SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 33-87902 33-87902-01 33-87902-02 IEC Funding Corp. North Jersey Energy Associates, A Limited Partnership Northeast Energy Associates, A Limited Partnership -------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 04-3255377 New Jersey 04-2955646 Massachusetts 04-2955642 ------------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 350 Lincoln Place, Hingham, Massachusetts 02043 ----------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (617) 749-9800 -------------- (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________ -------- IEC FUNDING CORP. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements NORTHEAST ENERGY ASSOCIATES AND NORTH JERSEY ENERGY ASSOCIATES Combined Balance Sheet at December 31, 1995 and September 30, 1996 (Unaudited)......................................... 3 Combined Statement of Operations for the Three Months and Nine Months Ended September 30, 1995 and 1996 (Unaudited)................................ 4 Combined Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1996 (Unaudited).......................... 5 Notes to Combined Financial Statements................................. 7 IEC FUNDING CORP. Balance Sheet at December 31, 1995 and September 30, 1996 (Unaudited)......................................... 8 Statement of Operations for the Three Months and Nine Months Ended September 30, 1995 and 1996 (Unaudited).................. 9 Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1996 (Unaudited).......................... 10 Notes to Financial Statements.......................................... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 12 PART II OTHER INFORMATION...................................................... 13 SIGNATURES............................................................................ 14 NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED BALANCE SHEET (UNAUDITED) - -------------------------------------------------------------------------------- DECEMBER 31, SEPTEMBER 30, 1995 1996 (IN THOUSANDS) ASSETS Current assets Cash and cash equivalents $ 58,277 $ 87,308 Accounts receivable 51,465 52,594 Fuel inventories 4,516 6,632 Prepaid expenses and other current assets 2,913 2,133 ------------ ------------- Total current assets 117,171 148,667 ------------ ------------- Cogeneration facilities and carbon dioxide facility (net of accumulated depreciation of $104,157,000 and $122,808,000 at December 31, 1995 and September 30, 1996, respectively) 397,589 379,745 Unamortized financing costs 20,210 18,410 Other fixed assets (net of accumulated depreciation of $371,000 and $452,000 at December 31, 1995 and September 30, 1996, respectively) 485 458 Other assets 3,011 3,607 Restricted cash 78,568 69,156 ------------ ------------- Total non-current assets 499,863 471,376 ------------ ------------- Total assets $ 617,034 $ 620,043 ------------ ------------- LIABILITIES AND PARTNERS' DEFICIT Current liabilities Current portion of loans payable - IEC Funding Corp. $ 25,204 $ 24,640 Accounts payable 14,234 13,523 Accrued interest - IEC Funding Corp. 12,218 Other accrued expenses 2,104 2,845 Future obligations under interest rate swap agreements 3,654 2,369 ------------ ------------- Total current liabilities 45,196 55,595 ------------ ------------- Loans payable - IEC Funding Corp. 514,362 502,324 Amounts due utilities for energy bank balances 188,053 211,016 ------------ ------------- Total non-current liabilities 702,415 713,340 ------------ ------------- Total liabilities 747,611 768,935 ------------ ------------- Partners' deficit General partner (4,047) (4,230) Limited partners (126,530) (144,662) ------------ ------------- Total partners' deficit (130,577) (148,892) ------------ ------------- Commitments and contingencies ------------ ------------- Total liabilities and partners' deficit $ 617,034 $ 620,043 ------------ ------------- The accompanying notes are an integral part of these financial statements NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1995 1996 (IN THOUSANDS) Revenue Power sales to utilities $ 71,942 $ 73,170 $ 211,641 $ 204,710 Steam sales 1,147 1,128 3,501 3,393 ----------- ---------- ------------ ------------ Total revenue 73,089 74,298 215,142 208,103 ----------- ---------- ------------ ------------ Costs and expenses Cost of power and steam sales 32,817 32,735 99,426 103,506 Operation and maintenance 6,726 6,238 18,675 17,019 Depreciation 6,211 6,249 18,637 18,732 General and administrative expenses 3,141 3,481 8,831 10,357 ----------- ----------- ------------ ------------ Total costs and expenses 48,895 48,703 145,569 149,614 ----------- ----------- ------------ ------------ Operating income 24,194 25,595 69,573 58,489 ----------- ----------- ------------ ------------ Other expense (income) Amortization of financing costs 643 587 1,565 1,800 Interest expense 12,751 12,334 38,059 37,486 Interest expense on energy bank liabilities 4,273 4,783 12,143 14,375 Interest income (2,445) (2,232) (7,932) (7,673) ----------- ----------- ------------ ------------ Total other expense 15,222 15,472 43,835 45,988 ----------- ----------- ------------ ------------ Net income $ 8,972 $ 10,123 $ 25,738 $ 12,501 =========== =========== ============ ============ The accompanying notes are an integral part of these financial statements NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENT OF CASH FLOWS (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (UNAUDITED) - -------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1995 1996 (IN THOUSANDS) Cash flows from operating activities: Cash received from utilities and other customers $ 215,141 $ 216,648 Cash paid to suppliers (122,716) (128,969) Interest paid (27,876) (26,525) Bank commitment fees paid (27) (27) Interest received 7,660 9,282 Cash payments to general partner for operating activities (1,805) (3,746) Cash payments to owners/management (2,671) (2,765) ------------ ------------ Net cash provided by operating activities 67,706 63,898 ------------ ------------ Cash flows from investing activities: Net expenditures for facilities (1,863) (807) Purchase of other fixed assets (40) (54) Decrease in restricted cash 3,432 9,412 ------------- ------------- Net cash provided by investing activities 1,529 8,551 ------------- ------------- Cash flows from financing activities: Principal payments on debt (10,217) (12,602) Payment of refinancing costs (5,739) - Distributions to partners (43,700) (30,816) ------------ ------------ Net cash used for financing activities (59,656) (43,418) ------------ ------------ Net increase in cash and cash equivalents 9,579 29,031 Cash and cash equivalents at beginning of period 76,255 58,277 ------------ ------------ Cash and cash equivalents at end of period $ 85,834 $ 87,308 ============ ============ The accompanying notes are an integral part of these financial statements NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP COMBINED STATEMENT OF CASH FLOWS (CONTINUED) (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (UNAUDITED) - -------------------------------------------------------------------------------- Reconciliation of Net Income to Net Cash Provided by Operating Activities NINE MONTHS ENDED SEPTEMBER 30, 1995 1996 (IN THOUSANDS) Net income $ 25,738 $ 12,501 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 18,637 18,732 Amortization of financing costs 1,565 1,800 Changes in assets and liabilities Accounts receivable (11,436) (1,129) Fuel inventories (935) (2,116) Prepaid expenses and other current assets (891) 780 Accounts payable 4,119 (711) Accrued interest - 12,218 Other accrued expenses 11,835 741 Future obligations under interest rate swap agreements (2,356) (1,285) Amounts due utilities for energy bank balances 21,915 22,963 Other assets (485) (596) -------- ------- Net cash provided by operating activities $ 67,706 $ 63,898 ======== ========= The accompanying notes are an integral part of these financial statements NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. Basis of Presentation The accompanying unaudited combined financial statements should be read in conjunction with the audited combined financial statements included in the Annual Report on Form 10-K for the year ended December 31, 1995 for Northeast Energy Associates, A Limited Partnership, and North Jersey Energy Associates, A Limited Partnership (together, the "Partnerships") and IEC Funding Corp. The results of operations for the periods ended September 30, 1996 are unaudited and are not necessarily indicative of the results to be expected for the full year. The unaudited financial information at September 30, 1996 and for the periods ended September 30, 1996 contains all adjustments, consisting only of normal recurring adjustments, considered by management necessary for a fair presentation of the operating results for such period. 2. Reclassification Certain reclassifications were made to the prior year balances in order to conform to current year presentation. These reclassifications had no effect on prior year operating results. 3. Distributions Distributions to the partners may be made only after all required funds and sub-funds have been fully funded as described in the Trust Indenture. After funding all amounts required under the indenture, the excess cash generated during periods ended June 30 and March 31, 1996 were in excess of approximately $30.5 million and $0.3 million, respectively. All conditions under the trust indenture for distributions of such excess cash were satisfied after March 31, 1996 resulting in a distribution of approximately $8.8 million in April and $22.0 million in June to the partners in proportion to their designated interests in the Partnerships. No distributions were made during the third quarter of 1996. As of November 2, 1996 excess cash of $19.1 million was available for distribution. These funds have been released for payment to the partners. IEC FUNDING CORP. BALANCE SHEET (UNAUDITED) - -------------------------------------------------------------------------------- DECEMBER 31, SEPTEMBER 30, 1995 1996 (IN THOUSANDS) ASSETS Current assets Cash $ 1 $ 1 Current portion of notes receivable from Northeast Energy Associates and North Jersey Energy Associates (together, the "Partnerships") 25,204 24,640 Interest receivable from the Partnerships - 12,218 ---------- ---------- Total current assets 25,205 36,859 Notes receivable from the Partnerships 514,362 502,324 ---------- ---------- Total assets $ 539,567 $ 539,183 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of securities payable $ 25,204 $ 24,640 Accrued interest - 12,218 ---------- ---------- Total current liabilities 25,204 36,858 Securities payable 514,362 502,324 ---------- ---------- Total liabilities 539,566 539,182 Stockholders' equity Common stock, no par value, 10,000 shares authorized, issued and outstanding 1 1 ---------- ---------- Total liabilities and stockholders' equity $539,567 $ 539,183 ========== ========== The accompanying notes are an integral part of these financial statements IEC FUNDING CORP. STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1995 1996 (IN THOUSANDS) (IN THOUSANDS) Interest income $ 12,699 $ 12,218 $ 38,386 $ 37,186 Interest expense (12,699) (12,218) (38,386) (37,186) -------- -------- -------- -------- $ - $ - $ - $ - ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements IEC FUNDING CORP. STATEMENT OF CASH FLOWS (UNAUDITED) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - -------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30 1995 1996 (IN THOUSANDS) Cash Flows from operating activities: Interest received from Partnerships $ 25,829 $ 24,968 Interest paid (25,829) (24,968) -------- ------- Net cash provided by operating activities - - -------- ------- Cash flows from investing activities: Principal payment received from partnerships 10,217 12,602 Principal payment on debt (10,217) (12,602) -------- -------- Net cash provided by investing activities - - -------- -------- Cash flows from financing activities - - -------- -------- Net increase in cash - - -------- -------- Cash at beginning of period 1 1 -------- -------- Cash at end of period $ 1 $ 1 -------- -------- The accompanying notes are an integral part of these financial statements IEC FUNDING CORP. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- BASIS OF PRESENTATION The accompanying unaudited 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, 1995 for IEC Funding Corp. (the "Company") and the Partnerships. The unaudited financial information at September 30, 1996 and for the periods ended September 30, 1996 contains all adjustments, consisting only of normal recurring adjustments, considered by management necessary for a fair presentation of the operating results for such period. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Total revenue of $74.3 million for the third quarter of 1996 increased $1.2 million (1.7%) as compared to the third quarter of 1995. This increase is a result of the timing of curtailment rights exercised by certain power purchasers. Fewer curtailment hours were requested during the third quarter of 1996 as compared to the third quarter of 1995. It is expected that the remaining curtailment hours available to these utilities under the respective power purchase agreements will be requested during the fourth quarter of 1996. Power purchase rates for the third quarter of 1996 increased slightly on Bellingham contracts and remained flat, on average, for Sayreville. On a year to date basis, total revenue of $208.1 million in 1996 decreased $7.0 million (3.2%) as compared to 1995. This decrease is primarily due to scheduled maintenance outages that occurred during the second quarter of 1996 and included a major inspection and maintenance program (scheduled at five year intervals) at the Bellingham facility. Lower rates, on average, under the Sayreville power purchase contract during the first nine months of 1996 also contributed to the revenue decrease. Rates for the Bellingham project increased slightly over the prior year. Cost of power and steam sales as a percentage of gross revenues (gross of increase to energy bank) was 41.8% for the third quarter of 1996 versus 42.7% for the third quarter of 1995. Year to date costs as a percentage of gross revenues was 47.8% in 1996 as compared to 44.2% in 1995. The decreased cost on a quarterly basis is primarily a result of gains on natural gas swap agreements. On a year to date basis, extended gas service charges by one of the Sayreville facility's suppliers (due to lower temperatures), fixed demand charges under certain fuel contracts (which remain constant regardless of availability) and higher market prices of spot gas (which affect both spot purchases and certain firm contracts) resulted in increased costs. Operation and maintenance costs decreased $.5 million as compared to the third quarter of 1995, and decreased $1.6 million on a year to date basis. These decreases are a result of a one-time 1995 water franchise fee, and a lower performance bonus payable to the O&M contractor in 1996 as a result of scheduled maintenance outages. Offsetting these cost decreases were normal and expected escalations on O&M contracts and increases in property taxes. General and administrative expenses were $3.5 million for the third quarter of 1996 as compared to $3.1 million for the same period in the prior year. On a year to date basis 1996 costs were $10.3 million as compared to $8.8 million in 1995. Quarterly and year to date increases include increased insurance and other overhead costs. Interest expense decreased $.4 million as compared to the third quarter of 1995 and decreased $.6 million on a year to date basis. Interest on debt is decreasing in 1996 as a result of principal payments made through June 30, 1996. Principal payments are made semi-annually on June 30 and December 30. Interest on energy bank liabilities has increased, reflecting increases in the underlying amounts accrued for energy bank balances. Interest income has decreased as a result of reduced cash collateral being held in support of letters of credit. LIQUIDITY AND CAPITAL RESOURCES Cash flow generated during the nine months ended September 30, 1996 was more than sufficient to fund all operating expenses for the period as well as fund debt service requirements for both June and December of 1996. Debt service reserve requirements specified in the trust indenture remain fulfilled. Through the six months ended June 30, 1996 excess cash of $30.8 million was distributed to the partners. While no distributions were made during the third quarter of 1996, as of November 2, 1996 excess cash of $19.1 million was available for distribution and these funds have been released for payment to the partners. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The following Exhibits are filed herewith: 3.7 Agreement of Limited Partnership dated as of October 15, 1996, of Northeast Energy Associates, A Limited Partnership. 3.8 Agreement of Limited Partnership dated as of October 15, 1996, of North Jersey Energy Associates, A Limited Partnership. 10.10.5 Operation and Maintenance Agreement dated as of May 1, 1995, between NECO-Bellingham, Inc. and Westinghouse Operating Services Company, Inc. (Supersedes Exhibit 10.10.5 previously filed) 10.14 Declaration of Easements, Covenants and Restrictions dated as of June 28, 1989, among Northeast Energy Associates, A Limited Partnership, Commonwealth Electric Company, Boston Edison Company and Montaup Electric Company. (b) There were no reports on Form 8-K filed during the three months ended September 30, 1996. Pursuant to the requirements of the Securities Exchange Act of 1934, IEC Funding Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IEC FUNDING CORP. DATE SIGNATURE AND TITLE November 14, 1996 /s/ Maureen P. Herbert --------------------------- ---------------------------------------- Maureen P. Herbert Vice President of Finance Pursuant to the requirements of the Securities Exchange Act of 1934, North Jersey Energy Associates, A Limited Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: INTERCONTINENTAL ENERGY CORPORATION As General Partner DATE SIGNATURE AND TITLE November 14, 1996 /s/ Maureen P. Herbert ------------------------ ---------------------------------------- Maureen P. Herbert Vice President of Finance Pursuant to the requirements of the Securities Exchange Act of 1934, Northeast Energy Associates, A Limited Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP By: INTERCONTINENTAL ENERGY CORPORATION As General Partner DATE SIGNATURE AND TITLE November 14, 1996 /s/ Maureen P. Herbert ------------------------ --------------------------------------- Maureen P. Herbert Vice President of Finance