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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number 33-95928
LS POWER FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 81-0502366
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 81-0493289
DELAWARE 81-0493287
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
9405 ARROWPOINT BOULEVARD, CHARLOTTE, NC 28273, (704) 525-3800
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No[ ]
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LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
INDEX
TO THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
PART I
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Page
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Item 1. Condensed Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
Financial Statement Index F-1
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PART I/ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed financial statements contained herein have been
prepared pursuant to the rules and regulations of the United States Securities
and Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. While the management of LS Power Funding Corporation ("Funding"),
LSP-Cottage Grove, L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership
("Whitewater"), (Cottage Grove and Whitewater are sometimes referred to herein
individually as a "Partnership" and collectively as the "Partnerships") believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the audited financial statements included in the Annual Report
on Form 10-K for the year ended December 31, 1999 filed by Funding and the
Partnerships.
PART I/ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In addition to discussing and analyzing Funding's and the Partnerships'
recent historical financial results and condition, the following "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
includes statements concerning certain trends and other forward-looking
information affecting or relating to Funding and the Partnerships which are
intended to qualify for the protections afforded "Forward-Looking Statements"
under the Private Securities Litigation Reform Act of 1995, Public Law 104-67.
The forward-looking statements made herein are inherently subject to risks and
uncertainties which could cause Funding's and the Partnerships' actual results
to differ materially from the forward-looking statements.
GENERAL
Cottage Grove is a single purpose Delaware limited partnership
established in December 1993 to develop, finance, construct and own a gas-fired
cogeneration facility located in Cottage Grove, Minnesota (the "Cottage Grove
Facility"). The 1% general partner, LSP-Cottage Grove, Inc., and the 72% limited
partner, Cogentrix Cottage Grove, LLC, are indirect subsidiaries of Cogentrix
Energy, Inc. ("Cogentrix Energy"). The other limited partner is TPC Cottage
Grove, Inc. ("TPC Cottage Grove") and is not affiliated with Cogentrix Energy.
Whitewater is a single purpose Delaware limited partnership established in
December 1993 to develop, finance, construct and own a gas-fired cogeneration
facility located in Whitewater, Wisconsin (the "Whitewater Facility", and
collectively with the Cottage Grove Facility, the "Facilities"). The 1% general
partner, LSP-Whitewater I, Inc., and the 73% limited partner, Cogentrix
Whitewater, LLC, are indirect subsidiaries of Cogentrix Energy. The other
limited partner is TPC Whitewater ("TPC Whitewater"), an affiliate of TPC
Cottage Grove that is not affiliated with Cogentrix Energy. The Partnerships
sell electric capacity and energy generated by their Facilities to two utilities
under separate long-term power purchase agreements (individually, the "Power
Purchase Agreement" and collectively, the "Power Purchase Agreements").
Whitewater sells up to 236.5 megawatts of electric capacity and associated
energy generated by the Whitewater Facility to Wisconsin Electric Power Company
("WEPCO") pursuant to a 25-year Power Purchase Agreement. Whitewater may also
sell to third parties up to 12 megawatts of electric capacity and any energy not
dispatched by WEPCO. All of the electric capacity and energy generated by the
Cottage Grove Facility is sold to Northern States Power Company ("NSP") pursuant
to a 30-year Power Purchase Agreement. The Partnerships also have long-term
steam supply agreements with steam hosts to supply thermal energy produced by
the Facilities.
The Whitewater Facility commenced commercial operations on September
18, 1997, and the Cottage Grove Facility commenced commercial operations on
October 1, 1997. The Whitewater and Cottage Grove Power Purchase Agreements meet
the criteria of a "sales-type" capital lease as described in Statement of
Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Cottage
Grove and Whitewater each recognized a gain on sales-type capital lease for the
difference between the estimated fair market value and the historical cost of
the Facilities as of the commencement of each respective Power Purchase
Agreement's terms (commencement of commercial operations). The Partnerships each
recorded a net investment in lease that reflects the present value of future
minimum lease payments. The gross investment in lease (future minimum lease
payments) represents the amount of capacity payments due
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from the utilities under the Power Purchase Agreements in excess of fixed
operating costs (i.e. executory costs). The difference between the undiscounted
future minimum lease payments due from the utilities and the discounted future
minimum lease payments represents unearned income. This unearned income is being
recognized as lease revenue over the respective terms of the Power Purchase
Agreements using the effective interest rate method. The Partnerships will also
recognize service revenue related to the reimbursement of costs incurred in
operating the Facilities and providing electricity and thermal energy. The
amount of service revenue recognized by each Partnership will be directly
related to the level of dispatch of the Facilities by the respective utilities
and to a lesser extent the level of thermal energy required by the steam hosts.
Funding
Funding was organized in June 1995 as a special purpose Delaware
corporation to issue debt securities in connection with financing the
construction of the Facilities. Funding's sole business activities are limited
to maintaining its organization and activities necessary pursuant to the
offering of the Senior Secured Bonds (defined below) and its acquisition of the
First Mortgage Bonds (defined below) from the Partnerships.
The Senior Secured Bonds are the following:
7.19% Senior Secured Bonds Due 2010, Series A of LS Power Funding Corporation
8.08% Senior Secured Bonds Due 2016, Series A of LS Power Funding Corporation
The First Mortgage Bonds are the following:
7.19% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2010
8.08% First Mortgage Bonds of LSP-Cottage Grove, L.P. Due 2016
7.19% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due 2010
8.08% First Mortgage Bonds of LSP-Whitewater Limited Partnership Due 2016
Cottage Grove and Whitewater each own 50% of the outstanding stock of
Funding.
RESULTS OF OPERATIONS
Cottage Grove
Operating revenues did not significantly fluctuate for the second
quarter of 2000 as compared to the second quarter of 1999. This was the result
of an increase in commodity sales, which was partially offset by a decrease in
service revenue. The increase in commodity sales resulted from an increase in
remarketed fuel sales to third party purchasers. The decrease in service revenue
resulted from a decrease in megawatt hours sold to the purchasing utility, which
was partially offset by an increase in the variable energy rate charged as a
result of an increase in natural gas prices.
Operating revenues increased approximately 4.7% to $24.5 million for
the six-month period ended June 30, 2000 as compared to $23.4 million for the
six-month period ended June 30, 1999. This increase was the result of an
increase in service revenue and commodity sales. The increase in service revenue
resulted from an increase in the variable energy rate charged to the purchasing
utility as a result of an increase in natural gas prices. The increase in the
variable energy rate was partially offset by a decrease in megawatt hours sold
to the purchasing utility. Increased commodity sales resulted from an increase
in remarketed fuel sales to third party purchasers.
Operating expenses decreased approximately 2.3% for the second quarter
of 2000 as compared to the second quarter of 1999. This change was primarily the
result of a decrease in cost of services due to a decrease in megawatt hours
sold to the purchasing utility. The decrease in megawatt hours was partially
offset by an increase in natural gas prices and an increase in remarketed fuel
sales to third party purchasers.
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Operating expenses increased approximately 8.5% to $15.3 million for
the six-month period ended June 30, 2000 as compared to $14.1 million for the
corresponding period of 1999. This change was the result of an increase in fuel
expense due to an increase in natural gas prices. This increase was partially
offset by a decrease in megawatt hours sold to the purchasing utility. Commodity
sales expense increased due to an increase in remarketed fuel sales to third
party purchasers.
Interest expense consists primarily of interest expense on the First
Mortgage Bonds and amortization of the costs incurred to issue the bonds.
Whitewater
Operating revenues increased approximately 16.0% to $15.2 million for
the second quarter of 2000 as compared to $13.1 million for the second quarter
of 1999. This change was the result of increases in service, commodity and
greenhouse revenues. The increase in service revenues resulted from an increase
in the variable energy rate charged to the purchasing utility as a result of an
increase in natural gas prices. The increase in service revenue was partially
offset by a decrease in megawatt hours sold to the purchasing utility. Commodity
sales increased due to an increase in remarketed fuel sales to third party
purchasers. The increase in greenhouse revenues was the result of the
introduction and sales of new greenhouse products in 2000.
Operating revenues increased approximately 16.0% to $29.8 million for
the six-month period ended June 30, 2000 as compared to $25.7 million for the
corresponding period of 1999. This increase was the result of the factors
discussed above: the increase in service revenue, increased fuel sales to third
parties and an increase in greenhouse revenues.
Operating expenses increased approximately 27.6% to $8.8 million for
the second quarter of 2000 as compared to $6.9 million for the second quarter of
1999. This change was the result of increases in costs of services, commodity
sales expense and greenhouse expenses. The increase in cost of services resulted
from an increase in fuel expense as a result of an increase in natural gas
prices. This increase was partially offset by a decrease in megawatt hours sold
to the purchasing utility. Commodity sales expense increased due to an increase
in remarketed fuel sales to third party purchasers. Greenhouse expense increased
as the result of the introduction and sales of new products at the greenhouse.
Operating expenses increased approximately 29.5% to $18.0 million for
the six-months ended June 30, 2000 as compared to $13.9 million for the
corresponding period of 1999. This increase was the result of the factors
discussed above: an increase in fuel expense, an increase in commodity sales
expense and an increase in greenhouse expense. The increase in operating expense
was partially offset by a decrease in megawatt hours sold to the purchasing
utility.
Interest expense consists primarily of interest expense on the First
Mortgage Bonds and amortization of the costs incurred to issue the bonds.
OPERATIONS AND MAINTENANCE
Operations and Maintenance Agreements
Each of the Cottage Grove and Whitewater Facilities is operated by its
respective general partner pursuant to operations and maintenance agreements (an
"O&M Agreement", and collectively, the "O&M Agreements") expiring in 2004. Under
each O&M Agreement, the general partners are required to provide certain
services during the operation of the Facilities. As compensation for its
services, each general partner is reimbursed under each O&M Agreement on a
monthly basis for certain approved costs incurred in connection with operating
the related Facility. In addition, each general partner will receive an annual
management fee of $350,000 (subject to adjustment each year based on specified
indices). The Partnerships contract directly with certain subcontractors for
materials and services which are outside the scope of the general partners'
obligations under the O&M Agreements, including major maintenance of the
Facilities. The general partners are also subject to an annual performance bonus
or penalty depending upon each Facility's availability relative to certain
performance criteria reflecting aspects of
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similar criteria contained in each Facility's Power Purchase Agreement.
Furthermore, the general partners are subject to a penalty payment depending
upon each Facility's ability to produce an uninterrupted supply of thermal
energy.
LIQUIDITY AND CAPITAL RESOURCES
Cottage Grove
The principal components of operating cash flow for the six-month
period ending June 30, 2000 were net income of $3.4 million, a $0.2 million
adjustment for amortization of debt issuance and financing costs and a net $2.7
million of cash provided by changes in other working capital assets and
liabilities, which were partially offset by amortization of unearned lease
income, net of minimum lease payments received of $0.1 million. Cash flow
provided by operating activities of $6.2 million and cash on hand at the
beginning of the period of $0.3 million were primarily used to fund $0.1 million
of escrow, $0.5 million of bond payments, $5.7 million of distributions to
partners, and to loan $0.2 million to an affiliate.
Whitewater
The principal components of operating cash flow for the six-month
period ended June 30, 2000 were net income of $5.2 million, a $0.3 million
adjustment for depreciation and amortization of debt issuance and financing
costs, a $3.7 million decrease in accounts receivable-other due to the receipt
of the insurance claims associated with a gas turbine failure, a net $0.8
million of cash provided by changes in other working capital assets and
liabilities and minimum lease payments received net of unearned lease income of
$0.3 million. Cash flow provided by operating activities of $10.3 million was
primarily used to fund $0.7 million of escrow, $0.6 million of bond payments,
$4.7 million of distributions to partners and to loan $0.2 million to an
affiliate.
A portion of the proceeds received by the Partnerships from the sale of
the First Mortgage Bonds were used by the Partnerships to maintain a debt
service reserve fund as required by certain financing documents. During 2000 and
1999, the Partnerships transferred the cash held in their debt service reserve
funds to Cogentrix Energy. The required funds of $6.8 million and $7.8 million
for Cottage Grove and Whitewater, respectively, are included on the respective
balance sheets as a Note Receivable from Affiliate at June 30, 2000. The
receivables are backed by an irrevocable letter of credit issued on behalf of a
subsidiary of Cogentrix Energy.
In addition to funds received through the sale of the First Mortgage
Bonds by the Partnerships and through the equity contributions received from the
partners, each Partnership may receive on its behalf certain letters of credit
to be issued pursuant to a letter of credit facility which expires in June 2002.
Each letter of credit facility provides for letters of credit in a face amount
not to exceed $5,000,000 for Whitewater and $5,500,000 for Cottage Grove, which
may be drawn on by the respective Partnership from time to time. Such letters of
credit will satisfy certain requirements of the Partnerships under various
project agreements. Cottage Grove has issued a $500,000 letter of credit under
its letter of credit facility to secure certain obligations under their Power
Purchase Agreement.
In order to provide for the Partnerships' working capital needs, the
Partnerships have each entered into a working capital facility. Each working
capital facility will provide for working capital loans in an aggregate
principal amount not to exceed $3,000,000 for each Partnership. At June 30,
2000, no amounts were outstanding under the working capital facilities.
The Partnerships expect that payments from the utilities under the
Power Purchase Agreements will provide the substantial majority of their cash
flows. Under and subject to the terms of the Power Purchase Agreements, each
utility is obligated to purchase electric capacity made available to it and
energy that it requests from the related Partnership. For additional information
regarding NSP and WEPCO, reference is made to the respective Annual Reports
filed on Form 10-K, the Quarterly Reports filed on Form 10-Q, proxy, and any
other filings made by NSP and WEPCO with the Commission.
The Power Purchase Agreements are dispatchable contracts that provide
the utilities the right to suspend or reduce purchases of electricity from the
Facilities. The Power Purchase Agreements are structured such that the
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Partnerships will continue to receive capacity payments during any period of
dispatch. Each Partnership is dependent on capacity payments under its Power
Purchase Agreement to meet its fixed obligations, including the payment of debt
service under each Partnership's First Mortgage Bonds (which will be Funding's
sole source of funds for payment of debt service under the Senior Secured
Bonds). Capacity payments by each of NSP and WEPCO are based on the tested
capacity and availability of the Facilities and are unaffected by levels of
dispatch. Each Facility's capacity is subject to semi-annual verification
through testing. Capacity payments are subject to reduction if a Facility is
operating at reduced or degraded capacity at the time of such test, although
each Facility is permitted a retest subject to certain retest limitations. Also,
capacity payments for each Facility are subject to rebate or reduction if the
respective Facility does not maintain certain minimum levels of availability.
Under the Cottage Grove Power Purchase Agreement, capacity payments are further
adjusted by, among other things, the capacity loss factor which is determined in
accordance with procedures jointly agreed to by Cottage Grove and NSP. The
Partnerships expect to achieve the minimum capacity and availability levels;
however, any material shortfall in tested capacity or availability over a
significant period could result in a shortage of funds to the Partnerships.
Each Partnership presently believes that funds available from cash and
investments on hand, restricted funds, operations and letter of credit and
working capital facilities will be more than sufficient to satisfy each
Partnership's obligations as they come due, pay project debt service and make
required contributions to project reserve accounts.
As with any power generation facility, operation of the Facilities will
involve certain risks, including the performance of a Facility below expected
levels of output or efficiency, interruptions in fuel supply, pipeline
disruptions, disruptions in the supply of thermal or electrical energy, power
shut-downs due to the breakdown or failure of equipment or processes, violation
of permit requirements (whether through operation, or change in law), operator
error, labor disputes or catastrophic events such as fires, earthquakes,
explosions, floods or other similar occurrences affecting a Facility or its
power purchasers, thermal energy purchasers, fuel suppliers or fuel
transporters. The occurrence of any of these events could significantly reduce
or eliminate revenues generated by a Facility or significantly increase the
expenses of that Facility, thereby impacting the ability of a Partnership to
make payments of the amounts necessary to fund principal of and interest on its
First Mortgage Bonds, and, consequently, Funding's ability to make payments of
principal and interest on the Senior Secured Bonds. Not all risks are insured
and the proceeds of such insurance applicable to covered risks may not be
adequate to cover a Facility's lost revenues or increased expenses. In addition,
extended unavailability under the Power Purchase Agreements, which may result
from one or more of such events, may entitle the respective power purchaser to
terminate its Power Purchase Agreement.
IMPACT OF ENERGY PRICE CHANGES, INTEREST RATES AND INFLATION
The Partnerships have attempted to mitigate the risk of increases in
fuel and transportation costs by providing contractually for matching increases
in the energy payments the Partnerships receive from the utilities purchasing
electricity generated by the Facilities. In addition, the Partnerships have
mitigated the risk of fluctuations in interest rates by arranging fixed-rate
financing.
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PART 2/ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of LS Power Funding Corporation (1)
3.2 Bylaws of LS Power Funding Corporation (1)
3.3 Certificate of Limited Partnership of LSP-Cottage Grove, L.P. (1)
3.4 Amended and Restated Partnership Agreement dated as of June 30, 1995
among LSP-Cottage Grove, Inc., Granite Power Partners, L.P. and TPC
Cottage Grove, Inc. (1)
3.4.1 Amendment No. 1 to the Cottage Grove Partnership Agreement (2)
3.4.2 Consent, Waiver and Amendment No. 2 dated March 20, 1998 to the
Amended and Restated Limited Partnership Agreement of LSP-Cottage
Grove, L.P. (3)
3.4.3 Third Amendment, dated December 11, 1998, to the Amended and Restated
Limited Partnership Agreement of LSP-Cottage Grove, L.P. (4)
3.5 Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership (1)
3.6 Amended and Restated Partnership Agreement dated as of June 30, 1995
among LSP-Whitewater I, Inc., Granite Power Partners, L.P. and TPC
Whitewater, Inc. (1)
3.6.1 Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the Amended
and Restated Limited Partnership Agreement of LSP-Whitewater Limited
Partnership (3)
3.6.2 Second Amendment, dated December 11, 1998, to the Amended and Restated
Limited Partnership Agreement of LSP-Whitewater Limited Partnership (3)
4.1 Trust Indenture dated as of May 1, 1995 by and among LS Power Funding
Corporation and IBJ Schroder Bank & Trust Company, as Trustee, with
respect to the Senior Secured Bonds (as Supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among LS Power
Funding Corporation and IBJ Schroder Bank & Trust Company, as
Trustee (1)
4.2 Trust Indenture dated as of May 1, 1995 by and among LSP-Cottage Grove,
L.P. and IBJ Schroder Bank & Trust Company, as Trustee, with respect to
the Cottage Grove First Mortgage Bonds (as supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as Trustee) (1)
4.3 Trust and Indenture dated as of May 1, 1995 by and among LSP-Whitewater
Limited Partnership and IBJ Schroder Bank & Trust Company, as Trustee,
with respect to the Whitewater First Mortgage Bonds (as supplemented by
the First Supplemental Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank & Trust
Company, as Trustee) (1)
4.4 Registration Rights Agreement dated as of June 30, 1995 by and among
Chase Securities, Inc., Morgan Stanley & Co. Incorporated, LS Power
Funding Corporation, LSP-Cottage Grove, L.P., and LSP-Whitewater
Limited Partnership (1)
4.5 Form of Senior Secured Bond (included in Exhibit 4.1) (1)
4.6 Form of Cottage Grove First Mortgage Bond (included in Exhibit 4.2) (1)
4.7 Form of Whitewater First Mortgage Bond (included in Exhibit 4.3) (1)
27.1 Financial Data Schedule - LS Power Funding Corporation
27.2 Financial Data Schedule - LSP - Cottage Grove, L.P.
27.3 Financial Data Schedule - LSP - Whitewater Limited Partnership
(1) Incorporated herein by reference to the Registration Statement on Form
S-4 (File No. 33-95928) filed by LS Power Funding Corporation,
LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership on
August 16, 1995, as amended, or to the Form 10-K (File No. 33-95928)
filed for the fiscal year ended December 31, 1995 by LS Power Funding
Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited
Partnership.
(2) Incorporated herein by reference to the Form 10-Q (File No. 33-95928)
filed August 14, 1996.
(3) Incorporated herein by reference to the Form 10-K (File No. 33-95928)
filed April 15, 1998.
(4) Incorporated herein by reference to the Form 10-K (File No. 33-95928)
filed March 31, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
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SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
LS POWER FUNDING CORPORATION
By: /s/ Thomas F. Schwartz
----------------------
Name: Thomas F. Schwartz
Title: Group Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 2000
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
----------------------
Name: Thomas F. Schwartz
Title: Group Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 2000
LSP-WHITEWATER LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
----------------------
Name: Thomas F. Schwartz
Title: Group Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 2000
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LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FINANCIAL STATEMENT INDEX
Page
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LS POWER FUNDING CORPORATION
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 F-2
Statements of Income for theThree Months and Six Months
Ended June 30, 2000 and 1999 (unaudited) F-3
Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) F-4
Notes to Condensed Financial Statements (unaudited) F-5
LSP-COTTAGE GROVE, L.P.
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 F-6
Statements of Income for the Three Months and Six Months
Ended June 30, 2000 and 1999 (unaudited) F-7
Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) F-8
Notes to Condensed Financial Statements (unaudited) F-9
LSP-WHITEWATER LIMITED PARTNERSHIP
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 F-11
Statements of Income for the Three Months and Six Months
Ended June 30, 2000 and 1999 (unaudited) F-12
Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) F-13
Notes to Condensed Financial Statements (unaudited) F-14
F-1
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LS POWER FUNDING CORPORATION
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(dollars in thousands)
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
----------- -----------
(Unaudited)
CURRENT ASSET:
Cash $ 1 $ 1
INVESTMENT IN FIRST MORTGAGE BONDS 330,839 332,000
--------- --------
Total assets $ 330,840 $332,001
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY:
Current portion of Senior Secured Bonds Payable $ 2,818 $ 2,322
SENIOR SECURED BONDS PAYABLE 328,021 329,678
--------- --------
Total liabilities 330,839 332,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 1,000
shares authorized, 100 shares issued
and outstanding -- --
Additional paid-in capital 1 1
--------- --------
Total stockholders' equity 1 1
--------- --------
Total liabilities and stockholders' equity $330,840 $332,001
========= ========
The accompanying notes to the condensed financial statements
are an integral part of these balance sheets.
F-2
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LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(dollars in thousands)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------- ----------------------
2000 1999 2000 1999
------ ------ ------- -------
Interest income $6,472 $6,472 $12,944 $12,944
Interest expense 6,472 6,472 12,944 12,944
------ ------ ------- -------
Net income $ -- $ -- $ -- $ --
====== ====== ======= =======
Earnings per common share $ -- $ -- $ -- $ --
====== ====== ======= =======
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-3
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LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(dollars in thousands)
SIX MONTHS ENDED JUNE 30,
------------------------
2000 1999
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES $ -- $ --
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of principal on investment in
First Mortgage Bonds 1,161 --
------- ----
Net cash flows provided by investing activities 1,161 --
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of Senior Secured Bonds (1,161) --
------- ----
Net cash flows used in financing activities (1,161) --
------- ----
NET INCREASE (DECREASE) IN CASH -- --
CASH, beginning of period 1 1
------- ----
CASH, end of period $ 1 $ 1
======= ====
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-4
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LS POWER FUNDING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
Information presented as of June 30, 2000 and for the three-month and
six-month periods ended June 30, 2000 and 1999 have been prepared by LS Power
Funding Corporation ("Funding"), without audit. In the opinion of management,
these unaudited condensed financial statements include all adjustments
(consisting of normal recurring adjustments) necessary to present fairly
Funding's financial position as of June 30, 2000, and the results of its
operations for the three-month and six-month periods ended June 30, 2000 and
1999 and cash flows for the six-month periods ended June 30, 2000 and 1999.
The unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While management believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with Funding's audited financial statements included in Funding's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
2. ORGANIZATION
Funding was established on June 23, 1995 as a special purpose Delaware
corporation to issue debt securities in connection with financing construction
of two gas-fired cogeneration facilities, one located in Cottage Grove,
Minnesota and the other located in Whitewater, Wisconsin. LSP-Cottage Grove,
L.P. ("Cottage Grove") and LSP-Whitewater Limited Partnership ("Whitewater") are
single purpose Delaware limited partnerships established to develop, finance,
construct and own the facilities at Cottage Grove and Whitewater, respectively.
Cottage Grove and Whitewater each own 50% of the outstanding stock of Funding.
Funding's sole business activities are limited to maintaining its organization,
the offering of the Senior Secured Bonds and its acquisition of the First
Mortgage Bonds issued by Cottage Grove and Whitewater.
3. RECLASSIFICATION
Certain reclassifications have been made to the prior period financial
statements to conform with the classification used in the financial statements
as of June 30, 2000, and for the three months and six months then ended.
F-5
<PAGE> 15
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 627 $ 957
Restricted cash 302 244
Accounts receivable - trade 3,576 4,591
Accounts receivable - other 95 --
Fuel inventories 493 1,280
Fuel held for resale -- 711
Spare parts inventories 527 511
Other current assets 129 122
-------- --------
Total current assets 5,749 8,416
NET INVESTMENT IN LEASE (Note 3) 236,743 236,655
DEBT ISSUANCE AND FINANCING COSTS, net of accumulated
amortization of $1,344 at June 30, 2000 and $1,184
at December 31, 1999 5,778 5,938
NOTE RECEIVABLE FROM AFFILIATE 6,777 6,585
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $255,048 $257,595
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of bonds payable $ 1,316 $ 1,084
Accounts payable 2,101 1,395
Other accrued expenses 437 794
-------- --------
Total current liabilities 3,854 3,273
FIRST MORTGAGE BONDS PAYABLE 153,142 153,916
-------- --------
Total liabilities 156,996 157,189
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 98,052 100,406
-------- --------
Total liablities and partners' capital $255,048 $257,595
======== ========
</TABLE>
The accompanying notes to the condensed financial statements
are an integral part of these balance sheets.
F-6
<PAGE> 16
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(dollars in thousands)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- ------------------------
2000 1999 2000 1999
------ ------ ------- -------
OPERATING REVENUES:
Lease revenue $ 5,331 $ 5,312 $10,660 $10,618
Service revenue 5,205 5,501 11,547 10,976
Commodity sales 664 338 2,080 1,535
Other -- -- 233 233
------- ------- ------- -------
11,200 11,151 24,520 23,362
OPERATING EXPENSES:
Cost of services 6,103 6,589 13,362 12,653
Commodity sales expense 662 335 1,934 1,474
------- ------- ------- -------
6,765 6,924 15,296 14,127
OPERATING INCOME 4,435 4,227 9,224 9,235
NON-OPERATING INCOME
(EXPENSE):
Interest expense (3,144) (3,107) (6,234) (6,203)
Interest income 251 217 414 421
------- ------- ------- -------
NET INCOME $ 1,542 $ 1,337 $ 3,404 $ 3,453
======= ======= ======= =======
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-7
<PAGE> 17
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,404 $ 3,453
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of debt issuance and financing costs 160 139
Amortization of unearned lease income (10,660) (10,618)
Minimum lease payments received 10,572 10,086
Decrease in accounts receivable - trade 1,015 1,046
(Increase) decrease in accounts receivable - other (95) 783
Decrease in fuel inventories 1,498 1,259
(Increase) decrease in spare parts inventories (16) 55
(Increase) decrease in other current assets (7) 108
Increase (decrease) in accounts payable 706 (1,824)
Increase (decrease) in accrued expenses (357) 1,802
-------- --------
Net cash flows provided by operating activities 6,220 6,289
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash (58) 137
-------- --------
Net cash flows provided by (used in) investing activities (58) 137
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on First Mortgage Bonds (542) --
Partner distributions (5,758) (6,109)
Increase in note receivable from affiliate (192) (542)
-------- --------
Net cash flows used in financing activities (6,492) (6,651)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (330) (225)
CASH AND CASH EQUIVALENTS, beginning of period 957 918
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 627 $ 693
======== ========
</TABLE>
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-8
<PAGE> 18
LSP-COTTAGE GROVE, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
Information presented as of June 30, 2000 and for the three-month and
six-month periods ended June 30, 2000 and 1999 have been prepared by LSP-Cottage
Grove, L.P. (the "Partnership"), without audit. In the opinion of management,
these unaudited condensed financial statements include all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
Partnership's financial position as of June 30, 2000, and the results of its
operations for the three-month and six-month periods ended June 30, 2000 and
1999 and cash flows for the six-month periods ended June 30, 2000 and 1999.
The unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While management believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the Partnership's audited financial statements included in the
Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31,
1999.
2. ORGANIZATION
The Partnership is a Delaware limited partnership that was formed on
December 14, 1993 to develop, finance, construct and own a gas-fired
cogeneration facility with a design capacity of approximately 245 megawatts
located in Cottage Grove, Minnesota (the "Facility"). Construction and start-up
of the Facility was substantially completed and commercial operation commenced
October 1, 1997 (the "Commercial Operations Date"). The 1% general partner of
the Partnership is LSP-Cottage Grove, Inc., ("Cottage Grove"), a wholly-owned
subsidiary of Cogentrix Cottage Grove, LLC, ("Cogentrix Cottage Grove").
Cogentrix Cottage Grove and TPC Cottage Grove, Inc., are the sole limited
partners of the Partnership, owning approximately 72% and 27% limited
partnership interests, respectively. The ultimate parent of Cogentrix Cottage
Grove is Cogentrix Energy, Inc. ("Cogentrix Energy"), a North Carolina
corporation.
The Partnership holds a 50% equity ownership interest in LS Power
Funding Corporation ("Funding"), which was established on June 23, 1995 as a
special purpose funding corporation to issue debt securities (the "Senior
Secured Bonds") in connection with financing construction of the Facility and a
similar gas-fired cogeneration facility located in Whitewater, Wisconsin. On
June 30, 1995, a portion of the proceeds from the offering and sale of the
Senior Secured Bonds issued by Funding was used to purchase $155 million of
First Mortgage Bonds issued simultaneously by the Partnership.
All of the electric capacity and energy generated by the Facility is
sold to Northern States Power Company, (the "Utility") under a 30-year power
purchase agreement (the "Power Purchase Agreement"). The thermal energy
generated by the Facility is sold in the form of steam to Minnesota Mining and
Manufacturing Company (the "Steam Purchaser") under a 30-year thermal energy
sales agreement.
3. SALES-TYPE CAPITAL LEASE
The components of the net investment in lease at June 30, 2000, are as
follows (dollars in thousands):
Gross Investment in Lease $517,060
Unearned Income on Lease (280,317)
--------
Net Investment in Lease $236,743
========
F-9
<PAGE> 19
Gross investment in lease represents total capacity payments receivable
over the remaining term of the Power Purchase Agreement, net of executory costs,
which are considered minimum lease payments in accordance with SFAS No. 13.
4. RECLASSIFICATION
Certain reclassifications have been made to the prior period financial
statements to conform with the classification used in the financial statements
as of June 30, 2000, and for the three months and six months then ended.
F10
<PAGE> 20
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,549 $ 1,446
Restricted cash 930 253
Accounts receivable - trade 5,053 4,381
Accounts receivable - other 1,953 5,858
Fuel inventories 709 470
Fuel held for resale -- 370
Spare parts inventories 738 758
Other current assets 277 310
-------- --------
Total current assets 15,209 13,846
NET INVESTMENT IN LEASE (Note 3) 263,247 263,540
GREENHOUSE FACILITY, net of accumulated
depreciation of $1,144 at June 30, 2000 and
$953 at December 31, 1999 7,625 7,816
DEBT ISSUANCE AND FINANCING COSTS, net of
accumulated amortization of $1,367 at
June 30, 2000 and $1,205 at
December 31, 1999 5,856 6,018
NOTE RECEIVABLE FROM AFFILIATE 7,739 7,519
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
-------- --------
Total assets $299,677 $298,740
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of bonds payable $ 1,502 $ 1,238
Accounts payable 1,059 1,116
Other accrued expenses 7,550 6,457
-------- --------
Total current liabilities 10,111 8,811
FIRST MORTGAGE BONDS PAYABLE 174,879 175,762
-------- --------
Total liabilities 184,990 184,573
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL: 114,687 114,167
-------- --------
Total liabilities and partners' capital $299,677 $298,740
======== ========
</TABLE>
The accompanying notes to the condensed financial statements
are an integral part of these balance sheets.
F-11
<PAGE> 21
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(dollars in thousands)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- ------------------------
2000 1999 2000 1999
------ ------ ------- -------
OPERATING REVENUES:
Lease revenue $ 5,861 $ 5,858 $11,725 $11,713
Service revenue 7,306 5,523 15,055 11,918
Commodity sales 224 130 1,000 190
Greenhouse revenue 1,581 1,427 1,581 1,427
Other 195 181 420 402
------- ------- ------- -------
15,167 13,119 29,781 25,650
OPERATING EXPENSES:
Cost of services 7,511 5,939 15,872 12,679
Greenhouse operating
expenses 1,060 881 1,254 1,077
Commodity sales expense 222 125 915 177
------- ------- ------- -------
8,793 6,945 18,041 13,933
OPERATING INCOME 6,374 6,174 11,740 11,717
NON-OPERATING INCOME
(EXPENSE):
Interest expense (3,571) (3,552) (7,102) (7,085)
Interest income 285 241 546 470
------- ------- ------- -------
NET INCOME $ 3,088 $ 2,863 $ 5,184 $ 5,102
======= ======= ======= =======
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-12
<PAGE> 22
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,184 $ 5,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of debt issuance and financing costs 162 167
Depreciation 191 217
Amortization of unearned lease income (11,725) (11,713)
Minimum lease payments received 12,018 11,472
Increase in accounts receivable - trade (672) (448)
Decrease in accounts receivable - other 3,905 646
Decrease in fuel inventories 131 309
Decrease in spare parts inventories 20 58
(Increase) decrease in other current assets 33 (171)
Decrease in accounts payable (57) (1,714)
Increase in accrued expenses 1,093 685
-------- --------
Net cash flows provided by operating activities 10,283 4,610
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash (677) 135
-------- --------
Net cash flows provided by (used in) investing activities (677) 135
-------- --------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Payment on First Mortgage Bonds (619) --
Partner distributions (4,664) (3,545)
Increase in note receivable from affiliate (220) (619)
-------- --------
Net cash used in financing activities (5,503) (4,164)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,103 581
CASH AND CASH EQUIVALENTS, beginning of period 1,446 1,181
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 5,549 $ 1,762
======== ========
</TABLE>
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-13
<PAGE> 23
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
Information presented as of June 30, 2000 and for the three-month and
six-month periods ended June 30, 2000 and 1999 have been prepared by
LSP-Whitewater Limited Partnership (the "Partnership"), without audit. In the
opinion of management, these unaudited condensed financial statements include
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Partnership's financial position as of June 30, 2000 and the
results of its operations for the three-month and six-month periods ended June
30, 2000 and 1999 and cash flows for the six-month periods ended June 30, 2000
and 1999.
The unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the United States Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While management believes
that the disclosures made are adequate to make the information presented not
misleading, these unaudited condensed financial statements should be read in
conjunction with the Partnership's audited financial statements included in the
Partnership's Annual Report on Form 10-K for the Fiscal Year ended December 31,
1999.
2. ORGANIZATION
LSP-Whitewater Limited Partnership is a Delaware limited partnership
that was formed on December 14, 1993 to develop, finance, construct and own a
gas-fired cogeneration facility with a design capacity of approximately 245
megawatts located in Whitewater, Wisconsin (the "Facility"). Construction and
start-up of the Facility was substantially completed and commercial operation
commenced September 18, 1997 (the "Commercial Operations Date"). The 1% general
partner of the Partnership is LSP-Whitewater I, Inc., a wholly-owned subsidiary
of Cogentrix Whitewater, LLC ("Cogentrix Whitewater"). Cogentrix Whitewater and
TPC Whitewater, Inc. are the sole limited partners of the Partnership, owning
approximately 73% and 26% limited partnership interests, respectively. The
ultimate parent of Cogentrix Whitewater is Cogentrix Energy, Inc. ("Cogentrix
Energy"), a North Carolina corporation.
The Partnership holds a 50% equity ownership interest in LS Power
Funding Corporation ("Funding"), which was established on June 23, 1995 as a
special purpose Delaware corporation to issue debt securities (the "Senior
Secured Bonds") in connection with financing construction of the Facility and a
similar gas-fired cogeneration facility located in Cottage Grove, Minnesota. On
June 30, 1995, a portion of the proceeds from the offering and sale of the
Senior Secured Bonds issued by Funding was used to purchase $177 million of
First Mortgage Bonds issued simultaneously by the Partnership.
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to Wisconsin Electric Power Company
("WEPCO" or, as the context requires, the "Utility") pursuant to a 25-year power
purchase agreement (the "Power Purchase Agreement"). The Partnership may also
sell to third parties up to 12 megawatts of electric capacity and any energy
that is not dispatched by WEPCO. The thermal energy generated by the Facility is
provided in the form of steam to the University of Wisconsin - Whitewater under
a steam supply agreement expiring on June 30, 2005 and in the form of hot water
to a greenhouse owned by the Partnership (collectively, the "Steam Purchasers").
F-14
<PAGE> 24
3. SALES-TYPE CAPITAL LEASE
The components of the net investment in lease at June 30, 2000 are as
follows (dollars in thousands):
Gross Investment in Lease $558,137
Unearned Income on Lease (294,890)
--------
Net Investment in Lease $263,247
========
Gross investment in lease represents total capacity payments receivable
over the remaining term of the Power Purchase Agreement, net of executory costs,
which are considered minimum lease payments in accordance with SFAS No. 13.
4. RECLASSIFICATION
Certain reclassifications have been made to the prior period financial
statements to conform with the classification used in the financial statements
as of June 30, 2000 and for the three months and six months then ended.
F-15
