CONFORMED COPY WITH EXHIBIT
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 33-83618-01
SELKIRK COGEN PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 51-0324332
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bowdoin Square, Boston, Massachusetts 02114
(Address of principal executive offices, including zip code)
(617) 227-8080
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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. Yes X No
--- ---
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This document consists of 15 pages of which this page is page 1.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995......................................... 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1996 and March 31, 1995................ 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and March 31, 1995................ 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations......................................... 8
Liquidity and Capital Resources............................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................... 13
SIGNATURES..................................................... 14
2
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................ $ 2,313 $ 2,672
Restricted funds................................ 20,886 10,010
Accounts receivable............................. 20,024 17,317
Due from affiliates............................. 831 17
Fuel inventory and supplies..................... 3,635 3,573
Other current assets............................ 1,234 1,012
--------- ---------
Total current assets......................... 48,923 34,601
Plant and equipment, net........................ 343,564 346,285
Long-term restricted funds...................... 20,808 20,906
Deferred financing charges, net................. 13,995 14,288
--------- ---------
Total Assets $ 427,290 $ 416,080
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................ $ 121 $ 372
Accrued bond interest payable................... 9,049 385
Accrued expenses................................ 12,539 12,863
Due to affiliates............................... 287 262
Advances from customer.......................... 17 153
Current portion of long-term bonds.............. 580 580
--------- ---------
Total current liabilities.................... 22,593 14,615
Other long-term liabilities..................... 9,695 8,515
Long-term bonds, less current portion........... 391,420 391,420
General partners' capital....................... 60 43
Limited partners' capital....................... 3,522 1,487
--------- ---------
Total partners' capital...................... 3,582 1,530
--------- ---------
Total Liabilities and
Partners' Capital $ 427,290 $ 416,080
--------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
March 31, March 31,
1996 1995
--------- ----------
<S> <C> <C>
Operating revenues:
Electric and steam............................. $ 37,713 $ 36,362
Gas resale..................................... 8,692 2,985
--------- ---------
Total operating revenues................... 46,405 39,347
Cost of revenue................................. 29,833 28,707
--------- ---------
Gross Profit.................................... 16,572 10,640
Other operating expenses:
Administrative services - affiliates........... 554 660
Other general and administrative expenses...... 1,068 917
Amortization of deferred financing charges..... 293 310
--------- ---------
Total other operating expenses................ 1,915 1,887
--------- ---------
Operating income................................ 14,657 8,753
Net interest expense............................ 8,382 8,230
--------- ---------
Net income...................................... $ 6,275 $ 523
--------- ---------
--------- ---------
Allocated to:
General partners.............................. $ 63 $ 53
Limited partners.............................. 6,212 470
--------- --------
Total........................................ $ 6,275 $ 523
--------- --------
--------- --------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Net cash provided by operating activities......... $ 15,219 $ 9,217
Cash flows provided by (used in)
investing activities:
Plant and equipment additions.................... (441) (1,732)
Plant and equipment additions - affiliates....... --- (102)
Restricted funds................................. (10,778) 2,145
--------- ---------
Net cash provided by (used in)
investing activities.......................... (11,219) 311
Cash flows used in financing activities:
Cash distributions............................... (4,223) (4,719)
Payments for cost of financing................... --- (199)
Advances from a customer......................... (136) 109
--------- ---------
Net cash used in financing activities........... (4,359) (4,809)
Net increase (decrease) in cash................... (359) 4,719
Cash at beginning of period....................... 2,672 3,736
--------- ---------
Cash at end of period............................ $ 2,313 $ 8,455
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest.......................... $ 292 $ ---
--------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consolidate Selkirk Cogen Partners, L.P. and its wholly-owned subsidiary,
Selkirk Cogen Funding Corporation, (collectively the "Partnership"). All
significant intercompany accounts and transactions have been eliminated.
The condensed consolidated financial statements for the interim periods
presented are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements reflects all
normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
applicable to interim financial statements.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
the Partnership's December 31, 1995 Annual Report on Form 10-K.
Note 2. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
requires that a loss be recognized for those assets if the sum of the
expected future cash flows from the use of the asset and its eventual
disposition (undiscounted) is less than the carrying amount of the asset.
The Partnership adopted SFAS No. 121 on January 1, 1996, and it did not have
a material impact on the Partnership's financial position or results of
operations.
6
<PAGE>
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
Note 3. Contingency
In connection with transactions in 1994 involving the investment by
affiliates of Cogen Technology, Inc. in the Partnership and the purchase of
J. Makowski Company, Inc. by Beale Generating Company, the Partnership filed
New York State real estate transfer and gains tax returns with New York tax
authorities. The New York tax authorities have raised certain questions and
issues about such tax returns. Although the New York tax authorities have
assessed no additional tax against the Partnership or any other transferor at
this time, the issue currently is under consideration and it is possible that
the New York tax authorities will assert that additional tax is owed by the
Partnership or one or more of the other transferors in connection with these
transactions. The Partnership presently cannot predict the likelihood of the
New York tax authorities making such an assertion or, if made, the amount of
tax that might be asserted.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995:
Net income for the quarter ended March 31, 1996 was approximately $6.3
million as compared to $0.5 million for the corresponding period in the prior
year. The increase in net income is primarily due to a $5.7 million increase
in gas resale revenues as compared to the corresponding period in the prior
year.
Total revenues for the quarter ended March 31, 1996 were approximately $46.4
million as compared to $39.3 for the corresponding period in the prior year.
Electric Revenues (dollars and kWh's in millions):
- - --------------------------------------------------
For the Three Months Ended
March 31, 1996 March 31, 1995
----------------------- -----------------------
Dollars kWh's Dispatch Dollars kWh's Dispatch
------- ----- -------- ------- ----- --------
Niagara Mohawk 6.6 46.2 42.45% 7.6 106.4 66.44%
Con Edison 30.0 446.5 97.53% 27.8 485.9 92.22%
Revenues from Niagara Mohawk Power Corporation ("Niagara Mohawk") for the
quarter ended March 31, 1996 decreased approximately $1.0 million when
compared to the corresponding period in the prior year. Decreased dispatch
partially offset by higher energy prices, was the contributing factor to the
decrease in revenues. During the quarter ended March 31, 1996, Niagara
Mohawk dispatched Unit 1 on-line during January and February, at full
contract rates for January and the majority of February, and off-line for the
entire month of March. During the quarter ended March 31, 1995, the
Partnership entered into special dispatch arrangements with Niagara Mohawk
which called for the pricing of delivered energy at variable rates less than
full contract rates. Energy delivered to Niagara Mohawk during the quarter
ended March 31, 1996 was primarily at full contract rates and the Partnership
entered into few special dispatch arrangements.
Revenues from Consolidated Edison Company of New York, Inc. ("Con Edison")
for the quarter ended March 31, 1996 increased approximately $2.2 million
when compared to the corresponding period in the prior year. Higher contract
energy rates, resulting from higher index fuel prices, and higher dispatch,
particularly in the months of January and February 1996, were the
contributing factors to the increase in revenues. In addition, during the
quarter ended March 31, 1996 the Partnership sold all of its energy at full
contract rates, whereas for the majority of January 1995 and for a few days
in February 1995, the Partnership entered into special dispatch arrangements
with Con Edison. The special dispatch arrangements of 1995 called for the
pricing of delivered energy at variable rates less than full contract rates.
8
<PAGE>
Steam revenues for the quarter ended March 31, 1996 were approximately $1.1
million on 585.991 million pounds of steam delivered as compared to
approximately $1.0 million on 560.580 million pounds of steam delivered for
the same period in the prior year. The increase in fuel prices and colder
than normal winter months contributed to higher steam prices and pounds of
steam sold, respectively, during the quarter ended March 31, 1996.
Additionally, steam revenues for the quarter ended March 31, 1996 include an
annual true-up of $0.3 million.
Gas resale revenues for the quarter ended March 31, 1996 were approximately
$8.7 million on sales of approximately 1.8 million MMBtu's as compared to
$3.0 million on sales of approximately 1.4 million MMBtu's for the
corresponding period in the prior year. The increase in gas resale revenues
was primarily due to higher natural gas prices and lower dispatch of Unit 1,
which resulted in the availability for resale of an additional 0.4 million
MMBtu's of natural gas. The increase in natural gas prices during the
quarter ended March 31, 1996 as compared to the corresponding period in the
prior year generally resulted from the colder than normal temperatures in the
Northeast region, which caused an increase in the demand for natural gas and
put capacity constraints on natural gas pipelines.
Cost of revenues for the quarter ended March 31, 1996 were approximately
$29.8 million as compared to $28.7 million for the corresponding period in
the prior year. The largest component of the increase for the quarter ended
March 31, 1996 was fuel purchases, which increased $1.2 million from the
prior year. This increase is primarily due to the fuel escalation clauses
contained within the firm fuel contracts.
Total other operating expenses for the quarter ended March 31, 1996 of $1.9
million were comparable to the corresponding period in the prior year.
Net interest expense for the quarter ended March 31, 1996 was approximately
$8.4 million as compared to $8.2 million for the corresponding period in the
prior year. The increase in net interest expense is primarily due to a
decrease in interest income earned during the quarter ended March 31, 1996,
resulting from a reduction in the average cash balance held by the Trustee
and a decrease in the average annual interest rate.
Liquidity and Capital Resources
Net cash flows provided by operating activities increased from approximately
$9.2 million for the quarter ended March 31, 1995 to $15.2 million for the
quarter ended March 31, 1996. The increase in cash flows provided by
operating activities is primarily due to the $5.8 million increase in net
income from operations during the quarter ended March 31, 1996.
9
<PAGE>
Net cash flows used in investing activities for the quarter ended March 31,
1996 were approximately $11.2 million as compared to net cash flows provided
by investing activities of approximately $0.3 million for the corresponding
period in the prior year. Net cash flows used in investing activities for
the quarter ended March 31, 1996 primarily represent monies deposited into
Funds pursuant to the Partnership's Depositary and Disbursement Agreement,
administered by Bankers Trust Company, as depositary agent. Net cash flows
provided by investing activities for the quarter ended March 31, 1995
primarily represent monies withdrawn from certain Funds for either the
one-time payment to GE Plastics or distribution to the Partners.
Net cash flows used in financing activities decreased from approximately $4.8
million for the quarter ended March 31, 1995 to $4.4 million for the quarter
ended March 31, 1996. The decrease in cash flows used in financing
activities is primarily due to a $0.5 million decrease in cash distributions
during the quarter end March 31, 1996.
Con Edison by a letter dated September 19, 1994 claimed the right to acquire
that portion of Unit 2's firm natural gas supply not used in operating Unit
2, when Unit 2 is dispatched off-line or at less than full capability. The
Con Edison Power Purchase Agreement contains no express language granting Con
Edison any rights with respect to such excess natural gas. Nevertheless, Con
Edison has argued that, since payments under the contract include fixed fuel
charges which are payable whether or not Unit 2 is dispatched on-line, Con
Edison is entitled to take delivery of any excess natural gas. The
Partnership vigorously disputes the position adopted by Con Edison, based
notably on the absence of any contractual provision according Con Edison the
claimed rights but also on the fact that the Partnership has assumed the risk
under the Con Edison Power Purchase Agreement that the fuel charges payable
by Con Edison are insufficient to cover the costs actually incurred by the
Partnership. By a letter dated May 23, 1995, Con Edison indicated its
intention to pursue the claim asserted in the September 19, 1994 letter. In
the May 23, 1995 letter, Con Edison reserved the right to claim 100% of the
margins derived from the sales of Unit 2's firm natural gas supply not used
in operating Unit 2 (non-plant gas sales) and requested that the Partnership
reduce the monthly amount invoiced to Con Edison by 50% of a calculated value
of the non-plant gas sales. The Partnership strenuously objected to Con
Edison's contentions and, at a meeting between the Partnership and Con
Edison, Con Edison agreed to continue not to deduct any amount attributable
to non-plant gas sales from payments made upon monthly invoices but stated it
would do so under protest, pending further discussions between the parties.
Since the commencement of commercial operations of Unit 2, the Partnership
made and continues to make, from time to time, excess gas lay-off sales from
Unit 2's gas supply. The Partnership does not intend to adjust the monthly
invoices issued to Con Edison and continues to assert that Con Edison is not
entitled to any revenues or margins derived from non-plant gas sales. In the
event Con Edison were to pursue its asserted claim, the Partnership would
expect to pursue all available legal remedies, but there can be no certainty
that the outcome of such remedial action would be favorable to the
Partnership or, if favorable, would provide for the Partnership's full
recovery of its damages.
10
<PAGE>
The Partnership's cash flows from the sale of electric output would be
materially and adversely affected if Con Edison were to prevail in its claim
to Unit 2's excess natural gas volumes and the related margins.
On October 6, 1995, Niagara Mohawk filed its "PowerChoice" proposal with the
New York State Public Service Commission ("NYPSC"). On October 12, 1995,
Niagara Mohawk filed a Report on Form 8-K with the Securities and Exchange
Commission explaining the PowerChoice proposal (the "October 12 Statement").
In the October 12 Statement, Niagara Mohawk describes a number of related
proposals to restructure the utility's business, including the reorganization
of its assets and the renegotiation of its contracts with generators which,
like the Partnership, are not regulated as utilities ("non-utility
generators"). Niagara Mohawk has proposed that, if it cannot renegotiate its
contracts with non-utility generators, it would take possession of such
independent power projects through the power of eminent domain and
subsequently sell such projects. In the October 12 Statement, Niagara Mohawk
states that it has not ruled out the ultimate possibility of a filing for
restructuring under Chapter 11 of the U.S. Bankruptcy Code, should it not
achieve its objectives under PowerChoice and other measures fail as well.
The Partnership notes, however, Niagara Mohawk reported positive earnings
during the fourth quarter of 1995 and is seeking electric rate increases for
1996 and 1997 in a filing with the NYPSC. In January 1996, it was reported
that Niagara Mohawk's board of directors elected to eliminate its quarterly
cash dividend on its common stock. Niagara Mohawk last paid a quarterly
dividend on November 30, 1995. In April 1996, it was reported that Moody's
Investors Service ("Moody's") downgraded the long-term credit ratings of
Niagara Mohawk. Moody's reported that their action was based on the limited
progress made in achieving the goals identified in Niagara Mohawk's
PowerChoice proposal, among other financial concerns, which may ultimately
lead to a voluntary bankruptcy filing. Moody's also reported that they gave
Niagara Mohawk a "negative outlook" because of the level of uncertainty and
potential volatility of the situation. In May 1996, it was reported that the
NYPSC rejected Niagara Mohawk's filing request for an electric rate increase
for 1996. The NYPSC is scheduled to consider an electric rate increase
request for 1997 filed by Niagara Mohawk in early 1997. In addition, it was
reported that Niagara Mohawk had positive earnings during the first quarter
of 1996. The Partnership expresses no opinion with respect to the likelihood
that all or any part of Niagara Mohawk's PowerChoice proposal (including its
features relating to non-utility generators) will eventually be adopted, in
any form, by any or all of the arties involved, nor does the Partnership
express an opinion with respect to the viability of Niagara Mohawk's proposed
alternatives.
As a result of Niagara Mohawk's PowerChoice proposal, Standard & Poor's and
Moody's Investors Services have given the Bonds a "negative outlook".
According to such rating agencies, these actions were motivated, in part, by
the uncertainties surrounding the effects of the PowerChoice proposal on the
Partnership, as well as by questions concerning the future financial
stability of Niagara Mohawk.
11
<PAGE>
For the quarter ended March 31, 1996 electric sales to Niagara Mohawk
accounted for approximately 14.2% of total project revenues. The contract
with Niagara Mohawk includes provisions which permit Niagara Mohawk to
dispatch the Facility on the basis of economic, as well as operational
considerations. The Partnership continues to believe that it has a valid and
binding contract with Niagara Mohawk. The Partnership cannot yet determine,
however, what effect, if any, Niagara Mohawk's activities regarding its
PowerChoice proposal will have on the Partnership, its business or net
operating revenues.
Future operating results and cash flows from operations are dependent on,
among other things, the performance of equipment and processes as expected,
level of dispatch, fuel deliveries and price as contracted and the receipt of
certain capacity and other fixed payments. A significant change in any of
these factors could have a material adverse effect on the results for the
Partnership.
The Partnership believes that based on current conditions and circumstances
it will have sufficient liquidity available provided by cash flows from
operations to fund existing debt obligations and operating costs.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule
(For electronic filing purposes only)
(B) Reports on Form 8-K
Not applicable.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
13
<PAGE>
SELKIRK COGEN PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SELKIRK COGEN PARTNERS, L.P.
Date: May 10, 1996 /s/ JMC SELKIRK, INC.,
----------------------------
General Partner
Date: May 10, 1996 /s/ JOHN R. COOPER
----------------------------
Name: John R. Cooper
Title: Senior Vice President and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 23199
<SECURITIES> 0
<RECEIVABLES> 20855
<ALLOWANCES> 0
<INVENTORY> 3635
<CURRENT-ASSETS> 48923
<PP&E> 371141
<DEPRECIATION> 27577
<TOTAL-ASSETS> 427290
<CURRENT-LIABILITIES> 22593
<BONDS> 391420
0
0
<COMMON> 0
<OTHER-SE> 3582
<TOTAL-LIABILITY-AND-EQUITY> 427290
<SALES> 46405
<TOTAL-REVENUES> 46405
<CGS> 29833
<TOTAL-COSTS> 29833
<OTHER-EXPENSES> 1915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8382
<INCOME-PRETAX> 6275
<INCOME-TAX> 0
<INCOME-CONTINUING> 6275
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