SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number 33-82034
INDIANTOWN COGENERATION, L.P. (Exact name of co-registrant as
specified in its charter)
Delaware 52-1722490 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
INDIANTOWN COGENERATION FUNDING CORPORATION (Exact name of
co-registrant as specified in its charter)
Delaware 52-1889595 (State or other
jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7500 Old Georgetown Road, 13th Floor Bethesda, Maryland 20814-6161
(Registrants' address of principal executive offices)
(301)-718-6800 (Registrants' telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. [ X ] Yes [ ] No
Indiantown Cogeneration, L.P. Indiantown Cogeneration Funding
Corporation
PART I FINANCIAL INFORMATION Page No.
Item 1 Financial Statements: Consolidated Balance Sheets as of
June 30, 1998 (Unaudited) and December 31,
1997.........................................................1
Consolidated Statements of Operations for the Six Months Ended
June 30, 1998 (Unaudited) and June 30, 1997
(Unaudited)...................................................3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 (Unaudited) and June 30, 1997
(Unaudited)....................................................4
Notes to Consolidated Financial Statements (Unaudited) ........5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of
Operations...............................................9
PART II OTHER INFORMATION
Item 1 Legal
Proceedings...................................................14
Item 5 Other
Information...................................................14
Item 6 Exhibits and Reports on Form
8-K............................................................15
Signatures.....................................................18
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Balance Sheets
As of June 30, 1998 and December 31, 1997
<S> <C> <C>
ASSETS June 30, December 31,
1997 1998 1997
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,398,587 $ 3,234,379
Accounts receivable-trade 14,531,305 14,483,090
Inventories 956,152 337,001
Prepaids 830,403 1,025,372
Deposits 83,804 193,357
Investments held by Trustee,
including restricted funds of
$2,747,315 and $2,764,745,
respectively 2,538,541 13,009,289
Total current assets 21,338,792 32,282,488
INVESTMENTS HELD BY TRUSTEE,
restricted funds 13,766,656 13,501,000
DEPOSITS 70,000 65,000
PROPERTY, PLANT & EQUIPMENT:
Land 8,582,363 8,582,363
Electric and steam
generating facilities 695,830,114 695,386,424
Less accumulated depreciation (42,918,006) (35,504,414)
Net property, plant & equipment 661,494,471 668,464,373
FUEL RESERVE 2,397,145 3,140,989
DEFERRED FINANCING COSTS,
net of accumulated amortization
of $42,598,556 and $42,172,745,
respectively 17,588,350 18,014,161
Total assets $716,655,414 $735,468,011
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L. P.
Consolidated Balance Sheets
As of June 30, 1998 and December 31, 1997
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL June 30, 1998 December 31, 1997
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 889,931 $ 238,526
Accrued liabilities 10,795,943 9,785,093
Accrued interest 2,319,565 2,337,078
Current portion - First
Mortgage Bonds 10,131,000 10,265,000
Current portion lease payable
- - railcars 276,873 267,058
Total current liabilities 24,413,312 22,892,755
LONG TERM DEBT:
First Mortgage Bonds 471,241,000 476,239,000
Tax Exempt Facility
Revenue Bonds 125,010,000 125,010,000
Lease payable - railcars 4,729,812 4,870,747
Total long term debt 600,980,812 606,119,747
Reserve-Major Maintenance 420,850 329,945
Total liabilities 625,814,974 629,342,447
PARTNERS' CAPITAL:
Toyan Enterprises 45,420,221 53,062,783
Palm Power Corporation 9,084,043 10,612,556
TIFD III-Y, Inc. 36,336,176 42,450,225
Total partners' capital 90,840,440 106,125,564
Total liabilities and partners'
capital $716,655,414 $735,468,011
<FN>
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Operations
For the Six Months Ended June 30, 1998 and June 30, 1997
<S> <C> <C>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
Operating Revenues: (Unaudited) (Unaudited)
Electric capacity and
capacity bonus revenue $61,709,982 $60,637,466
Electric energy revenue 16,793,931 15,296,980
Steam revenue 106,143 66,667
Total operating revenues 78,610,056 76,001,113
Cost of Sales:
Fuel and ash 17,938,553 17,720,221
Operating and maintenance 8,815,208 7,721,011
Depreciation 7,548,096 7,779,838
Total cost of sales 34,301,857 33,221,070
Gross Profit 44,308,199 42,780,043
Other Operating Expenses:
General and administrative 1,405,670 1,377,988
Insurance and taxes 3,361,234 3,417,685
Total other operating expenses 4,766,904 4,795,673
Operating Income 39,541,295 37,984,370
Non-Operating Income
(Expenses):
Interest expense (29,604,677) (29,168,844)
Interest/Other income 1,258,258 1,281,577
Net non-operating expense (28,346,419) (27,887,267)
Net Income $11,194,876 $10,097,103
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
<TABLE>
<CAPTION>
Indiantown Cogeneration, L.P.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
<S> <C> <C>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $11,194,876 $10,097,103
Adjustments to reconcile
net income to net
Cash provided by
operating activities:
Depreciation and amortization 7,839,403 7,971,617
Decrease (Increase) in
accounts receivable (48,215) 609,211
Decrease in
inventories and fuel reserves 124,693 479,560
Decrease (Increase) in
deposits and prepaids 299,522 (128,697)
Increase in accounts payable,
accrued liabilities and
accrued interest 1,644,742 61,574
Increase in major maintenance
reserve 90,905 88,260
Decrease in lease payable (131,120) (121,989)
Net cash provided by
operating activities 21,014,806 19,056,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property,
plant & equipment (443,690) (957,239)
Decrease in
investment held by trustee 10,205,092 3,007,638
Net cash used in investing
activities 9,761,402 2,050,399
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bonds (5,132,000) (4,850,000)
Capital distributions (26,480,000) (16,278,047)
Net cash provided by
financing activities (31,612,000) (21,128,047)
CHANGE IN CASH AND CASH
EQUIVALENTS (835,792) (21,009)
CASH and CASH EQUIVALENTS,
beginning of year 3,234,379 344,323
CASH and CASH EQUIVALENTS,
end of period $2,398,587 $ 323,314
<FN>
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
Indiantown Cogeneration, L.P.
Notes to Consolidated Financial Statements
As of June 30, 1998
(Unaudited)
1. ORGANIZATION AND BUSINESS: Indiantown Cogeneration, L.P. (the
"Partnership") is a special purpose Delaware limited partnership
formed on October 4, 1991. The general partners are Toyan
Enterprises ("Toyan"), a California corporation and a
wholly-owned special purpose indirect subsidiary of U.S.
Generating Company, LLC, 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") and will also supply steam to Caulkins Indiantown Citrus Co.
("Caulkins") for its plant located near the Facility.
The Partnership is managed by U.S. Generating Company ("USGen")
pursuant to a Management Services Agreement (the "MSA"). The
Facility is operated by U.S. Operating Services Company ("USOSC")
pursuant to an Operation and Maintenance Agreement (the "O&M
Agreement"). USGen and USOSC are general partnerships originally
formed between affiliates of PG&E Enterprises and Bechtel
Enterprises. On September 19, 1997, USGen and USOSC each separately
redeemed Bechtel Enterprises' interests in USGen and USOSC so that
U.S. Generating Company, LLC now indirectly owns all of the
interests in USGen and USOSC. This will not affect USGen's
obligations under the MSA or USOSC's obligations under the O&M
Agreement. Also on September 19, 1997, Toyan purchased 16.67% of
Palm's interest in the Partnership, which represents a 2% ownership
in the Partnership.
Bechtel Generating Company, Inc. ("Bechtel Generating"), a
subsidiary of Bechtel Enterprises and the direct owner of Palm,
entered into a Purchase Agreement dated as of March 6, 1998, with
Cogentrix Energy, Inc. ("Cogentrix") whereby a wholly owned
subsidiary Cogentrix will purchase from Bechtel Generating, among
other things, 100% of the stock of Palm. Palm holds a 10% interest
in the Partnership. The Partnership has been informed that the
closing of the Cogentrix sale is expected in September. In
addition, Toyan entered into a Purchase Agreement dated as of May
29, 1998, with DCC Project Finance Twelve, Inc. ("PFT"), whereby PFT
will, through a new partnership ("Newco") with Toyan which would
become a new partner in the Partnership, acquire 20% of Toyan's 50%
interest in the Partnership, which represents a 10% ownership
interest in the Partnership. It is expected that, prior to the PFT
transaction, Toyan will convert some of its general partnership
interest into a limited partnership interest such that Toyan will
hold, after the PFT transaction, only a limited partnership interest
in the Partnership. The Partnership has been informed that the
closing of the PFT transaction is expected in September.
The net profits and losses of the Partnership are allocated to
Toyan, Palm, TIFD and, if applicable, Newco (collectively, the
"Partners") based on the following ownership percentages:
<TABLE>
<S> <C> <C> <C> <C> <C>
Until September From September With Cogentrix With PFT With PFT
20, 1997 20, 1997 Sale Only Transaction Transaction
Only and Cogen-
trix Sale
Toyan 48% 50% 50% 30.05% 30.05%
Palm 12% 10% 10%* 10% 10%*
Newco -- -- -- 19.95%** 19.95%**
TIFD 40% 40% 40% 40% 40%
<FN>
* Now beneficially owned by Cogentrix.
** PFT's beneficial ownership in the Partnership through Newco is
equal to 10%.
</TABLE>
The changes in ownership contemplated by the Cogentrix sale and the
PFT transaction will be the subject of a self-recertification or
application for recertification of Qualifying Facility status to be
filed by the Partnership with the Federal Energy Regulatory
Commission. The PFT transaction is also subject to a confirmation
from each of Standard & Poor's, Moody's and Fitch that the change in
control of the Partnership will not in and of itself result in the
downgrading of the ratings on the Partnership's First Mortgage Bonds
or the Taxable Bonds. Each of the Cogentrix sale and the PFT
transaction is also subject to certain other conditions set forth in
each of the purchase agreements including, if applicable, any
conditions imposed by the Partnership's financing arrangements.
The Partnership is unable to predict the likelihood that either or
both of the Cogentrix sale or the PFT transaction will be
consummated or, if consummated, whether such closing will occur in
accordance with the dates set forth above. The Partnership is,
however, not aware of any event or circumstance which currently
exists which would prevent the consummation of either transaction.
All distributions other than liquidating distributions will be
made based on the Partners' percentage interest as shown above, in
accordance with the project documents and at such times and in such
amounts as the Board of Control of the Partnership determines. The
Partners contributed, pursuant to an equity commitment agreement,
approximately $140,000,000 of equity when commercial operation of
the Facility commenced in December 1995.
The Partnership was in the development stage through December
21, 1995 and commenced commercial operations on December 22, 1995
(the "Commercial Operation Date"). The Partnership's continued
existence is dependent on the ability of the Partnership to sustain
successful operations. Management of the Partnership is of the
opinion that the assets of the Partnership are realizable at their
current carrying value.
2. FINANCIAL STATEMENTS: The consolidated balance sheet as of June
30, 1998, and the consolidated statements of operations and cash
flows for the six months ended on June 30, 1998 and 1997, have
been prepared by the Partnership, without audit and in
accordance with the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, these
financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial position of the Partnership as of June 30, 1998, and
the results of operations and cash flows for the six months
ended June 30, 1998 and 1997.
The financial statements and related notes contained herein
should be read in conjunction with the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1997.
Investments Held by Trustee The investments held by trustee
represent bond and equity proceeds and revenue funds held by a
bond trustee/disbursement agent and are carried at cost which
approximates market. All funds are invested in either Nations
Treasury Fund-Class A or other permitted investments for longer
periods. The Partnership also maintains restricted investments
covering a portion of the Partnership's debt as required by the
financing documents. The proceeds include $12,501,000 of
restricted tax-exempt debt service reserve required by the
financing documents and is classified as a noncurrent asset on
the accompanying balance sheets. All other investments are
classified as current assets in the accompanying consolidated
balance sheets. In addition, a qualifying facility ("QF")
reserve of $1.3 million is also held long term. Property, Plant
and Equipment Property, plant and equipment, which consist
primarily of the Facility, are recorded at actual cost. The
Facility is depreciated on a straight-line basis over 35 years.
As of January 1, 1997, the Partnership prospectively revised its
calculation of depreciation to include a residual value on the
Facility approximating 25 percent of the gross Facility costs.
Other property and equipment are depreciated on a straight-line
basis over the estimated economic or service lives of the respective
assets (ranging from five to seven years). Routine maintenance and
repairs are charged to expense as incurred.
Equity Contribution Agreement Pursuant to an Equity Contribution
Agreement, dated as of November 1, 1994, between TIFD and
NationsBank of Florida, N.A. (succeeded by The Bank of New York
Trust Company of Florida, N.A.) (the "Trustee"), the Partners
contributed approximately $140,000,000 of equity on December 26,
1995. Proceeds were used to repay the $139,000,000 balance
outstanding under the Equity Loan Agreement. The remaining
$1,000,000 was deposited with the Trustee according to a
disbursement agreement among the Partnership, the Trustee and
the other lenders to the Partnership and is included in
investments held by trustee in the accompanying consolidated
balance sheets as of December 31, 1997. The funds were released
and subsequently (on June 15, 1998) distributed in accordance
with the Disbursement Agreement.
3. DEPOSITS: In 1991, in accordance with a contract between the
Partnership and Martin County, the Partnership provided Martin
County with a security deposit in the amount of $149,357 to
secure installation and maintenance of required landscaping
materials. In January 1998, the Partnership received a refund
of funds in excess of the required deposit as security for the
first year maintenance as set forth in the contract between the
Partnership and Martin County. The deposit, net of any refund,
is included in current assets at June 30, 1998 and December 31,
1997.
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 June 30, 1998 and 1997, the estimated
present value of this deposit was $70,000 and $65,000, respectively,
and has been included in deposits in the accompanying balance
sheets. The remaining balance has been included in property plant,
and equipment as part of total construction expenses. 4. FAIR
VALUE OF FINANCIAL INSTRUMENTS The following table presents the
carrying amounts and estimated fair values of the Partnership's
financial instruments at June 30, 1998. Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", defines the fair market value of a financial
instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties.
<TABLE>
<S> <C> <C>
Carrying Amount Fair Value Financial Liabilities
Tax-Exempt Bonds $125,010,000 $145,448,591
Taxable Bonds $481,372,000 $571,779,455
</TABLE>
For the Tax Exempt Bonds and First Mortgage Bonds, the fair
values of the Partnership's bonds payable are based on the stated
rates of the Tax Exempt Bonds and First Mortgage Bonds and current
market interest rates to estimate market values for the Tax Exempt
Bonds and the First Mortgage Bonds.
The carrying amounts of the Partnership's cash and cash
equivalents, accounts receivable, deposits, prepaid expenses,
investments held by trustee, accounts payable, accrued liabilities
and accrued interest approximate fair value because of the short
maturities of these instruments.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Partnership and the notes
thereto included elsewhere in this report.
General
The Partnership is primarily engaged in the ownership and
operation of a non-utility electric generating facility. Since its
inception, and until December 21, 1995, the Partnership was in the
development stage and had no operating revenues or expenses. On
December 22, 1995 the Facility commenced commercial operation. As
of June 30, 1998, the Partnership had approximately $661.5 million
of property, plant and equipment (net of accumulated depreciation)
consisting primarily of purchased equipment, construction-related
labor and materials, interest during construction, financing costs
and other costs directly associated with the construction of the
Facility. For the six months ended June 30, 1998, the Partnership
had total operating revenues of approximately $78.6 million, total
operating costs of $39.1 million, and total net interest expenses of
approximately $28.3 million resulting in net income of approximately
$11.2 million.
The Partnership has obtained all material environmental permits
and approvals required as of June 30, 1998 for the operation of the
Facility. Certain of these permits and approvals are subject to
periodic renewal. Certain additional permits and approvals will be
required in the future for the continued operation of the Facility.
The Partnership is not presently aware of any technical
circumstances that would prevent the issuance of such permits and
approvals or the renewal of currently existing permits. The
Partnership timely filed its application for a Title V air permit
on May 24, 1996. The air construction permit will continue in
effect until the Title V permit is issued. A permit is expected by
the end of this year.
Results of Operations
For the six months ending June 30, 1998 and 1997, the Facility
achieved an average Capacity Billing Factor of 101.17% and 96.59%,
respectively. This resulted in earning monthly capacity payments
aggregating $56.1 million and $55.9 million, and bonuses aggregating
$5.6 million and $4.7 million for the six months ended June 30, 1998
and 1997, respectively. The Capacity Billing Factor measures the
overall availability of the Facility, but gives a heavier weighting
to on-peak availability. During the six months ended June 30, 1998,
the Facility was dispatched by FPL and generated 707,874
megawatt-hours compared with 650,433 megawatt-hours during the same
period in 1997. The 57,441 megawatt-hour increase was due to higher
dispatch levels by FPL. The monthly dispatch rate for the first six
months of 1998 ranged from 35% to 74%, as compared to a range of 40%
to 60% for the corresponding period in 1997.
Net income for the six months ended June 30, 1998, was
approximately $11.2 million compared to the net income of
approximately $10.1 million for the corresponding period in the
prior year. The $1.1 million increase is primarily attributable to
a higher Capacity Billing Factor and the corresponding increases in
capacity payments and bonuses.
<TABLE>
<CAPTION>
Electric Energy Revenues (dollars and KWh's in millions)
<S> <C> <C>
For the six months ended
June 30, 1998 June 30, 1997
Dollars 16.8 million 15.3 million
KWhs 707.9 650.4
Average Capacity
Billing Factor 101.17% 96.59%
Average Dispatch Rate 53.6% 50.2%
</TABLE>
For the six months ended June 30, 1998, the Partnership had
total operating revenues of approximately $78.6 million as compared
to $76.0 million for the corresponding period in the prior year.
The $2.6 million increase in operating revenue is primarily due to a
$1.5 million increase in electric energy revenue resulting from
higher dispatch by FPL and by a $1.1 increase in electric capacity
and bonus revenue resulting from higher availability levels during
the six months ended June 30, 1998.
Costs of revenues for the six months ended June 30, 1998, were
approximately $34.3 million on sales of 707,874 MWhs as compared to
$33.2 million on sales of 650,433 MWhs for the corresponding period
in the prior year. This increase is largely attributable to an
increase in fuel resulting from higher dispatch by FPL and higher
operating and maintenance costs for parts and contract labor on the
baghouse, additional materials and parts and higher costs for mobile
equipment rental.
Total other operating expenses for the six months ended June 30,
1998, were approximately $4.8 million, which is comparable to the
$4.8 million of total other operating expenses for the corresponding
period in the prior year.
Net interest expense for the six months ended June 30, 1998, of
approximately $28.3 million was comparable to the $27.9 million of
net interest expense for the same period in the prior year. The $.4
million increase is the result of a $.2 million decrease in interest
because two more issues have matured offset by a $.6 million
increase for railcar interest and deferred financing amortization
which were reclassified in December 1997 from fuel and depreciation
to interest expense.
Liquidity and Capital Resources
On November 22, 1994 the Partnership and ICL Funding issued
first mortgage bonds in an aggregate principal amount of $505
million (the "First Mortgage Bonds"), $236.6 million of which bear
an average interest rate of 9.26% and $268.4 million of which bear
an interest rate of 9.77%. Concurrently with the Partnership's
issuance of its First Mortgage Bonds, the Martin County Industrial
Development Authority issued $113 million of Industrial Development
Refunding Revenue Bonds (Series 1994A) which bear an interest rate
of 7.875% (the "1994A Tax Exempt Bonds"). A second series of tax
exempt bonds (Series 1994B) in the approximate amount of $12
million, which bear an interest rate of 8.05%, were issued by the
Martin County Industrial Development Authority on December 20, 1994
(the "1994B Tax Exempt Bonds" and, together with the 1994A Tax
Exempt Bonds, the "1994 Tax Exempt Bonds"). The First Mortgage
Bonds and the 1994 Tax Exempt Bonds are hereinafter collectively
referred to as the "Bonds."
Certain proceeds from the issuance of the First Mortgage Bonds
were used to repay $421 million of the Partnership's indebtedness
and financing fees and expenses incurred in connection with the
development and construction of the Facility and the balance of the
proceeds were deposited in various restricted funds that are being
administered by an independent disbursement agent pursuant to trust
indentures and a disbursement agreement. Funds administered by such
disbursement agent are invested in specified investments. These
funds together with other funds available to the Partnership were
being used: (i) to finance completion of construction, testing, and
initial operation of the Facility; (ii) to finance construction
interest and contingency; and (iii) to provide for initial working
capital.
The proceeds of the 1994 Tax Exempt Bonds were used to refund
$113 million principal amount of Industrial Development Revenue
Bonds (Series 1992A and Series 1992B) previously issued by the
Martin County Industrial Development Authority for the benefit of
the Partnership, and to fund, in part, a debt service reserve
account for the benefit of the holders of its tax-exempt bonds and
to complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through June
1998 were $769 million. The equity loan of $139 million was repaid
on December 26, 1995. As of June 30, 1998, the borrowings included
$125 million from the 1994 Tax Exempt Bonds and all of the available
First Mortgage Bond proceeds. The First Mortgage Bonds have matured
as follows:
<TABLE>
<S> <C> <C>
Series Aggregate Principal Amount Date Matured and Paid
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
</TABLE>
The weighted average interest rate paid by the Partnership on its
debt for the six months ended June 30, 1998 and 1997, was 9.176% and
9.176%, respectively.
The Partnership, pursuant to certain of the Project Contracts,
is required to post letters of credit which, in the aggregate, will
have a face amount of no more than $65 million. Certain of these
letters of credit have been issued pursuant to a Letter of Credit
and Reimbursement Agreement with Credit Suisse and the remaining
letters of credit will be issued when required under the Project
Contracts, subject to conditions contained in such Letter of Credit
and Reimbursement Agreement. As of June 30, 1998, no drawings have
been made on any of these letters of credit. The Letter of Credit
and Reimbursement Agreement has a term of seven years subject to
extension at the discretion of the banks party thereto.
The Partnership entered into a debt service reserve letter of
credit and reimbursement agreement, dated as of November 1, 1994,
with Banque Nationale de Paris pursuant to which a debt service
reserve letter of credit in the amount of approximately $60 million
was issued. Such agreement has a rolling term of five years,
subject to extension at the discretion of the banks party thereto.
Drawings on the debt service reserve letter of credit became
available on the Commercial Operation Date of the Facility to pay
principal and interest on the First Mortgage Bonds, the 1994 Tax
Exempt Bonds and interest on any loans created by drawings on such
debt service reserve letter of credit. Cash and other investments
held in the debt service reserve account will be drawn on for the
Tax Exempt Bonds prior to any drawings on the debt service reserve
letter of credit. As of June 30, 1998, no drawings have been made
on the debt service reserve letter of credit.
In order to provide for the Partnership's working capital needs,
the Partnership entered into a Revolving Credit Agreement with
Credit Suisse dated as of November 1, 1994. Such Agreement has a
term of seven years subject to extension at the discretion of the
banks party thereto. The revolving credit agreement has a maximum
available amount of $15 million and may be drawn on by the
Partnership from time to time. The interest rate is based upon
various short term indices at the Partnership's option and is
determined separately for each draw. As of June 30, 1998, three
working capital loans had been made to the Partnership under the
working capital loan facility. All three working capital loans were
repaid.
Year 2000
The Partnership is, with the assistance of USOSC and USGen,
conducting a review of its computer systems to identify the systems
that could be affected by the new millennium. The year 2000 may
pose problems in software applications because many computer systems
and applications currently use two-digit date fields to designate a
year. As the century date occurs, date sensitive systems may
recognize the year 2000 as 1900 or not at all. This potential
inability to recognize or properly treat the year 2000 may cause
systems to process financial or operational information incorrectly.
Management has inventoried those systems which it reasonably
believes may be adversely affected and prioritized them based on the
extent of any potential disruption in operations and the resulting
potential impact on the Partnership's ability to generate and
deliver electricity or steam. To date, the Partnership has
inventoried ninety-one potentially affected systems, of which
forty-eight have been classified as having the highes t priority
based upon likelihood and extent of impact. Among these priority
systems is the Facility's Distributed Control System ("DCS"), which
is the primary computerized control system for the Facility. The
manufacturer of the Facility's DCS is Westinghouse Electric
Corporation ("Westinghouse"). Westinghouse visited the Facility to
determine what remediation would be required for the DCS to be
insulated from disruptions due to the year 2000 and installed
hardware and software code as required to address the year 2000
issue. Through June 30, 1998, the Partnership spent approximately
$52,000 on year 2000 related projects. The Partnership currently
estimates that the completion of its year 2000 efforts will cost
approximately $200,000, encompassing remediation and replacement of
equipment (including the DCS), the performance of Facility testing,
communication with and evaluation of third party readiness and the
development of required contingency plans. Of course, this estimate
is based solely upon inf ormation currently available to the
Partnership and is likely to be revised as more information becomes
available.
In addition, the Partnership recognizes that it is dependent upon
numerous third parties in the conduct of its business. A
significant interruption in services or resources provided by such
third parties could have material adverse financial consequences on
the Partnership. These third parties include especially those
supplying fuel and other operating supplies, as well as FPL and its
ability to continue to accept the output of the Facility.
Therefore, the Partnership has sent out 180 inquiries to vendors,
suppliers, customers and other businesses seeking information on the
status of such companies' equipment and year 2000 remediation
efforts. To date, the responses have not identified any year 2000
issues of which the Partnership had been unaware. However, the
responses have also not been sufficient to ensure that there will be
no impacts on the Partnership as a result of the year 2000 affecting
third parties doing business with the Partnership. To the extent
that the Partnership is not able to gain su ch adequate assurances,
the Partnership anticipates developing contingency plans to mitigate
the consequences of potential disruptions. Notwithstanding the
Partnership's efforts, management of the Partnership is unable to
determine whether or not such disruptions will occur or whether such
disruptions, if they do occur, will materially impair the ability of
the Partnership to conduct its business.
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Partnership is not currently aware of any pending or
threatened litigation that it anticipates would have a material
adverse effect on the Partnership.
Item 5 OTHER INFORMATION
Governmental Approvals
The Partnership has obtained all material environmental permits
and approvals required, as of June 30, 1998, in order to continue
commercial operation of the Facility. Certain of these permits and
approvals are subject to periodic renewal. Certain additional
permits and approvals will be required in the future for the
continued operation of the Facility. The Partnership is not aware
of any technical circumstances that would prevent the issuance of
such permits and approvals or the renewal of currently issued
permits. The Partnership timely filed its application for a Title V
air permit on May 24, 1996. A permit is expected within the next
year.
Energy Prices
On October 1, 1996, FPL filed with the Florida Public Service
Commission its 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 rates, FPL may elect, pursuant to its dispatch and control
rights over the Facility set forth in the Power Purchase Agreement,
to run the Facility less frequently or at lower loads than if the
Facility's energy prices were lower than the cost of other energy
sources available to FPL. Because capacity payments under the Power
Purchase Agreement a re not affected by FPL's dispatch of the
Facility and because capacity payments are expected by the
Partnership to cover all of the Partnership's fixed costs, including
debt service, the Partnership currently expects that, if the filed
projections prove to reflect actual rates, such rates and the
resulting dispatch of the Facility will not have a material adverse
effect on the Partnership's ability to service its debt. To the
extent the Facility is not operated by FPL during Caulkins'
processing season (November to June), the Partnership may elect to
run the Facility at a minimum load or shut down the Facility and run
auxiliary boilers to produce steam for Caulkins in amounts required
under the Partnership's steam agreement with Caulkins. Such
operations may result in decreased net operating income for such
periods. The Partnership expects that the decrease, if any, will
not be material. For the six months ended June 30, 1998, FPL
requested the Partnership to decommit the Facility numerous times
and the Partnership has typically exercised its rights to operate at
minimum load (100MW) during such decommit requests. The
Partnership's election to operate at minimum load has not had a
material impact on the Partnership or its financial condition
although energy delivered during such operations is sold at reduced
prices. Based upon FPL's projections, the Partnership does not
expect that, if the filed projections prove to reflect actual rates,
its dispatch rate will change materially during the period covered
by such projections.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K: The Partnership filed a Report on Form
8-K on July 15, 1998 regarding changes in the ownership of the
Partnership.
b) Exhibits:
Exhibit No. Description 3.1 Certificate of
Incorporation of Indiantown Cogeneration Funding Corporation.*
3.2 By-laws of Indiantown Cogeneration Funding Corporation.*
3.3 Certificate of Limited Partnership of Indiantown Cogeneration,
L.P.*
3.4 Amended and Restated Limited Partnership Agreement of Indiantown
Cogeneration, L.P., among Palm Power Corporation, Toyan Enterprises
and TIFD III-Y Inc.*
3.5 Form of First Amendment to Amended and Restated Limited
Partnership Agreement of Indiantown Cogeneration, L.P.*
4.1 Trust Indenture, dated as of November 1, 1994, among Indiantown
Cogeneration Funding Corporation, Indiantown Cogeneration, L.P., and
NationsBank of Florida, N.A., as Trustee, and First Supplemental
Indenture thereto.**
4.2 Amended and Restated Mortgage, Assignment of Leases, Rents,
Issues and Profits and Security Agreement and Fixture Filing among
Indiantown Cogeneration, L.P., as Mortgagor, and Bankers Trust
Company as Mortgagee, and NationsBank of Florida, N.A., as
Disbursement Agent and, as when and to the extent set forth therein,
as Mortgagee with respect to the Accounts, dated as of November 1,
1994.**
4.3 Assignment and Security Agreement between Indiantown
Cogeneration, L.P., as Debtor, and Bankers Trust Company as Secured
Party, and NationsBank of Florida, N.A., as Disbursement Agent and,
as when, and to the extent set forth therein, a Secured Party with
respect to the Accounts, dated as of November 1, 1994.**
10.1.1 Amended and Restated Indenture of Trust between Martin
County Industrial Development Authority, as Issuer, and NationsBank
of Florida, N.A., as Trustee, dated as of November 1, 1994.**
10.1.2 Amended and Restated Authority Loan Agreement by and between
Martin County Industrial Development Authority and Indiantown
Cogeneration, L.P., dated as of November 1, 1994.**
10.1.3 Letter of Credit and Reimbursement Agreement among
Indiantown Cogeneration, L.P., as Borrower, and the Banks Named
Therein, and Credit Suisse, as Agent, dated as of November 1,
1994.**
10.1.4 Disbursement Agreement, dated as of November 1, 1994, among
Indiantown Cogeneration, L.P., Indiantown Cogeneration Funding
Corporation, NationsBank of Florida, N.A., as Tax-Exempt Trustee,
NationsBank of Florida, N.A., as Trustee, Credit Suisse, as Letter
of Credit Provider, Credit Suisse, as Working Capital Provider,
Banque Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Bankers Trust Company, as Collateral Agent, Martin County
Industrial Development Authority, and NationsBank of Florida, N.A.,
as Disbursement Agent.**
10.1.5 Revolving Credit Agreement among Indiantown Cogeneration,
L.P., as Borrower, and the Banks Named Therein, and Credit Suisse,
as Agent, dated as of November 1, 1994.**
10.1.6 Collateral Agency and Intercreditor Agreement, dated as of
November 1, 1994, among NationsBank of Florida, N.A., as Trustee
under the Trust Indenture, dated as of November 1, 1994, NationsBank
of Florida, N.A., as Tax-Exempt Trustee under the Tax Exempt
Indenture, dated as of November 1, 1994, Credit Suisse, as letter of
Credit Provider, Credit Suisse, as Working Capital Provider, Banque
Nationale de Paris, as Debt Service Reserve Letter of Credit
Provider, Indiantown Cogeneration, L.P., Indiantown Cogeneration
Funding Corporation, Martin County Industrial Development Authority,
NationsBank of Florida, N.A., as Disbursement Agent under the
Disbursement Agreement dated as of November 1, 1994, and Bankers
Trust Company, as Collateral Agent.**
10.1.7 Amended and Restated Equity Loan Agreement dated as of
November 1, 1994, between Indiantown Cogeneration, L.P., as the
Borrower, and TIFD III-Y Inc., as the Equity Lender.**
10.1.8 Equity Contribution Agreement, dated as of November 1, 1994,
between TIFD III-Y Inc. and NationsBank of Florida, N.A., as
Disbursement Agent.**
10.1.9 GE Capital Guaranty Agreement, dated as of November 1, 1994,
between General Electric Capital Corporation, as Guarantor, and
NationsBank of Florida, N.A., as Disbursement Agent.**
10.1.11 Debt Service Reserve Letter of Credit and Reimbursement
Agreement among Indiantown Cogeneration, L.P., as Borrower, and the
Banks Named Therein, and Banque Nationale de Paris, as Agent, dated
as of November 1, 1994.**
10.2.18 Amendment No. 2 to Coal Purchase Agreement, dated as of
April 19, 1995.***
10.2.19 Fourth Amendment to Energy Services Agreement, dated as of
January 30, 1996.*****
21 Subsidiaries of Registrant*
27 Financial Data Schedule. (For electronic filing purposes
only.)*****
99 Copy of Registrants' press release dated January 3, 1996.****
* Incorporated by reference from the Registrant Statement on Form
S-1, as amended, file no. 33-82034 filed by the Registrants with
the SEC in July 1994.
** Incorporated by reference from the
quarterly report on Form 10-Q, file no. 33-82034 filed by the
Registrants with the SEC in December 1994.
*** Incorporated by
reference from the quarterly report on Form 10-Q, file no. 33-82034
filed by the Registrants with the SEC in May 1995.
**** Incorporated by reference from the current report on Form 8-K,
file no. 33-82034 filed by the Registrants with the SEC in January
1996.
***** Incorporated by reference from the quarterly report on Form
10-Q, file no. 33-82034 filed by the Registrants with the SEC in
May 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: August 14, 1998 __/s/John R. Cooper__________ John
R. Cooper Vice President and Chief
Financial Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION (Co-Registrant)
Date: August 14, 1998 __/s/John R. Cooper____________
John R. Cooper Vice President and Chief
Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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Exhibit 27: Financial Data Schedule
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