10-Q 1 c66085e10-q.txt QUARTERLY REPORT United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: September 30, 2001 Commission File Number: 333-84609 333-84609-01 LSP Energy Limited Partnership LSP Batesville Funding Corporation (Exact name of registrant as specified in its charter) Delaware 22-3422042 Delaware 22-3615403 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 901 Marquette Avenue, Suite 2300 Minneapolis, MN 55402 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 373-5300 Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No ____ The Registrant meets the conditions set forth in general instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. Index -----

1 STATEMENTS OF INCOME LSP ENERGY LIMITED PARTNERSHIP (UNAUDITED)

See accompanying notes to consolidated financial statements. 2 BALANCE SHEETS LSP ENERGY LIMITED PARTNERSHIP (UNAUDITED)

See accompanying notes to consolidated financial statements. 3 BALANCE SHEETS LSP ENERGY LIMITED PARTNERSHIP (UNAUDITED)

See accompanying notes to consolidated financial statements. 4 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL LSP ENERGY LIMITED PARTNERSHIP (UNAUDITED)

See accompanying notes to consolidated financial statements. 5 STATEMENTS OF CASH FLOWS LSP ENERGY LIMITED PARTNERSHIP (UNAUDITED)

See accompanying notes to consolidated financial statements. 6 LSP ENERGY LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LSP Energy Limited Partnership (the "Partnership") is a Delaware limited partnership formed in February 1996 to develop, construct, own and operate a gas-fired electric generating facility with a design capacity of approximately 837 megawatts, located in Batesville, Mississippi (the "Facility"). The one percent general partner of the Partnership is LSP Energy, Inc. The 99% limited partner of the Partnership is LSP Batesville Holding LLC. The accompanying unaudited consolidated financial statements have been prepared in accordance with SEC regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accounting policies followed by the Partnership are set forth in Note 1 to the Partnership's financial statements in its annual report on Form 10-K for the year ended December 31, 2000 (Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Interim results are not necessarily indicative of results for a full year. In the opinion of management, the accompanying unaudited interim financial statements contain all material adjustments necessary to present fairly the consolidated financial position of the Partnership as of September 30, 2001 and December 31, 2000, the results of its operations for the three and nine months ended September 30, 2001 and 2000, and its cash flows for the nine months ended September 30, 2001 and 2000. 1 - BUSINESS DEVELOPMENT In January 2001, 49% of the Partnership was sold to NRG Energy, Inc. ("NRG"). In March 2001, the remaining 51% interest was sold to NRG. As of September 30, 2001, the assets and liabilities of the Partnership have not been adjusted to reflect the purchase accounting adjustments for the NRG acquisition. 2 - PROPERTY, PLANT AND EQUIPMENT, NET Property, Plant and Equipment consisted of:

3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES On January 1, 2001, the Partnership adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires the Company to record all derivatives on the balance sheet at fair value. Changes in the fair value of non-hedge derivatives will be immediately recognized in earnings. Changes in fair values of derivatives accounted for as hedges will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as a component of other accumulated comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. The Partnership also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in either the fair value or cash flows of the hedged item. When it is determined that a derivative ceases to be a highly effective hedge, the Partnership discontinues hedge accounting. There was no effect of SFAS No. 133 upon adoption on January 1, 2001 or during the nine months ended September 30, 2001. 7 STATEMENTS OF INCOME LSP BATESVILLE FUNDING CORPORATION (UNAUDITED)

See accompanying notes to consolidated financial statements. 8 BALANCE SHEETS LSP BATESVILLE FUNDING CORPORATION (UNAUDITED)

See accompanying notes to consolidated financial statements. 9 BALANCE SHEETS LSP BATESVILLE FUNDING CORPORATION (UNAUDITED)

See accompanying notes to consolidated financial statements. 10 STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT LSP BATESVILLE FUNDING CORPORATION (UNAUDITED)

See accompanying notes to consolidated financial statements. 11 STATEMENTS OF CASH FLOWS LSP BATESVILLE FUNDING CORPORATION (UNAUDITED)

See accompanying notes to consolidated financial statements. 12 LSP BATESVILLE FUNDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LSP Batesville Funding Corporation ("Funding") is a Delaware corporation established in August 1998. Funding's business purpose is limited to maintaining its organization and activities necessary to facilitate the acquisition of financing by the Partnership from the institutional debt market and to offer debt securities. On May 21, 1999, the Partnership and Funding issued two series of senior secured bonds. Funding is wholly owned by LSP Batesville Holding, LLC ("Holding"), a Delaware limited liability company. The accompanying unaudited consolidated financial statements have been prepared in accordance with SEC regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accounting policies followed by Funding are set forth in Note 1 to Funding's financial statements in its annual report on Form 10-K for the year ended December 31, 2000 (Form 10-K). The following notes should be read in conjunction with such policies and other disclosures in the Form 10-K. Interim results are not necessarily indicative of results for a full year. In the opinion of management, the accompanying unaudited interim financial statements contain all material adjustments necessary to present fairly the consolidated financial position of Funding as of September 30, 2001 and December 31, 2000, the results of its operations for the three and nine months ended September 30, 2001 and 2000, and its cash flows for the nine months ended September 30, 2001 and 2000. 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition is omitted per conditions as set forth in General Instructions H (1) (a) and (b) of Form 10-Q for wholly owned subsidiaries. It is replaced with management's narrative analysis of the results of operations as permitted by General Instructions H (2) (a) of Form 10-Q for wholly owned subsidiaries (reduced disclosure format). This analysis will primarily compare the Partnership's revenue and expense items for the three and nine months ended September 30, 2001 with the three and nine months ended September 30, 2000. Funding has nominal assets, and does not conduct any operations, and therefore will be excluded from this analysis. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 OPERATING REVENUES For the nine months ended September 30, 2001, the Partnership had total revenues of $39.8 million. The Partnership had revenues of $8.8 million for the period ended September 30, 2000, as commercial operations did not begin until August 2000. The majority of revenues for the period consist of capacity sales under long-term agreements. OPERATING COSTS AND EXPENSES Operating costs were $6.6 million for the nine months ended September 30, 2001, which is a decrease of $2.2 million, or 25.4% over the same period in 2000. Operating costs represented approximately 16.5% of revenues for the nine months ended September 30, 2001. Operating costs consisted of expenses for fuel, and plant operations and maintenance. The decrease in such costs is primarily attributable to a reduction in the operations of the generating facilities in comparison to the same period in the prior year. DEPRECIATION Depreciation costs were $10.7 million for the nine months ended September 30, 2001, which is an increase of $8.7 million, or 421.2% over the same period in 2000. The increase is due to the plant becoming operational in August 2000. The depreciation expense was primarily related to the acquisition costs of the power generation facility, which is being depreciated over thirty years. Depreciation represents 27.0 % of revenues for the nine months ended September 30, 2001. INTEREST EXPENSE Interest expense for the nine months ended September 30, 2001 was $19.2 million, representing an increase of $15.7 million over the same period in 2000. The increase in interest expense is due to the discontinuance of interest capitalization. Interest expense was capitalized as a component of construction in progress until July 2000. 14 RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2001 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 2000 OPERATING REVENUES For the quarter ended September 30, 2001, the Partnership had total revenues of $14.8 million compared to $8.8 million for the quarter ended September 30, 2000. The increase can be attributed to commercial operations not beginning until August 2000. OPERATING COSTS AND EXPENSES Operating costs were $2.3 million for the quarter ended September 30, 2001, which is a decrease of $5.2 million, or 69.4% over the same period in 2000. Operating costs represented approximately 15.4% of revenues for the quarter ended September 30, 2001. Operating costs consisted of expenses for fuel, and plant operations and maintenance. The decrease in such costs is primarily attributable to a reduction in the operations of the generating facilities in comparison to the same period in the prior year. DEPRECIATION Depreciation costs were $3.6 million for the quarter ended September 30, 2001, which is an increase of $1.5 million or 73.9% over the same period in 2000. The increase is due to the plant becoming operational in August of 2000. The depreciation expense was primarily related to the acquisition costs of the power generation facility, which is being depreciated over thirty years. Depreciation represents 24.2% of revenues for the quarter ended September 30, 2001. INTEREST EXPENSE/INCOME Interest expense for the quarter ended September 30, 2001 was $6.3 million, representing an increase of $3.1 million over the same period in 2000. The increase in interest expense is due to the discontinuance of interest capitalization. Interest expense was capitalized as a component of construction in progress until July 2000. NEW ACCOUNTING PRONOUNCEMENTS BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS In July 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase method of accounting be used for all business combinations subsequent to June 30, 2001 and specifies criteria for recognizing intangible assets acquired in a business combination. SFAS 142 requires that goodwill and intangible 15 assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Intangible assets with definite useful lives will continue to be amortized over their respective estimated useful lives. The Company has adopted the provisions of SFAS 141 effective July 1, 2001 and plans to adopt the provisions of SFAS 142 effective January 1, 2002. The Company does not expect that the implementation of these guidelines will have a material impact on its consolidated financial position or results of operations. 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no pending material legal proceedings to which the Partnership or Funding is a party or to which any of the Partnership's or Funding's property is subject. 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS None (B) REPORTS ON FORM 8-K: On May 15, 2001, the Partnership and Funding filed a Form 8-K reporting under Item 4 - Change in Registrant's Certifying Accountants: The Partnership and Funding announced their termination of KPMG LLP as principal independent accountants and their engagement of PricewaterhouseCoopers LLP as their new principal independent accountants as of May 9, 2001. 18 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The information presented in this Form 10-Q includes forward-looking statements in addition to historical information. These statements involve known and unknown risks and relate to future events, or projected business results. In some cases forward-looking statements may be identified by their use of such words as "may," "expects," "plans," "anticipates," "believes," and similar terms. Forward-looking statements are only predictions, and actual results may differ materially from the expectations expressed in any forward-looking statement. While the Partnership and Funding believes that the expectations expressed in such forward-looking statements are reasonable, we can give no assurances that these expectations will prove to have been correct. In addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements, factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, among others, the following: o Economic conditions including inflation rates and monetary exchange rate fluctuations; o Trade, monetary, fiscal, taxation, and environmental policies of governments, agencies and similar organizations in geographic areas where we have a financial interest; o Customer business conditions including demand for their products or services and supply of labor and materials used in creating their products and services; o Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and similar entities with regulatory oversight; o Availability or cost of capital such as changes in: interest rates; market perceptions of the power generation industry, the Partnership and Funding or any of its subsidiaries; or security ratings; o Factors affecting power generation operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages, maintenance or repairs; unanticipated changes to fossil fuel, or gas supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints; o Employee workforce factors including loss or retirement of key executives, collective bargaining agreements with union employees, or work stoppages; o Volatility of energy prices in a deregulated market environment; o Increased competition in the power generation industry; o Cost and other effects of legal and administrative proceedings, settlements, investigations and claims; o Technological developments that result in competitive disadvantages and create the potential for impairment of existing assets; o Factors associated with various investments including competition, operating risks, dependence on certain suppliers and customers, and environmental and energy regulations; Other business or investment considerations that may be disclosed from time to time in our Securities and Exchange Commission filings or in other publicly disseminated written documents. The Partnership and Funding undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause the Partnership's and Funding's actual results to differ materially from those contemplated in any forward-looking statements included in this Form 10-Q should not be construed as exhaustive. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LSP Energy Limited Partnership (Registrant) By: LSP Energy, Inc., its general partner /s/ Craig A. Mataczynski --------------------------------------- Craig A. Mataczynski, President /s/ Brian B. Bird ---------------------------------------- Brian B. Bird, Treasurer (Principal Financial Officer) LSP Batesville Funding Corporation (Registrant) /s/ Craig A. Mataczynski ---------------------------------------- Craig A. Mataczynski, President /s/ Brian B. Bird ---------------------------------------- Brian B. Bird, Treasurer (Principal Financial Officer) Date: November 14, 2001 -------------------- 20

LSP ENERGY LTD PARTNERSHIP 10-Q