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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2005
Commission file number 333-51066
The registrant meets the conditions set forth in General Instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this Form with the reduced disclosure format.
THE DETROIT EDISON SECURITIZATION FUNDING LLC
(Exact name of registrant as specified in its charter)
| Michigan (State or other jurisdiction of incorporation or organization) | 38-0478650 (I.R.S. Employer Identification No.) |
| 2000 2nd Avenue, Detroit, Michigan (Address of principal executive offices) | 48226-1279 (Zip Code) |
313-235-4000
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.
Yesþ Noo
Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act.
Yeso Noþ
The Detroit Edison Securitization Funding LLC
Quarterly Report on Form 10-Q
Quarter Ended March 31, 2005
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| number | ||||||||
| 3 | ||||||||
PART I — FINANCIAL INFORMATION | ||||||||
| Item 1. Financial Statements | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 8 | ||||||||
| 9 | ||||||||
| Item 2. Management’s Narrative Analysis of the Results of Operations | 3 | |||||||
PART II — OTHER INFORMATION | ||||||||
| Item 6. Exhibits | 10 | |||||||
| 11 | ||||||||
| Monthly Servicer Certificate dated February 14, 2005 | ||||||||
| Semi-Annual Certificate dated February 28, 2005 | ||||||||
| Monthly Servicer Certificate dated March 14, 2005 | ||||||||
| Monthly Servicer Certificate dated April 13, 2005 | ||||||||
| Chief Executive Officer Section 906 Certification | ||||||||
| Chief Financial Officer Section 906 Certification | ||||||||
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FORWARD-LOOKING STATEMENTS
Certain information presented herein includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve certain risks and uncertainties that may cause actual future results to differ materially from those contemplated, projected, estimated or budgeted in such forward-looking statements. Securitization bondholders may suffer payment delays or losses if the Detroit Edison Securitization Funding LLC’s (“Company’s”) assets are not sufficient to pay interest or the scheduled principal of the securitization bonds. Funds for payments are dependent upon the Securitization Property and the right to collect the securitization surcharge over a period limited to 15 years pursuant to a Michigan statute. In addition, collections are dependent on the level of The Detroit Edison Company (“Detroit Edison”) electric deliveries to customers.
MANAGEMENT’S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
The Results of Operations discussion for the Company is presented in accordance with General Instruction H(2) (a) of Form 10-Q.
The Company is a special purpose entity established by Detroit Edison to recover certain qualified costs, called Securitization Property by Michigan statute. The qualified costs primarily represent Detroit Edison’s unamortized investment in the 1,150 Megawatt Fermi 2 nuclear power plant that was classified as a regulatory asset. On March 9, 2001, the Company issued securitization bonds and used the net proceeds to purchase the Securitization Property from Detroit Edison. The Company receives surcharge revenues that are intended to recover its costs and service its debt. Amortization expense associated with the Securitization Property is adjusted as necessary so that expenses equal revenues and interest income.
For the three-month period ended March 31, 2005, the Company earned $46,674,000 in surcharge revenues and $342,000 in interest income compared to $44,560,000 in surcharge revenues and $155,000 in interest income for the three-month period ended March 31, 2004. The increase in surcharge revenues is due to changes in surcharge rates, partially offset by lower electric sales by Detroit Edison. Amortization expense consists of amortization of the Securitization Property, overcollateralization fee, and over-recovery of securitization surcharge. The amortization expense for the three-month periods ended March 31, 2005 and 2004 was $23,075,000 and $19,602,000, respectively. A portion of the increase in amortization expense reflects the adjustment needed to have revenues and interest income equal expenses. The higher amount was primarily attributable to the decrease in interest expense. The higher amortization amount is primarily attributable to the increase in bond amortization and surcharge revenues, partially offset by decrease in interest expense. During the 2005 three-month period, the Company also incurred interest expense of $23,194,000 amortization of debt issuance costs of $422,000, servicing fees of $219,000, and administrative fees of $62,000 compared to interest expense of $24,433,000, amortization of debt issuance costs of $389,000, servicing fees of $219,000, and administrative fees of $62,000 for the 2004 three-month period.
Detroit Edison, as Servicer, collects a surcharge from its customers for the benefit of the Company and the Securitization Bondholders. The surcharge is adjusted annually to provide sufficient funds for timely payments related to the securitization bonds. This surcharge rate was modified to $0.00388 on March 1, 2005 compared to $0.00374 that became effective March 1, 2004.
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THE DETROIT EDISON SECURITIZATION FUNDING LLC
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (in Thousands) | 2005 | 2004 | ||||||
Operating Revenues | $ | 46,674 | $ | 44,560 | ||||
Operating Expenses | ||||||||
| Amortization expense | 23,075 | 19,602 | ||||||
| Servicing and administrative fees | 281 | 281 | ||||||
| Other | 44 | 10 | ||||||
| 23,400 | 19,893 | |||||||
Operating Income | 23,274 | 24,667 | ||||||
Interest Expense and Other | ||||||||
| Interest expense | 23,194 | 24,433 | ||||||
| Interest income | (342 | ) | (155 | ) | ||||
| Amortization of debt issuance costs | 422 | 389 | ||||||
| 23,274 | 24,667 | |||||||
Net Income | $ | — | $ | — | ||||
See Notes to Financial Statements (Unaudited)
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THE DETROIT EDISON SECURITIZATION FUNDING LLC
| March 31 | ||||||||
| 2005 | December 31 | |||||||
| (in Thousands) | (Unaudited) | 2004 | ||||||
ASSETS | ||||||||
Current Assets | ||||||||
| Restricted cash | $ | 19,876 | $ | 73,137 | ||||
| Accounts receivable | 29,344 | 23,144 | ||||||
| Accrued unbilled revenues | 9,022 | 12,181 | ||||||
| 58,242 | 108,462 | |||||||
Securitized Regulatory Assets | ||||||||
| Securitization property, less accumulated amortization of $305,948 and $282,012, respectively | 1,413,767 | 1,437,703 | ||||||
Other Assets | ||||||||
| Unamortized bond issuance cost, less accumulated amortization of $5,388 and $4,966 respectively | 24,897 | 25,319 | ||||||
| $ | 1,496,906 | $ | 1,571,484 | |||||
LIABILITIES AND MEMBER’S EQUITY | ||||||||
Current Liabilities | ||||||||
| Accrued interest | $ | 7,579 | $ | 31,261 | ||||
| Accounts payable to member | 140 | 375 | ||||||
| Current portion of securitization bonds payable | 100,955 | 96,349 | ||||||
| Securitization reserve | 31,463 | 32,481 | ||||||
| 140,137 | 160,466 | |||||||
Non-Current Liabilities and Deferred Credits | ||||||||
| Securitization bonds payable | 1,345,467 | 1,399,872 | ||||||
| Other | 2,552 | 2,396 | ||||||
| 1,348,019 | 1,402,268 | |||||||
Member’s Equity | 8,750 | 8,750 | ||||||
| $ | 1,496,906 | $ | 1,571,484 | |||||
See Notes to Financial Statements (Unaudited)
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| Three Months Ended | ||||||||
| March 31 | ||||||||
| (in Thousands) | 2005 | 2004 | ||||||
Operating Activities | ||||||||
| Net income | $ | — | $ | — | ||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Amortization | 23,496 | 19,991 | ||||||
| Changes in current assets and liabilities: | ||||||||
| Accounts receivable and accrued unbilled revenues | (3,041 | ) | (3,909 | ) | ||||
| Interest payable | (23,682 | ) | (24,857 | ) | ||||
| Accounts payable | (235 | ) | (308 | ) | ||||
| Net cash used for operating activities | (3,462 | ) | (9,083 | ) | ||||
Investing Activities | ||||||||
| Restricted cash | 53,261 | 55,297 | ||||||
| Net cash from investing activities | 53,261 | 55,297 | ||||||
Financing Activities | ||||||||
| Retirement of securitization bonds | (49,799 | ) | (46,214 | ) | ||||
| Net cash used for financing activities | (49,799 | ) | (46,214 | ) | ||||
Net Increase in Cash and Cash Equivalents | — | — | ||||||
Cash and Cash Equivalents at Beginning of the Period | — | — | ||||||
Cash and Cash Equivalents at End of the Period | $ | — | $ | — | ||||
Supplementary Cash Flow Information | ||||||||
| Interest paid | $ | 46,876 | $ | 49,290 | ||||
See Notes to Financial Statements (Unaudited)
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THE DETROIT EDISON SECURITIZATION FUNDING LLC
| Three Months Ended | ||||||||||||
| March 31 | ||||||||||||
| (in Thousands) | 2005 | 2004 | ||||||||||
Balance beginning of period | $ | 8,750 | $ | 8,750 | ||||||||
Balance end of period | $ | 8,750 | $ | 8,750 | ||||||||
See Notes to Financial Statements (Unaudited)
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The Detroit Edison Securitization Funding LLC
NOTE 1 — GENERAL
The financial statements included herein should be read in conjunction with the notes to financial statements contained in the 2004 Annual Report on Form 10-K.
The accompanying financial statements are prepared using accounting principles generally accepted in the United States of America. These accounting principles require management to use estimates and assumptions that impact reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results may differ from those estimates.
The financial statements are unaudited, but in the opinion of the Company, include all adjustments necessary for a fair statement of the results for the interim periods. Financial results for this interim period are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year.
NOTE 2 — LONG-TERM DEBT
The Company retired $49,799,000 of securitization bonds during the first quarter of 2005.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Managers of
The Detroit Edison Securitization Funding LLC
We have reviewed the accompanying condensed statement of financial position of The Detroit Edison Securitization Funding LLC as of March 31, 2005, and the related condensed statements of operations, cash flows and member’s equity for the three-month periods ended March 31, 2005 and 2004. These interim financial statements are the responsibility of The Detroit Edison Securitization Funding LLC’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of financial position of The Detroit Edison Securitization Funding LLC as of December 31, 2004, and the related statements of operations, cash flows and member’s equity for the year then ended (not presented herein); and in our report dated March 15, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed statement of financial position as of December 31, 2004 is fairly stated, in all material respects, in relation to the statement of financial position from which it has been derived.
/S/ DELOITTE & TOUCHE LLP
Detroit, Michigan
May 10, 2005
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OTHER INFORMATION
EXHIBITS
| Exhibit | ||
| Number | Description | |
| Filed: | ||
| 99-64 | Monthly Servicer Certificate dated February 14, 2005 | |
| 99-65 | Semi-Annual Certificate dated February 28, 2005 | |
| 99-66 | Monthly Servicer Certificate dated March 14, 2005 | |
| 99-67 | Monthly Servicer Certificate dated April 13, 2005 | |
| Furnished: | ||
| 32-15 | Chief Executive Officer Section 906 10-Q Certification of Periodic Report | |
| 32-16 | Chief Financial Officer Section 906 10-Q Certification of Periodic Report |
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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.
| THE DETROIT EDISON SECURITIZATION FUNDING LLC | ||||
| Date: May 10, 2005 | /s/ DANIEL G. BRUDZYNSKI | |||
| Daniel G. Brudzynski | ||||
| Chief Accounting Officer and Controller | ||||
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EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| Filed: | ||
| 99-64 | Monthly Servicer Certificate dated February 14, 2005 | |
| 99-65 | Semi-Annual Certificate dated February 28, 2005 | |
| 99-66 | Monthly Servicer Certificate dated March 14, 2005 | |
| 99-67 | Monthly Servicer Certificate dated April 13, 2005 | |
| Furnished: | ||
| 32-15 | Chief Executive Officer Section 906 10-Q Certification of Periodic Report | |
| 32-16 | Chief Financial Officer Section 906 10-Q Certification of Periodic Report |
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