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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Mirant Corporation
(Exact name of registrant as specified in its charter)
Delaware 001-16107 58-2056305
------------------------------ -------------------------- -------------------
(State or other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification No.)
1155 Perimeter Center West, Suite 100, Atlanta, Georgia 30338
--------------------------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
(678) 579-5000
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
----------
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 shorter 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 number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, at April 30, 2001, was 339,483,434.
Mirant Corporation
INDEX
March 31, 2001
Page
Number
DEFINITIONS 3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION 4
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements (Unaudited):
Consolidated Statements of Income 5
Consolidated Balance Sheets 6
Consolidated Statements of Stockholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to the Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 35
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 37
Item 2. Changes in Securities and Use of Proceeds Inapplicable
Item 3. Defaults Upon Senior Securities Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders Inapplicable
Item 5. Other Information 39
Item 6. Exhibits and Reports on Form 8-K 40
Signatures 41
2
DEFINITIONS
TERM MEANING
----- -------
Bewag Bewag AG
BP Amoco BP Amoco, plc
CAISO California Independent System Operator
Capital Funding Southern Company Capital Funding, Inc.
CEMIG Companhia Energetica de Minas Gerais
Clean Air Act Clean Air Act Amendments of 1990
CPUC California Public Utilities Commission
CSFB Credit Suisse First Boston
Energy Act Energy Policy Act of 1992
EPA U. S. Environmental Protection Agency
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Hyder Hyder Limited
RMR Reliability-Must-Run
SEC Securities and Exchange Commission
Mirant Americas Energy Marketing Mirant Americas Energy Marketing, L. P.
Mirant Americas Generation Mirant Americas Generation, Inc.
Mirant or the Company Mirant Corporation and its subsidiaries
Mirant California Mirant California, LLC
Mirant Delta Mirant Delta, LLC
Mirant Potrero Mirant Potrero, LLC
PEPCO Potomac Electric Power Company
PX California Power Exchange Corporation
SE Finance SE Finance Capital Corporation
SFAS Statement of Financial Accounting Standards
Southern Southern Company
WPD Western Power Distribution
WPD Holdings WPD Holdings UK
WPDL WPD Limited
3
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, Mirant's future financial
performance or projected business results. In some cases, forward-looking
statements by terminology may be identified by statements such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "targets," "potential" or "continue" or the negative of these terms
or other comparable terminology.
Forward-looking statements are only predictions. Actual events or results
may differ materially from any forward-looking statement as a result of various
factors, which include: (i) legislative and regulatory initiatives regarding
deregulation, regulation or restructuring of the electric utility industry; (ii)
the extent and timing of the entry of additional competition in the markets of
Mirant's subsidiaries and affiliates; (iii) Mirant's pursuit of potential
business strategies, including acquisitions or dispositions of assets or
internal restructuring; (iv) state, federal and other rate regulations in the
United States and in foreign countries in which Mirant's subsidiaries and
affiliates operate; (v) changes in or application of environmental and other
laws and regulations to which Mirant and its subsidiaries and affiliates are
subject; (vi) political, legal and economic conditions and developments in the
United States and in foreign countries in which Mirant's subsidiaries and
affiliates operate; (vii) financial market conditions and the results of
Mirant's financing efforts; changes in market conditions, commodity prices and
interest rates; weather and other natural phenomena; (viii) performance of
Mirant's projects undertaken and the success of efforts to invest in and develop
new opportunities; (ix) unanticipated developments in the California power
markets, including, but not limited to, unanticipated governmental intervention,
deterioration in the financial condition of counterparties, default on
receivables due, adverse results in current or future litigation and adverse
changes in the tariffs of the California Power Exchange Corporation or
California Independent System Operator Corporation, and (x) other factors,
discussed elsewhere herein and in other reports (including Mirant's Form 10-K
filed April 23, 2001 and Form S-1 filed September 27, 2000) filed from time to
time by Mirant with the SEC.
Although Mirant believes that the expectations reflected in the
forward-looking statements are reasonable, Mirant cannot guarantee future
results, events, levels of activity, performance or achievements. Mirant does
not undertake a duty to update any of the forward-looking statements.
4
MIRANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2001 2000
------------- -------------
(in millions, except
per share data)
Operating Revenues: $ 8,182 $ 519
------------- -----------
Operating Expenses:
Cost of fuel, electricity and other products 7,381 155
Maintenance 28 30
Depreciation and amortization 88 83
Selling, general and administrative 325 30
Other 81 52
------------- -----------
Total operating expenses 7,903 350
------------- -----------
Operating Income 279 169
------------- -----------
Other Income (Expense):
Interest income 50 38
Interest expense (143) (146)
Equity in income of affiliates 79 27
Other, net 16 6
------------- -----------
Total other income (expense) 2 (75)
------------- -----------
Income From Continuing Operations Before
Income Taxes and Minority Interest 281 94
Provision (Benefit) for Income Taxes 92 (31)
Minority Interest 14 30
------------- -----------
Income From Continuing Operations 175 95
------------- -----------
Income from Discontinued Operations, Net
of Tax Benefit of $3 and $20 for 2001
and 2000, respectively 5 6
------------- -----------
Net Income $ 180 $ 101
============= ===========
Earnings Per Share:
Basic (Pro forma for 2000):
From continuing operations $ 0.52 $ 0.28
From discontinued operations 0.01 0.02
------------- -----------
Net income $ 0.53 $ 0.30
============= ===========
Diluted (Pro forma for 2000):
From continuing operations $ 0.51 $ 0.27
From discontinued operations 0.01 0.02
------------- -----------
Net income $ 0.52 $ 0.29
============= ===========
The accompanying notes are an integral part of these consolidated statements.
5
MIRANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At March 31,
2001 At December 31,
ASSETS: (Unaudited) 2000
------------------- ---------------------
(in millions)
Current Assets:
Cash and cash equivalents $ 1,377 $ 1,280
Receivables:
Customer accounts, less provision for uncollectibles
of $164 and $72 for 2001 and 2000, respectively 2,455 3,399
Other, less provision for uncollectibles
of $11 and $22 for 2001 and 2000, respectively 919 629
Notes receivable 420 365
Assets from risk management activities (Note E) 2,915 2,678
Derivative hedging instruments (Notes A, B and E) 315 -
Deferred income taxes 566 275
Other 495 526
------------------- ---------------------
Total current assets 9,462 9,152
------------------- ---------------------
Property, Plant and Equipment:
Property, plant and equipment 3,992 3,648
Less accumulated provision for depreciation (271) (228)
------------------ ---------------------
3,721 3,420
Leasehold interest, net of accumulated amortization
of $236 and $216 for 2001 and 2000, respectively 1,827 1,843
Construction work in progress 661 418
------------------- ---------------------
Total property, plant and equipment, net 6,209 5,681
------------------- ---------------------
Noncurrent Assets:
Investments (Note F) 1,746 1,797
Notes and other receivables, less provision for uncollectibles
of $47 and $49 for 2001 and 2000, respectively 139 213
Notes receivables from related party - 979
Assets from risk management activities (Note E) 1,021 1,230
Goodwill, net of accumulated amortization
of $207 and $184 for 2001 and 2000, respectively 3,282 3,292
Other intangible assets, net of accumulated amortization
of $44 and $34 for 2001 and 2000, respectively 720 738
Investment in leveraged leases - 596
Derivative hedging instruments (Notes A, B and E) 147 -
Deferred income taxes 432 334
Miscellaneous deferred charges 113 124
------------------- ---------------------
Total noncurrent assets 7,600 9,303
------------------- ---------------------
Total assets $ 23,271 $ 24,136
=================== =====================
The accompanying notes are an integral part of these consolidated statements.
6
MIRANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At March 31,
2001 At December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY: (Unaudited) 2000
------------------- ---------------------
(in millions)
Current Liabilities:
Short-term debt $ 2,292 $ 1,289
Current portion of long-term debt 1,013 201
Accounts payable 3,249 4,240
Taxes accrued 342 216
Liabilities from risk management activities (Note E) 2,758 2,899
Obligations under energy delivery commitments 688 790
Derivative hedging instruments (Notes A, B and E) 867 -
Other 95 140
------------------- ---------------------
Total current liabilities 11,304 9,775
------------------- ---------------------
Noncurrent Liabilities:
Subsidiary obligated mandatorily redeemable preferred securities (Note G) - 950
Notes payable 3,978 5,206
Other long-term debt 456 390
Liabilities from risk management activities (Note E) 793 906
Deferred income taxes 82 53
Obligations under energy delivery commitments 1,585 1,514
Derivative hedging instruments (Notes A, B and E) 179 -
Miscellaneous deferred credits 319 307
------------------- ---------------------
Total noncurrent liabilities 7,392 9,326
------------------- ---------------------
Preferred Stock held by Southern Company - 242
Minority Interest in Subsidiary Companies 298 312
Company Obligated Mandatorily Redeemable Securities of a
Subsidiary Holding Solely Parent Company Debentures 345 345
Commitments and Contingent Matters (Notes H and J)
Stockholders' Equity:
Common stock, $.01 par value, per share
Authorized -- 2,000,000,000 shares
Issued -- March 31, 2001: 338,724,679 shares;
-- December 31, 2000: 338,701,000 shares 3 3
Additional paid-in capital 4,096 4,084
Accumulated other comprehensive income (loss) (508) (117)
Retained earnings 341 166
------------------- ---------------------
Total stockholders' equity 3,932 4,136
------------------- ---------------------
Total liabilities and stockholders' equity $ 23,271 $ 24,136
=================== =====================
The accompanying notes are an integral part of these consolidated statements.
7
MIRANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Comprehensive
Stock Capital Earnings Income (Loss) Income (Loss)
--------------- -------------- --------------- ------------------- -------------------
(in millions)
Balance, December 31, 2000 $ 3 $ 4,084 $ 166 $ (117) -
Net income - - 180 - $ 180
Other comprehensive loss - - - (391) (391)
-------------------
Comprehensive loss - - - - $ (211)
===================
Dividends and return of capital - - (5) -
Capital contributions - 12 - -
--------------- -------------- --------------- -------------------
Balance, March 31, 2001 $ 3 $ 4,096 $ 341 $ (508)
=============== ============== =============== ===================
The accompanying notes are an integral part of these consolidated statements.
8
MIRANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2001 2000
----------------- -----------------
(in millions)
Cash Flows from Operating Activities:
Net income $ 180 $ 101
----------------- -----------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in income of affiliates (76) (21)
Depreciation and amortization 92 85
Write-down of assets 3 4
Deferred income taxes 86 36
Minority interest 14 30
Other, net 16 (13)
Changes in certain assets and liabilities, excluding effects from acquisitions:
Receivables, net 778 (80)
Risk management activities, net (273) -
Obligations under energy delivery commitments (32) -
Other current assets 68 5
Accounts payable (1,028) (42)
Taxes accrued 137 3
Other current liabilities (31) (79)
Other (61) (42)
----------------- -----------------
Total adjustments (307) (114)
----------------- -----------------
Net cash used in operating activities (127) (13)
----------------- -----------------
Cash Flows from Investing Activities:
Capital expenditures (260) (89)
Cash paid for acquisitions (201) -
Issuance of notes receivable (62) (4)
Repayments on notes receivable 52 88
Disposal of Southern Company affiliates (Note G) (77) -
Property insurance proceeds - 14
Dividends received from equity investments 16 5
Other - (1)
----------------- -----------------
Net cash provided by (used in) investing activities (532) 13
----------------- -----------------
Cash Flows from Financing Activities:
Payment of dividends to Southern Company - (5)
Payment of dividends to minority interests (1) -
Proceeds from issuance of short-term debt, net 884 23
Proceeds from issuance of long-term debt 75 95
Repayment of long-term debt (220) (36)
----------------- -----------------
Net cash provided by financing activities 738 77
----------------- -----------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 18 -
----------------- -----------------
Net Increase in Cash and Cash Equivalents 97 77
Cash and Cash Equivalents, beginning of period 1,280 323
----------------- -----------------
Cash and Cash Equivalents, end of period $ 1,377 $ 400
================= =================
Supplemental Cash Flow Disclosures:
Cash paid for interest, net of amounts capitalized $ 201 $ 204
Cash paid for income taxes $ 48 $ 2
Business Acquisitions:
Fair value of assets acquired $ 552 $ -
Less cash paid 201 -
----------------- -----------------
Liabilities assumed $ 351 $ -
================= =================
The accompanying notes are an integral part of these consolidated statements.
9
MIRANT CORPORATION
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting and Reporting Policies
Basis of Accounting. These interim financial statements should be read in
conjunction with the Company's audited 2000 consolidated financial statements
and the accompanying footnotes which are contained in the Company's annual
report on Form 10-K for the year ended December 31, 2000. Management believes
that the accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring items, necessary for a fair
statement of results for the interim periods presented. The results for interim
periods are not necessarily indicative of the results for the entire year.
Accounting Change. Effective January 1, 2001, Mirant adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
hedging activities. The statement requires that certain derivative instruments
be recorded in the balance sheet as either assets or liabilities measured at
fair value, and that changes in the fair value be recognized currently in
earnings, unless specific hedge accounting criteria are met. If the derivative
is designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
currently in earnings. If the derivative is designated as a cash flow hedge, the
changes in the fair value of the derivative are recorded in other comprehensive
income ("OCI"), and the gains and losses related to these derivatives are
recognized in earnings in the same period as the settlement of the underlying
hedged transaction. If the derivative is designated as a net investment hedge,
the changes in the fair value of the derivative are also recorded in OCI. Any
ineffectiveness relating to these hedges is recognized currently in earnings.
The assets and liabilities related to derivative instruments for which hedge
accounting criteria is met are reflected as derivative hedging instruments in
the accompanying consolidated balance sheet at March 31, 2001.
The adoption of SFAS No. 133 resulted in a cumulative after-tax reduction
to OCI of $310 million, and is mostly attributable to deferred losses on cash
flow hedges. During the twelve month period ending December 31, 2001, the
Company expects to reclassify $105 million of the $310 million, after-tax loss
from OCI into earnings. The derivative gains and losses reclassified to earnings
are expected to be offset by realized gains and losses arising from the
settlement of the underlying physical transaction being hedged.
Concentration of Revenues. For the three months ended March 31, 2001,
revenues earned from Enron Corporation through the energy marketing and risk
management operation approximated 14% of the Company's total revenues. For the
three months ended March 31, 2000, revenues earned under the Company's long-term
power sales agreements with the Philippines' National Power Corporation
approximated 24% of the Company's total revenues.
B. Comprehensive Income (Loss)
Comprehensive income includes unrealized gains and losses on certain
derivatives which qualify as cash flow hedges and hedges of net investments, as
well as the translation effects of foreign net investments. The following table
sets forth the comprehensive loss for the three months ended March 31, 2001 (in
millions):
Net income $ 180
Other comprehensive loss (391)
-------
Comprehensive loss $ (211)
=======
10
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accumulated other comprehensive loss for the three months ended March 31,
2001 consisted of the following (in millions):
Balance, December 31, 2000 $ (117)
Other comprehensive loss for the period:
Transitional adjustment from adoption of SFAS No. 133 (310)
Change in fair value of derivative instruments, net of tax (129)
Reclassification to earnings, net of tax 75
Cumulative translation adjustment, net of tax (32)
Share of affiliates OCI, net of tax 5
------
Other comprehensive loss (391)
-------
Balance, March 31, 2001 $ (508)
=======
The adoption of SFAS No. 133 resulted in a cumulative after-tax reduction
to OCI of $310 million, and is mostly attributable to deferred losses on cash
flow hedges used for commodity price management.
Mirant estimates that $274 million of net derivative after-tax losses
included in OCI as of March 31, 2001 will be reclassified into earnings or
otherwise settled within the next twelve months as certain forecasted
transactions relating to commodity contracts, foreign denominated contracts and
interest payments become realized. Included in this net $274 million amount is
$280 million of derivative after-tax losses related to physical forward power
sales and purchases that the Company has entered into in order to hedge its
North American generation. The fair value of these contracts represents the
difference between the prices at which the Company has contracted to sell
electricity and the forward market prices as of March 31, 2001. Because the
Company expects to generate the physical power to satisfy these commodity
contracts, it will not be required to purchase power at market prices to meet
its power sales commitment. Thus, the amounts currently included in OCI related
to these contracts represent the "opportunity cost" of hedging its generation
and these amounts are not expected to ultimately result in realized losses.
Mirant anticipates that SFAS No. 133 will increase the volatility of other
comprehensive income as derivative instruments are valued based on market
prices. Therefore, as market prices change, the change in fair value of the
derivatives will change. For additional information on the adoption of SFAS No.
133, see Notes A and E.
C. Earnings Per Share
Mirant calculates basic earnings per share by dividing the income available
to common stockholders by the weighted average number of common shares
outstanding. The following table shows the computation of basic earnings per
share for the three months ended March 31, 2001 and 2000 (in millions, except
per share data) after giving effect to the stock split that occurred prior to
the offering of common stock during 2000. Diluted earnings per share for 2001
gives effect to stock options, as well as the assumed conversion of convertible
trust preferred securities and related interest expense addback to net income of
approximately $4 million. The Company had no potentially dilutive securities
outstanding during the first quarter of 2000.
Pro forma earnings per share for the three months ended March 31, 2000
below gives effect to the Company's public offering of shares as though it had
occurred for all periods, as well as the conversion of the Company's standard
value creation plan ("VCP") units, the grant of new stock options and issuance
of convertible trust preferred securities as though potentially dilutive for all
11
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
periods. Net income has been increased by less than $1 million to take into
account the stock appreciation right ("SAR") conversion for the three month
period ended March 31, 2000.
Pro Forma For
For the Three Months the Three Months
Ended March 31, Ended March 31,
2001 2000 2000
---- ---- ----
Income from continuing operations $ 175 $ 95 $ 95
Discontinued operations 5 6 6
-------- ------- --------
Net income $ 180 $ 101 $ 101
======== ======= ========
Basic
Weighted average shares outstanding 338.7 272.0 338.7
Earnings per share from:
Continuing operations $ 0.52 $ 0.35 $ 0.28
Discontinued operations 0.01 0.02 0.02
-------- ------- --------
Net income $ 0.53 $ 0.37 $ 0.30
======== ======= ========
Diluted
Weighted average shares outstanding 338.7 272.0 338.7
Shares assumed due to conversion of
stock options and equivalents 2.9 - 1.0
Shares assumed due to conversion of
trust preferred securities 12.5 - 12.5
----- ----- -----
Adjusted shares 354.1 272.0 352.2
===== ===== =====
Earnings per share from:
Continuing operations $ 0.51 $ 0.35 $ 0.27
Discontinued operations 0.01 0.02 0.02
-------- ------- --------
Net income $ 0.52 $ 0.37 $ 0.29
======== ======= ========
D. Debt
As of March 31, 2001, sources of liquidity included the April 1999 $450
million Citibank credit facility C, the June 2000 $1.0 billion Bank of America
credit facility, the August 2000 $100 million Wachovia letter of credit facility
and the September 2000 $650 million CSFB credit facility. The Company repaid
$200 million under the original $650 million facility, reducing its availability
to $450 million. The $350 million Citibank credit facility B expired on March
30, 2001. Mirant's existing facilities and cash position, along with existing
credit facilities at its subsidiaries and others currently being arranged to
finance construction costs and fund working capital , are expected to provide
sufficient liquidity for new investments, working capital and capital
expenditures, including letters of credit, through 2001. As of March 31, 2001,
Mirant borrowed $363 million under the September $650 million CSFB credit
facility and $718 million under the June 2000 Bank of America credit facility.
Mirant also issued letters of credit totaling $407 million and $97 million under
the April 1999 $450 million Citibank credit facility and the August 2000 $100
million Wachovia letter of credit facility, respectively.
12
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In February 2001, Mirant Americas Energy Marketing amended its existing
line-of-credit facility to reduce its borrowing capacity by $30 million to $150
million. The facility bears interest based on the London Interbank Offering Rate
plus a variable spread based on Mirant Americas Energy Marketing's credit rating
at the date of the borrowing, payable monthly. The Company had $125 million in
outstanding borrowings under this line-of-credit facility at a weighted average
interest rate of 5.55% at March 31, 2001.
On February 9, 2001, Mirant Trinidad Investments issued $73 million of
senior notes due 2006. The proceeds were used to repay an intercompany note for
$71 million owed to Mirant.
E. Financial Instruments
Risk Management Activities
Mirant provides risk management services associated with the energy
industry to its customers in the North American and European markets. These
services are provided through a variety of exchange-traded energy contracts,
forward contracts, futures contracts, option contracts and financial swap
agreements.
These contractual commitments are presented as risk management assets and
liabilities in the accompanying consolidated balance sheet and are accounted for
using the mark-to-market method of accounting. Accordingly, they are reflected
at fair value in the accompanying consolidated balance sheet.
The marketing operations engage in risk management activities. All such
transactions and related expenses are recorded on a trade-date basis. Financial
instruments and contractual commitments utilized in connection with these
activities are accounted for using the mark-to-market method of accounting.
Under the mark-to-market method of accounting, financial instruments and
contractual commitments, including derivatives used for these purposes, are
recorded at fair value. The determination of fair value considers various
factors, including closing exchange or over-the-counter ("OTC") market price
quotations, time value and volatility factors underlying options and contractual
commitments.
The volumetric weighted average maturities at March 31, 2001 were 3.9 years
and 2.4 years for the North American portfolio and European portfolio,
respectively. The net notional amount of the risk management assets and
liabilities at March 31, 2001 was approximately 6.8 million equivalent
megawatt-hours. The notional amount is indicative only of the volume of activity
and not of the amount exchanged by the parties to the financial instruments.
Consequently, these amounts are not a measure of market risk.
The volumetric weighted average maturities at March 31, 2001 were 3.9 years
and 2.4 years for the North American portfolio and European portfolio,
respectively. The net notional amount of the risk management assets and
liabilities at March 31, 2001 was approximately 6.8 million equivalent
megawatt-hours. The notional amount is indicative only of the volume of activity
and not of the amount exchanged by the parties to the financial instruments.
Consequently, these amounts are not a measure of market risk.
13
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
In addition, certain financial instruments used by the Company to manage
risk exposure to energy prices do not meet the hedge criteria under SFAS No.
133. Therefore, the fair values of these instruments are included in risk
management assets and risk management liabilities. The fair values of the North
American and European risk management assets and liabilities recorded in the
consolidated balance sheet as of March 31, 2001 are included in the following
table (in millions):
Risk Management
Assets Liabilities
------- -----------
Energy commodity instruments:
Electricity $1,789 $1,704
Natural gas 1,953 1,661
Crude oil 83 83
Other 111 103
Total $3,936 $3,551
Derivative Hedging Instruments
Mirant uses derivative instruments to manage exposures arising from changes
in interest rates, commodity prices and foreign currency exchange. The Company's
objectives for holding derivatives are to minimize the risks using the most
effective methods to eliminate or reduce the impacts of these exposures.
Derivative gains and losses arising from cash flow hedges that are included
in OCI are reclassified into earnings in the same period as the settlement of
the underlying transaction. During the three months ended March 31, 2001, $133
million of pre-tax derivative losses was reclassified to operating income, $1
million of pre-tax derivative losses was reclassified to interest expense, and
$8 million of pre-tax derivative gains was reclassified to other income, net.
The derivative gains and losses reclassified to earnings were offset by realized
gains and losses arising from the settlement of the underlying physical
transactions being hedged. The maximum term over which Mirant is hedging
exposures to the variability of cash flows is through 2012.
Interest Rate Hedging
Mirant's policy is to manage interest expense using a combination of fixed-
and variable-rate debt. To manage this mix in a cost-efficient manner, Mirant
enters into interest rate swaps in which it agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to agreed-upon notional principal amounts. These swaps are
designated to hedge underlying debt obligations. For qualifying hedges, the
changes in the fair value of gains and losses of the swaps are deferred in OCI,
net of tax, and the interest rate differential is reclassified from OCI to
interest expense as an adjustment over the life of the swaps. Gains and losses
resulting from the termination of qualifying hedges prior to their stated
maturities are recognized ratably over the remaining life of the hedged
instrument.
Commodity Price Management
Mirant enters into commodity financial instruments in order to hedge market
risk and exposure to electricity and to natural gas, coal and other fuels
utilized by its generation assets. These financial instruments primarily include
forwards, futures and swaps. Where these derivatives are designated as cash flow
hedges, the gains and losses are recognized in earnings in the same period as
the settlement of the underlying physical transaction.
14
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
At March 31, 2001, Mirant had a net derivative hedging liability of
approximately $475 million related to these financial instruments. The fair
value of its non-trading commodity financial instruments is determined using
various factors, including closing exchange or over-the-counter market price
quotations, time value and volatility factors underlying options and contractual
commitments.
At March 31, 2001, Mirant had contracts that related to periods through
2003. The net notional amount of the commodity price management assets and
liabilities at March 31, 2001 was 1 million equivalent megawatt-hours. The
notional amount is indicative only of the volume of activity and not of the
amount exchanged by the parties to the financial instruments. Consequently,
these amounts are not a measure of market risk.
Foreign Currency Hedging
Cross currency swaps and currency forwards are used by Mirant to hedge its
net investments in certain foreign subsidiaries. Gains or losses on these
derivatives designated as hedges of net investments are offset against the
translation effects reflected in OCI, net of tax.
Mirant also utilizes currency forwards intended to offset the effect of
exchange rate fluctuations on forecasted transactions arising from contracts
denominated in a foreign currency. In addition, Mirant also utilizes cross
currency swaps that offset the effect of exchange rate fluctuations on foreign
currency denominated debt and fixes the interest rate exposure. Certain other
assets are exposed to foreign currency risk. Mirant designates currency forwards
as hedging instruments used to hedge the impact of the variability in exchange
rates on accounts receivable denominated in certain foreign currencies. All of
these hedging strategies qualify as cash flow hedges, where gains and losses on
the derivatives are deferred in OCI, net of tax, until the forecasted
transaction affects earnings. The reclassification is then made from OCI to
earnings to the same revenue or expense category as the hedged transaction.
F. Investments in Affiliates
The following table sets forth certain summarized income statement
information of the Company's investments in 50% or less-owned investments
accounted for under the equity method for the three months ended March 31, 2001
and 2000 (in millions):
Three Months Ended
March 31,
2001 2000
---- ----
Revenues $ 1,595 $ 1,201
Operating income 441 478
Net income from continuing operations 296 186
G. Business Developments
Transfer of SE Finance and Capital Funding: In connection with Mirant's
separation from Southern, Mirant transferred two of its subsidiaries, SE Finance
and Capital Funding, to Southern and redeemed Southern's share of Mirant series
B preferred stock on March 5, 2001. As a result of the transfer, Southern has
assumed responsibility for all obligations of SE Finance and Capital Funding.
15
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Acquisition of Jamaica Public Service Company Limited: On March 30, 2001, the
Company, through its wholly owned subsidiaries, acquired 80% of the outstanding
shares of Jamaica Public Service Company of Jamaica ("JPSCo") for $201 million.
JPSCo, which was formerly owned and operated by the state, is a fully integrated
electric utility on the island of Jamaica. JPSCo was 99% owned by the government
of Jamaica prior to the acquisition. JPSCo operates under a 20-year All-Island
Electric License and is under the direction of the Ministry of Mining and Energy
and is subject to monitoring and rate regulation by the Office of Utilities
Regulation.
H. Commitments and Contingent Matters
Litigation and Other Contingencies
California:
Reliability-Must-Run Agreements: Mirant subsidiaries acquired generation assets
from Pacific Gas & Electric ("PG&E") in April 1999, subject to
reliability-must-run agreements. These agreements allow the CAISO, under certain
conditions, to require certain Mirant subsidiaries to run the acquired
generation assets in order to support the reliability of the California electric
transmission system. Mirant assumed these agreements from PG&E prior to the
outcome of a FERC proceeding initiated in October 1997 that will determine the
percentage of a $158.8 million annual fixed revenue requirement to be paid to
Mirant by the CAISO under the reliability-must-run agreements. This revenue
requirement was negotiated as part of a prior settlement of a FERC rate
proceeding. Mirant contends that the amount paid by the CAISO should reflect an
allocation based on the CAISO's right to call on the units (as defined by the
reliability-must-run agreements) and the CAISO's actual calls. This approach
would result in annual payments by the CAISO of approximately $120 million, or
75% of the settled fixed revenue requirement. The decision in this case will
affect the amount the CAISO will pay to Mirant for the period from June 1, 1999
through December 31, 2001. On June 7, 2000, the administrative law judge
presiding over the proceeding issued an initial decision in which responsibility
for payment of approximately 3% of the revenue requirement was allocated to the
CAISO. On July 7, 2000, Mirant appealed the administrative law judge's decision
to the FERC. The outcome of this appeal cannot be determined. A final FERC order
in this proceeding may be appealed to the U.S. Court of Appeals.
If Mirant is unsuccessful in its appeal of the administrative law judge's
decision, it will be required to refund certain amounts of the revenue
requirement paid by the CAISO for the period from June 1, 1999 until the final
disposition of the appeal. The amount of this refund as of March 31, 2001 would
have been approximately $156 million, however, there would have been no effect
on net income for 2001. This amount does not include interest that may be
payable in the event of a refund. If Mirant is unsuccessful in its appeal, it
plans to pursue other options available under the reliability-must-run
agreements to mitigate the impact of the administrative law judge's decision
upon its future operations. The outcome of this appeal is uncertain, and Mirant
cannot provide assurance that it will be successful.
Proposed CAISO and PX Tariff Amendments: On January 4, 2001, the CAISO filed for
approval of a tariff amendment whereby its credit rating requirements for
certain electricity purchasers would be reduced. The action was taken in
response to reports that Moody's and S&P were on the verge of reducing the
credit ratings of Southern California Edison ("SCE") and PG&E to ratings that
would not allow SCE and PG&E to purchase electricity from the CAISO unless they
posted collateral for their purchases. In its filing, the CAISO announced its
intention to implement the reduced credit requirements immediately in order to
ensure the reliability of the California power grid. On January 5, 2001, the PX
filed a similar request with respect to the PX's tariffs as the CAISO had
requested on January 4. On February 14, 2001, the FERC ruled that the tariff
16
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
amendment requested by the PX should be rejected because it had ceased to
operate its day-ahead and day-of markets. With respect to the CAISO's request,
the FERC allowed the CAISO to amend its tariff to remove the credit-worthiness
requirements only with respect to the scheduling by a utility purchaser from the
CAISO of power from generation owned by that purchaser. The FERC rejected the
proposed amendment with respect to purchases by the CAISO from third-party
suppliers.
Defaults by SCE and PG&E: On January 16 and 17, 2001, SCE's and PG&E's credit
and debt ratings were lowered by Moody's and S&P to "junk" or "near junk"
status. On January 16, 2001, SCE indicated that it would suspend indefinitely
certain obligations including a $215 million payment due to the PX and a $151
million payment due to a qualifying facility. On January 30, 2001, the PX
suspended operation of its "day ahead" and "day of" markets. On February 1,
2001, PG&E indicated that it intended to default on payments of over $1 billion
due to the PX and qualifying facilities.
DWR Power Purchases: On January 17, 2001, the Governor of California issued an
emergency proclamation giving the California Department of Water Resources
("DWR") authority to enter into arrangements to purchase power in order to
mitigate the effects of electrical shortages in the state. The DWR began
purchasing power under that authority the next day. On February 1, 2001, the
Governor of California signed Assembly Bill No. 1X authorizing the DWR to
purchase power in the wholesale markets to supply retail consumers in California
on a long-term basis. The Bill became effective immediately upon its execution
by the Governor. The Bill did not, however, address the payment of amounts owed
for power previously supplied to the CAISO or PX for purchase by SCE and PG&E.
The CAISO and PX have not paid the full amounts owed to Mirant subsidiaries for
power delivered to the CAISO and PX in prior months and the CAISO is expected to
pay less than the full amount owed on further obligations coming due in the
future for power provided to the CAISO for sales that were not arranged by the
DWR. The ability of the DWR to make future payments is subject to the DWR having
a continued source of funding, whether from legislative or other emergency
appropriations, from a bond issuance or from amounts collected from SCE and PG&E
for deliveries to their customers. Mirant bears the risk of nonpayment by the
CAISO, the PX and the DWR for their power purchased by the CAISO, the PX or the
DWR.
CAISO and PX Price Caps: Beginning in May 2000, wholesale energy prices in the
California markets increased to levels well above 1999 levels. In response, on
June 28, 2000, the CAISO Board of Governors reduced the price cap applicable to
the CAISO's wholesale energy and ancillary services markets from $750/Mwh to
$500/Mwh. The CAISO subsequently reduced the price cap to $250/Mwh on August 1,
2000. During this period, however, the PX maintained a separate price cap set at
a much higher level applicable to the "day-ahead" and "day-of" markets
administered by the PX. On August 23, 2000, the FERC denied a complaint filed
August 2, 2000 by San Diego Gas & Electric Company ("SDG&E") that sought to
extend the CAISO's $250 price cap to all California energy and ancillary service
markets, not just the markets administered by the CAISO. However, in its order
denying the relief sought by SDG&E, the FERC instructed its staff to initiate an
investigation of the California power markets and to report its findings to the
FERC and held further hearing procedures in abeyance pending the outcome of this
investigation.
On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order, the
FERC found that the California power market structure and market rules were
seriously flawed, and that these flaws, together with short supply relative to
demand, resulted in unusually high energy prices. The November 1 Order proposed
specific remedies to the identified market flaws, including: (a) imposition of a
so-called "soft" price cap at $150/MWh to be applied to both the PX and CAISO
markets, which would allow bids above $150/MWh to be accepted, but will subject
such bids to certain reporting obligations requiring sellers to provide cost
17
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
data and/or identify applicable opportunity costs and specifying that such bids
may not set the overall market clearing price, (b) elimination of the
requirement that the California utilities sell into and buy from the PX, (c)
establishment of independent non-stakeholder governing boards for the CAISO and
the PX, and (d) establishment of penalty charges for scheduling deviations
outside of a prescribed range. In the November 1 Order, the FERC established
October 2, 2000, the date 60 days after the filing of the SDG&E complaint, as
the "refund effective date". Under the November 1 Order rates charged for
service after that date through December 31, 2002 will remain subject to refund
if determined by the FERC not to be just and reasonable. While the FERC
concluded that the Federal Power Act and prior court decisions interpreting that
act strongly suggested that refunds would not be permissible for charges in the
period prior to October 2, 2000, it noted that it was willing to explore
proposals for equitable relief with respect to charges made in that period.
On December 15, 2000, the FERC issued a subsequent order that affirmed in
large measure the November 1 Order (the "December 15 Order"). The December 15
Order also required generators to provide weekly reports of sales above the
"soft" price cap of $150/MWh. Various parties filed requests for administrative
rehearing and for judicial review of aspects of the FERC's December 15 Order.
On March 9, March 16 and April 16, the FERC ordered that certain
transactions into the CAISO and PX markets have not been shown to be just and
reasonable. The order determined that potential refunds would be appropriate for
certain transactions in these markets during a CAISO-declared Stage 3 Emergency
at a price above a "proxy market price" determined by FERC for the months of
January, February and March, absent additional price or cost justification by
jurisdictional sellers. These sellers, including Mirant California, Mirant
Delta, and Mirant Potrero, were required to determine whether to provide refunds
of changes above the proxy market price or to provide justification of such
charges to the FERC. The order further explained that FERC will determine an
approximate proxy market price at the end of each month through April 2001, with
the price to be announced no later than fifteen days after the end of each
month. Various parties have requested an administrative rehearing of the FERC
March 9 order. Mirant cannot predict whether the FERC will grant a rehearing.
The FERC has issued proxy market price orders for the months of January,
February and March 2001. The potential refund exposure for Mirant for those
months was approximately $3 million.
Attorney General, California Public Utilities Commission and Legislative
Investigations: The California Public Utilities Commission ("CPUC") and the
California Attorney General's office have each launched investigations into the
California energy markets that have resulted in the issuance of subpoenas to
several Mirant entities. The CPUC issued one subpoena to Mirant entities in
mid-August 2000 and one in September 2000. In addition, the CPUC has had
personnel onsite on a periodic basis at Mirant's California generating
facilities since December 2000. The California Attorney General issued its
subpoena to Mirant in February 2001 under the following caption: "In the Matter
of the Investigation of Possibly Unlawful, Unfair, or Anti-Competitive Behavior
Affecting Electricity Prices in California." Each of these subpoenas, as well as
the plant visits, could impose significant compliance costs on Mirant or its
subsidiaries. Despite various measures taken to protect the confidentiality of
sensitive information provided to these agencies, there remains a risk of
governmental disclosure of the confidential, proprietary, and trade secret
information obtained by the CPUC and the Attorney General through this process.
18
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On March 14, 2001, the California Senate announced the formation of a
committee to investigate alleged manipulation in the state electricity and
natural gas markets. Mirant has received document requests in this investigation
and has been asked to make a presentation to the committee.
While Mirant will vigorously defend against any claims of potential civil
liability or criminal wrongdoing asserted against it or its subsidiaries, the
results of such investigations cannot now be determined.
California Rate Payer Litigation: Five lawsuits have been filed in the superior
courts of California alleging that certain owners of electric generation
facilities in California and energy marketers, including Mirant, Mirant Americas
Energy Marketing, Mirant Delta, Mirant Potrero, and Southern, engaged in various
unlawful and anti-competitive acts that served to manipulate wholesale power
markets and inflate wholesale electricity prices in California. Three of the
suits seek class action status and one of the other suits was brought by public
officials on behalf of the people of California. One lawsuit alleges that, as a
result of the defendants' conduct, customers paid approximately $4 billion more
for electricity than they otherwise would have and seeks an award of treble
damages, as well as other injunctive and equitable relief. The other suits
likewise seek treble damages and equitable relief. While two of the suits name
Southern as a defendant, it appears that the allegations, as they may relate to
Southern and its subsidiaries, are directed to activities of subsidiaries of
Mirant. One such suit names Mirant itself as a defendant. Southern has notified
Mirant of its claim for indemnification for costs associated with these actions
under the terms of the Master Separation Agreement that governs the separation
of Mirant from Southern, and Mirant has undertaken the defense of all of the
claims. The final outcome of the lawsuits cannot now be determined.
CAISO Claim for Excessive Charges: The CAISO has asserted in a March 22, 2001
filing at FERC that sellers in the California wholesale electricity market have,
as a group, charged amounts in the period from May 2000 through February 2001
that exceeded just and reasonable charges by an amount in excess of $6 billion.
The CAISO has also asserted that during that period generators in California bid
prices into the CAISO real time markets that exceeded just and reasonable
amounts by approximately $505 million in the aggregate, of which a single
generator (subsequently identified in a news report as Mirant) was alleged by
the CAISO to have overcharged by approximately $97 million. Mirant cannot
predict the outcome of this proceeding at this time.
Proposed Windfall Profits Tax: Proposals for a windfall profits tax have been
introduced in the California Assembly and Senate and have been approved by the
Revenue and Taxation Committee of the state Senate. Mirant cannot predict the
outcome of this proposal at this time. Enactment of a windfall profit bill could
cause Mirant to reevaluate its business case in California.
PX Bankruptcy: On March 8, 2001, the PX filed for bankruptcy. It is uncertain as
to what impact, if any, the PX's bankruptcy will have on the receivables owed to
Mirant.
As of March 31, 2001, the total amount owed to Mirant by the CAISO and the
PX was $392 million. In the first quarter of 2001, the Company provided for $245
million in relation to uncertainties in the California power market. The total
amount of provisions made during 2000 and 2001 in relation to these
uncertainties was $295 million.
19
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Mobile Energy Services Company, L.L.C. ("Mobile Energy"):
Mobile Energy is the owner of a facility that generates electricity,
produces steam and in the past processed black liquor as part of a pulp and
paper complex in Mobile, Alabama. On January 14, 1999, Mobile Energy and Mobile
Energy Services Holdings, Inc., which guaranteed debt obligations of Mobile
Energy, filed voluntary petitions in the United States Bankruptcy Court for the
Southern District of Alabama, seeking protection under Chapter 11 of the United
States Bankruptcy Code. Southern has guaranteed certain potential environmental
and certain other obligations of Mobile Energy that represent a maximum
contingent liability of $19 million as of March 31, 2001. A major portion of the
maximum contingent liability escalates at the rate equal to the producer price
index. As part of its separation from Southern, Mirant has agreed to indemnify
Southern for any obligations incurred under such guarantees.
An amended plan of reorganization was filed by Mobile Energy and Mobile
Energy Services Holdings on February 21, 2001 and updated on April 25, 2001.
This amended plan proposes to cancel the existing taxable and tax-exempt bond
debt of Mobile Energy and transfer ownership of Mobile Energy and Mobile Energy
Services Holdings to the holders of that debt. Approval of that proposed plan of
reorganization would result in a termination of Southern's direct and indirect
ownership interests in both entities, but would not affect Southern's continuing
guarantee obligations that are described above. The final outcome of this matter
cannot now be determined.
State Line Energy, L.L.C. ("State Line"):
On July 28, 1998, an explosion occurred at State Line causing a fire and
substantial damage to the plant. The precise cause of the explosion and fire has
not been determined. Thus far, seven personal injury lawsuits have been filed
against Mirant, five of which were filed in Cook County, Illinois. Mirant filed
a motion to dismiss these five cases in 1998 for lack of "in personam"
jurisdiction. The motion was denied in August 1999. In October 1999, the
Appellate Court of Illinois granted Mirant's petition for leave to appeal. The
outcome of these proceedings cannot now be determined and an estimated range of
loss cannot be made.
Bewag:
On August 10, 2000, E.on Energie announced that it had reached an agreement
with Hamburgische Electricitaets-Werke AG ("HEW") to sell E.on Energie's 49%
share of Bewag effective January 1, 2001. Mirant, through its subsidiaries, had
previously made an offer to purchase E.on Energie's 49% interest in Bewag. On
August 14, 2000, at the request of the City of Berlin, the Berlin district court
issued a temporary injunction preventing E.on Energie from selling part of its
stake in Bewag, as it had not obtained the approval of the City of Berlin. This
temporary injunction was extended by the Berlin high court on August 16, 2000.
On August 15, 2000, the Berlin high court issued a separate preliminary
injunction, at Mirant's request, to prevent the sale of E.on Energie's shares in
Bewag to HEW. This injunction was upheld on December 4, 2000. The matter was
submitted to arbitration.
20
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Companhia Energetica de Minas Gerais ("CEMIG"):
In September 1999, the State of Minas Gerais, Brazil, filed a lawsuit in a
state court seeking temporary relief against exercising voting rights of SEB, of
which Mirant holds a 25% indirect economic interest, under the shareholders'
agreement, between the State and SEB regarding SEB's interest in CEMIG, as well
as a permanent rescission of the agreement. On March 23, 2000, a state court in
Minas Gerais ruled that the shareholders' agreement was invalid. SEB has filed
an appeal to the State of Minas Gerais court of appeal. Mirant believes that
this is a temporary situation and expects that the shareholders' agreement will
be fully restored. Failure to prevail in this matter has limited Mirant's
influence on the daily operations of CEMIG. However, SEB continues to have 33%
of the voting shares of CEMIG and hold 4 of 11 seats on CEMIG's Board of
Directors. The significant rights SEB would lose relate to supermajority rights
and the right to participate in the daily operations of CEMIG. SEB obtained
financing from Banco Nacional de Desenvolvimento Economico e Social ("BNDES")
for approximately 50% of the total purchase price of the CEMIG shares which is
secured by a pledge of its shares in CEMIG. The interest payment originally due
May 15, 2000, in the amount of $107.8 million, has been deferred until May 15,
2001. Temporary suspension of the shareholders' agreement has limited SEB's
ability to influence decisions at CEMIG, which has resulted in a decline in the
amount of dividends paid by CEMIG. As the result, SEB is not expected to have
sufficient financial resources to meet the upcoming BNDES debt payment. In
anticipation of the May 15, 2001 payment date, SEB has begun discussions with
BNDES in an effort to restructure the debt payment. If SEB is unable to reach an
agreement with BNDES prior to the payment date, it is probable that additional
litigation will result. The outcome of this matter cannot now be determined and
an estimated range of loss, if any, cannot be made.
In addition to the matters discussed above, Mirant is party to legal
proceedings arising in the ordinary course of business. In the opinion of
management, the disposition of these matters will not have a material adverse
impact on the results of operations or financial position of Mirant.
Commitments and Capital Expenditures
The Company has made firm commitments to buy materials and services in
connection with its ongoing operations and planned expansion and has made
financial guarantees relative to some of its investments. The material
commitments are as follows:
Energy Marketing and Risk Management Activities
Mirant has approximately $641 million trade credit support commitments
related to its energy marketing and risk management activities as of March 31,
2001, a decrease of $236 million from December 31, 2000.
The Company has a guarantee related to Brazos Electric Power Cooperative,
Inc. of $65 million at March 31, 2001, a decrease of $5 million from December
31, 2000. In addition, Mirant has a guarantee related to Pan Alberta Gas, Ltd.
of $64 million as of March 31, 2001.
Vastar Resources Inc. ("Vastar") and the Company have issued certain
financial guarantees made in the ordinary course of business, on behalf of the
Mirant Americas Energy Marketing's counterparties, to financial institutions and
other credit grantors. The Company has agreed to indemnify BP Amoco, Vastar's
parent company, against losses under such guarantees in proportion to Vastar's
former ownership percentage of Mirant Americas Energy Marketing. At March 31,
2001, such guarantees amounted to approximately $252 million.
21
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Periodically, the Company's energy marketing and risk management
subsidiaries also grant options with terms of less than three days for
fixed-price, commodity-based contractual commitments. There is no market for
"firm quotes held open," and these options were issued without cost. The
Company's energy marketing and risk management subsidiaries had no such amounts
available under these quotes at March 31, 2001.
Turbine Purchases and Other Construction-Related Commitments
The Company and its subsidiaries have entered into agreements to purchase
80 turbines and equipment packages to support ongoing and planned construction
efforts. Mirant also has options to purchase an additional 32 turbines and
equipment packages. Minimum termination amounts under all purchase contracts
were $166 million at March 31, 2001. At March 31, 2001, total amounts to be paid
under the agreements if all turbines and equipment packages are purchased as
planned are estimated to be $2,070 million. At March 31, 2001, other
construction-related commitments totaled $489 million.
In addition to these commitments, certain of Mirant's subsidiaries have
assigned purchase contracts for ten turbines and nine engineered equipment
packages ("power islands") to a third party owner. As part of this assignment, a
subsidiary of Mirant has entered into a separate agency agreement with the third
party owner whereby Mirant is required to manage procurement of this equipment.
Under the agency agreement, Mirant maintains purchase options for each
individual turbine and power island, which may be assigned to third parties. In
addition to the purchase options under the agreement, Mirant also maintains
options to lease the turbines and the power islands. If upon the end of the term
of the agreement Mirant has failed to exercise either its purchase options or
lease options for each turbine and power island, Mirant may participate in the
re-marketing of this equipment. In the event that the equipment is remarketed,
Mirant has guaranteed the recovery of approximately 89.9 percent of certain
equipment procurement costs, of which $25 million was incurred as of March 31,
2001. Additionally, if Mirant had elected to both exercise its purchase options
and terminate the procurement contracts at March 31, 2001 with respect to all of
the turbines and power islands, minimum termination amounts under the turbine
and power island procurement contracts would have been $60 million.
Long-Term Service Agreements
The Company, through one of its subsidiaries, has entered into long-term
service agreements for the maintenance and repair of many of its
combustion-turbine or combined-cycle generating plants. These agreements may be
terminated in the event a planned construction project is cancelled. At March
31, 2001, the amount committed for construction projects in process was $168
million, and the total amount committed if all turbines are purchased as planned
is $1,580 million.
Operating Leases
Mirant has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totaled
approximately $30 million and $3 million during the three month periods ended
March 31, 2001 and 2000, respectively. As of March 31, 2001, estimated minimum
rental commitments for non-cancelable operating leases were $3,345 million.
22
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
I. Segment Reporting
The Company's principal business segments primarily relate to the
geographic areas in which the Company conducts business: the Americas Group, the
Asia-Pacific Group and the Europe Group. The other reportable business segment
is Corporate.
Financial Data by Segment
For the Three Months Ended March 31, 2001 and 2000
Corporate and
Americas Europe Asia-Pacific Eliminations Consolidated
---------------------------------------------------------------------------------------
2001 2000 2001 2000 2001 2000 2001 2000 2001 2000
(in millions)
Operating Revenues:
Generation and energy marketing $ 8,053 $ 240 $ (36) $ - $ 123 $ 123 $ - $ - $ 8,140 $ 363
Distribution & integrated utility
revenues 36 40 - 111 - - - - 36 151
Other - - - - 6 3 - 2 6 5
--------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Total operating revenues 8,089 280 (36) 111 129 126 - 2 8,182 519
Operating Expenses:
Cost of fuel, electricity and other
products 7,368 145 11 10 2 - - - 7,381 155
Depreciation and amortization 54 26 - 24 33 33 1 - 88 83
Other operating expenses 349 78 9 25 27 (2) 49 11 434 112
--------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Total operating expenses 7,771 249 20 59 62 31 50 11 7,903 350
--------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Operating Income (Loss) 318 31 (56) 52 67 95 (50) (9) 279 169
Other Income (Expense):
Interest expense, net (39) (34) (4) (27) (25) (28) (25) (19) (93) (108)
Equity in income of affiliates 6 (4) 63 14 10 17 - - 79 27
Other 8 5 (2) 1 10 - - - 16 6
Income (Loss) From Continuing Operations --------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Before Income Taxes and Minority Interest 293 (2) 1 40 62 84 (75) (28) 281 94
Provision (benefit) for income taxes 119 6 (23) (17) 3 (8) (7) (12) 92 (31)
Minority interest 1 (5) - 26 8 9 5 - 14 30
--------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Income (Loss) From Continuing Operations 173 (3) 24 31 51 83 (73) (16) 175 95
Income From Discontinued Operations,
Net of Tax Benefit - - - - - - 5 6 5 6
--------- -------- -------- ------- ------- ------ -------- ------- --------- -------
Net Income (Loss) $ 173 $ (3) $ 24 $ 31 $ 51 $ 83 $ (68) $ (10) $ 180 $ 101
========= ======== ======== ======= ======= ====== ======== ======= ========= =======
23
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Selected Balance Sheet Information by Segment
At March 31, 2001
Corporate and
Americas Europe Asia-Pacific Eliminations Total
--------- --------- --------------- ----------------- ----------
(in millions)
Current assets $ 7,270 $ 392 $ 783 $ 1,017 $ 9,462
Property, plant & equipment,
including leasehold interest 4,280 2 1,848 79 6,209
Total assets 17,128 1,566 4,601 (24) 23,271
Total debt 3,308 507 2,147 1,777 7,739
Common equity 2,834 889 1,776 (1,567) 3,932
24
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
J. Subsequent Events
Mirant Americas Generation:
On May 1, 2001, Mirant Americas Generation, an indirect wholly owned
subsidiary of the Company, issued $1.75 billion in senior unsecured notes under
Rule 144A of the Securities Act. The notes issued included $500 million of
7.625% senior notes due 2006, $850 million of 8.3% senior notes due 2011 and
$400 million of 9.125% senior notes due 2031. The net proceeds from these notes
will be used to repay existing loans. Interest on the notes is payable
semiannually beginning November 1, 2001. The Company may redeem the notes, in
whole or in part, at any time at a redemption price equal to 100% of the
principal amount plus accrued interest, plus a make-whole premium, as defined in
the note agreements. Furthermore, Mirant Americas Generation is obligated to
consummate an exchange offer under an effective registration statement or cause
re-sales of the notes to be registered under the Securities Act within 270 days
of the issuance of these notes or the annual interest rate will increase by 0.5%
per annum.
California:
Defaults by CAISO: On April 6, 2001, the CAISO failed to pay approximately
$730,000 to Mirant Potrero and approximately $5.9 million to Mirant Delta under
the reliability-must-run agreements assumed by Mirant California from PG&E.
Pacific Gas & Electric Bankruptcy: On April 6, 2001, Pacific Gas & Electric
("PG&E") filed a voluntary petition under Chapter 11 of the Bankruptcy Code in
the U.S. Bankruptcy Court for the Northern District of California in San
Francisco. It is not known at this time what effect the bankruptcy filing will
have on the ultimate recovery of amounts owed by PG&E.
Proposed CAISO and PX Tariff Amendments: On April 6, 2001, the FERC confirmed
its February 14, 2001 decision.
CARE Complaint: On April 16, 2001, Californians for Renewable Energy, Inc.
("CARE") filed a complaint at the FERC against Mirant and three other suppliers
alleging that those suppliers withheld power to contrive an energy shortage and
to test their market power in violation of the Federal Power Act, federal and
state anti-trust laws, Title VI of the Civil Rights Act of 1964 and the North
American Free Trade Agreement. The complaint seeks refunds of overcharges and
unspecified damages. Mirant cannot predict at this time the outcome of this
proceeding.
Attorney General, California Public Utilities Commission and Legislative
Investigations: On April 13, 2001, Reliant Energy, Inc. filed suit in the Los
Angeles Superior Court against the Attorney General regarding the
confidentiality of the sensitive information requested. Mirant joined that suit
on April 18, 2001. Also on April 18, 2001, the Attorney General filed suit
against Mirant in the San Francisco Superior Court seeking to compel Mirant to
produce documents in the investigation. Senator Dunn announced on May 3 that he
had invited the California Attorney General, as well as the District Attorneys
from across the state to "collaborate" with the Senate Select Committee's
investigation. To date, only the San Joaquin District Attorney has accepted the
invitation, and the San Joaquin District Attorney's office used Dunn's
announcement as a venue to disclose that it had opened its own criminal
investigation into the wholesale energy markets on April 11, 2001. The
investigations of the San Joaquin District Attorney, the California Attorney
General, and the Senate Select Committee are all of a kind in that they seek to
determine whether any market participants engaged in unlawful conduct which
resulted in higher power prices.
25
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
California Rate Payer Litigation: A law suit, Bustamante et al. v. Dynegy, Inc.
et al., was filed May 2, 2001 in the Superior Court of California - Los Angeles
County naming, among others, Mirant and certain of its officers as defendants.
The lawsuit alleges that the defendants engaged in various unlawful and
anti-competitive acts that served to manipulate wholesale power markets and
inflate wholesale electricity prices in California. The plaintiffs seek
injunctive relief, disgorgement of unlawful profits, restitution, treble damages
and attorney's fees. The complaint does not set out a specific amount of damages
that are being sought but alleges that the state has had to spend more than $6
billion purchasing electricity, a material portion of which was at inflated
prices. Additionally, the complaint alleges that if an injunction is not issued,
that the state will be required to spend more than $150 million per day
purchasing electricity. Mirant cannot predict at this time the outcome of this
proceeding.
CAISO and PX Price Caps: On April 6, 2001, the CAISO filed a proposed market
stabilization plan at the FERC. On April 11, 2001, Mirant California, Mirant
Delta and Mirant Potrero provided additional price justification for the
transactions in January and February which were subject to refund. Mirant cannot
give assurances that the FERC will accept the justification and decline to order
refunds of some or all of these amounts. On April 16, 2001, the FERC issued a
proxy price for March 2001 of $300/MWh. The total refund exposure to Mirant for
the month was less than $100,000. On April 26, 2001, the FERC issued an order
adopting a market monitoring and price mitigation plan by its staff. The April
26 order provides for price mitigation in all hours in which power reserves fall
below 7.5 percent, a level that corresponds to the CAISO's Stage 1 emergency. In
these hours, the FERC will use a formula based on the marginal costs of the
highest-cost generator called on to run to determine the overall market-clearing
price. In the event that a generator sells power at prices higher than the
formula price set by the FERC, the generator is required to submit data to FERC
within seven days to justify the higher price. The April 26 order also provides
for: (a) increased coordination and control of generation plan outages by the
CAISO, (b) all in-state generation, including generation owned by sellers not
subject to the FERC jurisdiction, to offer all available power for sale in real
time, (c) load-serving public utilities to establish by June 1, 2001 demand
response mechanisms identifying the price at which load would be curtailed, (d)
the FERC to continue to monitor closely behavior of market participants,
including bidding behavior and plant outages, (e) interested parties to file
comments on whether the CAISO should be required to institute, on a prospective
basis, a surcharge on power sales to cover payments due to generators by the
California utilities, and (f) the FERC to institute an investigation under
Section 206 of the Federal Power Act into the rates, terms and conditions of
certain short-term wholesale power sales in the Western markets outside of
California. According to the order, this mitigation program will become
effective on May 29, 2001, and will terminate no later than one year. The FERC
conditioned the mitigation plan on the CAISO and the three major California
utilities submitting a Regional Transmission Organization proposal by June 1,
2001. In addition, the order identified certain prohibited bidding practices by
entities having market rate authority (which would include certain Mirant
subsidiaries) and has stated that it would impose sanctions on entities that
engage in the prohibited practices. The effects of this FERC order are not yet
known by the Company. On May 4, 2001, the FERC requested additional detail on
Mirant's price justification, which is expected to be provided by May 11, 2001.
Proposed Windfall Profits Tax: The Senate bill, SBlx, passed the Senate on May
1, 2001 by majority vote. Enactment of a windfall profit bill could cause Mirant
to reevaluate its business case in California.
Bewag:
On April 27, 2001, settlement was reached and approved by the City of
Berlin's Senate. The settlement resulted in an agreement between Mirant and HEW,
conditional upon competition authority approval, whereby the two entities will
have joint control and equal stakes (43% each) in Bewag. The remaining 14%
ownership in Bewag is expected to be publicly traded.
26
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
WPD and SWE Pension Issues:
On April 4, 2001, the House of Lords ruled against the Electricity Supply
Pension Scheme ("ESPS"), thus resolving this matter without cost to Mirant. It
is understood that the complainants are considering whether to appeal to a
European court.
27
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2001 vs. FIRST QUARTER 2000
OVERVIEW
Mirant is a global competitive energy company with leading energy marketing
and risk management expertise. Mirant has extensive operations in North America,
Europe and Asia. With an integrated business model, Mirant develops, constructs,
owns and operates power plants, and sells wholesale electricity, gas and other
energy-related commodity products. Mirant owns or controls more than 20,000
megawatts ("MW") of electric generating capacity around the world, with
approximately another 9,000 MW under development. Mirant considers a project
under development when it has contracted to purchase machinery for the project,
it owns or controls the project site and is in the permitting process. These
projects may or may not have received all of the necessary permits and approvals
to begin construction. Mirant cannot provide assurance that these projects or
pending acquisitions will be completed. In North America, Mirant also controls
access to approximately 3.7 billion cubic feet per day of natural gas
production, more than 2.1 billion cubic feet per day of natural gas
transportation and approximately 41 billion cubic feet of natural gas storage.
At March 31, 2001, Mirant was approximately 80 percent owned by Southern, which
distributed to Southern's stockholders all of its remaining interest in Mirant
on April 2, 2001.
Through Mirant's business development offices in the United States, Canada,
The Netherlands, Hong Kong, Singapore, Brazil, Italy, Switzerland, Germany,
China, The Philippines and others, Mirant monitors U.S. and international
economies and energy markets to identify and capitalize on business
opportunities. Through construction and acquisition, Mirant has built a
portfolio of power plants, electric distribution companies and electric
utilities, giving the Company a net ownership and leasehold interest of over
18,000 MW of electric generating capacity around the world, and control of over
2,500 MW of additional generating capacity through management contracts.
Mirant's business also includes managing risk associated with market price
fluctuations of energy and energy-linked commodities for itself and its
customers. The Company uses its risk management capabilities to optimize the
value of its generating and gas assets and offer risk management services to
others. Mirant also owns electric utilities with generation transmission and
distribution capabilities and electricity distribution companies.
28
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
First Quarter
-------------------
(in millions)
Operating revenues..................................... $7,663 1476%
Expenses
Cost of fuel, electricity and other products........ 7,226 4662%
Selling, general and administrative................. 295 983%
Other operating..................................... 29 56%
Total other income (expense)
Interest expense, net............................... (15) (14)%
Equity in income of affiliates...................... 52 193%
Provision (benefit) for income taxes................... 123 397%
Minority interest...................................... (16) (53)%
Operating revenues. Mirant's operating revenues for the three months ended
March 31, 2001 were $8,182 million, an increase of $7,663 million over the same
period in 2000. The following factors were responsible for the increase in
operating revenues:
o Revenues from generation and energy marketing products for the three months
ended March 31, 2001 were $8,140 million, compared to $363 million for the
same period in 2000. This increase of $7,777 million resulted primarily
from Mirant's acquisition of Vastar's 40% interest in Mirant Americas
Energy Marketing effective on August 10, 2000, which is now consolidated in
Mirant's financial statements. The increases in revenues were also
attributable to increased prices and market demand of natural gas and power
and the contribution of the plants Mirant acquired in Maryland and Virginia
in December of 2000 and the commencement of operations at its Wisconsin
plant in May 2000 and its Texas plant in June 2000.
o Distribution and integrated utility revenues for the three months ended
March 31, 2001 were $36 million compared to $151 million for the same
period in 2000. This decrease of $115 million resulted primarily from the
deconsolidation of WPD effective December 1, 2000.
Operating expenses. Operating expenses for the three months ended March 31,
2001 were $7,903 million, an increase of $7,553 million over the same period in
2000. The following factors were responsible for the increase in operating
expenses:
o Cost of fuel, electricity and other products for the three months ended
March 31, 2001 was $7,381 million, compared to $155 million for the same
period in 2000. This increase of $7,226 million resulted primarily from the
Company's acquisition of the remaining 40% of Mirant Americas Energy
Marketing, which is now consolidated in its financial statements. This
increase was also attributable to higher natural gas prices and increased
electricity market demand, the contribution of the plants Mirant acquired
in Maryland and Virginia in December of 2000 and the commencement of
operations at its Wisconsin plant in May 2000 and its Texas plant in June
2000.
29
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
o Selling, general and administrative expense for the three months ended
March 31, 2001 was $325 million compared to $30 million for the same period
in 2000. The majority of this increase of $295 million resulted from
provisions taken in relation to uncertainties in the California power
market, Mirant's acquisition of the remaining 40% of Mirant Americas Energy
Marketing, which is now consolidated in its financial statements, expenses
associated with the operations of the plants Mirant acquired in Maryland
and Virginia in December of 2000, an increase in stock related compensation
expense during the first quarter of 2001 and a reduction to bad debt
expense in the first quarter of 2000 resulting from proceeds related to the
Shajiao C venture. These increases were offset partially by the
deconsolidation of WPD effective December 1, 2000.
o Other operating expense for the three months ended March 31, 2001 was $81
million compared to $52 million for the same period in 2000. The majority
of this increase of $29 million resulted from the Company's acquisition of
the remaining 40% of Mirant Americas Energy Marketing, which is now
consolidated in Mirant's financial statements and the contribution of the
plants Mirant acquired in Maryland and Virginia in December of 2000, These
increases were offset partially by the deconsolidation of WPD effective
December 1, 2000.
o Total Other Income (Expense). Other income for the three months ended March
31, 2001 was $2 million compared to other expense of $75 million from the
same period in 2000. This change of $77 million was primarily due to:
- Interest expense, net for the three months ended March 31, 2001 was $93
million compared to $108 million for the same period in 2000. This
decrease of $15 million was primarily due to the deconsolidation of WPD
effective December 1, 2000. This was offset by interest expense in 2001
related to additional debt financings to fund acquisitions and working
capital, increased expense from the consolidation of the remaining 40%
of Mirant Americas Energy Marketing and greater use of lines of credit
to support growth in the energy marketing business.
- Equity in income of affiliates for the three months ended March 31,
2001 was $79 million, an increase of $52 million from the same period
in 2000. The increase for the quarter was due to income from WPD after
the deconsolidation effective December 1, 2000, income from WPD Limited
after its acquisition of Hyder, increased earnings from Bewag and a
loss by Mirant Americas Energy Marketing during the first quarter of
2000 prior to Mirant's acquisition of the remaining 40% of Mirant
Americas Energy Marketing, which is now consolidated in its financial
statements.
Provision (Benefit) for Income Taxes. The provision for income taxes for
the three months ended March 31, 2001 was $92 million, an increase of $123
million for the same period in 2000. The increase is primarily due to the
substantial increase in income generated by the Americas Group as well as
additional taxes related to a change in the Company's cash repatriation strategy
for the Philippine operations and additional provisions related to Mirant's
consolidated tax position.
Minority Interest. Minority interest for the three months ended March 31,
2001 was $14 million, a decrease of $16 million from the same period in 2000.
The decrease was primarily due to the deconsolidation of WPD effective December
1, 2000 and was partially offset by interest expense for the trust preferred
securities.
30
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Earnings
The Company's consolidated net income from continuing operations for the
three months ended March 31, 2001 was $175 million ($0.52 basic earnings per
share and $0.51 diluted earnings per share) compared to $95 million ($0.35 basic
and diluted earnings per share) for the corresponding period of 2000. This
excludes the net income from Mirant's discontinued operations (SE Finance) of $5
million and $6 million in 2001 and 2000, respectively. The increase of $80
million or 84% is attributable to Mirant's business segments as follows:
Americas
Net income from the Americas Group totaled $173 million for the three
months ended March 31, 2001. This increase of $176 million from the same period
in 2000 is primarily attributable to increased prices and market demand of
natural gas and power in the U.S. and natural gas in Canada, as well as the
contribution of the plants Mirant acquired in Maryland and Virginia in December
of 2000 and the commencement of operations at its Wisconsin plant in May 2000
and its Texas plant in June 2000. This was partially offset by $147 million
($245 million pre-tax) which was provided in relation to the uncertainties in
the California power market. As of March 31, 2001, the total amount owed to
Mirant by the CAISO and the PX was $392 million pre-tax. The total amount of
provisions made during 2000 and 2001 in relation to these uncertainties was $177
million ($295 million pre-tax).
Europe
Net income from the Europe Group totaled $24 million for the three months
ended March 31, 2001, a decrease of $7 million from the same period in 2000.
This decrease in net income resulted primarily from net losses of approximately
$39 million in the energy marketing operations and increased business
development expenses that were partially offset by increased net earnings from
WPD and Bewag as well as earnings resulting from the acquisition of Hyder in the
fourth quarter of 2000.
Asia-Pacific
Net income from the Asia-Pacific Group totaled $51 million for the three
months ended March 31, 2001, a decrease of $32 million from the same period in
2000. The decrease in net income includes an increase in accrued income taxes in
2001 resulting from a change in the Company's cash repatriation strategy for the
Philippine operations and recognition in 2000 of additional proceeds related to
the Shajiao C venture.
Corporate
After-tax corporate costs produced a net loss from continuing operations of
$73 million for the three months ended March 31, 2001, an increase of $57
million for the same period in 2000. This excludes the net income from Mirant's
discontinued operations. The increased costs primarily reflect increased
interest on corporate borrowings to fund working capital, stock-related
compensation expense, income taxes and various other corporate expenses.
31
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
New Accounting Pronouncements
Effective January 1, 2001, Mirant adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
statement requires that certain derivative instruments be recorded in the
balance sheet as either assets or liabilities measured at fair value, and that
changes in the fair value be recognized currently in earnings, unless specific
hedge accounting criteria are met. If the derivative is designated as a fair
value hedge, the changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized currently in earnings. If
the derivative is designated as a cash flow hedge, the changes in the fair value
of the derivative are recorded in other comprehensive income ("OCI"), and the
gains and losses related to these derivatives are recognized in earnings in the
same period as the settlement of the underlying hedged transaction. If the
derivative is designated as a net investment hedge, the changes in the fair
value of the derivative are also recorded in OCI. Any ineffectiveness relating
to these hedges is recognized currently in earnings. The assets and liabilities
related to derivative instruments for which hedge accounting criteria is met are
reflected as derivative hedging instruments in the accompanying consolidated
balance sheet at March 31, 2001.
The adoption of SFAS No. 133 resulted in a cumulative after-tax reduction
to OCI of $310 million, and is mostly attributable to deferred losses on cash
flow hedges. During the twelve month period ending December 31, 2001, the
Company expects to reclassify $105 million of the $310 million, after-tax loss
from OCI into earnings. The derivative gains and losses reclassified to earnings
are expected to be offset by realized gains and losses arising from the
settlement of the underlying physical transactions being hedged.
FINANCIAL CONDITION
Cash used in operating activities totaled approximately $127 million for
the three months ended March 31, 2001 as compared to approximately $13 million
for the same period last year. This increase is primarily due to amounts owed
from the CAISO and California PX.
As a result of the Company's planned separation from Southern, the Company
had reviewed the past strategy of earnings deferral from Asia. On July 1, 2000,
Mirant adopted a strategy under which only a portion of the future earnings
would be permanently invested in order to reinvest funds for further growth in
the Philippines, fund construction efforts, or service debt obligations. The
remaining earnings would be repatriated for reinvestment elsewhere or to service
parent debt obligations.
Cash used in investing activities totaled $532 million for the three months
ended March 31, 2001 as compared to cash provided investing activities totaling
$13 million for the same period in 2000. The increase is primarily attributable
to capital expenditures in North America, as capital expenditures for similar
purposes were not made in the first three months of 2000 and the acquisition of
Jamaica Public Service Company Limited. The Company used cash flows provided by
financing activities primarily to finance investments in the Company's
subsidiaries.
Cash provided from financing activities totaled approximately $738 million
for the three months ended March 31, 2001 as compared to $77 million for the
same period in 2000. The increase is primarily attributable to proceeds of $959
million from the issuance of short-term and long-term debt for working capital.
This increase was partially offset by $219 million in payments of long-term
debt.
32
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company expects its cash and financing needs over the next several
years to be met through a combination of cash flows from operations and debt and
equity financings. The Company has generally financed the operations of the
Company's project subsidiaries primarily under financing arrangements requiring
extensions of credit to be repaid solely from each subsidiary's cash flows. In
addition, subsidiaries financed in this manner are often restricted in their
ability to pay dividends and management fees periodically to the Company by
their respective project credit documents. These limitations usually require
that debt service payments be current, debt service coverage ratios be met and
there be no default or event of default under the relevant credit documents.
There are also additional limitations that are adapted to the particular
characteristics of each project affiliate.
As of March 31, 2001, sources of liquidity included the April 1999 $450
million Citibank credit facility C, the June 2000 $1.0 billion Bank of America
credit facility, the August 2000 $100 million Wachovia letter of credit
facility, and the September 2000 $650 million CSFB credit facility. The Company
repaid $200 million under the original $650 million facility, reducing its
availability to $450 million. The $350 million Citibank credit facility B
expired on March 30, 2001. Mirant's existing facilities and cash position, along
with existing credit facilities at its subsidiaries and others currently being
arranged to finance construction costs are expected to provide sufficient
liquidity for new investments, working capital and capital expenditures,
including letters of credit, through 2001. As of March 31, 2001, Mirant borrowed
$363 million under the September $650 million CSFB credit facility and $718
million under the June 2000 Bank of America credit facility. Mirant also issued
letters of credit totaling $407 million and $97 million under the April 1999
$450 million Citibank credit facility and the August 2000 $100 million Wachovia
letter of credit facility, respectively.
Mirant, directly and through a subsidiary, is currently in the process of
arranging a $3.5 billion credit facility of which $3 billion will be broadly
syndicated. Approximately $2.0 billion will be used to replace existing and non
renewed credit facilities. The remainder of the new facility will be used to
fund generation-related construction, as well as for general corporate purposes.
In February 2001, Mirant Americas Energy Marketing amended its existing
line-of-credit facility to reduce its borrowing capacity by $30 million to $150
million. The facility bears interest based on the London Interbank Offering Rate
plus a variable spread based on Mirant Americas Energy Marketing's credit rating
at the date of the borrowing, payable monthly. The Company had $125 million in
outstanding borrowings under this line-of-credit facility at a weighted average
interest rate of 5.55% at March 31, 2001.
On February 9, 2001 Mirant Trinidad Investments issued $73 million of
senior notes due 2006. The proceeds were used to repay an inter-company note for
$71 million owed to Mirant.
The market price of the Company's common stock at March 31, 2001 was $35.50
per share and the book value was $11.66 per share based on the 338,724,679
million shares outstanding at March 31, 2001, representing a market-to-book
ratio of 304%.
33
MIRANT CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Litigation and Other Contingencies
Reference is made to Note H to the financial statements filed as part of
this Form 10-Q relating to the following litigation matters:
o Reliability-Must-Run Agreements
o Proposed CAISO and PX Tariff Amendments
o Defaults by SCE and PG&E
o DWR Power Purchases
o CAISO and PX Price Caps
o Attorney General, California Public Utilities Commission and State
Senate Investigations
o California Rate Payer Litigation
o CAISO Claim for Excessive Charges
o Proposed Windfall Profits Tax
o PX Bankruptcy
o Mobile Energy
o State Line
o Bewag
o CEMIG
Reference is also made to Note J to the financial statements filed as part
of this 10-Q relating to the following litigation matters:
o Defaults by CAISO
o Pacific Gas & Electric Bankruptcy
o Proposed CAISO and PX Tariff Amendments
o CARE Complaint
o Attorney General, California Public Utilities Commission and State
Senate Investigations
o California Rate Payer Litigation
o CAISO and PX Price Caps
o Proposed Windfall Profits Tax
o Bewag
o WPD and SWE Pension Issues
In addition to the proceedings described above, Mirant experiences routine
litigation from time to time in the normal course of Mirant's business, which is
not expected to have a material adverse effect on Mirant's financial condition
or results of operations.
34
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As part of its energy marketing activities, the Company's energy marketing
and risk management subsidiaries enter into a variety of contractual
commitments, such as swaps, swap options, cap and floor agreements, futures
contracts, forward purchase and sale agreements, and option contracts. These
contracts generally require future settlement and are either executed on an
exchange or traded as OTC instruments. Contractual commitments have widely
varying terms and have durations that range from a few days to a number of
years, depending on the instrument.
The way in which the Company accounts for and presents contractual
commitments in its financial statements depends on both the type and purpose of
the contractual commitment held or issued. As discussed in the summary of
accounting policies, the Company records all contractual commitments used for
trading purposes, including those used to hedge trading positions, at fair
value. Consequently, changes in the amounts recorded in the Company's
consolidated balance sheets resulting from movements in fair value are included
in trading revenues in the period in which they occur. Contractual commitments
expose the Company to both market risk and credit risk.
Market Risk
Market Risk is the potential loss that Mirant may incur as a result of
changes in the fair value of a particular instrument or commodity. All financial
and commodities-related instruments, including derivatives, are subject to
market risk. Mirant's exposure to market risk is determined by a number of
factors, including the size, duration, composition, and diversification of
positions held and the absolute and relative levels of interest rates, as well
as market volatility and liquidity. For instruments such as options, the time
period during which the option may be exercised and the relationship between the
current market price of the underlying instrument and the option's contractual
strike or exercise price also affects the level of market risk. The most
significant factor influencing the overall level of market risk to which Mirant
is exposed is its use of various risk management techniques. Mirant manages
market risk by actively monitoring compliance with stated risk management
policies as well as monitoring the effectiveness of its hedging policies and
strategies through its risk oversight committees. Mirant's risk oversight
committees review and monitor compliance with risk management policies that
limit the amount of total net exposure and rolling net exposure during the
stated periods. These policies, including related risk limits, are approved by
the Group Boards of Directors and are regularly assessed by management to ensure
their appropriateness given Mirant's objectives. Mirant's corporate risk control
officer is a member of the Group risk oversight committees to ensure that
information is communicated to Mirant's senior management and audit committee as
needed.
Mirant employs a systematic approach to the evaluation and management of
the risks associated with its energy marketing and risk management-related
contracts, including Value-at-Risk ("VaR"). VaR is defined as the maximum loss
that is not expected to be exceeded with a given degree of confidence and over a
specified holding period. The Company uses a 95% confidence interval and holding
periods that vary by commodity and tenor, to evaluate its VaR exposure. Based on
a 95% confidence interval and employing a one-day holding period for all
positions, the Company's portfolio of positions had a VaR of $15 million at
March 31, 2001. During the three months ending March 31, 2001, the actual daily
change in fair value did not exceed the corresponding daily VaR calculation. In
addition to VaR, Mirant utilizes additional risk control mechanisms such as
commodity position limits and stress testing of the total portfolio and its
components.
The determination of net notional amounts does not consider any of the
market risk factors discussed above. Net notional amounts are indicative only of
the volume of activity and are not a measure of market risk. Market risk is also
influenced by the relationship among the various off-balance sheet categories,
35
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
as well as by the relationship between off-balance sheet items and items
recorded in the Company's consolidated balance sheets. For all of these reasons,
the interpretation of net notional amounts as a measure of market risk could be
misleading. The net notional amounts of the Company's other commodity positions
were immaterial at March 31, 2001.
The fair values of the Company's assets from risk management activities
recorded in the consolidated balance sheets at March 31, 2001, was comprised
primarily of approximately 45% electricity and 50% natural gas. The fair values
of the liabilities from risk management activities recorded in the consolidated
balance sheets at March 31, 2001, were comprised primarily of approximately 48%
electricity and 47% natural gas.
Credit Risk
In conducting its energy marketing and risk management activities, the
Company regularly transacts business with a broad range of entities and a wide
variety of end users, trading companies, and financial institutions. Credit risk
is measured by the loss the Company would record if its counterparties failed to
perform pursuant to the terms of their contractual obligations and the value of
collateral held, if any, were not adequate to cover such losses. The Company has
established controls to determine and monitor the creditworthiness of
counterparties, as well as the quality of pledged collateral, and uses master
netting agreements whenever possible to mitigate the Company's exposure to
counterparty credit risk. Master netting agreements enable the Company to net
certain assets and liabilities by counterparty. The Company also nets across
product lines and against cash collateral, provided such provisions are
established in the master netting and cash collateral agreements. Additionally,
the Company may require counterparties to pledge additional collateral when
deemed necessary.
Concentrations of credit risk from financial instruments, including
contractual commitments, exist when groups of counterparties have similar
business characteristics or are engaged in like activities that would cause
their ability to meet their contractual commitments to be adversely affected, in
a similar manner, by changes in the economy or other market conditions. The
Company monitors credit risk on both an individual basis and a group
counterparty basis.
As of March 31, 2001, the Company's exposure to one counterparty, the
California Department of Water Resources, represented more than 10% of the
Company's total credit exposure. The Company's overall exposure to credit risk
may be impacted, either positively or negatively, because the Company's
counterparties may be similarly affected by changes in economic, regulatory, or
other conditions.
36
PART II OTHER INFORMATION
Item 1. Legal Proceedings
CEMIG. In September 1999, the State of Minas Gerais, Brazil, filed a
lawsuit in a state court seeking temporary relief against exercising voting
rights of SEB, of which Mirant has a 25% indirect economic interest, under the
shareholders' agreement, between the State and SEB regarding SEB's interest in
CEMIG, as well as a permanent rescission of the agreement. On March 23, 2000, a
state court in Minas Gerais ruled that the shareholders' agreement was invalid.
SEB has filed an appeal to the State of Minas Gerais court of appeal. Mirant
believes that this is a temporary situation and expects that the shareholders'
agreement will be fully restored. Failure to prevail in this matter would limit
Mirant's influence on the daily operations of CEMIG. However, SEB continues to
have 33% of the voting shares of CEMIG and hold 4 of 11 seats on CEMIG's Board
of Directors. The significant rights SEB would lose relate to supermajority
rights and the right to participate in the daily operations of CEMIG. SEB
obtained financing from Banco Nacional de Desenvolvimento Economico e Social
("BNDES") for approximately 50% of the total purchase price of the CEMIG shares
which is secured by a pledge of its shares in CEMIG. The interest payment
originally due May 15, 2000, in the amount of $107.8 million, has been deferred
until May 15, 2001. Temporary suspension of the shareholders' agreement is
limiting SEB's ability to influence decisions at CEMIG, which has resulted in a
decline in the amount of dividends paid by CEMIG. As the result, SEB is not
expected to have sufficient financial resources to meet the upcoming BNDES debt
payment. In anticipation of the May 15, 2001 payment date, SEB has begun
discussions with BNDES in an effort to restructure the debt. Inability to reach
an accord with BNDES prior to the payment date could result in additional
litigation.
Attorney General, California Public Utilities Commission and State Senate
Investigations. Reference is made to the "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Litigation and Other
Contingencies" section of the company's Form 10-K filed March 21, 2001.
Additionally, on March 14, 2001, the California Senate announced the formation
of a committee to investigate alleged manipulation in the state electricity and
natural gas markets. Mirant has received document requests in this investigation
and has been asked to make a presentation to the committee.
On April 13, 2001, Reliant Energy, Inc. filed suit in the Los Angeles
Superior Court against the Attorney General regarding the confidentiality of the
sensitive information requested. Mirant joined that suit on April 18, 2001. Also
on April 18, 2001, the Attorney General filed suit against Mirant in the San
Francisco Superior Court seeking to compel Mirant to produce documents in the
investigation. Senator Dunn announced on May 3 that he had invited the
California Attorney General, as well as the District Attorneys from across the
state to "collaborate" with the Senate Select Committee's investigation. To
date, only the San Joaquin District Attorney has accepted the invitation, and
the San Joaquin District Attorney's office used Dunn's announcement as a venue
to disclose that it had opened its own criminal investigation into the wholesale
energy markets on April 11, 2001. The investigations of the San Joaquin District
Attorney, the California Attorney General, and the Senate Select Committee are
all of a kind in that they seek to determine whether any market participants
engaged in unlawful conduct which resulted in higher power prices.
While Mirant will vigorously defend any claims of potential civil liability
or criminal wrongdoing asserted against it or its subsidiaries, the results of
such investigations cannot now be determined.
California Rate Payer Litigation. Reference is made to the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Litigation and Other Contingencies-California Class Action
Litigation" section of the company's Form 10-K filed March 21, 2001. A listing
of the cases follows: (1) People of the State of California v. Dynegy, et al.,
filed January 18, 2001 in the Superior Court of California - San Francisco
County; (2) Gordon v. Reliant Energy, Inc., et al., filed November 27, 2000 in
the Superior Court of California - San Diego County; (3) Hendricks v. Dynegy
Power Marketing, Inc., et al., filed November 29, 2000 in the Superior Court of
California - San Diego County; (4) Sweetwater Authority et al. v. Dynegy, Inc.,
et al., filed January 16, 2001 in the Superior Court of California - San Diego
37
County; and (5) Pier 23 Restaurant v. PG&E Energy Trading, et al., filed January
24, 2001 in the Superior Court of California - San Francisco County. On December
20, 2000, the Hendricks and Gordon cases were removed to the Federal District
Court for the Southern District of California. On February 21, 2001, the People
of California and Pier 23 cases were removed to the Federal District Court for
the Northern District of California. On March 5, 2001, the Sweetwater case was
removed to the Federal District Court for the Southern District of California.
A law suit, Bustamante et al. v. Dynegy, Inc. et al., was filed May 2, 2001
in the Superior Court of California - Los Angeles County naming, among others,
Mirant and certain of its officers as defendants. The lawsuit alleges that the
defendants engaged in various unlawful and anti-competitive acts that served to
manipulate wholesale power markets and inflate wholesale electricity prices in
California. The plaintiffs seek injunctive relief, disgorgement of unlawful
profits, restitution, treble damages and attorney's fees. The complaint does not
set out a specific amount of damages that are being sought but alleges that the
state has had to spend more than $6 billion purchasing electricity, a material
portion of which was at inflated prices. Additionally, the complaint alleges
that if an injunction is not issued, that the state will be required to spend
more than $150 million per day purchasing electricity. Mirant cannot predict at
this time the outcome of this proceeding.
Defaults by CAISO. On April 6, 2001, the CAISO failed to pay approximately
$730,000 to Mirant Potrero and approximately $5.9 million to Mirant Delta under
the reliability-must-run agreements assumed by Mirant California from PG&E.
CARE Complaint. On April 16, 2001, Californians for Renewable Energy, Inc.
("CARE") filed a complaint at the FERC against Mirant and three other suppliers
alleging that those suppliers withheld power to contrive an energy shortage and
to test their market power in violation of the Federal Power Act, federal and
state anti-trust laws, Title VI of the Civil Rights Act of 1964 and the North
American Free Trade Agreement. The complaint seeks refunds of overcharges and
unspecified damages. Mirant cannot predict at this time the outcome of this
proceeding.
CAISO and PX Price Caps. Reference is made to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Litigation and
Other Contingencies" section of the company's Form 10-K filed March 21, 2001. On
April 11, 2001, Mirant California, Mirant Delta and Mirant Potrero provided
additional price justification for the transactions in January and February
subject to refund. Mirant cannot be assured that the FERC will accept the
justification and decline to order refunds of some or all of these amounts. On
April 16, 2001, the FERC issued a proxy price for March 2001 of $300/MWh. The
total refund exposure to Mirant for the month was less than $100,000.
In March 2001, the FERC staff issued its recommendation, regarding a new
market mitigation plan to be effective on May 1, 2001, which included continued
price mitigation during Stage 3 emergencies. On April 6, 2001, the CAISO filed a
proposed market stabilization plan at the FERC. On April 26, 2001, the FERC
issued an order adopting a market monitoring and price mitigation plan modeled
closely on the recommendation made by its staff. The April 26 order provides for
price mitigation in all hours in which power reserves fall below 7.5 percent, a
level that corresponds to the CAISO's Stage 1 emergency. In these hours, the
FERC will use a formula based on the marginal costs of the highest-cost
generator called on to run to determine the overall market-clearing price. In
the event that a generator sells power at prices higher than the formula price
set by FERC, the generator is required to submit data to FERC within seven days
to justify the higher price. The April 26 order also provides for: (a) increased
coordination and control of generation plan outages by the CAISO, (b) all
in-state generation, including generation owned by sellers not subject to FERC
jurisdiction, to offer all available power for sale in real time, (c)
load-serving public utilities to establish by June 1, 2001 demand response
mechanisms identifying the price at which load would be curtailed, (d) the FERC
to continue to monitor closely behavior of market participants, including
bidding behavior and plant outages, (e) interested parties to file comments
within 30 days on whether the CAISO should be required to institute, on a
prospective basis, a surcharge on power sales to cover payments due to
38
generators by the California utilities, and (f) the FERC to institute an
investigation under Section 206 of the Federal Power Act into the rates, terms
and conditions of certain short-term wholesale power sales in the Western
markets outside of California. This mitigation program became effective May 1,
2001, and will terminate after one year. The FERC conditioned the mitigation
plan on the CAISO and the three major California utilities submitting a Regional
Transmission Organization proposal by June 1, 2001.
Proposed CAISO and PX Tariff Amendments. Reference is made to the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Litigation and Other Contingencies" section of the company's Form
10-K filed March 21, 2001. On April 6, 2001, the FERC confirmed its February 14,
2001 decision pertaining to the CAISO's tariff amendment.
Pacific Gas & Electric ("PG&E") Bankruptcy. On April 6, 2001, PG&E filed a
voluntary petition under Chapter 11 of the Bankruptcy Code in the U.S.
Bankruptcy Court for the Northern District of California in San Francisco. It is
not known at this time what effect the bankruptcy filing will have on the
ultimate recovery of amounts owed by PG&E.
State Line Litigation. Reference is made to the "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Litigation and
Other Contingencies" section of the company's Form 10-K filed March 21, 2001.
This case was filed on January 18, 2001 under the caption Alderson et al. v.
Southern Company et al. The case is currently pending before the Illinois
Circuit Court in Cook County.
Bewag. Reference is made to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Litigation and Other
Contingencies" section of the company's Form 10-K filed March 21, 2001. On April
27, 2001, settlement was reached and approved by the City of Berlin's Senate.
The settlement resulted in an agreement between Mirant and HEW, conditional upon
competition authority approval, whereby the two entities will have joint control
and equal stakes (43% each) in Bewag. The remaining 14% ownership in Bewag is
expected to be publicly traded.
WPD and South Wales Electricity plc ("SWE") Pension Issues. Reference is
made to the "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Litigation and Other Contingencies" section of the
company's Form 10-K filed March 21, 2001. On April 4, 2001, the House of Lords
ruled in favor of the employer and against the ESPS, thus resolving this matter
without cost to Mirant. It is understood that the complainants are considering
whether to appeal to a European court.
International Energy Limited Arbitration Award. Reference is made to the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Litigation and Other Contingencies" section of the company's Form
10-K filed March 21, 2001. On March 29, 2001, Mirant entered into a Settlement
Agreement concerning this matter whereby Mirant was released of liability
without cost.
Item 5. Other Information
Pursuant to its Securities Trading Policy, Mirant has implemented a policy
to permit stock trading programs under newly adopted Rule 10b5-1 of the
Securities and Exchange Commission. The new rule permits employees to adopt
written plans at a time when they are not aware of material nonpublic
information and to sell shares according to a pre-established plan in a one-time
sale, or on a regular basis (for example, weekly or monthly), regardless of any
subsequent nonpublic information they receive or the price of the stock at the
time of the sale. Investors should be aware that transactions reported by
directors and senior management may have been put in place far in advance of the
date of the actual trade.
39
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
(b) Reports on Form 8-K
-------------------
During the quarter ended March 31, 2001, the Company filed a Current Report on
Form 8-K dated January 3, 2001. Items 2 and 7 were reported and financial
statements were filed.
During the quarter ended March 31, 2001, the Company filed an Amendment to
Current Report on Form 8-K dated March 1, 2001. Current Report on Form 8-K was
originally filed January 3, 2001. Items 2 and 7 were reported and financial
statements were filed.
During the quarter ended March 31, 2001, the Company filed an Amendment to
Current Report on Form 8-K dated March 2, 2001. Current Report on Form 8-K was
originally filed January 3, 2001. Items 2 and 7 were reported and financial
statements were filed.
During the quarter ended March 31, 2001, the Company filed a Current Report on
Form 8-K dated March 6, 2001. Item 7 was reported and financial statements were
filed.
40
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. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MIRANT CORPORATION
By /s/ James A. Ward
James A. Ward
Senior Vice President, Finance
And Accounting
(Principal Accounting Officer)
Date: May 10, 2001