UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Exact name of Registrants as specified in
their charters, State of Incorporation, IRS Employer
Commission address of principal executive offices and Identification
File Number Registrants' telephone number Number
- ----------- ------------------------------------------ --------------
33-87902 ESI Tractebel Funding Corp. 04-3255377
(a Delaware corporation)
33-87902-02 Northeast Energy Associates, 04-2955642
A Limited Partnership
(a Massachusetts corporation)
33-87902-01 North Jersey Energy Associates, 04-2955646
A Limited Partnership
(a New Jersey corporation)
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c/o FPL Energy, Inc.
11760 US Highway 1, Suite 600
North Palm Beach, Florida 33408
(561) 691-3500
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing
requirements for the past 90 days. Yes X No ___
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This combined Form 10-Q represents separate filings by ESI Tractebel Funding
Corp., Northeast Energy Associates, A Limited Partnership and North Jersey
Energy Associates, A Limited Partnership. Information contained herein
relating to an individual registrant is filed by that registrant on its own
behalf. Each registrant makes representations only as to itself and makes no
other representations whatsoever as to any other registrant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), ESI Tractebel Funding Corp. (the
Company) and Northeast Energy Associates, A Limited Partnership and North
Jersey Energy Associates, A Limited Partnership (collectively, the
Partnerships) are hereby filing cautionary statements identifying important
factors that could cause the Company and Partnerships' actual results to
differ materially from those projected in forward-looking statements (as such
term is defined in the Reform Act) of the Company and Partnerships made by or
on behalf of the Company and Partnerships which are made in this combined
Form 10-Q, in presentations, in response to questions or otherwise. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but
not always, through the use of words or phrases such as will likely result,
are expected to, will continue, is anticipated, estimated, projection,
outlook) are not statements of historical facts and may be forward-looking.
Forward-looking statements involve estimates, assumptions and uncertainties
that could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, any such statements are
qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause the Company and Partnerships'
actual results to differ materially from those contained in forward-looking
statements of the Company and Partnerships made by or on behalf of the
Company and Partnerships.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company and Partnerships undertake no obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect
the occurrence of unanticipated events. New factors emerge from time to time
and it is not possible for management to predict all of such factors, nor can
it assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include
prevailing governmental policies and regulatory actions with respect to
allowed rates of return, industry and rate structure, acquisition and
disposal of assets and facilities, operation and construction of plant
facilities, recovery of fuel and purchased power costs, and present or
prospective competition.
The business and profitability of the Company and Partnerships are also
influenced by economic and geographic factors including political and
economic risks, changes in and compliance with environmental and safety laws
and policies, weather conditions, population growth rates and demographic
patterns, competition for retail and wholesale customers, pricing and
transportation of commodities, market demand for energy from plants or
facilities, changes in tax rates or policies or in rates of inflation,
unanticipated development project delays or changes in project costs,
unanticipated changes in operating expenses and capital expenditures, capital
market conditions, competition for new energy development opportunities, and
legal and administrative proceedings (whether civil, such as environmental,
or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the Company
and Partnerships.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ESI TRACTEBEL FUNDING CORP.
BALANCE SHEETS
(Thousands of Dollars)
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
ASSETS
Current assets:
Cash ............................................................................... $ 1 $ 1
Current portion of notes receivable from the Partnerships .......................... 21,563 21,563
Interest receivable from the Partnerships .......................................... 11,445 -
Total current assets ........................................................... 33,009 21,564
Notes receivable from Partnerships ................................................... 468,724 468,724
TOTAL ASSETS ......................................................................... $ 501,733 $ 490,288
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of securities payable .............................................. $ 21,563 $ 21,563
Accrued interest ................................................................... 11,445 -
Total current liabilities ........................................................ 33,008 21,563
Securities payable ................................................................... 468,724 468,724
Total liabilities .................................................................. 501,732 490,287
Stockholders' equity:
Common stock, no par value, 10,000 shares authorized, issued and outstanding ....... 1 1
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... $ 501,733 $ 490,288
The accompanying notes are an integral part of these financial statements.
ESI TRACTEBEL FUNDING CORP.
STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
------------ ------------
Interest income ............................................................. $ 11,445 $ 11,953
Interest expense ............................................................ (11,445) (11,953)
NET INCOME .................................................................. $ - $ -
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 BALANCE SHEETS
(Thousands of Dollars)
March 31, December 31,
1998 1997
(Unaudited) (Prior Basis)
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ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 60,544 $ 61,203
Accounts receivable ................................................................ 41,964 34,036
Fuel inventories ................................................................... 1,452 4,752
Prepaid expenses and other current assets........................................... 884 3,052
Total current assets ............................................................. 104,844 103,043
Cogeneration facilities and carbon dioxide facility (net of accumulated depreciation
of $4,685 and $153,963, respectively) .............................................. 508,366 349,365
Power purchase contracts (net of accumulated amortization of $10,818) ................ 877,938 -
Unamortized financing costs .......................................................... - 15,674
Other assets ......................................................................... 126 4,193
Restricted cash ...................................................................... - 69,156
Total non-current assets ......................................................... 1,386,430 438,388
TOTAL ASSETS ......................................................................... $1,491,274 $ 541,431
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable - ESI Tractebel Funding Corp. ..................... $ 21,563 $ 21,563
Accounts payable ................................................................... 14,427 15,450
Accrued interest payable ........................................................... 11,674 -
Other accrued expenses ............................................................. 5,837 2,315
Total current liabilities ........................................................ 53,501 39,328
Deferred credit - O&M and fuel contracts ............................................. 346,802 -
Notes payable - ESI Tractebel Funding Corp. .......................................... 468,724 468,724
Amounts due utilities for energy bank balances ....................................... 171,371 230,565
Total non-current liabilities .................................................... 986,897 699,289
Total liabilities ................................................................ 1,040,398 738,617
Partners' equity (deficit):
General partner .................................................................... 4,508 (4,714)
Limited partners ................................................................... 446,368 (192,472)
Total partners' equity (deficit) ................................................. 450,876 (197,186)
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND PARTNERS' EQUITY ............................................... $1,491,274 $ 541,431
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 STATEMENTS OF OPERATIONS
(Thousands of Dollars)
(Unaudited)
Period from
Period from January 1, Three Months
January 14, 1998 to Ended
1998 to January 13, March 31,
March 31, 1998 1997
1998 (Prior Basis) (Prior Basis)
---------- ------------- -------------
REVENUES ............................................................. $ 74,739 $ 13,109 $ 82,336
COSTS AND EXPENSES:
Fuel ............................................................... 29,517 5,774 38,248
Operation and maintenance .......................................... 4,738 974 6,765
Depreciation and amortization ...................................... 15,508 894 6,250
General and administrative ......................................... 1,895 538 3,353
Total costs and expenses ......................................... 51,658 8,180 54,616
OPERATING INCOME ..................................................... 23,081 4,929 27,720
OTHER EXPENSE (INCOME):
Interest expense ................................................... 13,712 2,422 16,857
Interest income .................................................... (653) (402) (2,189)
Total other expense (income) - net ............................... 13,059 2,020 14,668
NET INCOME ........................................................... $ 10,022 $ 2,909 $ 13,052
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 STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Period from
Period from January 1, Three Months
January 14, 1998 to Ended
1998 to January 13, March 31,
March 31, 1998 1997
1998 (Prior Basis) (Prior Basis)
----------- ------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 10,022 $ 2,909 $ 13,052
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................... 15,508 894 6,250
Amortization of fuel and O&M contracts ........................... (5,492) - -
(Increase) decrease in assets:
Accounts receivable ............................................ 2,077 (10,005) 2,374
Fuel inventories ............................................... 2,789 511 4,124
Prepaid expenses and other current assets ...................... 4,348 (122) 1,047
Other assets ................................................... - 37 (199)
Increase (decrease) in liabilities:
Accounts payable ............................................... (5,865) 4,842 (420)
Accrued interest payable ....................................... 9,951 1,723 11,953
Other accrued expenses ......................................... 711 626 1,461
Future obligations under interest rate swap agreements ......... (218) - (325)
Amounts due utilities for energy bank balances ................. (158) (52) 2,210
Other ............................................................ - 69 559
Net cash provided by operating activities .......................... 33,673 1,432 42,086
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................... - - (154)
Net cash used in investing activities .............................. - - (154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Release of restricted cash collateral .............................. 69,156 - -
Distributions to partners .......................................... (104,920) - -
Net cash used in financing activities .............................. (35,764) - -
Net increase (decrease) in cash and cash equivalents ................. (2,091) 1,432 41,932
Cash and cash equivalents at beginning of period ..................... 62,635 61,203 49,861
Cash and cash equivalents at end of period ........................... $ 60,544 $ 62,635 $ 91,793
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................. $ - $ - $ -
Supplemental schedule of noncash investing and financing activities:
See Note 1 and Note 2 - Basis of Presentation concerning new
basis of accounting subsequent to January 13, 1998
The accompanying notes are an integral part of these financial statements.
ESI TRACTEBEL FUNDING CORP. AND
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP AND
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The accompanying financial statements should be read in conjunction with the
1997 Form 10-K for the Company and the Partnerships. In the opinion of the
Company and Partnerships, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial position as of
March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1998 and 1997 have been made. The Company had no cash
transactions for the three months ended March 31, 1998 and 1997 and therefore
has not presented a statement of cash flows. Certain amounts included in the
prior period's financial statements have been reclassified to conform to the
current year's presentation. The results of operations for an interim period
may not give a true indication of results for the year.
1. The Acquisition
On January 14, 1998, pursuant to a purchase agreement dated November 21, 1997,
the Partnerships were acquired by Northeast Energy, LP (a Delaware limited
partnership) and Northeast Energy, LLC (a Delaware limited liability company)
(collectively, the Partners). The Partners purchased their interests from
Intercontinental Energy Corporation and from certain individuals. The Partners
are owned by direct subsidiaries of ESI Energy, Inc. and Tractebel Power, Inc.
ESI Energy, Inc. is wholly-owned by FPL Energy, Inc. which is an indirect
wholly-owned subsidiary of FPL Group, Inc., a New York Stock Exchange company.
Tractebel Power, Inc. is a direct wholly-owned subsidiary of Tractebel, Inc.
which is a direct wholly-owned subsidiary of Tractebel, S.A., a Belgian energy
and environmental services business. Each of the Partnerships was formed in
1986 to develop, construct, own, operate and manage a 300 megawatt gas-fired
combined-cycle cogeneration facility.
The Company is a Delaware special purpose funding corporation established in
1994 solely for the purpose of issuing debt securities in connection with the
financing of the Partnerships. On January 14, 1998, the Company was acquired by
a subsidiary of ESI Energy, Inc., Tractebel Power, Inc. and Broad Street
Contract Services, Inc. (Broad Street). Broad Street has no economic interest
in the partnership distributions and participates for the purpose of providing
an independent director. The entities own a 37.5%, 37.5% and 25.0% interest in
the Company, respectively. Concurrent with and related to the acquisition of
the Company and the Partnerships, the Company changed its name from IEC Funding
Corp. to its current name.
The acquisition of the Partnerships was accounted for using the purchase method
of accounting and is subject to the provisions of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 54 and the rules of pushdown
accounting, which gave rise to the new basis of accounting. The net amount paid
to acquire the interests in the Partnerships of approximately $535 million
including approximately $10 million of acquisition costs, was allocated to the
assets and liabilities acquired based on their fair values.
2. Summary of Significant Accounting Policies
Basis of Presentation - The Partnerships' balance sheets as of March 31, 1998
and the statements of operations and cash flows for the period from January
14, 1998 to March 31, 1998 are reported under the new basis of accounting
described above. The Partnerships' balance sheets as of December 31, 1997 and
the statements of operations and cash flows for the period from January 1,
1998 to January 13, 1998 and for the three months ended March 31, 1997
represent historical financial data of the Partnerships prior to the
acquisition.
The following is a summary of the Partnerships' assets acquired and liabilities
assumed in the acquisition (thousands of dollars):
Assets:
Current assets ......................................... $114,554
Restricted cash ........................................ $ 69,156
Cogeneration facilities and carbon dioxide facility .... $513,066
Other assets ........................................... $ 126
Power purchase contracts ............................... $888,756
Liabilities:
Current liabilities .................................... $ 47,338
Operation and maintenance (O&M)/fuel contracts ......... $352,293
Energy bank balances ................................... $171,530
Notes payable .......................................... $468,723
The following unaudited pro forma information has been prepared assuming that
the acquisition had occurred at the beginning of the periods presented
(thousands of dollars).
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
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Revenues ...................................................................... $ 87,848 $ 82,336
Operating income .............................................................. $ 27,280 $ 22,600
Net income .................................................................... $ 11,690 $ 6,624
Cogeneration Facilities and Carbon Dioxide Facility - Cogeneration facilities
and the carbon dioxide facility were carried at historical cost prior to
January 14, 1998. Effective January 14, 1998, all facilities were revalued as a
result of applying the purchase method of accounting mentioned above. Prior to
January 14, 1998, the facilities were being depreciated on a straight-line
method over the estimated life of each facility of 20 years. Subsequent to
January 13, 1998, the facilities are being depreciated over their revised
estimated lives of 34 years.
Power Purchase/O&M/Fuel Contracts - Effective January 14, 1998, power purchase
contracts, O&M contracts and fuel contracts which were determined to be in
excess of prevailing rates for similar contracts were adjusted as a result of
applying the purchase method of accounting mentioned above. These contracts are
amortized over the estimated lives of the power purchase contracts of 14 to 24
years, the O&M contracts of 4 years and the fuel contracts of 16 years.
Amounts Due Utilities for Energy Bank Balances - Effective January 14, 1998,
amounts due utilities for energy bank balances were adjusted as a result of
applying the purchase method of accounting mentioned above.
3. Commitments and Contingencies
Subsequent to the acquisition on January 14, 1998, certain credit arrangements
were terminated and replaced with new letters of credit and a guaranty to
satisfy requirements in certain Power Purchase Agreements. Once the new credit
arrangements were in place, cash of approximately $69.2 million (plus
approximately $2.5 million in accrued interest) was released and distributed to
the Partners. Additionally, new letters of credit were issued in substitution
for cash on deposit in Partnership trust accounts and approximately $33.2
million in cash was released and distributed to the Partners.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for Northeast Energy Associates, A Limited Partnership
and North Jersey Energy Associates, A Limited Partnership
This discussion should be read in conjunction with the Notes to Financial
Statements contained herein and with the 1997 Form 10-K for the Company and
the Partnerships. The results of operations for an interim period may not
give a true indication of results for the year. In the following discussion,
all comparisons are with the corresponding items in the prior year. Because
the results of operations for periods of less than a full quarter are not
indicative of the results for the full quarter, the 1998 periods have been
combined for the full quarter in discussing results of operations below.
RESULTS OF OPERATIONS
Total revenue for the first quarter of 1998 of $87.8 million increased by
$5.5 million. The increase is primarily due to increased power sales to
utilities ($3.5 million). The increase in power sales to utilities reflects
increased power generation which is the result of higher availability of
generation capacity. Additionally, approximately $2.0 million of increased
revenue is the result of changes in energy bank balances. Energy bank
balances are determined in accordance with scheduled or specified rates under
certain power purchase agreements.
The cost of fuel as a percentage of total revenues (before giving affect to
the change in energy bank balances and before the affect of $4.5 million of
deferred credit amortization for fuel contracts - see Note 2) was 47.5% for
the first quarter of 1998 as compared to 47.6% for the same period last year.
The decreased fuel cost is primarily due to the reduction in extended gas
service rights exercised by fuel suppliers offset by increased fuel prices.
These rights occur when temperatures fall below a certain level and give rise
to increased rates. Higher than normal ambient temperatures during the first
quarter of 1998 precluded the exercising of these rights.
O&M expenses decreased $1.1 million, primarily as a result of $1.0 million of
deferred credit amortization for O&M contracts - see Note 2.
Depreciation and amortization increased $10.2 million due to $10.8 million of
amortization related to Power Purchase Contracts - see Note 2.
The decrease in general and administrative expenses is primarily the result
of decreased management fees incurred in the current year.
Interest income decreased $1.1 million and reflects decreased cash balances
earning investment income.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated during the three month period ended March 31, 1998 was
sufficient to fund operating expenses as well as fund the debt service
requirements through June 1998. For the period ended March 31, 1998, there have
been $104.9 million in distributions to partners - see Note 3. These
distributions will eliminate this source of Partnership income for future
periods.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
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27.1 Financial Data Schedule for the three months ended March 31, 1998 -
ESI Tractebel Funding Corp.
27.2 Financial Data Schedule for the period January 1, 1998 to January 13, 1998 -
Northeast Energy Associates, A Limited Partnership
27.3 Financial Data Schedule for the period January 1, 1998 to January 13, 1998 -
North Jersey Energy Associates, A Limited Partnership
27.4 Financial Data Schedule for the period January 14, 1998 to March 31, 1998 -
Northeast Energy Associates, A Limited Partnership
27.5 Financial Data Schedule for the period January 14, 1998 to March 31, 1998 -
North Jersey Energy Associates, A Limited Partnership
(b) Reports on Form 8-K
(1) A Current Report on Form 8-K dated February 4, 1998 was filed by
ESI Tractebel Funding Corp.; Northeast Energy Associates, A
Limited Partnership and North Jersey Energy Associates, A Limited
Partnership on February 5, 1998 reporting two events under
Item 5 - Other Events.
SIGNATURES
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.
ESI TRACTEBEL FUNDING CORP.
NORTHEAST ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
NORTH JERSEY ENERGY ASSOCIATES, A LIMITED PARTNERSHIP
(ESI Northeast Energy GP, Inc. as Administrative General Partner)
(Registrants)
Date: May 15, 1998
PETER D. BOYLAN
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Peter D. Boylan
Treasurer