-----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, HBp97lVyt597uL9qlfo/fEtSVxuQQMoHPYtX+47YcAiVRdygTKSnqnnyCtEJkO8j zuoAnebIz4Ngbw338jUvdQ== 0000949149-96-000003.txt : 19960816 0000949149-96-000003.hdr.sgml : 19960816 ACCESSION NUMBER: 0000949149-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960814 FILED AS OF DATE: 19960814 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: 96612090 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 June 30, 1996 Commission File No. 33-95538 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 of Identification 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 June 30, 1996. SALTON SEA FUNDING CORPORATION Form 10-Q June 30, 1996 _____________ C O N T E N T S PART I: FINANCIAL INFORMATION Item 1. Financial Statements Page SALTON SEA FUNDING CORPORATION Independent Accountants Report 4 Balance Sheets, June 30, 1996 and December 31, 1995 5 Statements of Operations for the Three and Six Months Ended June 30, 1996 6 Statement of Cash Flows for the Six Months Ended June 30, 1996 7 Notes to Financial Statements 8 SALTON SEA GUARANTORS Independent Accountants Report 9 Combined Balance Sheets, June 30, 1996 and December 31, 1995 10 Combined Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995 11 Combined Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 12 Notes to Combined Financial Statements 13 PARTNERSHIP GUARANTORS Independent Accountants Report 15 Combined Balance Sheets, June 30, 1996 and December 31, 1995 16 Combined Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995 17 Combined Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 18 Notes to Combined Financial Statements 19 SALTON SEA ROYALTY COMPANY Independent Accountants Report 22 Balance Sheets, June 30, 1996 and December 31, 1995 23 Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995 24 Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 25 Notes to Financial Statements 26 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 27 PART II: OTHER INFORMATION Item 1. Legal Proceedings 36 Item 2. Changes in Securities 36 Item 3. Defaults on Senior Securities 36 Item 4. Submission of Matters to a Vote of Security Holders 36 Item 5. Other Information 37 Item 6. Exhibits and Reports on Form 8-K 37 Signatures 38 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 June 30, 1996, and the related statements of operations for the three and six month periods ended June 30, 1996 and cash flows for the six months ended June 30, 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 July 17, 1996 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands) June 30, December 31, 1996 1995 ---------- ------------ (unaudited) ASSETS Cash $ 29,040 $ 4,393 Restricted cash and short-term investments 19,450 57,256 Prepaid expenses and other assets 2,651 3,070 Notes receivables from affiliates 563,035 452,088 Investment in 1% of net assets of Guarantors 6,504 5,714 ------- ------- $620,680 $522,521 ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 2,616 $ 3,889 Due to affiliates 46,500 59,594 Senior secured notes and bonds 563,035 452,088 ------- ------- Total liabilities 612,151 515,571 Stockholder's equity: Common stock--authorized 1,000 shares, par value $.01 per share; issued and outstanding 100 shares - - Additional paid-in capital 5,999 5,443 Retained earnings 2,530 1,507 ------- ------- Total stockholder's equity 8,529 6,950 ------- ------- $620,680 $522,521 ======= ======= The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED June 30, 1996 (Dollars in Thousands) (Unaudited) Three Months Six Months Ended Ended Revenues: ------------ ---------- Interest income $8,707 $17,660 Equity in earnings of Guarantors 146 234 ------ ------- 8,853 17,894 Expenses: General and administrative expenses 45 226 Interest expense 7,943 15,933 ------ ------- Total expenses 7,988 16,159 ------ ------- Income before income taxes 865 1,735 Provision for income taxes 355 712 ------ ------- Net income $ 510 $ 1,023 ====== ======= The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED June 30, 1996 (Dollars in Thousands) (Unaudited) Cash flows from operating activities: Net income $ 1,023 Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of guarantors (234) Changes in assets and liabilities: Prepaid expenses and other assets 419 Accrued liabilities (1,273) -------- Net cash flows from operating activities (65) -------- Cash flows from investing activities: Restricted cash 37,806 -------- Net cash flows from investing activities 37,806 -------- Cash flows from financing activities: Due to affiliates (13,094) -------- Net cash flows from financing activities (13,094) -------- Net change in cash 24,647 Cash at the beginning of period 4,393 -------- Cash at the end of period $ 29,040 ======== Non-cash investing and financing activities: Adjustments resulting from capital transactions of Guarantors $ 556 ======== The accompanying notes are an integral part of these 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 June 30, 1996 and the results of operations for the three and six months ended June 30, 1996 and cash flows for the six months ended June 30, 1996. The results of operations for the three and six months ended June 30, 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 senior secured notes and bonds. 2. Other Footnote Information: Reference is made to the Funding Corporation's 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. 3. Debt Offering: On June 20, 1996, the Funding Corporation issued $135,000 of Senior Secured Notes and Bonds, consisting of $70,000, 7.02% Senior Secured Series D Notes, due May 30, 2000, and $65,000, 8.30% Senior Secured Series E Bonds, due May 30, 2011, with maturities of $25,850, $32,000, $22,728, $5,500, $1,000 and $47,922 for 1997, 1998, 1999, 2000, 2001 and thereafter, respectively. 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 June 30, 1996, and the related combined statements of operations for the three and six month periods ended June 30, 1996 and 1995 and the cash flows for the six months ended June 30, 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 July 17, 1996 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) June 30, December 31, 1996 1995 --------- ------------ (unaudited) ASSETS Cash $ 398 $ 454 Accounts receivable 15,825 10,436 Prepaid expenses and other assets 21,252 20,129 Property, plant, contracts and equipment, net 464,483 417,287 Goodwill, net 51,442 52,094 -------- -------- $553,400 $500,400 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 643 $ 939 Accrued liabilities 6,461 4,043 Due to affiliates 54,590 4,319 Senior secured project note 310,670 321,500 -------- -------- Total liabilities 372,364 330,801 Total Guarantors' equity 181,036 169,599 -------- -------- $553,400 $500,400 ======== ======== The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- ------- ------- Revenues: Sales of electricity $19,012 $16,472 $35,233 $32,083 Interest and other income 60 93 128 409 -------- -------- -------- ------- Total revenues 19,072 16,565 35,361 32,492 -------- -------- -------- -------- Expenses: Operating, general and and administration 5,937 7,179 11,726 12,983 Depreciation and amortization 3,204 3,357 5,886 6,400 Interest expense 6,262 8,434 12,519 12,690 Less capitalized interest (2,907) (3,419) (6,207) (3,419) -------- -------- -------- -------- Total expenses 12,496 15,551 23,924 28,654 -------- -------- -------- -------- Income before minority interest 6,576 1,014 11,437 3,838 Minority interest - - - 1,393 -------- -------- -------- -------- Net income $ 6,576 $ 1,014 $11,437 $ 2,445 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Six Months Ended June 30, ------------------ 1996 1995 -------- ------- Cash flows from operating activities: Net income $11,437 $ 2,445 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,393 Depreciation and amortization 5,886 6,400 Changes in assets and liabilities: Accounts receivable (5,389) (7,919) Prepaid expenses and other assets (1,123) (8,561) Due to (from) affiliates 50,271 399 Accounts payable and accrued liabilities 2,122 2,984 -------- --------- Net cash flows from operating activities 63,204 (2,859) -------- --------- Cash flows from investing activities: Purchase of Guarantors by CalEnergy, net of cash - (167,240) Capital expenditures (52,430) (24,967) Net increase in marketable securities - 4,988 Restricted cash - 2,501 -------- --------- Net cash flows from investing activities (52,430) (184,718) -------- --------- Cash flows from financing activities: Repayments on loans payable (10,830) (15,410) Loan proceeds - 179,640 Contributions from parent - 29,091 Distributions to parent - (5,000) -------- --------- Net cash flows from financing activities (10,830) 188,321 -------- --------- Net change in cash (56) 744 Cash at beginning of period 454 - -------- --------- Cash at end of period $ 398 $ 744 ======== ========= The accompanying notes are an integral part of these 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 June 30, 1996 and the results of operations for the three and six months ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 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 and six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 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. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: June 30, December 31, 1996 1995 --------- ------------ Plant and equipment $174,622 $173,509 Salton Sea Unit 4 156,464 108,632 Power sale agreements 64,609 64,609 Mineral extraction 62,817 60,577 Exploration and development costs 19,038 17,793 -------- -------- 477,550 425,120 Less accumulated depreciation and amortization (13,067) (7,833) -------- -------- $464,483 $417,287 ======== ======== 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 six months ended June 30, 1995, as if the acquisition had occurred at the beginning of the period after giving effect to certain pro forma adjustments related to the acquisition were $32,492 and $2,779 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 June 30, 1996, and the related combined statements of operations for the three and six month periods ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 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 July 17, 1996 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) June 30, December 31, 1996 1995 --------- ------------ (unaudited) ASSETS Cash $ 26 $ 11,146 Restricted cash and short-term investments - 9,859 Accounts receivable 26,040 11,841 Due from affiliates 91,100 54,949 Prepaid expenses and other assets 20,811 9,651 Property, plant, contracts and equipment, net 374,969 298,956 Management fee 65,021 63,520 Goodwill, net 140,468 142,250 -------- -------- $718,435 $602,172 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 5,222 $ 3,566 Accrued liabilities 13,357 19,995 Loans payable - 43,766 Senior secured project notes 189,955 62,706 Deferred income taxes 102,481 98,407 -------- -------- Total liabilities 311,015 228,440 Guarantors' equity: Common Stock 3 3 Additional paid-in capital 382,680 359,092 Retained earnings 24,737 14,637 -------- -------- Total Guarantors' equity 407,420 373,732 -------- -------- $718,435 $602,172 ======== ======== The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- ------- ------- Revenues: Sales of electricity $36,996 $19,372 $52,155 $36,089 Interest and other income 1,929 1,354 4,149 2,670 -------- ------- -------- ------- Total revenues 38,925 20,726 56,304 38,759 -------- ------- -------- ------- Expenses: Operating, general and and administration 16,798 7,857 24,410 15,459 Depreciation and amortization 9,916 2,815 14,289 5,253 Interest expense 3,255 4,186 5,262 7,395 Less capitalized interest (2,462) - (4,469) - -------- ------- -------- ------- Total expenses 27,507 14,858 39,492 28,107 -------- ------- -------- ------- Income before income taxes 11,418 5,868 16,812 10,652 Provision for income taxes 4,463 2,355 6,712 4,240 -------- ------- -------- ------- Income before minority interest 6,955 3,513 10,100 6,412 Minority interest - - - 1,427 -------- ------- -------- ------- Net income $ 6,955 $ 3,513 $10,100 $ 4,985 ======== ======= ======== ======= The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Six Months Ended June 30, --------------------- 1996 1995 --------- -------- Cash flows from operating activities: Net income $ 10,100 $ 4,985 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,427 Depreciation and amortization 14,289 5,253 Changes in assets and liabilities: Accounts receivable 278 (3,633) Amount due from affiliates (37,071) (3,027) Prepaid expenses and other assets (3,841) (2,361) Accounts payable and accrued liabilities (7,260) 9,327 Other, net - (334) -------- --------- Net cash flows from operating activities (23,505) 11,637 -------- --------- Cash flows from investing activities: Purchase of Guarantors by CalEnergy, net of cash - (116,290) Capital expenditures (11,434) (1,977) Net decrease in marketable securities - 7,457 Restricted cash 23,085 (170) -------- --------- Net cash flows from investing activities 11,651 (110,980) -------- --------- Cash flows from financing activities: Repayments on loans payable (99,809) (6,417) Loan proceeds 135,000 127,773 Distributions to parent (34,457) (10,555) -------- --------- Net cash flows from financing activities 734 110,801 -------- --------- Net change in cash (11,120) 11,458 Cash at beginning of period 11,146 - -------- --------- Cash at end of period $ 26 $ 11,458 ========= ========= During 1996, CalEnergy Company, Inc. contributed $71,000 of net assets acquired from Mission Edison, of which $12,956 was cash, to the Partnership Guarantors. The accompanying notes are an integral part of these 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 June 30, 1996 and the results of operations for the three and six months ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 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 and six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 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. PARTNERSHIP GUARANTORS NOTES TO FINANCIAL STATEMENTS (in thousands) ____________________ 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: June 30, December 31, 1996 1995 -------- ------------ Plant and equipment $ 62,429 $ 58,532 Power sale agreements 122,829 44,966 Process license 46,290 46,290 Mineral extraction 116,819 112,350 Exploration and development costs 55,740 53,449 --------- ----------- 404,107 315,587 Less accumulated depreciation and amortization (29,138) (16,631) --------- ----------- $374,969 $298,956 ========= =========== 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. 5. Purchase of Edison Mission Energy's Partnership Interests On April 17, 1996 CalEnergy Company, Inc. (CalEnergy) completed the indirect 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, currently operates these facilities and directly or indirectly owns 100% of the interest in these facilities. Magma's direct ownership interest related to Del Ranch, Leathers, Elmore and to Vulcan is assigned to the Partnership Guarantors. PARTNERSHIP GUARANTORS NOTES TO FINANCIAL STATEMENTS (in thousands) ____________________ 5. Purchase of Edison Mission Energy's Partnership Interests - (continued) Unaudited proforma combined revenue and net income of the Guarantors on a purchase, push down basis of accounting, for the six months ended June 30, 1996, as if both acquisitions had occurred at the beginning of the period after giving effect to certain pro forma adjustments related to the acquisitions were $74,943 and $11,233, respectively compared with revenue and net income of 82,120 and 11,424, respectively for the six months ended June 30, 1995. 6. Debt Offering On June 20, 1996, the Guarantors issued $135,000 of Senior Secured Project Notes consisting of $70,000, 7.02% Senior Secured Notes, due May 30, 2000 and $65,000, 8.30% Senior Secured Notes, due May 30, 2011, with maturities of $25,850, $32,000, $22,728, $5,500, $1,000, and $47,922, for 1997, 1998, 1999, 2000, 2001 and thereafter, respectively. Proceeds from these Senior Secured Project Notes were used to repay approximately $96,000 in existing project level loans of the Guarantors, provide approximately $15,000 to fund the Capital Expenditures Fund and provide approximately $23,000 of the cost of the acquisition of Edison Mission Energy's partnership interests described above. 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 June 30, 1996, and the related statements of operations for the three and six month periods ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 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 July 17, 1996 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands) June 30, December 31, 1996 1995 ---------- ------------ (unaudited) ASSETS Due from affiliates $17,214 $ 25,110 Royalty stream, net 49,058 53,744 Goodwill, net 35,458 35,912 Prepaid expenses and other assets 2,130 2,575 -------- -------- $103,860 $117,341 ======== ======== LIABILITIES AND EQUITY Liabilities: Accrued liabilities $ 8,651 $ 5,948 Senior secured project note 62,409 67,882 Deferred income taxes 14,078 15,460 -------- -------- Total liabilities 85,138 89,290 Equity: Common stock - - Additional paid-in capital 13,330 24,541 Retained earnings 5,392 3,510 -------- -------- Total equity 18,722 28,051 -------- -------- $103,860 $117,341 ======== ======== The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended Six Months Ended June 30 June 30 ------------------ ----------------- 1996 1995 1996 1995 -------- ------- ------- ------- Revenues: Royalty income $ 7,697 $ 7,316 $14,638 $14,067 Expenses: Operating, general and administrative expenses 1,845 1,719 3,552 3,313 Amortization of royalty stream and goodwill 2,570 1,884 5,140 3,116 Interest expense 1,341 2,196 2,699 3,736 -------- ------- -------- ------- Total expenses 5,756 5,799 11,391 10,165 -------- ------- -------- ------- Income before income taxes 1,941 1,517 3,247 3,902 Provision for income taxes 887 430 1,365 1,260 -------- ------- -------- ------- Income before minority interest 1,054 1,087 1,882 2,642 Minority interest - - - 1,092 -------- ------- -------- ------- Net income $ 1,054 $ 1,087 $ 1,882 $ 1,550 ======== ======= ======== ======= The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Six Months Ended June 30, ------------------- 1996 1995 -------- -------- Cash flows from operating activities: Net income $1,882 $1,550 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest - 1,092 Amortization of royalty stream and goodwill 5,140 3,116 Changes in assets and liabilities: Prepaid expenses and other assets 445 (3,044) Accrued liabilities 1,321 2,514 -------- -------- Net cash flows from operating activities 8,788 5,228 -------- -------- 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 Capital Contributions - 3,071 Decrease in due from affiliates 7,896 - Payment of debt (5,473) (1,328) Distribution to parent (11,211) (10,754) -------- -------- Net cash flows from financing activities (8,788) 74,011 -------- -------- Net change in cash - - Cash at beginning of period - - -------- -------- Cash at end of period $ - $ - ======== ======== The accompanying notes are an integral part of these 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 June 30, 1996 and the results of operations for the three and six months ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 1996 and 1995. The results of operations for the three and six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 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 in 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 six months ended June 30, 1995, as if the acquisition had occurred at the beginning of the period after giving effect to certain pro forma adjustments related to the acquisition were $14,067 and $1,911, 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 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 energy price periods of the Partnership Project SO4 Agreements extend until December 1998, December 1998, and December 1999 for each of the Hoch (Del Ranch), Elmore and Leathers Partnerships, respectively. The fixed energy price period on the Vulcan Partnership SO4 Agreement expired in February 1996. The Partnership Project's receiving fixed energy rates, SO4 Agreements provide for energy 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 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) "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 5.07 cents per kWh during the six months ended June 30, 1996. 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 IV project also sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement. The Salton Sea Unit IV contract also provides for fixed price capacity payments for the life of the contract. Approximately 56% of the kWhs are sold under the Salton Sea Unit IV PPA at a fixed energy price, which is subject to quarterly adjustments by reference to various inflation-related indices, through June 20, 2017 (and at SCE's Avoided Cost of Energy thereafter), while the remaining 44% of the Salton Sea Unit IV kWhs are sold according to a 10-year fixed price schedule followed by payments based on a modified Avoided Cost of Energy for the succeeding 5 years and at SCE's Avoided cost of Energy thereafter. The Salton Sea Unit IV project was operational and began recording revenue on May 24, 1996. 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 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. 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 IV Project sells electricity to Edison pursuant to a modified SO4 agreement which provides for contract capacity payments on 34 MW of capacity at two different rates based on the respective contract capacities deemed attributable to the original Salton Sea PPA option (20 MW) and to the original Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts quarterly based upon specified indicies and the capacity payment price for the 14 MW portion is a fixed levelized rate. The energy payment (for deliveries up to a rate of 39.6 MW) is at a fixed price for 55.6% of the total energy delivered by Salton Sea IV and is based on an energy payment schedule for 44.4% of the total energy delivered by Salton Sea IV. The contract has a 30-year term but Edison is not required to purchase the 20 MW of capacity and energy originally attributable to the Salton Sea I PPA option after June 30, 2017, the original termination date of the Salton Sea I PPA. For the six months ended June 30, 1996, Edison's average Avoided Cost of Energy was 2.2 cents per kWh which is substantially below the contract energy prices earned for the six months ended June 30, 1996. Estimates of Edison's future Avoided Cost of Energy vary substantially from 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 energy 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, III and IV: Three Months Ended Six Months Ended June 30, June 30, -------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Operating Capacity Factor 78.7% 78.3% 83.8% 82.5% Contract Capacity (NMW) (weighted average)* 92.9 79.8 86.3 79.8 kWh Produced (in thousands) 159,700 136,400 315,900 286,000 * Weighted average for the commencement of operations at the Salton Sea Unit IV. 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 following data includes combined Operating Capacity Factors and electricity production of Vulcan, Del Ranch, Elmore and Leathers: Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 1996 1995 1996 1995 -------- -------- -------- -------- Operating Capacity Factor 109.2% 107.5% 103.4% 104.9% Contract Capacity (NMW) 148.0 148.0 148.0 148.0 kWh Produced (in thousands) 353,000 347,500 668,600 674,650 The Salton Sea Guarantors' sales of electricity increased to $19,012 for the three months ended June 30, 1996 from $16,472 for the same period of 1995, a 15.4% increase. For the six month period ended June 30, 1996, sales of electricity increased to $35,233 from $32,083 in 1995, an 9.8% increase. These increases were primarily due to the addition of Unit 4 production on June 1, 1996 and increased electric production at the other plants. The Partnership Guarantors' sales of electricity increased to $36,996 for the three months ended June 30, 1996 from $19,372 for the same period in 1995, a 91.0% increase. For the six month period ended June 30, 1996, sales of electricity increased to $52,155 from $36,089 in 1995, a 44.5% increase. These increases were primarily due to the purchase of Edison Mission Energy's 50% partnership interest in the four geothermal operating facilities in April 1996. This was partially offset by 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 $7,697 for the three months ended June 30, 1996 from $7,316 for the same period last year. For the six month period ended June 30, 1996, revenue increased to $14,638 from $14,067 in 1995, a 4.1% increase. These increases were due primarily to higher energy sales at Del Ranch, Elmore and Leathers compared to the same periods of 1995. The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $5,937, for the three months ended June 30, 1996 from 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) $7,179 for the same period in 1995. For the six month period ended June 30, 1996, operating expenses decreased to $11,726 from $12,983 in 1995. These decreases were primarily due to higher plant maintenance expenditures in 1995 and continuing work force efficiencies as a result of CECI's acquisition of the facilities, which were partially offset by the start up of the Salton Sea Unit IV plants operations in June 1996. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $16,798 for the three months ended June 30, 1996 from $7,857 for the same period in 1995. For the six month period ended June 30, 1996, operating expenses increased to $24,410 from $15,459 in 1995. These increases were primarily due to the Edison Mission Energy acquisition. The Royalty Guarantors' operating expenses increased to $1,845 for the three months ended June 30, 1996 from $1,719 for the same period in 1995, a 7.3% increase. For the six month period ended June 30, 1996, operating expenses increased to $3,552 from $3,313 in 1995, a 7.2% increase. These increases were 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 $3,204 for the three months ended June 30, 1996 from $3,357 for the same period of 1995, a 4.6% decrease. For the six month period ended June 30, 1996, depreciation and amortization decrease to $5,886 from $6,400 in 1995. These decreases were due primarily to the final push down allocation of purchase accounting adjustments related to the first quarter 1995 acquisition of Magma. The Partnership Guarantors' depreciation and amortization increased to $9,916 for the three months ended June 30, 1996 from $2,815 for the same period in 1995, a 252.3% increase. For the six month period ended June 30, 1996, depreciation and amortization increased to $14,289 from $5,253 in 1995, a 172.0% increase. These increases were due primarily to the final push down allocation of purchase accounting related to the first quarter 1995 acquisition of Magma and the Edison Mission Energy acquisition. 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 Royalty Guarantors' amortization increased to $2,570 for the three months ended June 30, 1996 from $1,884 for the same period of 1995, a 36.4% increase. For the six month period ended June 30, 1996, depreciation and amortization increased to $5,140 from $3,116 in 1995. These increases were due primarily to the final push down allocation of purchase accounting adjustments related to the first quarter 1995 acquisition of Magma. The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $3,355 for the three months ended June 30, 1996 from $5,015 for the same period in 1995 a 33.1% decrease. For the six month period ended June 30, 1996, interest expense, net of capitalized amounts, decreased to $6,312 from $9,271 in 1995. These decreases were due primarily to the capitalization of interest related to the Salton Sea Unit IV expansion, during the construction period, the mineral reserve project and the timing of current year debt payments partially off set by increased indebtedness from the issuance of the senior secured project notes in July of 1995. The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $793 for the three months ended June 30, 1996 from $4,186 for the same period in 1995. For the six month period ended June 30, 1996, interest expense, net of capitalized amounts, decreased to $793 from $7,395 in 1995. These decreases were a result of reduced indebtedness and capitalization of interest to the mineral reserve project. The Royalty Guarantors' interest expense decreased to $1,341 for the three months ended June 30, 1996 from $2,196 from the same period in 1995. For the six month period ended June 30, 1996, interest expense decreased to $2,699 from $3,736 in 1995. These decreases were a result of reduced indebtedness. 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 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 Partnership Guarantors income tax provision increased to $4,463 for the three months ended June 30, 1996 from $2,355 for the same period in 1995 a 89.5% increase. For the six month period ended June 30, 1996, the provision for income taxes increased to $6,712 from $4,240 in 1995, a 58.3% increase. These increases were primarily due to an increase in income before income taxes resulting from the Edison Mission Energy acquisition. 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 $887 for the three months ended June 30, 1996 compared to $430 for the same period in 1995. For the six month period ended June 30, 1996, the income tax provision was $1,365 compared to $1,260 for the same period in 1995. These increases were due primarily to increased earnings in the current year. 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 June 30, 1996 was $510 and $1,023 for the six month period ended June 30, 1996, 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 senior secured notes and bonds. The Salton Sea Guarantors' net income increased to $6,576 for the three months ended June 30, 1996 compared to $1,014 for the same period of 1995. For the six month period ended June 30, 1996, net income increased to $11,437 compared to $2,445 in 1995. The Partnership Guarantors' net income increased to $6,955 for the three months ended June 30, 1996 compared to $3,513 for the same period of 1995. For the six month period ended June 30, 1996, net income increased to $10,100 compared to $4,985 in 1995. The Royalty Guarantors' net income decreased to $1,054 for the three months ended June 30, 1996 compared to $1,087 for the same period of 1995. For the six month period ended June 30, 1996, net increased to $1,882 compared to $1,550 in 1995. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ 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 a special distribution. The Royalty Guarantor receives 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. On April 17, 1996 the Company completed the acquisition of Edison Mission Energy's partnership interests in four geothermal operating facilities in California for a cash purchase price of $70,000. The acquisition has been accounted for as a purchase. The Four projects, Vulcan, Hoch (Del Ranch), Leathers and Elmore, are located in the Imperial Valley of California. The Company operates the facilities and sells power to Southern California Edison ("Edison") under long-term SO4 contracts. Prior to this transaction, the Company was a 50% owner of these facilities. The acquisition of Edison Mission Energy's 50% interest results in CalEnergy owning an additional 74 net MW of generating capacity. On June 20, 1996 the Salton Sea Funding Corporation, a wholly owned indirect subsidiary of the Company, (the "Funding Corporation"), completed a sale to institutional investors of $135,000 aggregate amount of Senior Secured Series D Notes and Series E Bonds which are nonrecourse to CECI. The Funding Corporation Series D Notes and Series E Bonds which mature in May 2000 and May 2011 respectively, bear an interest rate of 7.02% and 8.30% respectively. The proceeds of the offering were used to refinance $96,584 of existing project level indebtedness, to fund a portion of the purchase price of the Edison Mission Energy acquisition and for certain capital improvements at the Imperial Valley Project. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Liquidity and Capital Resources: (continued) 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 project was operational and began recording revenue on May 24, 1996. 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 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. 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: August 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 40 EX-27 2
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 48,490 0 0 0 0 0 0 0 620,680 0 563,035 0 0 0 2,530 620,680 0 8,853 0 0 45 0 7,943 865 355 510 00 0 0 510 0 0
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