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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, 1999
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 of incorporation or organization) (I.R.S. Employer Identification No.)
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
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Numbers)
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, 1999
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
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Item 6. Exhibits and Reports on Form 8-K 9
Signatures 11
Financial Statement Index F-1
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PART I/ITEM 1. CONDENSED 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 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, 1998, 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 and the Partnerships'
recent historical financial results and condition, the following section
entitled "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 that 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 that 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") and 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 which is the commencement of commercial operations for each
Facility. The Partnerships each recorded a net investment in lease that reflects
the present value of future minimum lease payments. Future minimum lease
payments represent the amount of capacity payments due from the utilities under
the Power Purchase Agreements in excess of fixed operating costs. The difference
between the undiscounted future minimum lease payments due from the utilities
and the net
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investment in lease represents unearned income. This unearned income will be
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 energy dispatched by the utility at each Facility 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 decreased approximately 3.8% for the second quarter
of 1999 as compared to the second quarter of 1998. This decrease was primarily
the result of a decrease in other income. The decrease in other income resulted
from a decrease in excess fuel remarketed to third party purchasers. This
decrease was partially offset by an increase in service revenue representing an
increase in megawatt hours provided to the purchasing utility.
Operating revenues increased approximately 7.9% for the six-months
ended June 30, 1999 as compared to the first six months of 1998. This increase
was primarily a result of the factors discussed above: an increase in megawatt
hours provided to the purchasing utility, offset by a decrease in excess fuel
remarketed to third party purchasers.
Cost of services remained fairly consistent for the second quarter of
1999 as compared to the second quarter of 1998. Although the number of megawatt
hours produced in the second quarter of 1999 as compared to the second quarter
of 1998 increased, fuel expense, a component of cost of services, decreased as
the result of lower gas prices in the second quarter of 1999. This decrease was
partially offset by an increase in other variable operating expenses related to
increased megawatt hours provided to the purchasing utility.
Cost of services increased approximately 17.5% for the six-months
ended June 30, 1999 as compared to the first six months of 1998. This was
primarily the result of an increase in fuel expense, a component of cost of
services, related to the increase in megawatt hours provided to the purchasing
utility. The increase in fuel expense was partially offset by lower fuel prices
in the first six months of 1999 as compared to the first six months of 1998. To
a lesser extent, the increase in cost of services is related to the increase in
other variable operating expenses discussed above.
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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 decreased approximately 10% for the second quarter
of 1999 as compared to the second quarter of 1998. This decrease was primarily
a result of a decrease in service revenue. The decrease in service revenue
resulted from a significant decrease in megawatt hours provided to the
purchasing utility during the second quarter of 1999 as compared to 1998 as a
result of unscheduled maintenance incurred at the Facility.
Operating revenues decreased approximately 3.7% for the six-months
ended June 30, 1999 as compared to the corresponding period of 1998. This
decrease was primarily the result of the factor discussed above: unscheduled
maintenance incurred at the Facility in the second quarter of 1999. The decrease
in operating revenues for the six-months ended June 30, 1999 was offset by a
significant increase in megawatt hours sold to the purchasing utility during the
first three months of 1999.
Cost of services decreased approximately 19.1% for the second quarter
of 1999 as compared to the second quarter of 1998. This decrease is primarily
the result of a decrease in fuel expense due to lower fuel prices in the second
quarter of 1999 as compared to the second quarter of 1998 and a decrease in
megawatt hours provided to the purchasing utility.
Cost of services decreased 10.2% for the six-months ended June 30,
1999 as compared to the corresponding period of 1998. Although the Whitewater
Facility provided approximately the same amount of megawatt hours to the
purchasing utility during the six-months ended June 30, 1999 as compared to the
corresponding period of 1998, fuel expense, a component of cost of services,
decreased in the first six months of 1999 as compared to the first six months of
1998.
Interest expense consists primarily of interest expense on the First
Mortgage Bonds and amortization of the costs incurred to issue the bonds.
FACILITY CONSTRUCTION
The Cottage Grove Facility
Effective September 30, 1997, Cottage Grove and Westinghouse Electric
Corporation (the "Contractor"), with the concurrence of R.W. Beck, the
independent engineer, agreed to a construction contract change order. Under the
change order, certain nonmaterial modifications were made to the Cottage Grove
construction contract and certain guarantees were deferred until final
completion, which allowed the Contractor to achieve substantial completion and
Cottage Grove to commence commercial operation. In addition, the Contractor
committed to certain future modifications in the Cottage Grove Facility's
construction, extension of certain warranty periods and certain financial
concessions. As of June 30, 1999, Cottage Grove had retained construction
contract payments (in the form of cash and an irrevocable letter of credit)
totaling approximately $10,886,000.
The Whitewater Facility
Effective September 18, 1997, Whitewater and the Contractor, with the
concurrence of R.W. Beck, the independent engineer, agreed to a construction
contract change order. Under the change order, certain nonmaterial modifications
were made to the Whitewater construction contract and certain guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and Whitewater to commence commercial operation. In
addition, the Contractor committed to certain future modifications in the
Whitewater Facility's construction, extension of certain warranty periods and
certain financial concessions. As of June 30, 1999, Whitewater had retained
construction contract payments (in the form of cash and an irrevocable letter of
credit) totaling approximately $11,174,000.
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OPERATIONS AND MAINTENANCE
Operations and Maintenance Agreements
Each of the Cottage Grove and Whitewater Facilities was operated by
Westinghouse Operating Services Company, Inc. ("Westinghouse Services")
pursuant to a seven-year operations and maintenance agreement (an "O&M
Agreement" and, collectively, the "O&M Agreements").
On March 16, 1999, each Partnership exercised an option under its O&M
Agreement to terminate the O&M Agreement with Westinghouse Services effective
April 15, 1999. In connection with the exercise of such option, Cottage Grove
and Whitewater each made a payment to Westinghouse Services pursuant to its
respective O&M Agreement in an amount equal to approximately $320,000. Each O&M
Agreement has been replaced with a substantially similar agreement to the
applicable O&M Agreement. The new operations and maintenance agreements were
executed with LSP-Whitewater I, Inc. and LSP-Cottage Grove, Inc., respectively,
each of which is an indirect subsidiary of Cogentrix Energy.
LIQUIDITY AND CAPITAL RESOURCES
Cottage Grove
The principal components of operating cash flow for the six-month
period ending June 30, 1999 were net income of $3.5 million, $0.1 million for
amortization of debt issuance and financing costs and a net $3.2 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 $0.5 million. Cash flow provided by operating activities of
$6.3 million, cash released from escrow of $0.1 million, and $0.2 million of
cash on hand at the beginning of the period was primarily used to make partner
distributions of $6.1 million and lend $0.5 million to an affiliate.
Whitewater
The principal components of operating cash flow for the six-month
period ended June 30, 1999 were net income of $5.1 million and $0.4 million for
depreciation and amortization of debt issuance and financing costs, which were
partially offset by amortization of unearned lease income, net of minimum lease
payments received of $0.3 million and a net $0.6 million use of cash provided by
changes in other working capital assets and liabilities. Cash flow provided by
operating activities of $4.6 million and $0.1 million of cash released from
escrow was primarily used to fund $3.5 million in partner distributions and to
lend $0.6 million to an affiliate.
The $332,000,000 of proceeds received by Funding from the sale of the
Senior Secured Bonds were used by Funding to acquire (i) $155,000,000 of
Cottage Grove First Mortgage Bonds and (ii) $177,000,000 of Whitewater First
Mortgage Bonds. In addition to the proceeds of the First Mortgage Bonds, the
Partnerships each received equity contributions from TPC Cottage Grove and TPC
Whitewater in 1997, in the respective amounts of $18,167,000 for Cottage Grove
and $20,556,000 for Whitewater (the "Equity Contribution Amounts"). The net
proceeds from the sale of the Partnerships' First Mortgage Bonds and the Equity
Contribution Amounts together with other sources of funds available to the
Partnerships were used to: (i) finance the development, design, engineering,
construction, testing, inspection and start-up of the Facilities, (ii) pay
interest on the Partnerships' First Mortgage Bonds during construction and
(iii) maintain a debt service reserve fund as required by certain financing
documents (currently equal to $6,585,000 and $7,519,000 for Cottage Grove and
Whitewater, respectively). During the year ended December 31, 1998 and the
six-month period ended June 30, 1999, the Partnership has transferred the cash
required to be held in the debt service reserve fund to an affiliate of one of
the limited partners, Cogentrix Energy, Inc. The required funds are included on
the respective balance sheets as a Note Receivable from Affiliate. The
receivables are backed by an irrevocable letter of credit issued on behalf of
Cogentrix Energy.
As required by the financing documents, both Cottage Grove and
Whitewater have set aside certain funds to pay for project cost overruns,
including change orders to the construction contracts and any other reasonable
contingencies, during construction and through final completion of the
Facilities (the "Contingency Fund"). At June
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30, 1999, the balances of the Contingency Fund accounts were $1,426,000 for
Cottage Grove and $345,000 for Whitewater.
In addition to funds received through the acquisition of the First
Mortgage Bonds by Funding and through the Equity Contribution Amount, each
Partnership may each receive on its behalf certain letters of credit to be
issued pursuant to a letter of credit facility. 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 the letter of credit
facility to secure certain obligations of Cottage Grove under the Cottage Grove
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,
1999, no loans were outstanding under the working capital facilities.
The Partnerships expect that payments from the utilities under each of
their Power Purchase Agreements will provide the substantial majority of their
revenues. 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.
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
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 revenues 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 liquidate 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 of 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
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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
hedged against the risk of fluctuations in interest rates by arranging fixed
rate financing.
YEAR 2000 COMPLIANCE
The Partnerships continue to assess their readiness with the Year 2000
issue. The Partnerships' corporate business critical systems were Year 2000
compliant at June 30, 1999. They expect that all other business critical systems
such as embedded technology systems, business partners and vendor systems will
be Year 2000 compliant by the fourth quarter of 1999. Non-compliance with the
embedded technology systems, or business partner and vendor systems could result
in temporary shutdown of the facilities and equipment damage. The investigation,
analysis, remediation and contingency planning for the embedded technology at
the Facilities was completed before January 1, 1999. The investigation and
analysis identified no significant Year 2000 issues. The Partnerships'
facilities, as currently configured, require no action to be Year 2000
operational, but remediation is underway and scheduled for completion by
October, 1999 to address non-operational Year 2000 functions. The Partnerships
will continue to communicate with critical suppliers, vendors, joint venture
partners and major customers to assess their compliance efforts and the
Partnership's exposure to their efforts. The Partnerships have not incurred any
significant additional expenses related to the Year 2000 issue in the quarter
ended June 30, 1999. At this time, the Partnerships do not expect a major impact
from non-compliant Year 2000 suppliers, vendors, joint venture partners or major
customers. The Partnerships have developed contingency plans for all of the
critical systems. These plans were developed to address their most likely worse
case scenario, which is the inability of the Facilities to produce and
distribute power. These plans have been tested, and appear to be adequate.
Despite management's current expectations, the Facilities cannot guarantee that
no interruptions or other limitations of financial and operating system
functionality or that the Partnerships will not ultimately incur significant,
unplanned costs to avoid such interruptions or limitations.
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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.
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 (for
SEC use only)
27.2 Financial Data Schedule - LSP - Cottage Grove, L.P. (for SEC
use only)
27.3 Financial Data Schedule - LSP - Whitewater Limited
Partnership (for SEC use only)
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(a) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
(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
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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: Vice President and Assistant Treasurer
Date: August 16, 1999
LSP-COTTAGE GROVE, L.P.
By: LSP-Cottage Grove, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
------------------------------------
Name: Thomas F. Schwartz
Title: Vice President and Assistant Treasurer
Date: August 16, 1999
LSP-WHITEWATER LIMITED PARTNERSHIP
By: LSP-Whitewater I, Inc.
Its: General Partner
By: /s/ Thomas F. Schwartz
-----------------------------------
Name: Thomas F. Schwartz
Title: Vice President and Assistant Treasurer
Date: August 16, 1999
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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, 1999 (unaudited) and December 31, 1998 F-2
Statements of Income for the Three-Months and Six-Months Ended June 30, 1999
and 1998 (unaudited) F-3
Statements of Cash Flows for the Six-Months Ended June 30, 1999 and 1998 (unaudited) F-4
Notes to Condensed Financial Statements (unaudited) F-5
LSP-COTTAGE GROVE, L.P.
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 F-6
Statements of Income for the Three-Months and Six-Months Ended June 30, 1999
and 1998 (unaudited) F-7
Statements of Cash Flows for the Six-Months Ended June 30, 1999 and 1998 (unaudited) F-8
Notes to Condensed Financial Statements (unaudited) F-9
LSP-WHITEWATER LIMITED PARTNERSHIP
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 F-12
Statements of Income for the Three-Months and Six-Months Ended June 30, 1999
and 1998 (unaudited) F-13
Statements of Cash Flows for the Six-Months Ended June 30, 1999 and 1998 (unaudited) F-14
Notes to Condensed Financial Statements (unaudited) F-15
F-1
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LS POWER FUNDING CORPORATION
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
JUNE 30, DECEMBER 31,
1999 1998
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ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 1 $ 1
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
--------- ---------
Total assets $ 332,001 $ 332,001
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITY:
Senior Secured bonds payable $ 332,000 $ 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 $ 332,001 $ 332,001
========= =========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-2
14
LS POWER FUNDING CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
Interest income $ 6,472 $ 6,472 $ 12,943 $ 12,943
Interest expense 6,472 6,472 12,943 12,943
-------- -------- --------- ---------
Net income $ -- $ -- $ -- $ --
======== ======== ========= =========
Earnings Per Common Share $ 0 $ 0 $ 0 $ 0
======== ======== ========= =========
The accompanying notes to the financial statements are an integral part of
these statements.
F-3
15
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
SIX-MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES $ -- $ --
CASH PROVIDED BY INVESTING ACTIVITIES -- --
CASH PROVIDED BY FINANCING ACTIVITIES -- --
--------- ---------
NET INCREASE (DECREASE) IN CASH -- --
CASH, beginning of period 1 1
--------- ---------
CASH, end of period $ 1 $ 1
========= =========
The accompanying notes to the financial statements are an integral part of
these statements.
F-4
16
LS POWER FUNDING CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999 and the statements of income and
cash flows for the periods ended June 30, 1999 and 1998 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, 1999, and the results of its
operations and its cash flows for the periods ended June 30, 1999 and 1998.
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, 1998.
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 owns 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.
F-5
17
LSP-COTTAGE GROVE, L.P.
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
JUNE 30, DECEMBER 31,
1999 1998
----------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 693 $ 918
Restricted cash 7,690 7,827
Accounts receivable - trade 3,514 4,560
Accounts receivable - other 444 1,227
Fuel inventories 590 1,448
Fuel held for resale -- 401
Spare parts inventories 431 486
Other current assets 172 280
--------- ---------
Total current assets 13,534 17,147
NET INVESTMENT IN LEASE (Note 4) 236,098 235,566
DEBT ISSUANCE AND FINANCING COSTS, net of accumulated
amortization: June 30, 1999 (unaudited), $1,006;
December 31, 1998, $867 6,116 6,255
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 6,585 6,043
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
--------- ---------
Total assets $ 262,334 $ 265,012
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 298 $ 2,122
Retainage payable 5,443 5,443
Accrued expenses 2,045 243
--------- ---------
Total current liabilities 7,786 7,808
FIRST MORTGAGE BONDS PAYABLE 155,000 155,000
--------- ---------
Total liabilities 162,786 162,808
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 99,548 102,204
--------- ---------
Total liabilities and partners' capital $ 262,334 $ 265,012
========= =========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-6
18
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
OPERATING REVENUES:
Lease $ 5,312 $ 5,280 $ 10,618 $ 10,553
Service 5,501 4,953 10,976 9,020
Other 338 1,357 1,768 2,078
-------- -------- -------- --------
11,151 11,590 23,362 21,651
OPERATING EXPENSES:
Cost of services 6,924 6,846 14,127 12,018
-------- -------- -------- --------
OPERATING INCOME 4,227 4,744 9,235 9,633
NON-OPERATING INCOME (EXPENSE):
Interest expense (3,107) (3,087) (6,203) (6,174)
Interest income 217 281 421 608
-------- -------- -------- --------
Net income $ 1,337 $ 1,938 $ 3,453 $ 4,067
======== ======== ======== ========
The accompanying notes to the financial statements are an integral part of
these statements.
F-7
19
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
SIX-MONTHS ENDED JUNE 30,
----------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,453 $ 4,067
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of unearned lease income (10,618) (10,553)
Minimum lease payments received 10,086 9,804
Amortization of debt issuance and financing costs 139 131
Decrease in accounts receivable - trade 1,046 2,505
(Increase) decrease in accounts receivable - other 783 (212)
Decrease in fuel inventories 1,259 1,024
Decrease in spare parts inventories 55 126
(Increase) decrease in other current assets 108 (42)
Decrease in accounts payable (1,824) (1,268)
Increase in accrued expenses 1,802 1,022
-------- --------
Net cash flows provided by operating activities 6,289 6,604
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash 137 (2,617)
-------- --------
Net cash provided by (used in) investing activities 137 (2,617)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (6,109) (12,528)
Increase in receivable from affiliate (542) --
-------- --------
Net cash used in financing activities (6,651) (12,528)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (225) (8,541)
CASH AND CASH EQUIVALENTS, beginning of period 918 8,816
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 693 $ 275
======== ========
The accompanying notes to the financial statements are an integral part of
these statements.
F-8
20
LSP-COTTAGE GROVE, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999 and the statements of income and
cash flows for the periods ended June 30, 1999 and 1998 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, 1999, and the
results of its operations and its cash flows for the periods ended June 30,
1999 and 1998.
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,
1998.
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").
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include
unrestricted short-term investments with original maturities of three months or
less.
F-9
21
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to
be deposited into accounts administered by the trustee under the trust
indenture for the First Mortgage Bonds (the "Trustee"). The Trustee invests
funds held in these accounts at the direction of the Partnership. The funds are
invested in commercial paper, high grade government money market funds and
overnight repurchase obligations secured by U.S. Treasury Notes. The
investments are carried at cost, which approximated market at June 30, 1999 and
December 31, 1998. In addition, special accounts are established to provide for
debt service reserves and payments, and major maintenance reserves. Amounts held
by the Trustee in accounts designated for debt service, major maintenance and
construction, which might otherwise be considered cash equivalents, are treated
as restricted cash.
NOTE RECEIVABLE FROM AFFILIATE
At June 30, 1999, the Partnership had a note receivable from Cogentrix
Energy. The amount of the note receivable is equal to the amount of funds
required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the six-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
RETAINAGE PAYABLE
As of June 30, 1999 and December 31, 1998, the amount in retainage
payable represented construction costs due to Westinghouse Electric Corporation
and is eligible for payment from funds held by the Trustee, which are included
in restricted cash in the accompanying balance sheets.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
All of the electric capacity and energy generated by the Facility is
sold to the Utility under the Power Purchase Agreement. The Power Purchase
Agreement has characteristics similar to a lease in that the agreement confers
to the Utility the right to use specific property, plant and equipment. At the
Commercial Operations Date, the Partnership accounted for the Power Purchase
Agreement as a "sales-type" capital lease in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases" (see
Note 4).
LEASE REVENUE
Lease revenue represents the amortization of unearned income on the
lease using the effective interest rate method as well as contingent rentals
that result from changes in payment escalators occurring subsequent to the
Commercial Operations Date. These contingent rentals are not expected to
materially change the lease revenue recognized over the life of the Power
Purchase Agreement.
SERVICE REVENUE
Service revenue represents reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
OTHER REVENUES
Other revenues consist primarily of commodity sales of excess natural
gas fuel inventory, including amounts remarketed directly to third parties.
COST OF SERVICES
Cost of services represent expenses related to operating the Facility
and providing variable electric energy to the Utility as well as thermal energy
to the Steam Purchaser.
RECLASSIFICATION
Certain reclassifications have been made to the prior year's financial
statements to conform with the classification used in the financial statements
as of June 30, 1999, and for the three-months and six-months ended June 30,
1999.
F-10
22
4. SALES-TYPE CAPITAL LEASE
On the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $87.1 million reflecting the
difference between the estimated fair market value ($233.6 million) and the
historical cost ($146.5 million) of the Facility. The interest rate implicit in
the lease is 9.01%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at June 30,
1999 are as follows (dollars in thousands):
Gross Investment in Lease $ 537,721
Unearned Income on Lease (301,623)
----------
Net Investment in Lease $ 236,098
==========
Gross investment in lease represents total capacity payments
receivable over the term of the Power Purchase Agreement, net of executory
costs, which are considered minimum lease payments in accordance with SFAS No.
13.
F-11
23
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(dollars in thousands)
JUNE 30, DECEMBER 31,
1999 1998
---------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,762 $ 1,181
Restricted cash 6,154 6,289
Accounts receivable - trade 4,960 4,512
Accounts receivable - other 1,239 1,885
Fuel inventories 434 743
Spare parts inventories 583 641
Other current assets 723 552
--------- ---------
Total current assets 15,855 15,803
NET INVESTMENT IN LEASE (Note 4) 263,289 263,048
GREENHOUSE FACILITY, net 7,955 8,172
DEBT ISSUANCE AND FINANCE COSTS, net of accumulated
amortization: June 30, 1999 (unaudited), $1,049; December 31, 1998, $882 6,174 6,341
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 7,519 6,900
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
--------- ---------
Total assets $ 300,793 $ 300,265
========= =========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 463 $ 2,177
Retainage payable 5,587 5,587
Accrued expenses 2,071 1,386
--------- ---------
Total current liabilities 8,121 9,150
FIRST MORTGAGE BONDS PAYABLE 177,000 177,000
--------- ---------
Total liabilities 185,121 186,150
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 115,672 114,115
--------- ---------
Total liabilities and partners' capital $ 300,793 $ 300,265
========= =========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-12
24
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
THREE-MONTHS ENDED JUNE 30, SIX-MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
OPERATING REVENUES:
Lease $ 5,858 $ 5,839 $ 11,713 $ 11,673
Service 5,523 7,003 11,918 12,793
Greenhouse 1,427 1,421 1,427 1,421
Other 311 309 592 736
-------- -------- -------- --------
13,119 14,572 25,650 26,623
OPERATING EXPENSES:
Cost of services 6,064 7,493 12,856 14,320
Greenhouse operating expenses 881 875 1,077 1,050
-------- -------- -------- --------
6,945 8,368 13,933 15,370
OPERATING INCOME 6,174 6,204 11,717 11,253
NON-OPERATING INCOME (EXPENSE):
Interest expense (3,552) (3,517) (7,085) (7,034)
Interest and other income 241 248 470 545
-------- -------- -------- --------
Net income $ 2,863 $ 2,935 $ 5,102 $ 4,764
======== ======== ======== ========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-13
25
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTHS ENDED JUNE 30, 1999 AND 1998
(dollars in thousands)
SIX-MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,102 $ 4,764
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of unearned lease income (11,713) (11,673)
Minimum lease payments received 11,472 11,196
Amortization of debt issuance and financing costs 167 133
Depreciation 217 199
(Increase) decrease in accounts receivable - trade (448) 1,924
(Increase) decrease in accounts receivable - other 646 (440)
Decrease in fuel inventories 309 1,081
(Increase) decrease in spare parts inventories 58 (172)
Increase in other current assets (171) (103)
Decrease in accounts payable (1,714) (4,071)
Increase in accrued expenses 685 1,639
--------- ---------
Net cash provided by operating activities 4,610 4,477
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- (222)
Decrease in restricted cash 135 321
--------- ---------
Net cash provided by investing activities 135 99
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (3,545) (11,373)
Increase in receivable from affiliate (619) --
--------- ---------
Net cash used in financing activities (4,164) (11,373)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 581 (6,797)
CASH AND CASH EQUIVALENTS, beginning of period 1,181 7,749
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 1,762 $ 952
========= =========
The accompanying notes to the financial statements are an integral part of
these balance sheets.
F-14
26
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999 and the statements of income and
cash flows for the periods ended June 30, 1999 and 1998 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, 1999 and the
results of its operations and its cash flows for the periods ended June 30,
1999 and 1998.
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,
1998.
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 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").
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 (the "Greenhouse Facility") owned by the
Partnership (collectively, the "Steam Purchasers").
F-15
27
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash equivalents include
unrestricted short-term investments with original maturities of three months or
less.
RESTRICTED CASH
The majority of the revenue received by the Partnership is required to
be deposited into accounts administered by the trustee under the trust
indenture for the First Mortgage Bonds (the "Trustee"). The Trustee invests
funds held in these accounts at the direction of the Partnership. The funds are
invested in commercial paper, high grade government money market funds and
overnight repurchase obligations secured by U.S. Treasury Notes. The
investments are carried at cost, which approximated market at June 30, 1999 and
December 31, 1998. In addition, special accounts are established to provide for
debt service reserves and payments, and major maintenance reserves. Amounts held
by the Trustee in accounts designated for debt service, major maintenance and
construction, which might otherwise be considered cash equivalents, are treated
as restricted cash.
NOTE RECEIVABLE FROM AFFILIATE
At June 30, 1999, the Partnership had a note receivable from Cogentrix
Energy. The amount of the note receivable is equal to the amount of funds
required to be on deposit in the debt service reserve account. The note
receivable is backed by a letter of credit issued to the Partnership. The note
receivable bears interest at the six-month LIBOR rate plus 0.25%, and is due
December 15, 2016.
GREENHOUSE FACILITY
Depreciation on the Greenhouse Facility and related equipment is
computed using the straight-line method over 25 years and 10 years,
respectively.
RETAINAGE PAYABLE
As of June 30, 1999 and December 31,1998, the amount in retainage
payable represented construction costs due to Westinghouse Electric Corporation
and are eligible for payment from funds held by the Trustee, which are included
in restricted cash in the accompanying balance sheets.
COMMENCEMENT OF POWER PURCHASE AGREEMENT
The Partnership sells up to 236.5 megawatts of electric capacity and
associated energy generated by the Facility to the Utility pursuant to the
Power Purchase Agreement. The Power Purchase Agreement has characteristics
similar to a lease in that the agreement confers to the Utility the right to
use specific property, plant and equipment. At the Commercial Operations Date,
the Partnership accounted for the Power Purchase Agreement as a "sales-type"
capital lease in accordance with Statement of Financial Accounting Standards
("SFAS") No. 13, "Accounting for Leases" (see Note 4).
LEASE REVENUE
Lease revenue represents the amortization of unearned income on the
lease using the effective interest rate method as well as contingent rentals
that result from changes in payment escalators occurring subsequent to the
Commercial Operations Date. These contingent rentals are not expected to
materially change the lease revenue recognized over the life of the Power
Purchase Agreement.
SERVICE REVENUE
Service revenues represent reimbursement to the Partnership of costs
incurred to operate the Facility and to provide variable electric energy to the
Utility and thermal energy to the Steam Purchaser.
RECLASSIFICATION
Certain reclassifications have been made to the prior year's financial
statements to conform with the classification used in the financial statements
as of June 30, 1999, and for the three-months and six-months ended June 30,
1999.
F-16
28
COST OF SERVICES
Cost of services represent expenses related to operating the Facility
and providing variable electric energy to the Utility as well as thermal energy
to the Steam Purchaser.
4. SALES-TYPE CAPITAL LEASE
On the Commercial Operations Date of the Facility, the Partnership
recognized a gain on sales-type capital lease of $97.0 million reflecting the
difference between the estimated fair market value ($261.7 million) and the
historical cost ($164.7 million) of the Facility. The interest rate implicit in
the lease is 9.79%. The estimated residual value of the Facility at the end of
the lease term is $0. The components of the net investment in lease at June 30,
1999 are as follows (dollars in thousands):
Gross Investment in Lease $ 581,625
Unearned Income on Lease (318,336)
------------
Net Investment in Lease $ 263,289
============
Gross investment in lease represents total capacity payments
receivable over the term of the Power Purchase Agreement, net of executory
costs, which are considered minimum lease payments in accordance with SFAS No.
13.
F-17