnership as of January 1, 1996, establishes criteria for
recognizing and measuring impairment losses when recovery of
recorded long-lived asset values is uncertain. The adoption of this
pronouncement did not have an impact on the Partnership's financial
condition or results of operations in 1997 or 1996.
Fuel Reserve The fuel reserve, carried at cost, represents an
approximate thirty-day supply of coal held for emergency
purposes.
Major Maintenance Reserve
The major maintenance reserve represents an accrual for
anticipated expenditures for scheduled significant maintenance of
the Facility. The expense is recognized ratably over the
maintenance cycle of the related equipment. The major maintenance
reserve, was $329,944 and $153,424 at December 31, 1997 and 1996,
respectively and is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets.
Deferred Financing Costs Financing costs, consisting primarily of
the costs incurred to obtain project financing, are deferred and
amortized using the effective interest rate method over the term
of the related permanent financing. Income Taxes Under current
law, no Federal or state income taxes are paid directly by the
Partnership. All items of income and expense of the Partnership
are allocable to and reportable by the Partners in their
respective income tax returns. Accordingly, no provision is
made in the accompanying consolidated financial statements for
Federal or state income taxes.
Reclassifications
Certain 1995 and 1996 balances have been reclassified to conform
to the current year presentation.
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. This amount is included in current assets as of
December 31, 1997 and 1996. The landscaping has been completed
and the Partnership has applied to Martin County for a return of
funds in excess of the required deposit as security for the
first year maintenance.
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 December 31, 1997 and 1996, estimated
present values of this deposit of $65,000 and $60,000, respectively,
are included in deposits in the accompanying consolidated balance
sheets. The remaining balance is included in deferred financing
costs.
4. BONDS AND NOTES PAYABLE:
First Mortgage Bonds
The Partnership and ICL Funding jointly issued $505,000,000 of
First Mortgage Bonds (the "First Mortgage Bonds") in a public
issuance registered with the Securities and Exchange Commission.
Proceeds from the issuance were used to repay outstanding balances
of $273,513,000 on a prior construction loan and to complete the
project. The First Mortgage Bonds are secured by a lien on and
security interest in substantially all of the assets of the
Partnership. The First Mortgage Bonds were issued in 10 separate
series with interest rates ranging from 7.38 to 9.77 percent and
with maturities ranging from 1996 to 2020. Interest is payable
semi-annually on June 15 and December 15 of each year and commenced
on June 15, 1995. Interest expense related to the First Mortgage
Bonds was $46,800,091, $47,456,604 and $47,513,881 in 1997, 1996 and
1995, respectively.
Tax Exempt Facility Revenue Bonds
The proceeds from the issuance of $113,000,000 of Series 1992A
and 1992B Industrial Development Revenue Bonds (the "1992 Bonds")
through the Martin County Industrial Development Authority (the
"MCIDA") were invested in an investment portfolio with Fidelity
Investments Institutional Services Company. On November 22, 1994,
the Partnership refunded the 1992 Bonds with proceeds from the
issuance of $113,000,000 Series 1994A and of $12,010,000 Series
1994B Tax Exempt Facility Refunding Revenue Bonds which were issued
on December 20, 1994 (the Series 1994A Bonds and the Series 1994B
Bonds, collectively, the "1994 Tax Exempt Bonds").
The 1994 Tax Exempt Bonds were issued by the MCIDA pursuant to
an Amended and Restated Indenture of Trust between the MCIDA and
NationsBank of Florida, N.A. (succeeded by The Bank of New York
Trust Company of Florida, N.A.) as trustee (the "Trustee").
Proceeds from the 1994 Tax Exempt Bonds were loaned to the
Partnership pursuant to the MCIDA Amended and Restated Authority
Loan Agreement dated as of November 1, 1994 (the "Authority Loan").
The Authority Loan is secured by a lien on and a security interest
in substantially all of the assets of the Partnership. The 1994 Tax
Exempt Bonds, which mature December 15, 2025, carry fixed interest
rates of 7.875 percent and 8.05 percent for Series 1994A and 1994B,
respectively. Total interest paid related to the 1994 Tax Exempt
Bonds was $9,865,555 for each of the years ended December 31, 1997
and 1996 and $10,939,752 for the year ended December 31, 1995. The
Tax Exempt Bonds and the First Mortgage Bonds are equal in
seniority.
Future minimum payments related to outstanding First Mortgage
Bonds and 1994 Tax Exempt Bonds at December 31, 1997 are as follows
(in thousands).
1998 10,265
1999 9,997
2000 -0-
2001 -0-
2002 -0-
Thereafter 591,252
Total $ 611,514
In 1994, with proceeds from the issuance of the First Mortgage
Bonds, an equity loan in the amount of $139,000,000 was paid in
full and the Partnership and TIFD entered into an Amended and
Restated Equity Loan Agreement (the "Equity Loan Agreement") for
a maximum loan of $139,000,000 to be drawn at the Partnership's
request, incorporating the same terms as the original loan. As
of the Commercial Operation Date, the maximum amount of the loan
had been drawn and was outstanding. This loan was repaid with
an equity contribution on December 26, 1995, as discussed below.
The Partnership paid $2,813,357 in interest and $2,561,428 in
commitment fees during 1995. No such interest or fees related
to this loan were paid in 1997 or 1996.
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 Partners contributed
approximately $140,000,000 of equity on December 26, 1995.
Proceeds were used to repay the $139,000,000 outstanding under
the Equity Loan Agreement. The remaining $1,000,000 was
deposited with the Trustee according to the disbursement
agreement among the Partnership, the Trustee and the other
lenders and is included in current investments held by trustee
in the accompanying consolidated balance sheet as of December
31, 1997 and 1996.
Revolving Credit Agreement
The Revolving Credit Agreement provides for the availability of
funds for the working capital requirements of the Facility. It has
a term of seven years from November 1, 1994, subject to extension at
the discretion of the banks party thereto. The interest rate is
based upon various short-term indices chosen at the Partnership's
option and is determined separately for each draw. This credit
facility includes commitment fees, to be paid quarterly, of .375
percent on the unborrowed portion. The face amount of the original
working capital letter of credit was increased in November 1994 from
$10 million to $15 million. Under the original and new working
capital credit facilities, the Partnership paid $57,031, $57,187 and
$57,031 in commitment fees in 1997, 1996 and 1995, respectively. At
December 31, 1997 and 1996, no draws for working capital had been
made to the Partnership under the Revolving Credit Agreement.
FPL Termination Fee Letter of Credit On or before the Commercial
Operation Date, the Partnership was required to provide FPL with
a letter of credit equal to the total termination fee as defined
in the Power Purchase Agreement in each year not to exceed
$50,000,000. Pursuant to the terms of the Letter of Credit and
Reimbursement Agreement, the Partnership obtained a commitment
for the issuance of this letter of credit. At the Commercial
Operation Date, this letter of credit replaced the completion
letter of credit outlined below. The initial amount of
$13,000,000 was issued for the first year of operations and
increased to $23,000,000 in January of 1997. During 1997, 1996
and 1995 no draws were made on this letter of credit.
Commitment fees of $572,819 and $509, 395 were paid on this
letter of credit in 1997 and 1996, respectively. FPL Completion
Letter of Credit At financial closing in October 1992, the
Partnership provided to FPL a letter of credit in the amount of
$9,000,000 pursuant to the Power Purchase Agreement. This
letter of credit was terminated in 1994 and a new one was issued
with essentially the same terms. The Power Purchase Agreement
(see Note 6) requires that the Partnership pay FPL for each day
beyond December 1, 1995, that the Facility did not achieve
commercial operation. Because the commercial operation date did
not occur before December 1, 1995, commencing December 1, 1995
and until December 22, 1995, FPL was entitled to draw on the
letter of credit in the amount of $750,000 per calendar month
pro-rated for a partial month. In lieu of drawing on the letter
of credit, the Partnership paid FPL $508,065 in delay damages on
December 22, 1995. Upon issuance of the above FPL Termination
Fee Letter of Credit, the FPL Completion Letter of Credit was
terminated. Commitment fees of $102,656 were paid on this
letter of credit in 1995.
FPL QF Letter of Credit Within 60 days after the Commercial
Operation Date, the Partnership was required to provide a letter
of credit for use in the event of a loss of QF status under the
Public Utility Regulatory Policies Act of 1978 ("PURPA"). The
initial amount was $500,000 increasing by $500,000 per agreement
year to a maximum of $5,000,000. Pursuant to the terms of the
Letter of Credit and Reimbursement Agreement, the Partnership
obtained a commitment for the issuance of this letter of credit.
The amount will be used by the Partnership as necessary to
maintain or reinstate the Facility's qualifying facility status.
The Partnership may, in lieu of a letter of credit, make regular
cash deposits to a dedicated account in amounts totaling
$500,000 per agreement year to a maximum of $5,000,000. In
February 1996, the Partnership established a QF account with the
trustee. The balance in this account at December 31, 1997 and
1996, was $1,000,000 and $500,000, respectively, and is included
in noncurrent, restricted investments he ld by trustee in the
accompanying consolidated balance sheets. Steam Host Letter of
Credit At financial closing in October 1992, the Partnership
provided Caulkins a letter of credit in the amount of
$10,000,000 pursuant to the Energy Services Agreement (see Note
6). This letter of credit was terminated in 1994 and a new one
was issued with essentially the same terms. In the event of a
default under the Energy Services Agreement (see Note 6), the
Partnership is required to pay liquidated damages in the amount
of $10,000,000. Failure by the Partnership to pay the damages
within 30 days allows the steam host to draw on the letter of
credit for the amount of damages suffered by Caulkins. As of
December 31, 1997, 1996 and 1995, no draws had been made on this
letter of credit. Commitment fees of $60,833 were paid relating
to this letter of credit in each of 1997, 1996 and 1995. Debt
Service Reserve Letter of Credit
On November 22, 1994, the Partnership also entered into a debt
service reserve letter of credit and reimbursement agreement 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 are available 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 prior to any drawings on the debt service reserve letter of
credit. As of December 31, 1997, 1996 and 1995, no draws had been
made on this letter of credit. Commitment fees of $875,496 and
$835,435 were paid on this letter of credit in 1997 and 1996,
respectively.
5. PURCHASE AGREEMENTS: Coal Purchase and Transportation Agreement
The Partnership entered into a 30-year purchase contract with
Lodestar Energy, Inc. (formerly known as Costain Coal, Inc.),
commencing from the first day of the calendar month following the
Commercial Operation Date, for the purchase of the Facility's annual
coal requirements at a price defined in the agreement, as well as
for the disposal of ash residue. The Partnership has no obligation
to purchase a minimum quantity of coal under this agreement.
In 1997, the Partnership entered into an arrangement with Lodestar
and the coal transporter to compensate the Partnership for reduced
FPL revenues when the Facility runs at minimum load during decommit
periods. In exchange for the Partnership's continued purchase and
transportation of coal during these periods, Lodestar and the coal
transporter each pay the Partnership a portion of the foregone FPL
revenues.
Lime Purchase Agreement
On May 1, 1992, the Partnership entered into a lime purchase
agreement with Chemical Lime Company of Alabama, Inc. for supply of
the Facility's lime requirements for the Facility's dry scrubber
sulfur dioxide removal system. The initial term of the agreement is
15 years from the Commercial Operation Date and may be extended for
successive 5-year periods. The agreement may be canceled by either
party after January 1, 2000, upon proper notice. The Partnership
has no obligation to purchase a minimum quantity of lime under the
agreement.
6. SALES AND SERVICES AGREEMENTS: Power Purchase Agreement On May
21, 1990, the Partnership entered into a Power Purchase Agreement
with FPL for sales of the Facility's electric output. As amended,
the agreement is effective for a 30-year period, commencing with the
Commercial Operation Date. The pricing structure provides for both
capacity and energy payments.
Capacity payments remain relatively stable because the amounts
do not vary with dispatch. Price increases are contractually
provided. Capacity payments include a bonus or penalty payment if
actual capacity is in excess of or below specified levels of
available capacity. Energy payments are derived from a contractual
formula defined in the agreement based on the actual cost of
domestic coal at another FPL plant, St. Johns River Power Park.
Energy Services Agreement On September 30, 1992, the Partnership
entered into an energy services agreement with Caulkins.
Commencing on the Commercial Operation Date and continuing
throughout the 15-year term of the agreement, Caulkins is
required to purchase the lesser of 525 million pounds of steam
per year or the minimum quantity of steam per year necessary for
the Facility to maintain its status as a Qualifying Facility
under PURPA. The Facility provided steam to Caulkins in 1995
during start-up and testing of the Facility, and declared
Commercial Operation with Caulkins on March 1, 1996. 7.
RELATED PARTY TRANSACTIONS: Construction Contract
The Partnership entered into a construction agreement with
Bechtel Power Corporation ("Bechtel Power"), an affiliate of Bechtel
Enterprises, for the design, engineering, procurement, construction,
start-up and testing of the Facility (the "Construction Contract").
As of December 31, 1997, the total contract value was $440,442,879
including change orders to date. Payments of $440,442,879 have been
made to Bechtel Power under the Construction Contract since
inception, including $450,000 paid in 1997 as a final settlement for
punch list items paid in 1997 for which $900,000 had been retained
in 1996.
Bechtel Power guaranteed that Substantial Completion would occur
on or prior to January 21, 1996, the Guaranteed Completion Date.
Substantial Completion is achieved when the Facility demonstrates
that it has met emissions guarantees and has achieved 88 percent of
guaranteed net electrical output during required test periods. A
schedule bonus for Substantial Completion prior to the Guaranteed
Completion Date is provided in the Construction Contract.
Substantial Completion was declared as of December 22, 1995 and a
$6.1 million schedule bonus was paid on April 4, 1996. Performance
bonuses of $4.5 million were paid on April 4, 1996, as a portion of
the estimate of the total performance bonuses and a final payment of
$3.9 million was made on September 17, 1996. Final completion
occurred on December 13, 1996.
Management Services Agreement
The Partnership has a Management Services Agreement with USGen,
a California general partnership and a wholly owned indirect
subsidiary of USGenLLC, for the day-to-day management and
administration of the Partnership's business relating to the
Facility. The agreement will continue for a term of 34 years.
Compensation to USGen under the agreement includes an annual base
fee of $650,000 (adjusted annually), wages and benefits for
employees performing work on behalf of the Partnership and other
costs directly related to the Partnership. Amounts incurred under
this agreement were $1,981,174, $2,769,570 and $3,176,772 in 1997,
1996 and 1995, respectively. At December 31, 1997 and 1996, the
Partnership owed USGen $254,433 and $206,916, respectively, which
are included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets.
Operations and Maintenance Agreement
The Partnership has an Operation and Maintenance Agreement with
USOSC, a California general partnership and a wholly owned indirect
subsidiary of USGenLLC, for the operations and maintenance of the
Facility for a period of 30 years. Thereafter, the agreement will
be automatically renewed for periods of 5 years until terminated by
either party with 12 months notice. If targeted plant performance
is not reached, USOSC will pay liquidated damages to the
Partnership. Compensation to USOSC under the agreement includes an
annual base fee of $1.5 million ($900,000 of which is subordinate to
debt service and certain other costs), certain earned fees and
bonuses based on the Facility's performance and reimbursement for
certain costs including payroll, supplies, spare parts, equipment,
certain taxes, licensing fees, insurance and indirect costs
expressed as a percentage of payroll and personnel costs. The fees
are adjusted quarterly by a measure of inflation as defined in the
agreement. Payments of $9,708,409, $7 ,210,201 and $9,049,410 were
made to USOSC in 1997, 1996 and 1995, respectively. At December 31,
1997 and 1996, the Partnership owed USOSC $212,458 and $61,802
respectively, which is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheets.
Consulting Services In 1997, 1996 and 1995 the Partnership paid
engineering consulting fees of $0, $10,159 and $13,279,
respectively, to Bechtel Generating Company, a wholly-owned
subsidiary of Bechtel Enterprises.
Railcar Lease The Partnership entered into a 15 year Car Leasing
Agreement with GE Capital Railcar Services Corporation, an
affiliate of GECC, to furnish and lease 72 pressure differential
hopper railcars to the Partnership for the transportation of fly
ash and lime. The cars were delivered starting in April 1995,
at which time the lease was recorded as a capital lease. The
leased asset of $5,753,375 and accumulated depreciation of
$1,017,347, is included in property, plant and equipment at
December 31, 1997. Payments of $629,856, including principal
and interest, were made in 1997, and the lease obligation of
approximately $5,138,000 at December 31, 1997 is reported as a
lease payable in the accompanying consolidated balance sheets.
Future minimum payments related to the Car Leasing Agreement at
December 31, 1997, are approximately as follows:
1998 267,000
1999 287,000
2000 309,000
2001 332,000
2002 383,000
Thereafter 3,560,000
Total $5,138,000
Development Costs
At the original financial closing in October 1992, the
Partnership paid development fees and reimbursed certain costs,
totaling $14.8 million to PG&E Enterprises, $3.9 million to Bechtel
Enterprises, $11.1 million to GECC and $1.2 million to USGen,
related to the development of the Facility.
Distribution to Partners
On June 16 and December 15, 1997, as provided in the Partnership
Agreement, Indiantown distributed approximately $16.3 million and
approximately $11.8 million, respectively, to the Partners. An
additional $3 million of distributable cash was retained for capital
projects and is included in cash and cash equivalents as of December
31, 1997, on the accompanying consolidated balance sheet. Funds
distributed were from electric and steam revenues collected during
the second full year of commercial operations.
8. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated
fair values of certain of the Partnership's financial instruments at
December 31, 1997 and 1996.
Financial Liabilities December 31, 1997
Carrying Amount Fair Value
Tax Exempt Bonds $125,010,000 $146,016,272
First Mortgage Bonds $486,504,000 $590,214,789
Financial Liabilities December 31, 1996
Carrying Amount Fair Value
Tax Exempt Bonds $125,010,000 $143,067,534
First Mortgage Bonds $496,205,000 $570,178,669
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 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS
Indiantown Cogeneration, L.P. Board of Control
The following table sets forth the names, ages and positions of
the members of the Board of Control of the Partnership. Members of
the Board of Control are selected from time to time by, and serve at
the pleasure of, the Partners of the Partnership.
Name Age Position
Joseph P. Kearney........ 51 Palm Representative
John R. Cooper........... 50 Palm Representative
P. Chrisman Iribe........ 46 Toyan Representative
Stephen A. Herman........ 54 Toyan Representative
William D. Strittmatter.. 41 TIFD Representative
Michael J. Tzougrakis.... 56 TIFD Representative
Joseph P. Kearney has been President and Chief Executive Officer of
U.S. Generating Company since it was formed in 1989. Prior to
joining U.S. Generating Company, Mr. Kearney held senior
management positions at the Coastal Corporation from 1984 to
1989. Prior to 1984, Mr. Kearney held positions in project and
technology development and financing with the Fluor Corporation,
Enpex Corporation and System Development Corporation. From 1974
to 1979, Mr. Kearney served as Chief of Energy Technology, White
House Office of Management & Budget. He had Executive Office
responsibility for financial, policy, legislative, management
and budgetary proposals by the U.S. Department of Energy and the
Nuclear Regulatory Commission. He holds a Ph.D. in Nuclear
Engineering from Massachusetts Institute of Technology.
John R. Cooper is Senior Vice President of U.S. Generating
Company and has been with U.S. Generating Company since it was
formed in 1989. Prior to joining U.S. Generating Company, he spent
3 years as chief financial officer with a European oil, shipping and
banking group. Prior to 1986, Mr. Cooper spent 7 years with Bechtel
Financing Services, Inc., where his last position was Vice President
and Manager. Mr. Cooper holds an M.B.A. in Finance from the Kellogg
Graduate School of Management at Northwestern, an M.A. from the
Johns Hopkins Nitze School of Advanced International Studies (SAIS)
and a B.A. from Trinity College, Connecticut.
P. Chrisman Iribe is Executive Vice President of U.S. Generating
Company and has been with U.S. Generating Company since it was
formed in 1989. Prior to joining U.S. Generating Company, Mr. Iribe
was senior vice president for planning, state relations and public
affairs with ANR Pipeline Company, a natural gas pipeline company
and a subsidiary of the Coastal Corporation. Mr. Iribe holds a B.A.
degree in Economics from George Washington University.
Stephen A. Herman, as Senior Vice President and General Counsel
of U.S. Generating Company, oversees all legal services for U.S.
Generating Company's projects and activities. Prior to joining U.S.
Generating Company, Mr. Herman was a partner for 15 years with the
Washington, D.C. law firm of Kirkland & Ellis. Mr. Herman has a
B.S. from the Wharton School of Finance and Commerce at the
University of Pennsylvania and an LL.B. from the University of
Virginia. He has been an instructor at the University of Chicago
Law School, has served as President of the Federal Energy Bar
Association, and is Vice Chair of the Energy Industry Restructuring,
Finance, and Mergers & Acquisitions Committee, American Bar
Association, Section on Natural Resources, Energy and Environmental
Law.
William D. Strittmatter is a Vice President of GE Capital and
Managing Director and Chief Credit Officer of GE Capital Services
Structured Finance Group, Inc. ("SFG"). He is responsible for the
worldwide credit and risk management function of SFG's project and
structured financing activities in the energy, infrastructure and
industrial sectors. Mr. Strittmatter joined GE Capital in 1982, and
has held various positions in finance, operations and marketing. He
received a B.S. degree in business from the Rochester Institute of
Technology and earned an M.B.A. from the Harvard Business School.
Michael J. Tzougrakis is a Managing Director of Structured
Finance Group, Inc. ("SFG"), a unit of GE Capital, and is currently
responsible for technical portfolio, technical underwriting and
construction loan management for SFG. During his 26 year career
with GE Capital, Mr. Tzougrakis has held management positions with
responsibility for operations, preparation of proposals, project
development and Facility installation and start-up in the United
States and abroad. Mr. Tzougrakis is a graduate of General
Electric's Installation and Service Engineering Program and holds a
B.S.E.E. degree from Pratt Institute.
ICL Funding Corporation Board of Directors
The following table sets forth the names, ages and positions of
the directors and executive officers of ICL Funding . Directors are
elected annually and each elected director holds office until a
successor is elected. Officers are elected from time to time by
vote of the Board of Directors.
Name Age Position
Joseph Kearney 51 Director, President
P. Chrisman Iribe 46 Director, Secretary
Michael J. Tzougrakis 56 Director, Vice President
John R. Cooper 50 Vice President, Chief
Financial Officer and
Principal Accounting
Officer
Item 11 REMUNERATION OF DIRECTORS AND OFFICERS
No cash compensation or non-cash compensation was paid in any
prior year or is currently proposed to be paid in the current
calendar year by ICL Funding or the Partnership to any of the
officers and directors listed above. Accordingly, the Summary
Compensation Table and other tables required under Item 402 of the
Securities and Exchange Commission's Regulation S-K have been
omitted, as presentation of such tables would not be meaningful.
Management services for the Partnership are being performed by
USGen on a cost-plus basis in addition to the payment of a base fee.
Operation and maintenance services for the Partnership will be
performed by USOSC on a cost-plus basis. In addition to a base fee,
USOSC may earn certain additional fees and bonuses based on
specified performance criteria.
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Partnership interests in the Partnership are held as follows:
Toyan 50% G.P.
Palm 10% G.P.
TIFD 40% L.P.
All of the outstanding shares of common stock of ICL Funding are
owned by the Partnership.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has several material contracts with affiliated
entities. These contracts, which include the Construction Contract,
the Management Services Agreement, the Operations and Maintenance
Agreement and the Railcar Lease, are described elsewhere in this
report, most notably in Note 7 to the Partnership's consolidated
financial statements.
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
a) Documents filed as of this Report Page
(1) Consolidated financial statements:
Report of Independent Public Accountants............... 16
Consolidated Balance Sheets as of
December 31, 1997 and December 31, 1996 ................. 17
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 and for the Period from Commercial
Operations (December 22, 1995) to December 31, 1995...... 19
Consolidated Statements of Changes
in Partners' Capital for the years ended
December 31, 1997, 1996 and 1995......................... 20
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 21
Notes to Consolidated Financial
Statements............................................... 22
(2) Consolidated Financial Statement
Schedules................................................ None
b) Reports on Form 8-K:
The Partnership filed a Form 8-K and press release on January 3,
1996 announcing the commencement of commercial operations.
The Partnership filed a Form 8-K on December 23, 1996,
announcing final completion of the Facility and the first cash
distribution made to the Partners on December 16, 1996.
c) 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 co-registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
city of Bethesda, state of Maryland, on March 31, 1998.
INDIANTOWN COGENERATION, L.P.
Date: March 31, 1998 /s/ John R. Cooper
Name: John R. Cooper
Title: Chief Financial Officer,
Principal Accounting Officer
and Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Joseph P. Kearney Member of Board of Control, March 31, 1998
Joseph P. Kearney President and Chief
Executive Officer
/s/ P. Chrisman Iribe Member of Board of Control, March 31, 1998
P. Chrisman Iribe Senior Vice President
/s/ John R. Cooper Chief Financial Officer, March 31, 1998
John R. Cooper Principal Accounting
Officer and Senior
Vice President
/s/ Stephen A. Herman Member of Board of Control March 31, 1998
Stephen A. Herman
/s/ William D. Strittmatter Member of Board of Control March 31, 1998
William D. Strittmatter
/s/ Michael Tzougrakis Member of Board of Control March 31, 1998
Michael J. Tzougrakis
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the co-registrant has duly caused this Form 10-K to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
city of Bethesda, state of Maryland, on March 31, 1998.
INDIANTOWN COGENERATION
FUNDING CORPORATION
Date: March 31, 1998 /s/ John R. Cooper
Name: John R. Cooper
Title: Chief Financial Officer,
Principal Accounting Officer
and Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Form 10-K has been signed by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Joseph P. Kearney Director and President, March 31, 1998
Joseph P. Kearney
/s/ P. Chrisman Iribe Director and Secretary, March 31, 1998
P. Chrisman Iribe
/s/ John R. Cooper Chief Financial Officer, March 31, 1998
John R. Cooper Principal Accounting
Officer and Vice President
/s/ Michael J. Tzougrakis Director and Vice President March 31, 1998
Michael J. Tzougrakis
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1
<CAPTION>
Exhibit 27: Financial Data Schedule
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,243,668
<SECURITIES> 0
<RECEIVABLES> 14,483,090
<ALLOWANCES> 0
<INVENTORY> 337,001
<CURRENT-ASSETS> 33,782,488
<PP&E> 668,464,373
<DEPRECIATION> 35,504,414
<Total Assets> 735,968,011
<CURRENT-LIABILITIES> 23,392,756
<BONDS> 611,514,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 735,968,011
<SALES> 162,962,195
<TOTAL-REVENUES> 162,962,195
<CGS> 78,638,733
<TOTAL-COSTS> 93,859,388
<Other-Costs> 9,535,926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,390,569
<Income-before-taxes> 18,008,777
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,008,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,008,777
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
