10-Q/A 1 0001.txt Page 1 of 10 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report under Section 13 or 15(d) Of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2000 Commission File Number: 333-79619 WEST PENN FUNDING LLC (Exact name of registrant as specified in its charter) 2325B-2 Renaissance Drive, Las Vegas, NV 89119 Telephone Number - (702) 895-6752 Delaware 25-1843349 State of Incorporation) I.R.S. Employer Identification No.) 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 3 months and (2) has been subject to such filing requirements for the past 90 days. West Penn Funding LLC (the Registrant) is a Delaware limited liability company, whose sole member is West Penn Funding corporation. - 2 - THE WEST PENN FUNDING LLC Form 10-Q for Quarter Ended March 31, 2000 Index Page PART I--FINANCIAL INFORMATION: No. Statement of Income - Three months ended March 31, 2000 3 Statement of Cash Flows - Three months ended March 31, 2000 4 Balance Sheet - March 31, 2000 And December 31, 1999 5 Notes to Financial Statements 6 - 9 Management's Discussion and Analysis of Financial Condition and Results or Operations 10 PART II--OTHER INFORMATION: - 3 - WEST PENN FUNDING LLC Statement of Income (Thousands of Dollars) Three Months Ended March 31, 2000 Revenues: Intangible transition charges..........................$25,505 Interest income........................................ 152 Total Revenues....................................... 25,657 Operating Expenses: Amortization of intangible transition property......... 14,733 Interest expense....................................... 10,217 Amortization of debt issuance costs.................... 260 Administrative and general expense..................... 336 Total operating expenses............................... 25,546 Operating income..................................... 111 Income tax expense....................................... 48 Net income...............................................$ 63 STATEMENT OF MEMBER'S EQUITY Balance at January 1, 2000...............................$ 3,031 Add: Net income ............................................ 63 Balance at March 31......................................$ 3,094 See accompanying notes to financial statements. - 4- WEST PENN FUNDING LLC Statement of Cash Flows (Thousands of Dollars) Three Months Ended March 31, 2000 Cash Flows from Operations: Net income ............................................$ 63 Amortization of intangible transition property......... 14,733 Changes in certain current assets and liabilities: Unamortized debt issuance expenses................... (908) Accounts receivable from parent...................... (4,940) Restricted funds..................................... 2,995 Interest accrued .................................... (4,504) Taxes accrued........................................ 48 Accounts payable to parent........................... 692 8,179 Cash Flows from Financing: Repayment of transition bonds.......................... (8,628) (8,628) Net Change in Cash and Temporary Cash Investments........ ( 449) Cash and Temporary Cash Investments at January 1......... 1,003 Cash and Temporary Cash Investments at March 31..........$ 554 Supplemental Cash Flow Information Cash paid during the period for: Interest.............................................$14,720 Income taxes.........................................$ 0 See accompanying notes to financial statements. - 5 - WEST PENN FUNDING LLC Balance Sheet (Thousands of Dollars) March 31, December 31, 2000 1999 ASSETS Current Assets: Cash and temporary cash investments.......$ 554 $ 1,003 Accounts receivable from parent........... 12,414 7,474 Restricted funds.......................... 11 3,006 Intangible transition property............ 54,946 52,779 67,925 64,262 Noncurrent Assets: Intangible transition property............ 522,939 539,838 Unamortized debt issuance expense......... 5,360 4,453 528,299 544,291 Total.......................................$596,224 $608,553 LIABILITIES AND MEMBER'S EQUITY Current Liabilities: Long-term debt due within one year........$ 56,284 $ 49,734 Accounts payable to parent................ 1,325 633 Federal and state income taxes accrued.... 52 4 Interest accrued.......................... 440 4,944 58,101 55,315 Long-term debt, net of discount............. 535,029 550,207 Member's Equity ............................ 3,094 3,031 Total.......................................$596,224 $608,553 See accompanying notes to financial statements. - 6 - NOTES TO FINANCIAL STATEMENTS 1. Interim Financial Statements The Company's Notes to Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 1999 should be read with the accompanying financial statements and the following notes. With the exception of the December 31, 1999 balance sheet in the aforementioned annual report on Form 10-K, the accompanying financial statements appearing on pages 3 through 5 and these notes to financial statements are unaudited. In the opinion of the Company, such financial statements together with these notes contain all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the Company's financial position as of March 31, 2000 and the results of operations and cash flows for the three months ended March 31, 2000. 2. Nature of Operations West Penn Funding LLC (the Company) is a Delaware limited liability company whose sole member is West Penn Funding Corporation, a wholly owned subsidiary of West Penn Power Company (West Penn). The Company was organized in May 1999, for the sole purpose of purchasing and owning Intangible Transition Property (ITP), issuing transition bonds (the Bonds), pledging its interest in ITP and other collateral to the Trustee under an Indenture between the Company and the Trustee to collateralize the Bonds, and performing activities necessary to accomplish these purposes. The Company's organizational documents require it to operate in a manner so that its assets would not be consolidated with the bankruptcy estate of West Penn or West Penn Funding Corporation in the event the West Penn or West Penn Funding Corporation becomes subject to a bankruptcy proceeding. The ITP represents the irrevocable right of West Penn, or its successor or assignee, to collect a non-bypassable Intangible Transition Charge (ITC) from customers pursuant to the Qualified Rate Order issued November 19, 1998, and supplemented by order dated August 12, 1999, by the Pennsylvania Public Utility Commission (PUC) in accordance with the Pennsylvania Electricity Generation Customer Choice Order and Competition Act enacted in Pennsylvania in December 1996. The Qualified Rate Order authorized West Penn to securitize up to $670 million of its stranded costs. West Penn, or any assignee of West Penn to whom ITP is sold, may issue and sell, in reliance on the Qualified Rate Order, one or more series of the Bonds, each series in one or more classes, secured by ITP. The Company acquired the ITP and issued the Bonds in November 1999. The principal amount of the Bonds, interest, fees, and funding of the Overcollateralization Subaccount will be recovered through ITC payable by retail customers of electricity within West Penn's service territory who receive electricity delivery service from West Penn. In November 1999, the Company acquired ITP from West Penn Funding Corporation and issued $600 million of Bonds, Series 1999-A, Class A-1 through Class A-4. The Company used the proceeds of the issuance of the Bonds to pay expenses of issuance and the purchase the ITP from West Penn Funding Corporation. - 7 - The source of repayment for the Bonds is the ITC. West Penn as Servicer collects this non-bypassable charge from its retail customers of electricity and deposits ITC monthly collections into the General Subaccount maintained by the Trustee under the Indenture. Each quarter, the Trustee uses these funds to make principal and interest payments on the Bonds and to pay fees, costs and charges specified in the Indenture. The Reserve Subaccount held by the Trustee consists of remaining funds available after required allocations on the quarterly payment dates. The Overcollateralization Subaccount held by the Trustee will be funded ratably from collections of ITC over the term of each series of 1999-A Bonds and is expected to reach 0.5% of the initial principal balance. The Capital Subaccount held by the Trustee was initially funded by a contribution to West Penn Funding LLC by West Penn Funding Corporation on the date of issuance of each series of Bonds in an amount equal to 0.5% of the initial principal amount of the Bonds. The Capital Subaccount is the last account the Trustee will draw if amounts available in the General Subaccount, Reserve Subaccount, and the Overcollateralization Subaccount are insufficient to make payments specified in the Indenture. If the Capital Subaccount is used, it will be replenished from the ITC remittances to its original level through the periodic reconciliation process. The Company has no employees. West Penn, as Servicer under the Servicing Agreement, is required to manage, service, administer and make collections of the ITP. The Servicing Agreement also requires West Penn, as Servicer, to file requests for annual adjustments to the ITC, and the Competition Act and the Qualified Rate Order require the PUC to act upon these requests within specified time periods. These adjustment requests are based on actual ITC collections and updated assumptions by the Servicer as to projected future use of electricity by customers, expected delinquencies and write-offs, and future payments and expenses relating to the ITP and the Bonds. The Servicer has not yet filed any such adjustment request. 3. Summary of Significant Accounting Policies Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosures of contingencies during the reporting period. Actual results could differ from these estimates. Cash and Temporary Cash Investments For purposes of the statement of cash flows, temporary cash investments with original maturities of three months or less, generally in the form of commercial paper, certificates of deposit, and repurchase agreements, are considered to be the equivalent of cash. Restricted Funds In November 1999, the Company deposited an amount equal to 0.5% of the initial principal amount of the Bonds into the Capital Subaccount held by the Trustee (Bankers Trust Company, a New York banking corporation). This account is the last account drawn if amounts available in the General Subaccount, Reserve Subaccount, and the Overcollateralization Subaccount are insufficient to make payments specified in the Indenture. If the Capital Subaccount is used, it will be replenished from the ITC remittances to its original level through the periodic reconciliation process. - 8 - Accordingly, the Capital Subaccount is classified as Restricted Funds on the Balance Sheet. On March 27, 2000, the Trustee was required to withdraw $3.0 million from the Capital Subaccount to make principal payments on the Bonds. Revenue The Company records ITC in the period billed to customers by the Servicer and interest income earned on the Capital Subaccount maintained by the Trustee. Amortization of Intangible Transition Property The ITP is amortized over the life of the Bonds, based on ITC revenues, interest accruals and other fees. Amortization of Debt Issuance Costs and Discount on Debt The costs associated with the issuance of the Bonds are amortized over the life of the Bonds utilizing the effective interest method. Income Taxes The Company joins with its Parents and affiliates in filing a consolidated federal income tax return. The consolidated tax liability is allocated among the participants generally in proportion to the taxable income of each participant, except that no subsidiary pays tax in excess of its separate return tax liability. 4. Long-Term Debt In November 1999, the Company issued $600.0 million of Series 1999-A Bonds. The Company used the proceeds from the Bonds to purchase ITP from West Penn Funding Corporation. The ITP and other assets of the Company collateralize the Bonds. Scheduled maturities and interest rates for the Bonds at March 31, 2000 are: Initial Class Expected Final Final Class Bond Rate Principal Payment Date Maturity Date Balance ($Thousands) A-1 6.320% $65,372 June 25, 2001 June 25, 2003 A-2 6.630% 172,000 December 26, 2003 December 26, 2005 A-3 6.810% 198,000 September 25, 2006 September 25, 2008 A-4 6.980% 156,000 June 25, 2008 December 26, 2008 Total $591,372 Current Maturities (56,284) Unamortized Discount (59) Long-term Debt $535,029 - 9 - The current maturities stated above are based on the expected final payment dates rather than the final maturity dates. 5. Significant Agreements and Related Party Transactions Under the Servicing Agreement, West Penn is required to manage and administer the ITP of the Company and to collect the ITC on behalf of the Company. The Company will pay a maximum annual service fee of $1.25 million to West Penn. For the three month period ended March 31, 2000, the Company recorded servicing fees of $0.31 million. At March 31, 2000, the Balance Sheet includes a receivable from West Penn of approximately $12.4 million for ITC collections. The Balance Sheet also includes a payable to West Penn of approximately $1.33 million for servicing fees and debt issuance costs it incurred for the Bonds. - 10 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Information This management's discussion and analysis of financial condition and results of operations contains forecast information items that are "forward- looking statements" as defined in the Private Securities Litigation Reform Act of 1995. All such forward-looking information is necessarily only estimated. There can be no assurance that actual results will not materially differ from expectations. Factors that could cause actual results to differ materially from those described in forward-looking statements include, among other matters, ongoing state and federal activities, developments in legislative, regulatory, and competitive environments, regulatory changes, future economic conditions, and other circumstances such as weather that could affect anticipated revenues and costs. Review of Operations The Company is a Delaware limited liability company whose sole member is West Penn Funding Corporation, a wholly owned subsidiary of West Penn. In November 1999, the Company issued the Bonds and transferred the proceeds in exchange for all rights, title and interest in the ITP from West Penn Funding Corporation. The principal amount of the Bonds, interest, fees, and funding of the Overcollateralization Subaccount will be recovered through ITC payable by retail consumers of electricity within West Penn's service territory who receive electric delivery service from West Penn. The Trustee made the first quarterly payment of Bond principal, interest and all related expenses on the scheduled payment date of March 27, 2000. ITC collections were sufficient to pay interest and a portion of the scheduled principal payment on the Bonds. However, due to the lag in ITC billed by West Penn to its customers and collections from customers during the implementation of the ITC, the Trustee was required to withdraw $3.0 million from the Capital Subaccount and principal payments were $1.5 million less than scheduled. This shortfall does not constitute an Event of Default under the Indenture. The Company currently anticipates that there will be sufficient ITC collection going-forward to pay interest and the scheduled principal payments on the Bonds, once the ITC implementation issues are resolved. Under the Competition Act and the Qualified Rate Order, withdrawals from the Capital Subaccount must be replenished by increases in the ITC. Under the Servicing Agreement, West Penn, as Servicer, intends to file a request for an adjustment to the ITC with the PUC on October 1, 2000 to produce additional revenues sufficient to replenish the Capital Subaccount prior to the December 2001 quarterly payment date. The adjustment will go into effect on January 1, 2001. - 11 - THE WEST PENN FUNDING LLC Part II - Other Information to Form 10-Q/A for Quarter Ended March 31, 2000 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: (27) Financial Data Schedule (b) No reports on Form 8-K were filed on behalf of the company for the quarter ended March 31, 2000. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST PENN FUNDING LLC /s/ KEITH L. WARCHOL, TREASURER Keith L. Warchol, Treasurer (Principal Financial Officer and Principal Accounting Officer) May 30, 2000