-----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, Qb0ybUZE7FcHQyhoI6unNkDumWoWWYBgJDRdIKm69Nc9eoQanB07dq1ho3MQgGQV 9OKmDBpx+10CtPtSogc5Mw== 0000949149-96-000002.txt : 19960515 0000949149-96-000002.hdr.sgml : 19960515 ACCESSION NUMBER: 0000949149-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960413 FILED AS OF DATE: 19960514 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA FUNDING CORP CENTRAL INDEX KEY: 0000949149 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538 FILM NUMBER: 96562252 BUSINESS ADDRESS: STREET 1: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH ST STREET 2: STE 400 A CITY: OMAHA STATE: NE ZIP: 68131 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1995 Commission File No. SALTON SEA FUNDING CORPORATION (Exact name of registrant as specified in its charter) 47-0790493 (IRS Employer Identification No.) Salton Sea Brine Processing L.P. California 33-0601721 Salton Sea Power Generation L.P. California 33-0567411 Fish Lake Power Company Delaware 33-0453364 Vulcan Power Company Nevada 95-3992087 CalEnergy Operating Company Delaware 33-0268085 Salton Sea Royalty Company Delaware 47-0790492 (Exact name of Registrants (State or other(I.R.S. Employer as specified in their charters) jurisdiction ofIdentification No.) incorporation or organization) 302 S. 36th Street, Suite 400-A, Omaha, NE 68131 (Address of principal executive offices and Zip Code of Salton Sea Funding Corporation) Salton Sea Funding Corporation's telephone number, including area code: (402) 231-1641 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 All common stock of Salton Sea Funding Corporation is indirectly held by Magma Power Company. 100 shares of Common Stock were outstanding on March 31, 1996. SALTON SEA FUNDING CORPORATION Form 10-Q March 31, 1996 _____________ C O N T E N T S PART I: FINANCIAL INFORMATION Page Item 1. Financial Statements SALTON SEA FUNDING CORPORATION Report of Independent Accountants . . . . . . . . . . . . . . . .4 Balance Sheets, March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . . . .5 Statement of Operations for the Three Months Ended March 31, 1996. . . . . . . . . . . . . . . . . .6 Statement of Cash Flows for the Three Months Ended March 31, 1996. . . . . . . . . . . . . . .7 Notes to Financial Statements . . . . . . . . . . . . . . . . . .8 SALTON SEA GUARANTORS Report of Independent Accountants . . . . . . . . . . . . . . . .9 Combined Balance Sheets, March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . . . .10 Combined Statements of Operations for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . .11 Combined Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . .12 Notes to Combined Financial Statements. . . . . . . . . . . . . .13 PARTNERSHIP GUARANTORS Report of Independent Accountants . . . . . . . . . . . . . . . .15 Combined Balance Sheets, March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . . . .16 Combined Statements of Operations for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . .17 Combined Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . .18 Notes to Combined Financial Statements. . . . . . . . . . . . . .19 SALTON SEA ROYALTY COMPANY Report of Independent Accountants . . . . . . . . . . . . . . . .21 Balance Sheets, March 31, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . . . .22 Statements of Operations for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . .23 Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 . . . . . . . . . .24 Notes to Financial Statements . . . . . . . . . . . . . . . . . .25 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . .26 PART II: OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . .30 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . .30 Item 3. Defaults on Senior Securities . . . . . . . . . . . . . .30 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . .30 Item 5. Other Information . . . . . . . . . . . . . . . . . . . .30 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . .30 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . .31 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Salton Sea Funding Corporation Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Funding Corporation as of March 31, 1996, and the related statements of operations and cash flows for the three-month period ended March 31, 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Salton Sea Funding Corporation as of December 31, 1995, and the related statements of operations, stockholders' equity, and cash flows for the period from June 20, 1995 (inception date) through December 31, 1995 (not presented herein); and in our report dated January 26, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 25, 1996 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 1996 1995 ---------- ------------ (unaudited) ASSETS Cash $ 10,130 $ 4,393 Restricted cash and short-term investments 44,216 57,256 Prepaid expenses and other assets 10,945 3,070 Notes receivables from affiliates 452,088 452,088 Investment in 1% of net assets of Guarantors 5,914 5,714 ------- ------- $523,293 $522,521 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 10,831 $ 3,889 Due to affiliates 52,800 59,594 Senior secured notes and bonds 452,088 452,088 ------- ------- Total liabilities 515,719 515,571 Stockholder's equity: Common stock--authorized 1,000 shares, par value $.01 per share; issued and outstanding 100 shares - - Additional paid-in capital 5,554 5,443 Retained earnings 2,020 1,507 ------- ------- Total stockholder's equity 7,574 6,950 ------- ------- $523,293 $522,521 ======= =======
The accompanying notes are an integral part of the financial statements. SALTON SEA FUNDING CORPORATION STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (Dollars in Thousands) (Unaudited) Revenues: Interest income $8,953 Equity in earnings of Guarantors 88 ------ 9,041 Expenses: General and administrative expenses 181 Interest expense 7,990 ------ Total expenses 8,171 ------ Income before income taxes 870 Provision for income taxes 357 ------ Net income $ 513 ======
The accompanying notes are an integral part of the financial statements. SALTON SEA FUNDING CORPORATION STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (Dollars in Thousands) (Unaudited) Cash flows from operating activities: Net income $ 513 Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of guarantors (88) Changes in assets and liabilities: Prepaid expenses and other assets (7,875) Accrued liabilities 6,942 -------- Net cash flows from operating activities (508) -------- Cash flows from investing activities: Restricted cash 13,040 -------- Net cash flows from investing activities 13,040 -------- Cash flows from financing activities: Due to affiliates (6,795) -------- Net cash flows from financing activities (6,795) -------- Net change in cash 5,737 Cash at the beginning of period 4,393 -------- Cash at the end of period $ 10,130 ======== Non-cash investing and financing activities: Adjustments resulting from capital transactions of Guarantors $ 112 ========
The accompanying notes are an integral part of the financial statements. SALTON SEA FUNDING CORPORATION NOTES TO FINANCIAL STATEMENTS (in thousands) _____________________ 1. General: In the opinion of management of the Salton Sea Funding Corporation (the "Funding Corporation"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1996 and the results of operations for the three months ended March 31, 1996 and cash flows for the three months ended March 31, 1996. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results to be expected for the full year. The Funding Corporation was formed on June 20, 1995 for the sole purpose of acting as issuer of $475 million of senior secured notes and bonds 2. Other Footnote Information: Reference is made to the most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Funding Corporation's business and financial statement presentations. In particular, the significant accounting policies and practices were presented as Note 2 to the Funding Corporation financial statements included in that filing. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Salton Sea Guarantors as of March 31, 1996, and the related combined statements of operations and cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Guarantors' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such combined financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the combined balance sheet of the Salton Sea Guarantors as of December 31, 1995, and the related combined statements of operations, Guarantors' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 26, 1996, we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 25, 1996 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 1996 1995 --------- ------------ (unaudited) ASSETS Cash $ - $ 454 Accounts receivable 16,245 10,436 Prepaid expenses and other assets 17,853 20,129 Property, plant, contracts and equipment, net 445,554 417,287 Goodwill, net 51,768 52,094 -------- -------- $531,420 $500,400 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 841 $ 939 Accrued liabilities 12,137 4,043 Due to affiliates 22,482 4,319 Senior secured project note 321,500 321,500 -------- -------- Total liabilities 356,960 330,801 Total Guarantors' equity 174,460 169,599 -------- -------- $531,420 $500,400 ======== ========
The accompanying notes are an integral part of the combined financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
Three Months Ended March 31, ------------------ 1996 1995 -------- ------- (unaudited) Revenues: Sales of electricity $16,221 $15,611 Interest and other income 68 316 ------ ------ 16,289 15,927 ------ ------ Expenses: Operating, general and administrative expenses 5,789 5,804 Depreciation and amortization 2,682 3,043 Interest expense 6,257 4,256 Less capitalized interest (3,300) - ------ ------ Total expenses 11,428 13,103 ------ ------ Income before minority interest 4,861 2,824 Minority interest - 1,393 ------ ------ Net income $ 4,861 $ 1,431 ====== ======
The accompanying notes are an integral part of the combined financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, -------------------- 1996 1995 -------- ------- (unaudited) Cash flows from operating activities: Net income $ 4,861 $ 1,431 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,393 Depreciation and amortization 2,682 3,043 Changes in assets and liabilities: Accounts receivable (5,809) 106 Prepaid expenses and other assets 2,276 (4,758) Due to (from) affiliates 18,163 2,241 Accounts payable and accrued liabilities 7,996 2,105 --------- --------- Net cash flows from operating activities 30,169 5,561 --------- --------- Cash flows from investing activities: Purchase of Guarantors by CalEnergy, net of cash - (167,240) Capital expenditures (30,623) (16,380) Net increase in marketable securities - 4,988 Restricted cash - 2,501 --------- --------- Net cash flows from investing activities (30,623) (176,131) --------- --------- Cash flows from financing activities: Repayments on loans payable - (12,536) Loan proceeds - 179,640 Contributions from parent - 11,776 Distributions to parent - (5,000) --------- --------- Net cash flows from financing activities - 173,880 --------- --------- Net change in cash (454) 3,310 Cash at beginning of period 454 - --------- --------- Cash at end of period $ - $ 3,310 ========= =========
The accompanying notes are an integral part of the combined financial statements. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 1. General: In the opinion of management of the Salton Sea Guarantors (the "Guarantors"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1996 and the results of operations for the three months ended March 31, 1996 and 1995 and cash flows for the three months ended March 31, 1996 and 1995. The combined financial statements include the accounts of the partnerships in which the Guarantors have a 100% interest. The results of operations for the three months ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. Certain amounts in the 1995 financial statements and supporting footnote disclosures have been reclassified to conform to the 1996 presentation. Such reclassification did not impact previously reported net income or retained earnings. 2. Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantors' business and financial statement presentations. In particular, the Guarantors' significant accounting policies and practices were presented as Note 2 to the Guarantors' combined financial statements included in that filing. 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following:
March 31, December 31, 1996 1995 --------- ------------ Plant and equipment $174,030 $173,509 Salton Sea Unit 4 137,119 108,632 Power sale agreements 64,609 64,609 Mineral extraction 61,680 60,577 Exploration and development costs 18,305 17,793 -------- -------- 455,743 425,120 Less accumulated depreciation and amortization (10,189) (7,833) -------- -------- $445,554 $417,287 ======== ========
SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 4. Purchase of Magma Power Company: On January 10, 1995, CalEnergy Company, Inc. acquired approximately 51% of outstanding shares of common stock of Magma Power Company (the "Magma Common Stock") through a cash tender offer and completed the Magma acquisition on February 24, 1995 by acquiring approximately 49% of the outstanding shares of Magma Common Stock not owned by CECI through a merger. The transaction was accounted for as a purchase business combination. Unaudited pro forma combined revenue and net income of the Guarantors on a purchase, push down basis of accounting, for the quarter ended March 31, 1995, as if the acquisition had occurred at the beginning of the quarter after giving effect to certain pro forma adjustments related to the acquisition were $15,927 and $1,765 respectively. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Partnership Guarantors as of March 31, 1996, and the related combined statements of operations and cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Guarantors' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such combined financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the combined balance sheet of the Partnership Guarantors as of December 31, 1995, and the related combined statements of operations, Guarantors' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 26, 1996, we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 25, 1996 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 1996 1995 --------- ------------ (unaudited) ASSETS Cash $ 11,042 $ 11,146 Restricted cash and short-term investments 10,576 9,859 Accounts receivable 9,615 11,841 Due from affiliates 55,863 54,949 Prepaid expenses and other assets 12,077 9,651 Property, plant, contracts and equipment, net 299,210 298,956 Management fee 64,098 63,520 Goodwill, net 141,359 142,250 -------- -------- $603,840 $602,172 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 3,167 $ 3,566 Accrued liabilities 8,560 19,995 Loans payable 38,633 43,766 Senior secured project note 62,706 62,706 Deferred income taxes 97,396 98,407 -------- -------- Total liabilities 210,462 228,440 Guarantors' equity: Common Stock 3 3 Additional paid-in capital 375,593 359,092 Retained earnings 17,782 14,637 -------- -------- Total Guarantors' equity 393,378 373,732 -------- -------- $603,840 $602,172 ======== ========
The accompanying notes are an integral part of the combined financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands)
Three Months Ended March 31, ------------------ 1996 1995 -------- ------- (unaudited) Revenues: Sales of electricity $15,159 $16,717 Interest and other income 2,220 1,316 ------- ------ 17,379 18,033 Cost and expenses: Operating and administrative costs 7,612 7,602 Depreciation and amortization 4,373 2,438 Interest expense 2,007 3,209 Less capitalized interest (2,007) - ------- ------ Total expenses 11,985 13,249 ------- ------ Income before income taxes 5,394 4,784 Provision for income taxes 2,249 1,885 ------- ------ Income before minority interest 3,145 2,899 Minority interest - 1,427 ------- ------ Net income $ 3,145 $ 1,472 ======= ======
The accompanying notes are an integral part of the combined financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, --------------------- 1996 1995 --------- -------- (unaudited) Cash flows from operating activities: Net income $ 3,145 $ 1,472 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,427 Depreciation and amortization 4,373 2,438 Changes in assets and liabilities: Accounts receivable 2,226 4,355 Amount due from affiliates (914) 3,264 Prepaid expenses and other assets (3,004) 1,066 Accounts payable and accrued liabilities (12,845) 2,365 Other, net - (8,966) -------- --------- Net cash flows from operating activities (7,019) 7,421 -------- --------- Cash flows from investing activities: Purchase of Guarantors by CalEnergy, net of cash - (116,290) Capital expenditures (3,736) (1,051) Net decrease in marketable securities - 4,729 Restricted cash (717) (133) -------- --------- Net cash flows from investing activities (4,453) (112,745) -------- --------- Cash flows from financing activities: Repayments on loans payable (5,133) (4,437) Loan proceeds - 127,773 Contributions from parent 16,501 - Distributions to parent - (9,850) -------- --------- Net cash flows from financing activities 11,368 113,486 -------- --------- Net change in cash (104) 8,162 Cash at beginning of period 11,146 - -------- --------- Cash at end of period $ 11,042 $ 8,162 ========= =========
The accompanying notes are an integral part of the combined financial statements. PARTNERSHIP GUARANTORS NOTES TO FINANCIAL STATEMENTS (in thousands) ____________________ 1. General: In the opinion of management of the Partnership Guarantors (the "Guarantors"), the accompanying unaudited combined financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1996 and the results of operations for the three months ended March 31, 1996 and 1995 and cash flows for the three months ended March 31, 1996 and 1995. The combined financial statements include the proportionate share of the accounts of the partnerships in which the Guarantors have an interest. The results of operations for the three months ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. Certain amounts in the 1995 financial statements and supporting footnote disclosures have been reclassified to conform to the 1996 presentation. Such reclassification did not impact previously reported net income or retained earnings. 2. Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantors' business and financial statement presentations. In particular, the Guarantors' significant accounting policies and practices were presented as Note 2 to the Guarantors' combined financial statements included in that filing. 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following:
March 31, December 31, 1996 1995 --------- ------------ Plant and equipment $ 58,489 $ 58,532 Power sale agreements 44,966 44,966 Process license 46,290 46,290 Mineral extraction 114,357 112,350 Exploration and development costs 55,221 53,449 --------- ----------- 319,323 315,587 Less accumulated depreciation and amortization (20,113) (16,631) --------- ----------- $299,210 $298,956 ========= ===========
PARTNERSHIP GUARANTORS NOTES TO FINANCIAL STATEMENTS (in thousands) ____________________ 4. Purchase of Magma Power Company On January 10, 1995, CalEnergy Company, Inc. ("CECI") acquired approximately 51% of the outstanding shares of common stock of Magma Power Company (the "Magma Common Stock") through a cash tender offer and completed the Magma acquisition on February 24, 1995 by acquiring approximately 49% of the outstanding shares of Magma Common Stock not owned by CECI through a merger. The transaction was accounted for as a purchase business combination. Unaudited proforma combined revenue and net income of the Guarantors on a purchase, push down basis of accounting, for the quarter ended March 31, 1995, as if the acquisition had occurred at the beginning of the quarter after giving effect to certain pro forma adjustments related to the acquisition were $18,033 and $2,312, respectively. 5. Subsequent Event On April 17, 1996 CalEnergy Company, Inc. (CalEnergy) completed the acquisition of Edison Mission Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and Elmore geothermal operating facilities. Magma Power Company, a wholly-owned subsidiary of CalEnergy, operates these facilities and owns the remaining 50% interest in these facilities of which 40% of this interest related to Del Ranch, Leathers and Elmore and 50% of this interest related to Vulcan is assigned to the Partnership Guarantors. This acquisition by CalEnergy will not effect the Partnership Guarantors' combined financial statements. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Royalty Company as of March 31, 1996, and the related statements of operations and cash flows for the three-month periods ended March 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of the Salton Sea Royalty Company as of December 31, 1995, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 26, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1995 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 25, 1996 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands)
March 31, December 31, 1996 1995 --------- ------------ (unaudited) ASSETS Due from affiliates $24,985 $ 25,110 Royalty stream, net 51,401 53,744 Goodwill, net 35,685 35,912 Prepaid expenses and other assets 2,353 2,575 -------- -------- $114,424 $117,341 ======== ======== LIABILITIES AND EQUITY Liabilities: Accrued liabilities $ 8,593 $ 5,948 Senior secured project note 67,882 67,882 Deferred income taxes 14,429 15,460 -------- -------- Total liabilities 90,904 89,290 Equity: Common stock - - Additional paid-in capital 19,182 24,541 Retained earnings 4,338 3,510 -------- -------- Total equity 23,520 28,051 -------- -------- $114,424 $117,341 ======== ========
The accompanying notes are an integral part of the combined financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF OPERATIONS (Dollars in Thousands)
Three Months Ended March 31, ------------------ 1996 1995 -------- ------- (unaudited) Revenues: Royalty income $6,941 $6,751 Expenses: Operating, general and administrative expenses 1,707 1,594 Amortization of royalty stream and goodwill 2,570 1,232 Interest expense 1,358 1,540 ----- ----- Total expenses 5,635 4,366 ----- ----- Income before income taxes 1,306 2,385 Provision for income taxes 478 830 ----- ----- Income before minority interest 828 1,555 Minority interest - 1,092 ----- ----- Net income $ 828 $ 463 ===== =====
The accompanying notes are an integral part of the combined financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF CASH FLOWS (Dollars in Thousands)
Three Months Ended March 31, --------------------- 1996 1995 --------- -------- (unaudited) Cash flows from operating activities: Net income $ 828 $ 463 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,092 Amortization of royalty stream and goodwill 2,570 1,232 Changes in assets and liabilities: Prepaid expenses and other assets 222 - Accrued liabilities 1,614 (1,413) --------- --------- Net cash flows from operating activities 5,234 1,374 --------- --------- Net cash flows from investing activities: Purchase of Company by CECI, net of cash - (79,239) --------- --------- Net cash flows from investing activities - (79,239) --------- --------- Net cash flows from investing activities: Proceeds from issuance of debt - 83,022 Increase in due from affiliates 125 - Distribution to parent (5,359) (5,157) --------- --------- Net cash flows from financing activities (5,234) 77,865 --------- --------- Net change in cash - - Cash at beginning of period - - --------- --------- Cash at end of period $ - $ - ========= =========
The accompanying notes are an integral part of the combined financial statements. SALTON SEA ROYALTY COMPANY NOTES TO FINANCIAL STATEMENTS (in thousands) ____________________ 1. General: In the opinion of management of the Salton Sea Royalty Company (the "Company"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1996 and the results of operations for the three months ended March 31, 1996 and 1995 and cash flows for the three months ended March 31, 1996 and 1995. The results of operations for the three months ended March 31, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. Certain amounts in the 1995 financial statements and supporting footnote disclosures have been reclassified to conform to the 1996 presentation. Such reclassification did not impact previously reported net income or retained earnings. 2. Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantor's business and financial statement presentations. In particular, the Guarantor's significant accounting policies and practices were presented as Note 2 to the Company's financial statements included in that report. 3. Purchase of Magma Power Company On January 10, 1995, CalEnergy Company, Inc. ("CECI") acquired approximately 51% of the outstanding shares of common stock of Magma Power Company (the "Magma Common Stock") through a cash tender offer and completed the Magma acquisition on February 24, 1995 by acquiring approximately 49% of the outstanding shares of Magma Common Stock not owned by CECI through a merger. The transaction was accounted for as a purchase business combination. Unaudited proforma combined revenue and net income of the Company on a purchase, push down basis of accounting, for the quarter ended March 31, 1995, as if the acquisition had occurred at the beginning of the quarter after giving effect to certain pro forma adjustments related to the acquisition were $6,751 and $824, respectively. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: The following is management's discussion and analysis of certain significant factors which have affected the Funding Corporation's and Guarantor's financial condition and results of operations during the periods included in the accompanying statements of operations. Funding Corporation was organized for the sole purpose of acting as issuer of $475 million of senior secured notes and bonds (the "Securities"). The Securities are payable from the proceeds of payments made of principal and interest on the senior secured project notes by the Guarantors, as defined, to the Funding Corporation. The Securities are guaranteed on a joint and several basis by the Guarantors. The guarantees of the Partnership Guarantors and Salton Sea Royalty Company are limited to available cash flow. The Funding Corporation does not conduct any operations apart from the Securities. The Partnership Projects sell all electricity generated by the respective plants pursuant to four long-term SO4 Agreements between the projects and Southern California Edison ("Edison"). These SO4 Agreements provide for capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity bonus payments to the projects, and to the extent that capacity factors exceed certain benchmarks is required to make capacity bonus payments. The price for capacity and capacity bonus payments is fixed for the life of the SO4 Agreements and are significantly higher in the months of June through September. Energy is sold at increasing fixed rates for the first ten years of each contract and thereafter at Edison's Avoided Cost of Energy. The fixed price periods of the Partnership Project SO4 Agreements extend until February 1996, December 1998, December 1998, and December 1999 for each of the Vulcan, Hoch (Del Ranch), Elmore and Leathers Partnerships, respectively, The Partnership Project's SO4 Agreements provide for rates ranging from 12.7 cents per kWh in 1996 to 15.6 cents per kWh in 1999. The Salton Sea I Project sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement, as amended (the "Salton Sea I PPA"), which provides for capacity and energy payments. The initial contract capacity and contract nameplate are each 10 MW. The energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Unit 1 was 4.99 cents per kWh during 1995. As the Salton Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy. The Salton Sea II and Salton Sea III Projects sell electricity to Edison pursuant to 30-year modified SO4 Agreements. The contract capacities and contract nameplates are 15 MW and 20 MW for Salton Sea II and 47.5 MW and 49.8 MW for Salton Sea III, respectively. The contracts require Edison to make capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 Agreements. The energy payments for the first THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: (continued) ten year period, which period expires April 4, 2000 for Salton Sea II and February 13, 1999 for Salton Sea III, are levelized at a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy payments will be at Edison's Avoided Cost of Energy. For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity for the period April 1, 1994 through March 31, 2004. For the year ended December 31, 1995, Edison's average Avoided Cost of Energy was 2.1 cents per kWh which is substantially below the contract energy prices earned for the three months ended March 31, 1996. Estimates of Edison's future Avoided Cost of Energy vary substantially form year to year. The Company cannot predict the likely level of Avoided Cost of Energy prices under the SO4 Agreements and the modified SO4 Agreements at the expiration of the scheduled payment periods. The revenues generated by each of the projects operating under such Agreements could decline significantly after the expiration of the respective scheduled payment periods. The following data includes the combined Operating Capacity Factors and electricity production of Salton Sea Units I, II and III:
Three Months Ended March 31, ----------------------- 1996 1995 -------- ------- Operating Capacity Factor 89.6% 86.8% Contract Capacity (NMW) 79.8 79.8 kWh Produced (in thousands) 156,200 149,600
The following data includes combined Operating Capacity Factors and electricity production of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended March 31, ----------------------- 1996 1995 -------- ------- Operating Capacity Factor 97.6% 102.3% Contract Capacity (NMW) 148.0 140.0 kWh Produced (in thousands) 315,600 327,100
The Salton Sea Guarantors' sales of electricity increased to $16,221 for the three months ended March 31, 1996 from $15,611 for the same period of 1995. This 3.9% increase was due primarily to a 4.4% increase in electric kWh sales to 156.2 million kWh from 149.6 million kWh. The Partnership Guarantors' sales of electricity decreased to $15,159 for the three months ended March 31, 1996 from $16,717 for the same period in 1994. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: (continued) This 9.3% decrease was due primarily to a 3.5% decrease in electric kWh sales to 315.6 million kWh from 327.1 million kWh and a decreased price per kWh for the Vulcan project as a result of the expiration of the scheduled price period. The Royalty Guarantor revenue increased to $6,941 for the three months ended March 31, 1996 from $6,751 for the same period last year. This 2.5% increase was due primarily to higher energy sales at Del Ranch, Elmore and Leathers during the three months ended March 31, 1996 compared to the same period of 1995. The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $5,789, for the three months ended March 31, 1996 from $5,804 for the same period in 1995. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $7,612 for the three months ended March 31, 1996 from $7,602 for the same period in 1995. The Royalty Guarantors' operating expenses increased to $1,707 for the three months ended March 31, 1996 from $1,594 for the same period in 1995, a 7.1% increase. This increase was due to a scheduled increase in third party lessor royalties related to the increase in the Partnership Projects' sales of electricity. The Salton Sea Guarantors' depreciation and amortization decreased to $2,682 for the three months ended March 31, 1996 from $3,043 for the same period of 1995. This 11.9% decrease was due primarily to the allocation of purchase accounting which related to the first quarter 1995 acquisition of Magma. The Partnership Guarantors' depreciation and amortization increased to $4,373 for the three month ended March 31, 1996 from $2,438 for the same period in 1995. This 79.4% increase was due primarily to the allocation of purchase accounting which related to the first quarter 1995 acquisition of Magma. The Royalty Guarantors' amortization increased to $2,570 for the three months ended March 31, 1996 from to $1,232 for the same period of 1995. This 108.6% increase was due primarily to the allocation of purchase accounting which related to the first quarter 1995 acquisition of Magma. The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $2,957 for the three months ended March 31, 1996 from $4,256 for the same period in 1995. The 30.5% decrease was due primarily to the capitalization of interest to projects under construction and development partially off set by increased indebtedness from the issuance of the senior secured project notes. The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $0 for the three months ended March 31, 1996 from $3,209 for the same period in 1995. The decrease is a result of reduced indebtedness and capitalization of interest to projects under development. The Royalty Guarantors' interest expense decreased to $1,358 for the three months ended March 31, 1996 from $1,540 from the same period in 1995. The decrease is a result of reduced indebtedness. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: (continued) The Salton Sea Guarantors are comprised of partnerships and one company which has a partial interest in the Salton Sea expansion. Income taxes are the responsibility of the partners and Salton Sea Guarantors have no obligation to provide funds to the partners for payment of any tax liabilities. Accordingly, the Salton Sea Guarantors have no tax obligations. The Partnership Guarantors income tax provision increased to $2,249 for the three months ended March 31, 1996 from $1,885 for the same period in 1995. This 19.3% increase was primarily due to a 12.8% increase in income before income taxes. Income taxes will be paid by the parent of the Guarantors from distributions to the parent company by the Guarantors which occur after operating expenses and debt service. The Royalty Guarantor's income tax provision was $478 for the three months ended March 31, 1996 compared to $830 for the same period in 1995. Tax obligations of the Royalty Guarantor will be remitted to the parent company only to the extent of cash flows available after operating expenses and debt service. The Salton Sea Funding Corporation's net income for the three months ended March 31, 1996 was $526 which primarily represented interest income and expense, net of applicable tax, and the Salton Sea Funding Corporation's 1% equity in earnings of the Guarantors. The Funding Corporation was formed on June 20, 1995 for the sole purpose of acting as issuer of $475 million of senior secured notes and bonds. The Salton Sea Guarantors' net income increased to $4,861 for the three months ended March 31, 1996 compared to $1,431 for the same period of 1994. The Partnership Guarantors' net income increased to $3,145 for the three months ended March 31, 1996 compared to $1,472 for the same period of 1994. The Royalty Guarantors' net income increased to $828 for the three months ended March 31, 1996 compared to $463 for the same period of 1994. Liquidity and Capital Resources The Salton Sea Guarantors' only source of revenue is payments received pursuant to long term power sales agreements with Edison, other than interest earned on funds on deposit. The Partnership Guarantors' primary source of revenue is payments received pursuant to long term power sales agreements with Edison. The Partnership Guarantors' also receive Royalties pursuant to resource lease agreements with the Partnership Projects and the East Mesa Project. These payments, for each of the Guarantors, are expected to be sufficient to fund operating and maintenance expenses, payments of interest and principal on the Securities, projected capital expenditures and debt service reserve fund requirements. The Salton Sea Guarantors commenced construction of an additional 40 net MW electric generating facility (the "Salton Sea Expansion") in 1995 pursuant to an amended and restated 30 year power purchase agreement with Edison. The Salton Sea Expansion has a target completion date of mid year 1996 and an estimated capital construction cost of $135,000. As of March 31, 1996, the Salton Sea Guarantors have invested $91,209 in the Salton Sea Expansion. Funding Corporation Cash of $54,347 is available to the Salton Sea Guarantors for the Salton Sea Expansion. SALTON SEA FUNDING CORPORATION PART II - OTHER INFORMATION Item 1 - Legal proceedings. The Salton Sea Funding Corporation is not a party to any material legal matters. Item 2 - Changes in Securities. The Salton Sea Funding Corporation exchanged (i) $232,750,000 aggregate principal amount of Series A Senior Secured Notes for an equal principal amount of New Series A Securities, (ii) $133,000,000 aggregate principal amount of Series B Secured Bonds for an equal principal amount of New Series B Securities, and (iii) $109,250,000 aggregate principal amount of Series C Senior Secured Bonds, for an equal principal amount of New Series C Securities. The Series A Senior Secured Notes, the Series B Senior Secured Bonds, and the Series C Senior Secured Bonds are sometimes referred to herein as the "Old Securities", and the New Series A Securities, New Series B Securities, and the New Series C Securities are sometimes referred to herein as the "New Securities". The New Securities are obligations of the Salton Sea Funding Corporation evidencing the same indebtedness as the Old Securities and will be entitled to the benefits of the Indenture, which governs both the Old Securities and the New Securities. The form and terms (including principal amount, interest rate, maturity and ranking) of the New Securities are the same as the form and terms of the Old Securities, except that (i) the New Securities have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Old Securities and will not be entitled to registration rights, and (ii) the New Securities will not provide for any increase in the interest rate thereon. The Salton Sea Funding Corporation received no proceeds from the exchange pursuant to the Exchange Offer. Item 3 - Default on Senior Securities. Not applicable. Item 4 - Submission of Matters to a Vote of Security Holders. Not applicable. Item 5 - Other Information. Not applicable. Item 6 - Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Report on Form 8-K: Not applicable. 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. SALTON SEA FUNDING CORPORATION /s/ John G. Sylvia Date: May 14, 1996 John G. Sylvia Senior Vice President and Chief Financial Officer /s/ Gregory E. Abel Gregory E. Abel Senior Vice President, Controller and Chief Accounting Officer EXHIBIT INDEX Exhibit Page No. No. 27 Financial Data Schedule 33 EX-27 2
5 3-MOS DEC-31-1996 MAR-31-1996 54,346 0 0 0 0 0 0 0 523,293 0 0 0 0 0 7,574 523,293 0 9,041 0 181 0 0 7,990 870 357 513 0 0 0 513 0 0
-----END PRIVACY-ENHANCED MESSAGE-----