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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 September 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 (I.R.S. Employer
incorporation or organization) 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 (I.R.S. Employer
incorporation or organization) 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 SEPTEMBER 30, 1999
PART I
Page
Item 1. Condensed Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 3
PART II
Item 6. Exhibits and Reports on Form 8-K 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, Inc. ("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
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the net 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 10.0% for the third quarter
of 1999 as compared to the third quarter of 1998. This decrease was primarily
the result of a decrease in service revenue. The decrease in service revenue
resulted from a decrease in megawatt hours sold to the purchasing utility. The
decrease in operating revenues was also the result of a decrease in other
revenue resulting from a decrease in gas sold to a related party.
Operating revenues increased approximately 1.3% for the nine-months
ended September 30, 1999 as compared to the first nine months of 1998. This
increase was primarily a result of an increase in megawatt hours sold to the
purchasing utility. This increase was partially offset by a decrease in other
revenue resulting from a decrease in gas sold to a related party.
Cost of services decreased approximately 17.4% for the third quarter of
1999 as compared to the third quarter of 1998. This decrease in cost of services
is primarily attributable to a decrease in fuel costs, a major component of cost
of services. Fuel costs were down as the result of a decrease in megawatts sold
to the purchasing utility during the third quarter of 1999.
Cost of services increased approximately 4.0% for the nine-months ended
September 30, 1999 as compared to the first nine months of 1998. This was
primarily the result of an increase in variable operating expenses related to
the increase in the number of production starts made by the facility. Variable
expense is directly related to the number of production starts incurred by the
facility. The increase in cost of services was partially offset by lower fuel
costs as a result of lower fuel prices in the first nine months of 1999 as
compared to the first nine 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.
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Whitewater
Operating revenues increased approximately 5.4% for the third quarter
of 1999 as compared to the third quarter of 1998. This increase was primarily
the result of an increase in service revenue. The increase in service revenue
resulted from an increase in the variable energy rate charged to the purchasing
utility. These increases were partially offset by a decrease in megawatt hours
sold to the utility.
Operating revenues remained fairly consistent for the nine-months ended
September 30, 1999 as compared to the corresponding period of 1998. Although
megawatt hours produced by the facility for the nine-months ended September 30,
1999 were lower than the corresponding period of 1998, the variable energy rate
was higher for the nine-months ended September 30, 1999 than the corresponding
period of 1998 which offset the decrease in megawatt hours.
Cost of services increased approximately 1.4% for the third quarter of
1999 as compared to the third quarter of 1998. This increase is primarily the
result of an increase in variable operating expenses due to an increase in the
number of production starts made by the facility.
Cost of services decreased 6.5% for the nine-months ended September 30,
1999 as compared to the corresponding period of 1998. The decrease is primarily
attributable to a decrease in fuel expense as result of a decrease in megawatt
hours sold to the purchasing utility and a decrease in gas prices. The decrease
in fuel expense was partially offset by increased variable operating costs
resulting from the number of production starts made by the facility.
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, some nonmaterial modifications were made to the Cottage Grove
construction contract and some 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,
various extensions of certain warranty periods and certain financial
concessions. As of September 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.
In November 1999, Cottage Grove and the Contractor, with the
concurrence of the independent engineer, reached a final agreement regarding the
settlement of all outstanding issues and obligations of Cottage Grove and the
Contractor pursuant to the Cottage Grove construction contract. The final
settlement of the construction contract provides for a payment to the
Contractor of approximately $1,043,000 from funds available in Cottage Grove's
construction retainage account. The Contractor has also agreed to extend various
warranty periods and perform various repairs and inspections. Cottage Grove, in
turn, acknowledged that final acceptance shall have been deemed to have
occurred. The value of the existing letter of credit provided in lieu of cash
retainage will be reduced from $5,443,000 to $2,500,000. The remaining value of
this letter of credit will be decreased in stages as the Contractor successfully
completes the agreed upon inspections and additional work.
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, some nonmaterial modifications
were made to the Whitewater construction contract and some guarantees were
deferred until final completion, which allowed the Contractor to achieve
substantial completion and Whitewater to commence
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commercial operation. In addition, the Contractor committed to future
modifications in the Whitewater Facility's construction, various extensions of
some warranty periods and financial concessions. As of September 30, 1999,
Whitewater had retained construction contract payments (in the form of cash and
an irrevocable letter of credit) totaling approximately $11,174,000.
In November 1999, Whitewater and the Contractor, with the concurrence
of the independent engineer, reached a final agreement regarding the settlement
of all outstanding issues and obligations of Whitewater and the Contractor
pursuant to the Whitewater construction contract. The final settlement of the
construction contract provides for a payment to the Contractor of approximately
$2,987,000 from funds available in Whitewater's construction retainage account.
The Contractor has also agreed to extend various warranty periods and perform
various repairs and inspections. Whitewater, in turn, acknowledged that final
acceptance shall have been deemed to have occurred. The value of the existing
letter of credit provided in lieu of cash retainage will be reduced from
$5,587,000 to $2,500,000. The remaining value of this letter of credit will be
decreased in stages as the Contractor successfully completes various agreed upon
inspections and additional work.
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 nine-month
period ending September 30, 1999 were net income of $5.7 million, $0.2 million
for amortization of debt issuance and financing costs, and a net $4.4 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 $0.8 million. Cash flow provided by operating
activities of $9.5 million and $0.4 million of cash on hand at the beginning of
the period was primarily used to make partner distributions of $6.1 million,
fund escrow of $3.3 million and to lend $0.5 million to an affiliate.
Whitewater
The principal components of operating cash flow for the nine-month
period ended September 30, 1999 were net income of $7.7 million and $0.6 million
for depreciation and amortization of debt issuance and financing costs, and a
net of $3.3 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 $0.4 million. Cash flow
provided by operating activities of $11.2 million was primarily used to fund
$3.8 million in partner distributions, fund escrow of $6.8 million 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
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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 nine-month period ended September 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.
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 September 30, 1999, the balances of the
Contingency Fund accounts were $1,426,000 for Cottage Grove and $345,000 for
Whitewater. The entire balance of the Contingency Fund accounts will be released
and available for distribution in the fourth quarter of 1999 since the Cottage
Grove and Whitewater Facilities have reached final completion.
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
the requirements of the Partnerships specified under various project agreements.
Cottage Grove has issued a $500,000 letter of credit under the letter of credit
facility to secure various 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 September 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. Capacity payments
received under the Power Purchase Agreements 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 retest limitations specified in the Facilities
respective Power Purchase Agreement. Also, capacity payments for each Facility
are subject to rebate or reduction if the respective Facility does not maintain
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.
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As with any power generation facility, operation of the Facilities will
involve some 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. As a result, the ability of a Partnership to make
payments of the amounts necessary to fund principal of and interest on its First
Mortgage Bonds would, in turn, be threatened and, 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 insurance applicable to covered risks may not be
adequate to cover a Facility's lost revenues or increased expenses. In addition,
extended unavailability under the Power Purchase Agreements, which may result
from one or more of the events described above, 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 have completed their investigation, analysis,
remediation and contingency planning for their business critical systems, as
well as their embedded technology systems for their mission critical facilities.
The investigation and analysis identified no significant Year 2000 issues. The
Partnerships will continue to communicate with critical suppliers, vendors,
joint venture partners and major customers to assess their compliance efforts
and their exposure to their efforts. The Partnerships have not incurred any
significant additional expenses related to the Year 2000 issue in the quarter
ended September 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 the 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 the Partnerships current expectations, the Partnerships cannot guarantee
that no interruptions or other limitations of financial and operating system
functionality will occur or that the Partnerships will not ultimately incur
significant, unplanned costs to avoid 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. (4)
3.5 Certificate of Limited Partnership of LSP-Whitewater Limited
Partnership (1)
3.6 Amended and Restated Partnership Agreement dated as of June 30, 1995
among LSP-Whitewater I, Inc., Granite Power Partners, L.P. and TPC
Whitewater, Inc. (1)
3.6.1 Consent, Waiver and Amendment No. 1 dated March 20, 1998 to the Amended
and Restated Limited Partnership Agreement of LSP-Whitewater Limited
Partnership (3)
3.6.2 Second Amendment, dated December 11, 1998, to the Amended and Restated
Limited Partnership Agreement of LSP-Whitewater Limited Partnership (3)
4.1 Trust Indenture dated as of May 1, 1995 by and among LS Power Funding
Corporation and IBJ Schroder Bank & Trust Company, as Trustee, with
respect to the Senior Secured Bonds (as Supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among LS Power
Funding Corporation and IBJ Schroder Bank & Trust Company, as Trustee
(1)
4.2 Trust Indenture dated as of May 1, 1995 by and among LSP-Cottage Grove,
L.P. and IBJ Schroder Bank & Trust Company, as Trustee with respect to
the Cottage Grove First Mortgage Bonds (as supplemented by the First
Supplemental Indenture dated as of May 1, 1995 by and among LSP-Cottage
Grove, L.P. and IBJ Schroder Bank & Trust Company, as Trustee) (1)
4.3 Trust and Indenture dated as of May 1, 1995 by and among LSP-Whitewater
Limited Partnership and IBJ Schroder Bank & Trust Company, as Trustee,
with respect to the Whitewater First Mortgage Bonds (as supplemented by
the First Supplemental Indenture dated as of May 1, 1995 by and among
LSP-Whitewater Limited Partnership and IBJ Schroder Bank & Trust
Company, as Trustee) (1)
4.4 Registration Rights Agreement dated as of June 30, 1995 by and among
Chase Securities, Inc., Morgan Stanley & Co. Incorporated, LS Power
Funding Corporation, LSP-Cottage Grove, L.P., and LSP-Whitewater
Limited Partnership (1)
4.5 Form of Senior Secured Bond (included in Exhibit 4.1) (1)
4.6 Form of Cottage Grove First Mortgage Bond (included in Exhibit 4.2) (1)
4.7 Form of Whitewater First Mortgage Bond (included in Exhibit 4.3) (1)
27.1 Financial Data Schedule - LS Power Funding Corporation
27.2 Financial Data Schedule - LSP - Cottage Grove, L.P.
27.3 Financial Data Schedule - LSP - Whitewater Limited Partnership
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by this
report.
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(1) Incorporated herein by reference to the Registration Statement on Form
S-4 (File No. 33-95928) filed by LS Power Funding Corporation,
LSP-Cottage Grove, L.P. and LSP-Whitewater Limited Partnership on
August 16, 1995, as amended, or to the Form 10-K (File No. 33-95928)
filed for the fiscal year ended December 31, 1995 by LS Power Funding
Corporation, LSP-Cottage Grove, L.P. and LSP-Whitewater Limited
Partnership.
(2) Incorporated herein by reference to the Form 10-Q (File No. 33-95928)
filed August 14, 1996.
(3) Incorporated herein by reference to the Form 10-K (File No. 33-95928)
filed April 15, 1998.
(4) Incorporated herein by reference to the Form 10-K (File No. 33-95928)
filed March 31, 1999.
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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: November 15, 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: November 15, 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: November 15, 1999
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LS POWER FUNDING CORPORATION
LSP-COTTAGE GROVE, L.P.
LSP-WHITEWATER LIMITED PARTNERSHIP
FINANCIAL STATEMENT INDEX
Page
LS POWER FUNDING CORPORATION
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 F-2
Statements of Income for the Three-Months and Nine-Months Ended September 30,
1999 and 1998 (unaudited) F-3
Statements of Cash Flows for the Nine-months Ended September 30, 1999 and 1998 (unaudited) F-4
Notes to Condensed Financial Statements (unaudited) F-5
LSP-COTTAGE GROVE, L.P.
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 F-6
Statements of Income for the Three-Months and Nine-Months Ended September 30,
1999 and 1998 (unaudited) F-7
Statements of Cash Flows for the Nine-Months Ended September 30, 1999 and 1998 (unaudited) F-8
Notes to Condensed Financial Statements (unaudited) F-9
LSP-WHITEWATER LIMITED PARTNERSHIP
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 F-12
Statements of Income for the Three-Months and Nine-Months Ended
September 30, 1999 and 1998 (unaudited) F-13
Statements of Cash Flows for the Nine-Months Ended September 30, 1999 and 1998 (unaudited) F-14
Notes to Condensed Financial Statements (unaudited) F-15
F-1
13
LS POWER FUNDING CORPORATION
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(dollars in thousands)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 1 $ 1
Interest receivable on First Mortgage Bonds 6,472 --
INVESTMENT IN FIRST MORTGAGE BONDS 332,000 332,000
------------- ------------
Total assets $ 338,473 $ 332,001
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITY - Interest payable on Senior Secured Bonds $ 6,472 $ --
SENIOR SECURED BONDS PAYABLE 332,000 332,000
------------- ------------
Total liabilities $ 338,472 $ 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 $ 338,473 $ 332,001
============= ============
The accompanying notes to the condensed 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 NINE-MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(dollars in thousands)
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1999 1998 1999 1998
------ ------ ------- -------
Interest income $6,472 $6,472 $19,415 $19,415
Interest expense 6,472 6,472 19,415 19,415
------ ------ ------- -------
Net income $ -- $ -- $ -- $ --
====== ====== ======= =======
Earnings per common share $ -- $ -- $ -- $ --
====== ====== ======= =======
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-3
15
LS POWER FUNDING CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine-Months Ended September 30, 1999 and 1998
(dollars in thousands)
NINE-MONTHS ENDED
SEPTEMBER 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 condensed 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 September 30, 1999 and the statements of income and
cash flows for the periods ended September 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 September 30, 1999, and the results of
its operations and its cash flows for the periods ended September 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
September 30, 1999 and December 31, 1998
(dollars in thousands)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 496 $ 918
Restricted cash 11,114 7,827
Accounts receivable - trade 3,246 4,560
Accounts receivable - other 444 1,227
Fuel inventories 860 1,448
Fuel held for resale 1,196 401
Spare parts inventories 441 486
Other current assets 205 280
------------- ------------
Total current assets 18,002 17,147
NET INVESTMENT IN LEASE (Note 4) 236,373 235,566
DEBT ISSUANCE AND FINANCING COSTS, net of accumulated
amortization: September 30, 1999 (unaudited), $1,075;
December 31, 1998, $867 6,047 6,255
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 6,585 6,043
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
------------- ------------
Total assets $ 267,008 $ 265,012
============= ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 55 $ 2,122
Retainage payable 5,443 5,443
Accrued expenses 4,754 243
------------- ------------
Total current liabilities 10,252 7,808
FIRST MORTGAGE BONDS PAYABLE 155,000 155,000
------------- ------------
Total liabilities 165,252 162,808
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 101,756 102,204
------------- ------------
Total liabilities and partners' capital $ 267,008 $ 265,012
============= ============
The accompanying notes to the condensed 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 Nine-Months Ended September 30, 1999 and 1998
(dollars in thousands)
Three-Months Ended Nine-Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- ---------
OPERATING REVENUES:
Lease $ 5,318 $ 5,289 $ 15,936 $ 15,842
Service 5,238 6,276 16,214 15,296
Other 725 976 2,493 3,054
-------- -------- -------- ---------
11,281 12,541 34,643 34,192
OPERATING EXPENSES:
Cost of services 6,242 7,559 20,369 19,577
-------- -------- -------- ---------
OPERATING INCOME 5,039 4,982 14,274 14,615
NON-OPERATING INCOME (EXPENSE):
Interest expense (3,116) (3,065) (9,319) (9,239)
Interest income 286 253 707 861
-------- -------- -------- ---------
Net income $ 2,209 $ 2,170 $ 5,662 $ 6,237
======== ======== ======== ========
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-7
19
LSP-COTTAGE GROVE, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine-Months Ended September 30, 1999 and 1998
(dollars in thousands)
Nine-Months Ended
September 30,
-----------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,662 $ 6,237
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of unearned lease income (15,936) (15,842)
Minimum lease payments received 15,129 14,706
Amortization of debt issuance and financing costs 208 196
Decrease in accounts receivable - trade 1,314 285
Decrease in accounts receivable - other 783 2,433
(Increase) decrease in fuel inventories (207) 93
Decrease in spare parts inventories 45 126
(Increase) decrease in other current assets 75 (68)
Decrease in accounts payable (2,067) (2,395)
Increase in accrued expenses 4,511 4,746
-------- --------
Net cash flows provided by operating activities 9,517 10,517
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (3,287) (6,289)
-------- --------
Net cash used in investing activities (3,287) (6,289)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (6,110) (12,528)
Increase in receivable from affiliate (542) --
-------- --------
Net cash used in financing activities (6,652) (12,528)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (422) (8,300)
CASH AND CASH EQUIVALENTS, beginning of period 918 8,816
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 496 $ 516
======== ========
The accompanying notes to the condensed 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 September 30, 1999 and the statements of income
and cash flows for the periods ended September 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 September 30, 1999,
and the results of its operations and its cash flows for the periods ended
September 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 September 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 September 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 collateral agent. The
note receivable bears interest at the nine-month LIBOR rate plus 0.25%, and is
due December 15, 2016.
RETAINAGE PAYABLE
As of September 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.
F-10
22
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 September 30, 1999, and for the three-months and nine-months ended
September 30, 1999.
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 September
30, 1999 are as follows (dollars in thousands):
Gross Investment in Lease $ 532,674
Unearned Income on Lease (296,301)
---------
Net Investment in Lease $ 236,373
=========
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.
5. SUBSEQUENT EVENT
In November 1999, Cottage Grove and the Contractor, with the
concurrence of the independent engineer, reached a final agreement regarding the
settlement of all outstanding issues and obligations of Cottage Grove and the
Contractor pursuant to the Cottage Grove construction contract. The final
settlement of the construction contract provides for a payment to the Contractor
of approximately $1,043,000 from funds available in Cottage Grove's construction
retainage account. The Contractor has also agreed to extend various warranty
periods and perform repairs and inspections. Cottage Grove, in turn,
acknowledged that final acceptance shall have been deemed to have occurred.
F-11
23
LSP-WHITEWATER LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(dollars in thousands)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,108 $ 1,181
Restricted cash 13,084 6,289
Accounts receivable - trade 3,932 4,512
Accounts receivable - other 1,288 1,885
Fuel inventories 327 693
Fuel held for resale 614 50
Spare parts inventories 617 641
Other current assets 583 552
------------- ------------
Total current assets 21,553 15,803
NET INVESTMENT IN LEASE (Note 4) 263,413 263,048
GREENHOUSE FACILITY, net 7,845 8,172
DEBT ISSUANCE AND FINANCE COSTS, net of accumulated
amortization: September 30, 1999 (unaudited),
$1,135; December 31, 1998, $882 6,088 6,341
NOTE RECEIVABLE FROM AFFILIATE (Note 3) 7,519 6,900
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1 1
------------- ------------
Total assets $ 306,419 $ 300,265
============= ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 197 $ 2,177
Retainage payable 5,587 5,587
Accrued expenses 5,698 1,386
------------- ------------
Total current liabilities 11,482 9,150
FIRST MORTGAGE BONDS PAYABLE 177,000 177,000
------------- ------------
Total liabilities 188,482 186,150
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL 117,937 114,115
------------- ------------
Total liabilities and partners' capital $ 306,419 $ 300,265
============= ============
The accompanying notes to the condensed 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 Nine-Months Ended September 30, 1999 and 1998
(dollars in thousands)
Three-Months Ended Nine-Months Ended
September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- ---------
OPERATING REVENUES:
Lease $ 5,860 $ 5,845 $ 17,573 $ 17,518
Service 6,852 6,426 18,770 19,219
Greenhouse 344 109 1,771 1,530
Other 215 214 807 950
-------- -------- -------- ---------
13,271 12,594 38,921 39,217
OPERATING EXPENSES:
Cost of services 6,878 6,782 19,734 21,102
Greenhouse operating expenses 476 103 1,553 1,153
-------- -------- -------- ---------
7,354 6,885 21,287 22,255
-------- -------- -------- ---------
OPERATING INCOME 5,917 5,709 17,634 16,962
NON-OPERATING INCOME (EXPENSE):
Interest expense (3,557) (3,517) (10,642) (10,551)
Interest and other income 200 155 670 700
-------- -------- -------- ---------
Net income $ 2,560 $ 2,347 $ 7,662 $ 7,111
======== ======== ======== ========
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-13
25
LSP-WHITEWATER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine-Months Ended September 30, 1999 and 1998
(dollars in thousands)
Nine-Months Ended
September 30,
-----------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,662 $ 7,111
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of unearned lease income (17,573) (17,518)
Minimum lease payments received 17,208 16,794
Amortization of debt issuance and financing costs 253 200
Depreciation 327 208
Decrease in accounts receivable - trade 580 319
Decrease in accounts receivable - other 597 559
(Increase) decrease in fuel inventories (198) 413
(Increase) decrease in spare parts inventories 24 (188)
(Increase) decrease in other current assets (31) 243
Decrease in accounts payable (1,980) (5,376)
Increase in accrued expenses 4,312 6,613
-------- --------
Net cash provided by operating activities 11,181 9,378
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment -- (184)
Increase in restricted cash (6,795) (4,363)
-------- --------
Net cash used in investing activities (6,795) (4,547)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner distributions (3,840) (11,373)
Increase in receivable from affiliate (619) --
-------- --------
Net cash used in financing activities (4,459) (11,373)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (73) (6,542)
CASH AND CASH EQUIVALENTS, beginning of period 1,181 7,749
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,108 $ 1,207
======== ========
The accompanying notes to the condensed financial statements
are an integral part of these statements.
F-14
26
LSP-WHITEWATER LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENTS
The balance sheet as of September 30, 1999 and the statements of income
and cash flows for the periods ended September 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 September
30, 1999 and the results of its operations and its cash flows for the periods
ended September 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 (the "Steam Purchaser") and
in the form of hot water to a greenhouse owned by the Partnership (the
"Greenhouse Facility").
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 September 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 September 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 collateral agent. The
note receivable bears interest at the nine-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 September 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.
F-16
28
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 September 30, 1999, and for the three-months and nine-months ended
September 30, 1999.
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 September
30, 1999 are as follows (dollars in thousands):
Gross Investment in Lease $ 575,893
Unearned Income on Lease (312,480)
---------
Net Investment in Lease $ 263,413
=========
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.
5. SUBSEQUENT EVENT
In November 1999, Whitewater and the Contractor, with the concurrence
of the independent engineer, reached a final agreement regarding the settlement
of all outstanding issues and obligations of Whitewater and the Contractor
pursuant to the Whitewater construction contract. The final settlement of the
construction contract provides for a payment to the Contractor of approximately
$2,987,000 from funds available in Whitewater's construction retainage account.
The Contractor has also agreed to extend various warranty periods and perform
repairs and inspections. Whitewater, in turn, acknowledged that final acceptance
shall have been deemed to have occurred.
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