-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WY13cinIa6HgfQXvATLeAxvS8qYVUbqPjpw7v5YpF7HcULPDnXKO1v5VoJX4ZcwA 7Z2NfkZY/dDYqG2rHr3UZQ== 0000930835-96-000019.txt : 19961115 0000930835-96-000019.hdr.sgml : 19961115 ACCESSION NUMBER: 0000930835-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EDISON MISSION ENERGY CENTRAL INDEX KEY: 0000930835 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 954031807 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24890 FILM NUMBER: 96660892 BUSINESS ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92715 BUSINESS PHONE: 7147525588 MAIL ADDRESS: STREET 1: 18101 VON KARMAN AVE STREET 2: STE 1700 CITY: IRVINE STATE: CA ZIP: 92715 FORMER COMPANY: FORMER CONFORMED NAME: MISSION ENERGY CO DATE OF NAME CHANGE: 19941003 10-Q 1 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 quarterly period ended September 30, 1996 ----------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ----------------- Commission File Number 1-13434 EDISON MISSION ENERGY (Exact name of registrant as specified in its charter) CALIFORNIA 95-4031807 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 18101 VON KARMAN AVENUE IRVINE, CALIFORNIA 92612 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714) 752-5588 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 --- --- Number of shares outstanding of the registrant's Common Stock as of November 14, 1996: 100 shares (all shares held by an affiliate of the registrant). TABLE OF CONTENTS
Item Page - ---- ---- PART I - FINANCIAL INFORMATION 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 9 PART II - OTHER INFORMATION 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 15 PART III Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
(Unaudited) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------------- --------------------------- 1996 1995 1996 1995 --------- --------- --------- --------- OPERATING REVENUE Electric revenues $ 137,933 $ 64,559 $ 428,462 $ 191,017 Equity in income from energy projects 60,506 71,010 117,102 119,034 Equity in income from oil and gas 4,958 2,783 14,050 9,819 Operation and maintenance services 8,587 8,933 27,355 25,996 --------- -------- --------- --------- Total operating revenue 211,984 147,285 586,969 345,866 ------- ------- ------- ------- OPERATING EXPENSES Fuel 28,822 17,292 93,148 53,216 Plant operations 31,374 10,616 91,030 28,090 Operation and maintenance services 6,268 6,715 19,866 19,793 Depreciation and amortization 19,327 11,002 57,723 31,327 Administrative and general 18,740 15,389 59,229 42,955 ------- ------- ------- ------- Total operating expenses 104,531 61,014 320,996 175,381 ------- ------- ------- ------- Income from operations 107,453 86,271 265,973 170,485 ------- ------- ------- ------- OTHER INCOME (EXPENSE) Interest and other income 3,444 9,351 15,859 22,521 Gain on sale of assets - - 19,986 - Interest expense (32,445) (20,221) (98,144) (58,770) Dividends on preferred securities (3,282) (2,779) (9,830) (6,769) Minority interest (12,821) (11,472) (40,707) (34,958) --------- --------- --------- --------- Total other income (expense) (45,104) (25,121) (112,836) (77,976) --------- --------- --------- --------- Income before income taxes 62,349 61,150 153,137 92,509 Provision for income taxes 31,320 22,228 69,103 31,603 ------- ------- ------- ------- NET INCOME $ 31,029 $ 38,922 $ 84,034 $ 60,906 ========= ========= ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
(Unaudited) September 30, December 31, 1996 1995 -------------- -------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 258,445 $ 137,540 Accounts receivable - trade 44,723 88,988 Accounts receivable - affiliates 8,164 10,348 Prepaid expenses and other 13,265 13,268 ------------ ------------ Total current assets 324,597 250,144 ------------ ------------ INVESTMENTS Energy projects 776,100 723,935 Oil and gas 141,544 156,905 ------------ ------------ Total investments 917,644 880,840 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT 3,235,957 2,845,422 Less accumulated depreciation and amortization 123,483 83,275 ------------ ------------ Net property, plant and equipment 3,112,474 2,762,147 ------------ ------------ OTHER ASSETS Long-term receivables 92,697 86,030 Goodwill 307,738 311,942 Deferred financing costs and other 116,133 82,933 ------------ ------------ Total other assets 516,568 480,905 ------------ ------------ TOTAL ASSETS $4,871,283 $4,374,036 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
(Unaudited) September 30, December 31, 1996 1995 -------------- -------------- LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable - affiliates $ 69,009 $ 11,500 Accounts payable and accrued liabilities 97,001 137,623 Interest payable 25,507 13,641 Current maturities of long-term obligations 49,936 37,009 ------------ ------------ Total current liabilities 241,453 199,773 ------------ ------------ LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 2,142,807 1,839,003 ------------ ------------ LONG-TERM DEFERRED LIABILITIES Deferred taxes and tax credits 485,116 502,611 Other 32,805 23,958 ------------ ------------ Total long-term deferred liabilities 517,921 526,569 ------------ ------------ Total liabilities 2,902,181 2,565,345 ------------ ------------ MINORITY INTERESTS 701,147 630,154 ------------ ------------ COMPANY - OBLIGATED MANDATORILY REDEEMABLE SECURITY OF PARTNERSHIP HOLDING SOLELY PARENT DEBENTURES 150,000 150,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 3) SHAREHOLDER'S EQUITY Common stock, no par value; 10,000 shares authorized; 100 shares issued and outstanding 64,130 64,130 Additional paid-in capital 629,289 629,289 Retained earnings 404,563 320,529 Cumulative translation adjustments 19,973 14,589 ----------- ----------- Total shareholder's equity 1,117,955 1,028,537 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,871,283 $4,374,036 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited) Nine Months Ended September 30, --------------------------------------- 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 84,034 $ 60,906 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income from energy projects (117,102) (119,034) Equity in income from oil and gas (14,050) (9,819) Distributions from energy projects 86,685 101,302 Dividends from oil and gas 21,340 16,731 Depreciation and amortization 57,723 31,327 Deferred tax credit (20,514) (156) Gain on sale of assets (19,986) - Decrease in accounts receivable 60,314 9,823 Decrease in prepaid expenses and other 4,674 5,725 Increase in interest payable 7,995 3,392 Increase in accounts payable and accrued liabilities 18,849 186 Other, net 23,388 10,722 --------- --------- Net cash provided by operating activities 193,350 111,105 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings on long-term obligations 181,991 270,527 Payments on long-term obligations (683,351) (30,853) Issuance of preferred securities - 62,500 Issuance of guaranteed secured bonds 603,840 - ----------- ---------- Net cash provided by financing activities 102,480 302,174 ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Investments in energy projects (52,668) (77,389) Loans to energy projects (45,517) (164,734) Purchase of common stock of acquired companies (34,640) (25,347) Proceeds from sale of assets 70,000 - Capital expenditures (115,639) (138,378) Other, net 3,075 (5,799) ---------- ---------- Net cash used in investing activities (175,389) (411,647) ---------- ---------- Effect of exchange rate changes on cash 464 8 ---------- ---------- Net increase in cash and cash equivalents 120,905 1,640 Cash and cash equivalents at beginning of period 137,540 64,145 ---------- ---------- Cash and cash equivalents at end of period $258,445 $ 65,785 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
EDISON MISSION ENERGY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 NOTE 1. GENERAL - --------------- All adjustments, including recurring accruals, have been made that are necessary to present fairly the consolidated financial position and results of operations for the periods covered by this report. The results of operations for the nine months ended September 30, 1996, are not necessarily indicative of the operating results for the full year. Edison Mission Energy's (the "Company") significant accounting policies are described in Note 2 to the Company's Consolidated Financial Statements as of December 31, 1995 and 1994, included in its 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 1996. The Company follows the same accounting policies for interim reporting purposes. This quarterly report should be read in connection with such financial statements. Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. NOTE 2. INVESTMENTS - -------------------- The following table presents summarized financial information with respect to the energy projects and oil and gas investments, accounted for by the equity method:
(In thousands) (Unaudited) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1996 1995 1996 1995 ---------- ---------- ----------- ---------- ENERGY PROJECTS Operating Revenue $418,068 $368,580 $1,032,145 $860,149 Income from Operations 154,251 178,117 329,842 330,144 Net Income 132,139 145,044 267,740 238,448 OIL AND GAS Operating Revenue $ 71,589 $ 35,811 $211,230 $149,616 Income from Operations 17,239 6,853 52,462 33,258 Net Income 10,655 4,881 34,517 21,820
NOTE 3. COMMITMENTS AND CONTINGENCIES - -------------------------------------- FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- -------------- -------------------- Paiton (i) 239 ISAB (ii) 244 billion Italian Lira 160 Kwinana (iii) 28 million Australian $ 22
(i) Paiton is a 1,230-MW coal-fired power plant under construction in east Java, Indonesia. A wholly owned subsidiary of the Company owns a 40% interest. Equity contributions are currently being made and will continue until commercial operation which is currently scheduled for early 1999. (ii) ISAB is a 512-MW gas-fired (gasification technology) power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of the Company owns a 49% interest. Equity will be contributed at commercial operation which is currently scheduled for late 1999. (iii) Kwinana is a 116-MW gas-fired cogeneration power plant under construction near Perth, Australia. Two wholly owned subsidiaries of the Company own a 100% interest. Equity will be contributed at commercial operation which is currently scheduled for the fourth quarter of 1996. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- -------------- -------------------- Brooklyn Navy Yard (i) 294 Paiton (ii) 141 Kwinana 7 million Australian $ 5 Loy Yang B 5 million Australian $ 4 All Other 20
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant under construction in Brooklyn, New York. A wholly owned subsidiary of the Company owns 50%, but is funding all of the required equity during construction. Total estimated capital cost is $483 million of which $409 million has been spent through September 30, 1996. Commercial operation is currently scheduled for the fourth quarter of 1996. In December 1995, the Company obtained a tax-exempt bond financing for the project in the amount of $254 million through the New York City Industrial Development Agency (NYCIDA). The Company has guaranteed the obligations of the project pursuant to the financing as well as an indemnity agreement on behalf of NYCIDA in the amount of $40 million. In November 1996, the Company executed a new Energy Sales Agreement with Consolidated Edison Company of New York (Consolidated Edison), which has contracted to buy most of the project's power and steam, and began selling power and steam under that Agreement on November 1. The Company continues to believe that its anticipated returns with respect to the project will be substantially less than it had originally estimated. The Company has been advised that the contractor intends to assert general monetary claims under the construction turnkey agreement against Brooklyn Navy Yard. The Company may assert claims against the contractor. None of such claims is expected to have a material adverse effect on the Company's financial position or results of operations. (ii) Contingent obligations to contribute additional project equity to the Paiton project would be based on events principally related to capital cost overruns during the plant construction. Management has no reason to believe that these contingent obligations or any other contingent obligations to contribute project equity will be required. OTHER COMMITMENTS AND CONTINGENCIES Certain of the Company subsidiaries entered into indemnification agreements whereby the subsidiaries agreed to repay capacity payments to the projects' power purchasers, in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contract. Obligations under these indemnification agreements as of September 30, 1996, if required, would be $244 million. Management has no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. Certain Company subsidiaries are required to fund construction costs of project facilities, which are estimated to be $75 million at September 30, 1996 (principally related to the Brooklyn Navy Yard project). LITIGATION The Company is routinely involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management, based on advice of counsel, does not believe that the final outcome of any pending litigation will have a material adverse effect on the Company's financial position or results of operations. ENVIRONMENTAL MATTERS The Company is subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with jurisdiction over projects located outside the United States. The Company believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial condition or results of operations. The Company completed a review of some of its sites in 1995 and does not believe that a material liability exists as of September 30, 1996. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these increased operating expenses are not expected to have a material impact on the Company's financial position or results of operations. NOTE 4. SUBSEQUENT EVENTS - -------------------------- In October 1996, the Company made a cash dividend of $150 million to its parent company, The Mission Group, a wholly owned non-utility subsidiary of Edison International, in order to allow Edison International to repay amounts borrowed and contributed to the Company in connection with the acquisition of First Hydro in 1995. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL - ------- The Company is one of the leading independent producers of electricity worldwide. Through its subsidiaries, the Company is engaged in the business of developing, acquiring, owning and operating independent electric power generation facilities. The Company's operating revenues are derived primarily from electric revenues and equity in income from energy projects. Operating revenues also include equity in income from oil and gas investments and revenue attributable to operation and maintenance services. Electric revenues are derived from the consolidated results of operations of four international energy projects. Equity in income from energy projects primarily relates to the Company's ownership interest of 50% or less in domestic projects. The equity method of accounting is generally used to account for the operating results of entities over which a company has a significant influence but in which it does not have a controlling interest. With respect to entities accounted for under the equity method, the Company recognizes its proportional share of the income or loss of such entities. RESULTS OF OPERATIONS - --------------------- OPERATING REVENUES Operating revenues increased $64.7 million and $241.1 million for the third quarter and nine months ended September 30, 1996, respectively, compared with the corresponding periods of 1995. Increases in both periods resulted primarily from higher electric revenues due to the acquisition of First Hydro in December 1995. In addition, Iberian Hy-Power contributed additional electric revenues as a result of the Company increasing its minority ownership percentage to 100% in January 1996. Both First Hydro and Iberian Hy-Power provide for higher electric revenues during the winter months. There were no comparable electric revenues for these projects included in the three-month and nine-month periods ended September 30, 1995. A significant number of the Company's domestic energy projects are located on the West Coast. These projects generally have power sales contracts that provide for higher payments during the summer months. Accordingly, the Company's third quarter revenues from energy projects are materially higher than other quarters of the year. In addition, First Hydro has experienced higher energy sales due to higher capacity prices resulting from an increased number of competing plants out of service for maintenance during the summer months. On October 1, 1996, the Company announced that Unit 2 of the 1,000-MW coal- fired Loy Yang B power plant near Melbourne, Australia, began commercial operation. Unit 1 began commercial operation in September 1993. The Company operates the plant and has a 51% ownership interest. Loy Yang B sells its electricity to the State Electricity Commission of Victoria which owns the other 49% of the plant. Equity in income from energy projects decreased in the third quarter of 1996, compared with the third quarter of 1995 resulting primarily from a $11 million (pre-tax) write-down of the Company's investment in a geothermal project. The write-down is principally the result of the transition from fixed to variable pricing. The variable pricing reflects lower gas price forecasts than were realized during the fixed pricing term of the contract. OPERATING EXPENSES Operating expenses increased $43.5 million in the third quarter of 1996, compared to the third quarter of 1995. For the nine months ended September 30, 1996, operating expenses increased $145.6 million, compared with the corresponding period in 1995. The increases for both periods were principally due to higher fuel expense, plant operations and depreciation and amortization expense, resulting from the addition of operations related to First Hydro and Iberian Hy-Power. There were no comparable expenses for these projects included in the three-month and nine-month periods ended September 30, 1995. Administrative and general expenses increased in the first nine months of 1996, compared to the first nine months of 1995, as a result of continued worldwide development and charges related to a voluntary retirement offer for non-union employees. OTHER INCOME (EXPENSE) Interest and other income decreased $5.9 million and $6.7 million for the third quarter and the nine months ended September 30, 1996, respectively, compared with the corresponding periods in 1995. Decreases in both periods were primarily due to income recognized in August 1995 for reimbursement of certain 1994 development expenses and earnings not previously recognized in settlement of the Company's remaining investment in Minera Carbonifera Rio Escondido. The Company recognized a pre-tax gain of $20 million during the second quarter of 1996 related to the sale in April 1996 of four operating geothermal facilities in the Imperial Valley, California, for a cash price of $70 million. CalEnergy Company, Inc., the Company's partner in these projects, purchased all the stock of four wholly owned subsidiaries of the Company, which hold 50% interests in the Vulcan (34-MW), Andy Hoch (38-MW), Elmore (38-MW) and Leathers (38-MW) projects. There will be no impact on the Company's future revenues as the Company discontinued recognizing earnings from these projects in the third quarter of 1993. Interest expense, net of capitalized interest, increased $12.2 million in the third quarter of 1996, compared with the corresponding period in 1995. For the nine months ended September 30, 1996, interest expense, net of capitalized interest, increased $39.4 million compared with the same prior year period. The increases for both periods were due primarily to the additional debt related to the First Hydro acquisition. Dividends on preferred securities increased $3.1 million for the nine-month period ended September 30, 1996, compared with the corresponding period in 1995 due to the issuance of Series B preferred securities during the third quarter of 1995. PROVISION FOR INCOME TAXES The Company recorded an effective tax provision rate of 45% for the nine-month period ended September 30, 1996, compared with 34% for the same prior year period. The increase in the 1996 effective tax rate was primarily due to the acquisition of First Hydro. Earnings generated from the First Hydro project are subject to a higher effective tax rate than the federal statutory rate. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended September 30, 1996, net cash provided by operating activities increased to $193.4 million from $111.1 million for the nine months ended September 30, 1995. The improvement primarily reflects higher net income and improved accounts receivable collections primarily attributable to First Hydro. Net cash provided by financing activities significantly decreased during the first nine months of September 30, 1996, compared with the corresponding period in 1995 primarily due to a reduction in net issuances under the Company's $400 million revolving credit facility in 1996 and proceeds of $62.5 million received in 1995 from the issuance of Series B Preferred Securities. In addition, the Company issued 400 million pounds sterling of 9% Guaranteed Secured Bonds (U.S. $603.8 million) in January 1996. The net proceeds received were used to repay the borrowings under the 400 million pounds sterling (U.S. $603.8 million) credit facility entered into by First Hydro Finance in December 1995 in connection with the First Hydro acquisition. Net cash used in investing activities decreased for the first nine months of 1996, compared with the same prior year period primarily due to a reduction in the amount of loans made to energy projects under development and the proceeds of $70 million received from the sale of four of the Company's operating geothermal facilities in April 1996, partially offset by an increase in the amount of purchases of common stock of acquired companies primarily related to the acquisition of the remaining equity stake of Iberian Hy-Power. The Company invested $115.6 million in new plant and equipment during the nine months ended September 30, 1996, principally related to Loy Yang B Unit 2 and the Kwinana project, compared to $138.4 million during the same period in 1995. At September 30, 1996, the Company had cash and cash equivalents of $258.4 million and had available $314 million of borrowing capacity under a $400 million revolving credit facility. On October 11, 1996, the Company amended its $400 million revolving credit facility by increasing the total amount of the facility to $500 million and extending the original maturity date of November 17, 1999 to October 10, 2001. The amended agreement provides credit available in the form of cash advances or letters of credit, and bears interest on advances under the facility at the London Interbank Offered Rate plus the applicable margin as determined by the Company's long-term debt ratings, the Base Rate, or on a competitive auction basis. This borrowing capacity under the revolving credit facility will be reduced by borrowings for firm commitments to contribute project equity and to fund construction costs of its project facilities. FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- -------------- -------------------- Paiton (i) 239 ISAB (ii) 244 billion Italian Lira 160 Kwinana (iii) 28 million Australian $ 22
(i) Paiton is a 1,230-MW coal-fired power plant under construction in east Java, Indonesia. A wholly owned subsidiary of the Company owns a 40% interest. Equity contributions are currently being made and will continue until commercial operation which is currently scheduled for early 1999. (ii) ISAB is a 512-MW gas-fired (gasification technology) power plant under construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of the Company owns a 49% interest. Equity will be contributed at commercial operation which is currently scheduled for late 1999. (iii) Kwinana is a 116-MW gas-fired cogeneration power plant under construction near Perth, Australia. Two wholly owned subsidiaries of the Company own a 100% interest. Equity will be contributed at commercial operation which is currently scheduled for the fourth quarter of 1996. Firm commitments to contribute project equity could be accelerated due to certain events of default as defined in the non-recourse project financing facilities. CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS) - -------- -------------- -------------------- Brooklyn Navy Yard (i) 294 Paiton (ii) 141 Kwinana 7 million Australian $ 5 Loy Yang B 5 million Australian $ 4 All Other 20
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant under construction in Brooklyn, New York. A wholly owned subsidiary of the Company owns 50%, but is funding all of the required equity during construction. Total estimated capital cost is $483 million of which $409 million has been spent through September 30, 1996. Commercial operation is currently scheduled for the fourth quarter of 1996. In December 1995, the Company obtained a tax-exempt bond financing for the project in the amount of $254 million through the New York City Industrial Development Agency (NYCIDA). The Company has guaranteed the obligations of the project pursuant to the financing as well as an indemnity agreement on behalf of NYCIDA in the amount of $40 million. In November 1996, the Company executed a new Energy Sales Agreement with Consolidated Edison Company of New York (Consolidated Edison), which has contracted to buy most of the project's power and steam, and began selling power and steam under that Agreement on November 1. The Company continues to believe that its anticipated returns with respect to the project will be substantially less than it had originally estimated. The Company has been advised that the contractor intends to assert general monetary claims under the construction turnkey agreement against Brooklyn Navy Yard. The Company may assert claims against the contractor. None of such claims is expected to have a material adverse effect on the Company's financial position or results of operations. (ii) Contingent obligations to contribute additional project equity to the Paiton project would be based on events principally related to capital cost overruns during the plant construction. Management has no reason to believe that these contingent obligations or any other contingent obligations to contribute project equity will be required. OTHER COMMITMENTS AND CONTINGENCIES Certain of the Company subsidiaries entered into indemnification agreements whereby the subsidiaries agreed to repay capacity payments to the projects' power purchasers, in the event the projects unilaterally terminate their performance or reduce their electric power producing capability during the term of the power contract. Obligations under these indemnification agreements as of September 30, 1996, if required, would be $244 million. Management has no reason to believe that the projects will either terminate their performance or reduce their electric power producing capability during the term of the power contracts. Certain company subsidiaries are required to fund construction costs of project facilities, which are estimated to be $75 million at September 30, 1996 (principally related to the Brooklyn Navy Yard project). In October 1996, the Company made a cash dividend of $150 million to its parent company, The Mission Group, a wholly owned non-utility subsidiary of Edison International, in order to allow Edison International to repay amounts borrowed and contributed to the Company in connection with the acquisition of First Hydro in 1995. The Company and its subsidiaries may incur additional obligations to make equity and other contributions to projects in the future. The Company believes that it will have sufficient liquidity on both a short and long-term basis to fund pre-financing project development costs, make equity contributions to partnerships, pay corporate debt obligations and pay other administrative and general expenses as they are incurred from (1) distributions from energy projects and dividends from investments in oil and gas, (2) proceeds from the repayment of loans to energy projects, (3) funds available from the Company's revolving credit facility and (4) additional corporate borrowings. CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, AND FOREIGN CURRENCY FLUCTUATIONS Changes in interest rates, changes in electricity pool pricing, and fluctuations in foreign currency exchange rates can have a significant impact on the Company's results of operations. Interest rate changes affect the cost of capital needed to construct and finance projects. The Company has mitigated the risk of interest rate fluctuations by arranging for fixed rate financing or variable rate financing with interest rate swaps or other hedging mechanisms for the majority of its project financings. Interest expense was increased by $5.6 million and $5.3 million for the nine months ended September 30, 1996 and 1995, respectively, as a result of interest rate hedging mechanisms. The Company has entered into several interest rate swap agreements whereby the maturity date of the swaps occurs prior to the final maturity of the underlying debt. The Company does not believe that interest rate fluctuations will have a materially adverse effect on financial position or results of operations. Projects in the U.K. sell their electrical energy and capacity through a centralized electricity pool, which establishes a half-hourly clearing price (also referred to as the "pool price"). The half-hourly pool price is extremely volatile and can vary by as much as a factor of 10 or more over the course of a few hours, due to the large differentials in demand according to the time of day. First Hydro mitigates a portion of the market risk of the pool by entering into contracts for differences (electricity rate swap agreements), whereby First Hydro receives specified contracted amounts in exchange for making payments when pool selling prices rise above the prices specified in the contracts. These contracts act as a means of stabilizing production revenues by removing an element of net exposure to pool price volatility. First Hydro electric revenues were decreased by $4 million for the nine-month period ended September 30, 1996, as a result of electricity rate swap agreements. Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar equivalent basis, the amount of the Company's equity contributions to, and distributions from, its foreign projects. As the Company continues to expand into foreign markets, fluctuations in foreign currency exchange rates can be expected to have a greater impact on the Company's results of operations in the future. The Company has hedged a portion of its current exposure to fluctuations in foreign exchange rates where it deems appropriate through offsetting obligations denominated in foreign currencies and indexing underlying project agreements to U.S. dollars or other indices reasonably expected to correlate with foreign exchange movements. ENVIRONMENTAL MATTERS OR REGULATIONS The Company is subject to environmental regulation by federal, state and local authorities in the United States and foreign regulatory authorities with jurisdiction over projects located outside the United States. The Company believes that it is in substantial compliance with environmental regulatory requirements and that maintaining compliance with current requirements will not materially affect its financial condition or results of operations. The Company completed a review of some of its sites in 1995 and does not believe that a material liability exists as of September 30, 1996. The implementation of Clean Air Act Amendments is expected to result in increased operating expenses; however, these increased operating expenses are not expected to have a material impact on the Company's financial position or results of operations. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS EXHIBIT NO. DESCRIPTION ----------- ----------- 27 Financial Data Schedule (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1996. 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. EDISON MISSION ENERGY --------------------- (Registrant) Date: November 13, 1996 JAMES V. IACO, JR. ------------------- Senior Vice President and Chief Financial Officer EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EDISON MISSION ENERGY AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 258,445 0 44,723 0 0 324,597 3,235,957 123,483 4,871,283 241,453 2,142,807 150,000 0 64,130 1,053,825 4,871,283 0 455,817 0 204,044 0 0 107,974 153,137 69,103 84,034 0 0 0 84,034 0 0
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