-----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, MIUwFEKLFT46FQwHakBKmFi+gWbJy8hZGMm/qXSoqWh2akf2nQ63OoIMah4ObNqA tocAf6eT/QU9uyLirlS9wg== 0000949149-97-000004.txt : 19971114 0000949149-97-000004.hdr.sgml : 19971114 ACCESSION NUMBER: 0000949149-97-000004 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971111 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA FUNDING CORP CENTRAL INDEX KEY: 0000949149 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470790493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 033-95538 FILM NUMBER: 97712665 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/A 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 September 30, 1997 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 BN Geothermal Inc. Delaware 91-1244270 San Felipe Energy Company California 33-0315787 Conejo Energy Company California 33-0268500 Niguel Energy Company California 33-0268502 Vulcan/BN Geothermal Power Company Nevada 33-3992087 Leathers, L.P. California 33-0305342 Del Ranch, L.P. California 33-0278290 Elmore, L.P. California 33-0278294 (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 September 30, 1997. SALTON SEA FUNDING CORPORATION Form 10-Q September 30, 1997 _____________ 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, September 30, 1997 and December 31, 1996 5 Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996 6 Statement of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 7 Notes to Financial Statements 8 SALTON SEA GUARANTORS Independent Accountants' Report 9 Combined Balance Sheets, September 30, 1997 and December 31, 1996 10 Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996 11 Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 12 Notes to Combined Financial Statements 13 PARTNERSHIP GUARANTORS Independent Accountants' Report 15 Combined Balance Sheets, September 30, 1997 and December 31, 1996 16 Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996 17 Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 18 Notes to Combined Financial Statements 19 SALTON SEA ROYALTY COMPANY Independent Accountants' Report 21 Balance Sheets, September 30, 1997 and December 31, 1996 22 Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996 23 Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 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 33 Item 2. Changes in Securities 33 Item 3. Defaults on Senior Securities 33 Item 4. Submission of Matters to a Vote of Security Holders 33 Item 5. Other Information 33 Item 6. Exhibits and Reports on Form 8-K 33 Signatures 34 Exhibit Index 35 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 September 30, 1997, and the related statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 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, 1996, and the related statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, 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, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska October 21, 1997 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) September 30, December 31, 1997 1996 ___________ __________ (unaudited) ASSETS Cash $ 63,589 $ 13,218 Restricted cash and short-term investments --- 14,044 Prepaid expenses and other assets 12,390 3,452 Secured project notes of Guarantors 493,868 538,982 Investment in 1% of net assets of Guarantors 6,974 6,293 __________ __________ $ 576,821 $ 575,989 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 12,020 $ 3,291 Due to affiliates 61,198 25,022 Senior secured notes and bonds 493,868 538,982 __________ __________ Total liabilities 567,086 567,295 Stockholder's equity: Common stock--authorized 1,000 shares, par value $.01 per share; issued and outstanding 100 shares --- --- Additional paid-in capital 5,366 5,366 Retained earnings 4,369 3,328 __________ __________ Total stockholder's equity 9,735 8,694 __________ __________ $ 576,821 $ 575,989 ========== ========== The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 Revenues: Interest income $ 9,567$ 10,844 $ 30,314 $ 28,504 Equity in earnings of Guarantors 340 303 681 537 _________ ________ ________ ________ Total revenues 9,907 11,147 30,995 29,041 _________ ________ ________ ________ Expenses: General and administrative expenses 233 241 692 467 Interest expense 9,047 10,339 28,538 26,272 _________ ________ ________ ________ Total expenses 9,280 10,580 29,230 26,739 _________ ________ ________ ________ Income before income taxes 627 567 1,765 2,302 Provision for income taxes 257 232 724 944 _________ ________ ________ ________ Net income $ 370 $ 335 $ 1,041 $ 1,358 ========= ========= ======== ========= The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 1,041$ 1,358 Adjustments to reconcile net income to net cash flow from operating activities: Equity in earnings of Guarantors (681) (537) Changes in assets and liabilities: Prepaid expenses and other assets (8,938) (10,094) Accrued liabilities 8,729 9,155 _________ __________ Net cash flows from operating activities 151 (118) _________ __________ Cash flows from investing activities: Decrease in restricted cash 14,044 42,118 Secured project notes of Guarantors - (135,000) Principal repayments of secured project notes of Guarantors 45,114 24,053 __________ _________ Net cash flows from investing activities 59,158 (68,829) __________ _________ Cash flows from financing activities: Increase in due to affiliates 36,176 3,003 Proceeds from offering of senior project notes & bonds - 135,000 Repayment of senior secured notes and bonds (45,114) (24,053) __________ _________ Net cash flows from financing activities (8,938) 113,950 __________ _________ Net change in cash 50,371 45,003 Cash at the beginning of period 13,218 4,393 __________ _________ Cash at the end of period $ 63,589 $ 49,396 ========== ========= Supplemental disclosures: Interest paid $ 19,777$ 16,158 ==================== Non-cash investing and financing activities: Adjustments resulting from capital transactions of Guarantors $ - (135) ========== ========= 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 September 30, 1997 and the results of operations for the three and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months ended September 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. The Funding Corporation was formed on September 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. 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 September 30, 1997, and the related combined statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. These financial statements are the responsibility of the Salton Sea 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, 1996, 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 31, 1997, 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, 1996 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 October 21, 1997 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) September 30, December 31, 1997 1996 (unaudited) ASSETS Accounts receivable $ 21,763 $ 14,954 Prepaid expenses and other assets 14,691 16,008 Property, plant, contracts and equipment, net 479,967 484,182 Excess of cost over fair value of net assets acquired, net 49,812 50,790 _________ _________ $ 566,233 $ 565,934 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 38 $ 642 Accrued liabilities 13,781 9,989 Due to affiliates 42,985 64,091 Senior secured project note 283,024 299,840 _________ _________ Total liabilities 339,828 374,562 Total Guarantors' equity 226,405 191,372 _________ _________ $ 566,233 $ 565,934 ========= ========= 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 Nine Months Ended September 30 September 30 _____________________ _____________________ 1997 1996 1997 1996 ________ ________ ________ ________ Revenues: Sales of electricity $ 33,884 $ 33,413 $ 82,307 $ 68,646 Interest and other income 7 3 168 131 _______ _______ _______ _______ Total revenues 33,891 33,416 82,475 68,777 _______ _______ _______ _______ Expenses: Operating, general and administration 8,218 7,576 21,328 19,302 Depreciation and amortization 4,149 3,973 12,333 9,859 Interest expense 5,701 6,205 17,398 18,724 Less capitalized interest (1,173) (1,174) (3,617) (7,381) _______ _______ _______ _______ Total expenses 16,895 16,580 47,442 40,504 _______ _______ _______ _______ Net income $ 16,996$ 16,836 $ 35,033 $ 28,273 ======= ======= ======= ======= The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended September 30, ____________________ 1997 1996 Cash flows from operating activities: Net income $ 35,033 $ 28,273 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 12,333 9,859 Changes in assets and liabilities: Accounts receivable (6,809) (11,634) Prepaid expenses and other assets 1,317 1,151 Accounts payable and accrued liabilities 3,188 8,718 _________ _________ Net cash flows from operating activities 45,062 36,367 _________ _________ Cash flows from investing activities: Capital expenditures (5,784) (61,653) _________ _________ Net cash flows from investing activities (5,784) (61,653) _________ _________ Cash flows from financing activities: Increase (decrease) in due to affiliates (22,462) 35,727 Repayments of senior secured project note (16,816) (10,830) ___________________ Net cash flows from financing activities (39,278) 24,897 _________ _________ Net change in cash --- (389) Cash at beginning of period --- 454 _________ _________ Cash at end of period $ ---$ 65 ========= ========= 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 September 30, 1997 and the results of operations for the three and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. 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 nine months ended September 30, 1997 and 1996 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. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consist of the following: September 30, December 31, 1997 1996 ________ ________ Plant and equipment $ 329,894 $ 329,458 Power sale agreements 64,609 64,609 Mineral extraction 70,448 66,831 Exploration and development costs 43,597 42,220 ________ ________ 508,548 503,118 Less accumulated depreciation and amortization (28,581) (18,936) ________ ________ $ 479,967 $ 484,182 ======== ======== 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 September 30, 1997, and the related combined statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. These financial statements are the responsibility of the Partnership 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, 1996, 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 31, 1997, 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, 1996 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 October 21, 1997 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) September 30, December 31, 1997 1996 (unaudited) ASSETS Accounts receivable $ 32,893 $ 22,766 Due from affiliates 150,496 129,278 Prepaid expenses and other assets 16,259 19,083 Property, plant, contracts and equipment, net 365,192 364,849 Management fee 69,768 67,521 Excess of cost over fair value of net assets acquired, net 136,013 138,686 _________ _________ $ 770,621 $ 742,183 ========= ========= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 287 $ 663 Accrued liabilities 25,896 22,977 Senior secured project notes 162,907 182,204 Deferred income taxes 125,810 108,277 _________ _________ Total liabilities 314,900 314,121 Guarantors' equity: Common stock 3 3 Additional paid-in capital 387,663 387,663 Retained earnings 68,055 40,396 _________ _________ Total Guarantors' equity 455,721 428,062 _________ _________ $ 770,621 $ 742,183 ========= ========= The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 Revenues: Sales of electricity $ 49,547 $ 46,031 $ 122,458 $ 98,186 Interest and other income 1,896 2,608 3,463 6,757 Total revenues 51,443 48,639 125,921 104,943 _________ _________ _________ _________ Expenses: Operating, general and administration 16,471 17,016 48,119 41,426 Depreciation and amortization 9,657 9,870 28,987 24,159 Interest expense 3,332 4,193 10,531 9,455 Less capitalized interest (2,360) (2,168) (6,908) (6,637) Total expenses 27,100 28,911 80,729 68,403 _________ _________ _________ _________ Income before income taxes 24,343 19,728 45,192 36,540 Provision for income taxes 9,424 7,702 17,533 14,414 _________ _________ _________ _________ Net income $ 14,919$ 12,026 $ 27,659 $ 22,126 ========= ========= ========= ========= The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 27,659 $ 22,126 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 28,987 24,159 Deferred income taxes 17,533 4,192 Changes in assets and liabilities: Accounts receivable (10,127) (4,268) Prepaid expenses and other assets 2,824 (6,120) Accounts payable and accrued liabilities 2,543 503 Net cash flows from operating activities 69,419 40,592 Cash flows from investing activities: Capital expenditures (25,556) (14,723) Management fee (3,348) (3,615) Decrease in restricted cash - 23,085 Net cash flows from investing activities (28,904) 4,747 Cash flows from financing activities: Repayments of senior secured project rates (19,297) (99,809) Loan proceeds - 135,000 Increase in due from affiliates (21,218) (37,279) Distributions to parent - (54,397) Net cash flows from financing activities (40,515) (56,485) _________ _________ Net change in cash - (11,146) Cash at beginning of period - 11,146 _________ _________ Cash at end of period $ - $ - ========= ========= During 1996, CalEnergy Company, Inc. contributed $71,000 of net assets acquired from Edison Mission Energy, 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 COMBINED 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 September 30, 1997 and the results of operations for the three and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. 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 nine months ended September 30, 1997 and 1996 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. PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 3. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: September 30, December 31, 1997 1996 Plant and equipment $ 69,875 $ 60,272 Power sale agreements 123,588 123,588 Process license 46,290 46,290 Mineral reserves 128,107 121,199 Exploration and development costs 68,799 59,303 __________ __________ 436,659 410,652 Less accumulated depreciation and amortization (71,467) (45,803) __________ __________ $ 365,192 $ 364,849 ========== ========== 4. Purchase of Edison Mission Energy's Partnership Interests On April 17, 1996 CalEnergy Company, Inc. ("CECI") completed the indirect acquisition of Edison Mission Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and Elmore geothermal operating facilities. A subsidiary of Magma Power Company ("Magma"), wholly-owned by CECI, currently operates these facilities and Magma directly or indirectly owns 100% interest in these facilities. Magma's ownership interest related to Del Ranch, Leathers, Elmore and Vulcan is assigned to the Partnership Guarantors. Unaudited proforma combined revenue and net income of the Guarantors on a purchase, push down basis of accounting, for the nine months ended September 30, 1996, as if the acquisition had occurred at the beginning of the period after giving effect to certain pro forma adjustments related to the acquisitions were $123,582 and $23,259, respectively. 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 September 30, 1997, and the related statements of operations for the three and nine month periods ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. These financial statements are the responsibility of the Salton Sea Royalty 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, 1996, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, 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, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska October 21, 1997 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) September 30, December 31, 1997 1996 (unaudited) ASSETS Due from affiliates $ 17,154 $ 10,008 Royalty stream, net 37,707 44,372 Excess of cost over fair value of net assets acquired, net 34,323 35,004 Prepaid expenses and other assets 1,158 1,689 __________ __________ $ 90,342 $ 91,073 ========== ========== LIABILITIES AND EQUITY Liabilities: Accrued liabilities $ 17,530 $ 12,070 Senior secured project note 47,935 56,936 Deferred income taxes 9,594 12,227 __________ __________ Total liabilities 75,059 81,233 Equity: Common stock, par value $.01 per share; 100 share authorized, issued and outstanding - - Additional paid-in capital 1,561 1,561 Retained earnings 13,722 8,279 __________ __________ Total equity 15,283 9,840 __________ __________ $ 90,342 $ 91,073 ========== ========== 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 Nine Months Ended September 30 September 30 1997 1996 1997 1996 Revenues: Royalty income $ 8,628 $ 7,784 $ 24,411 $ 22,422 Expenses: Operating, general and administrative expenses 2,096 1,894 5,928 5,446 Amortization of royalty stream and goodwill 2,449 2,570 7,346 7,710 Interest expense 1,002 1,290 3,228 3,989 _______________________________________ Total expenses 5,547 5,754 16,502 17,145 _______________________________________ Income before income taxes 3,081 2,030 7,909 5,277 Provision for income taxes 981 592 2,466 1,957 _______________________________________ Net income $ 2,100 $ 1,438 $ 5,443 $ 3,320 ======================================= The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended September 30, 1997 1996 Cash flows from operating activities: Net income $ 5,443 $ 3,320 Adjustments to reconcile net income to net cash flow from operating activities: Amortization of royalty stream and goodwill 7,346 7,710 Changes in assets and liabilities: Prepaid expenses and other assets 531 666 Accrued liabilities and deferred income taxes 2,827 2,982 Net cash flows from operating activities 16,147 14,678 Net cash flows from financing activities: Decrease (increase) in due from affiliates (7,146) 7,896 Repayment of senior secured project note (9,001) (5,473) Distribution to parent - (17,101) Net cash flows from financing activities (16,147) (14,678) _________ _________ 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 September 30, 1997 and the results of operations for the three and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. The results of operations for the three and nine months ended September 30, 1997 and 1996 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 Company's business and financial statement presentations. 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 Salton Sea Funding Corporation's (the "Funding Corporation") and the Salton Sea Guarantors, the Partnership Guarantors and the Salton Sea Royalty Company's (collectively, the "Guarantors") 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 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 Vulcan, Leathers, Del Ranch and Elmore partnerships (collectively 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 Company ("Edison"). These SO4 Agreements provide for capacity payments, capacity payments and energy payments. Edison makes fixed annual capacity 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 the capacity payments are significantly higher in the months of June through September. Energy is sold at increasing scheduled rates for the first ten years of each contract and thereafter at Edison's Avoided Cost of Energy. The scheduled energy price periods of the Partnership Project SO4 Agreements extended until February 1996 for the Vulcan Partnership and extend until December 1998, December 1998, and December 1999 for each of the Hoch (Del Ranch), Elmore and Leathers Partnerships, respectively. Excluding Vulcan, which is receiving Edison's Avoided Cost of Energy, the Company's SO4 Agreements provide for energy rates ranging from 13.6 cents per kWh in 1997 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 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) indices. The time period weighted average energy payment for Salton Sea I was 5.3 cents per kWh during the nine months ended September 30, 1997. 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 ten year period, which 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 through March 31, 2004. 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 indices 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 September 30, 2017, the original termination date of the Salton Sea I PPA. For the nine months ended September 30, 1997, Edison's average Avoided Cost of Energy was 3.2 cents per kWh which is substantially below the contract energy prices earned for the nine months ended September 30, 1997. 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 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 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 aggregate capacity and electricity production of Salton Sea Units I, II, III and IV: Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Operating capacity factor 95.7% 97.9% 94.6% 89.6% Capacity (NMW) (weighted average)* 119.4 119.4 119.4 97.4 kWh produced (in thousands) 252,300 258,000 740,200 573,900 *Weighted average for the commencement of operations at the Salton Sea Unit IV for 1996. The following data includes the aggregate capacity and electricity production of Vulcan, Del Ranch, Elmore and Leathers: Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Operating capacity factor 105.6% 106.4% 101.9% 106.5% Capacity NMW (average) 148 148 148 148 kWh produced (in thousands)345,000 347,700 987,700 1,016,300 Revenues: The Salton Sea Guarantors' sales of electricity increased to $33,884 for the three months ended September 30, 1997 from $33,413 for the same period of 1996, a 1.4% increase. For the nine month period ended September 30, 1997, sales of electricity increased to $82,307 from $68,646 in 1996, a 19.9% increase. This increase was primarily due to the addition of Unit IV production on June 1, 1996 and increased electric production at the other plants. The Partnership Guarantors' sales of electricity increased to $49,547 for the three months ended September 30, 1997 from $46,031 for the same period in 1996, a 7.6% increase. For the nine month period ended September 30, 1997, sales of electricity increased to $122,458 from $98,186 in 1996, a 24.7% increase. These 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) increases were primarily due to the purchase of Edison Mission Energy's 50% partnership interest in the four geothermal operating facilities in April 1996 and a scheduled price increase at some of the facilities offset partially by turbine overhauls at Vulcan and Del Ranch in April 1997. The Royalty Guarantor revenue increased to $8,628 for the three months ended September 30, 1997 from $7,784 for the same period last year. For the nine month period ended September 30, 1997, revenue increased to $24,411 from $22,422 in 1996, an 8.9% increase. These increases were due primarily to higher energy sales at Del Ranch, Elmore and Leathers compared to the same periods of 1996. Operating Expenses: The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $8,218, for the three months ended September 30, 1997 from $7,576 for the same period in 1996. For the nine month period ended September 30, 1997, operating expenses increased to $21,328 from $19,302 in 1996. This increase was primarily due to the start up of the Salton Sea Unit IV plant in June 1996. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $16,471 for the three months ended September 30, 1997 from $17,016 for the same period in 1996. The decrease in the second quarter was due to a general reduction in various operating costs. For the nine month period ended September 30, 1997, operating expenses increased to $48,119 from $41,426 in 1996. The increase was primarily due to the Edison Mission Energy acquisition. The Royalty Guarantors' operating expenses increased to $2,096 for the three months ended September 30, 1997 from $1,894 for the same period in 1996, a 10.7% increase. For the nine month period ended September 30, 1997, operating expenses increased to $5,928 from $5,446 in 1996, an 8.9% increase. These increases were due to the increase in the Partnership Projects' sales of electricity. Depreciation and Amortization: The Salton Sea Guarantors' depreciation and amortization increased to $4,149 for the three months ended September 30, 1997 from $3,973 for the same period of 1996, a 4.4% increase. For the nine month period ended September 30, 1997, depreciation and amortization increased to $12,333 from $9,859 in 1996. The increase was due primarily to the start up of the Salton Sea Unit IV plant in June 1996. 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' depreciation and amortization decreased to $9,657 for the three months ended September 30, 1997 from $9,870 for the same period in 1996. For the nine month period ended September 30, 1997, depreciation and amortization increased to $28,987 from $24,159 in 1996, a 20.0% increase. The increase was due primarily to the Edison Mission Energy acquisition. The Royalty Guarantors' amortization decreased to $2,449 for the three months ended September 30, 1997 from $2,570 for the same period of 1996, a 4.7% decrease. For the nine month period ended September 30, 1997, amortization decreased to $7,346 from $7,710 in 1996. These decreases were due to decreases in allocated purchase price depreciation. Interest Expense: The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $4,528 for the three months ended September 30, 1997 from $5,031 for the same period in 1996, a 10.0% decrease. The decrease is due to lower loan balances. For the nine month period ended September 30, 1997, interest expense, net of capitalized amounts, increased to $13,781 from $11,343 in 1996. Capitalized interest decreased upon completion of construction at the Salton Sea Unit IV plant in June 1996. The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $972 for the three months ended September 30, 1997 from $2,025 for the same period in 1996. The decrease was a result of reduced indebtedness. For the nine month period ended September 30, 1997, interest expense, net of capitalized amounts, increased to $3,623 from $2,818 in 1996. The increase was a result of increased indebtedness due to the Edison Mission Energy acquisition. The Royalty Guarantors' interest expense decreased to $1,002 for the three months ended September 30, 1997 from $1,290 for the same period in 1996. For the nine month period ended September 30, 1997, interest expense decreased to $3,228 from $3,989 in 1996. These decreases were a result of reduced indebtedness. Income Tax Provision: The Salton Sea Guarantors are comprised of partnerships. 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 $9,424 for the three months ended September 30, 1997 from $7,702 for the same period in 1996, a 22.4% increase. For the nine month period ended September 30, 1997, the provision for income taxes increased to $17,533 from $14,414 in 1996, a 21.6% 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 $981 for the three months ended September 30, 1997 compared to $592 for the same period in 1996. For the nine month period ended September 30, 1996, the income tax provision was $2,466 compared to $1,957 for the same period in 1996. 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. Net Income: The Salton Sea Funding Corporation's net income for the three months ended September 30, 1997 was $370 compared to $335 for the same period in 1996. For the nine month period ended September 30, 1997 net income decreased to $1,041 compared to $1,358 in 1996. The net income primarily represents interest income and expense, net of applicable tax, and the Salton Sea Funding Corporation's 1% equity in earnings of the Guarantors. The Salton Sea Guarantors' net income increased to $16,996 for the three months ended September 30, 1997 compared to $16,836 for the same period of 1996. For the nine month period ended September 30, 1997, net income increased to $35,033 compared to $28,273 in 1996. The Partnership Guarantors' net income increased to $14,919 for the three months ended September 30, 1997 compared to $12,026 for the same period of 1996. For the nine month period ended September 30, 1997, net income increased to $27,659 compared to $22,126 in 1996. The Royalty Guarantors' net income increased to $2,100 for the three months ended September 30, 1997 compared to $1,438 for the same period of 1996. For the nine month period ended September 30, 1997, net income increased to $5,443 compared to $3,320 in 1996. 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 Funding Corporation's primary source of revenue is principal and interest payments on the secured project notes of the Guarantors. 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. 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. Not applicable. 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 Date: November 13, 1997 /s/ Craig M. Hammett Craig M. Hammett Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Page No. No. 27 Financial Data Schedule 36 EX-27 2
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 63,589 0 0 0 0 0 0 0 576,821 0 493,868 0 0 0 9,735 576,821 0 30,995 0 0 692 0 28,538 1,765 724 1,041 0 0 0 1,041 0 0
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