-----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, IKS8AxxSItB4wPn0oI7u/hB35YJOhJo2xc8X2YGoccJD1cIhvpMSI6LZe99hFi7W jiGo+/7sTjDJUgAMvxM4Bg== 0000949149-98-000003.txt : 19980515 0000949149-98-000003.hdr.sgml : 19980515 ACCESSION NUMBER: 0000949149-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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 SEC ACT: SEC FILE NUMBER: 033-95538 FILM NUMBER: 98621344 BUSINESS ADDRESS: STREET 1: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH ST STREET 2: STE 400 A CITY: OMAHA STATE: NE ZIP: 68131 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 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 March 31, 1998. SALTON SEA FUNDING CORPORATION Form 10-Q March 31, 1998 _____________ 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, March 31, 1998 and December 31, 1997 5 Statements of Operations for the Three Months Ended March 31, 1998 and 1997 6 Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 7 Notes to Financial Statements 8 SALTON SEA GUARANTORS Independent Accountants' Report 9 Combined Balance Sheets, March 31, 1998 and December 31, 199710 Combined Statements of Operations for the Three Months Ended March 31, 1998 and 1997 11 Combined Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 12 Notes to Combined Financial Statements 13 PARTNERSHIP GUARANTORS Independent Accountants' Report 15 Combined Balance Sheets, March 31, 1998 and December 31, 199716 Combined Statements of Operations for the Three Months Ended March 31, 1998 and 1997 17 Combined Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 18 Notes to Combined Financial Statements 19 SALTON SEA ROYALTY COMPANY Independent Accountants' Report 21 Balance Sheets, March 31, 1998 and December 31, 1997 22 Statements of Operations for the Three Months Ended March 31, 1998 and 1997 23 Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 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 32 Item 2. Changes in Securities 32 Item 3. Defaults on Senior Securities 32 Item 4. Submission of Matters to a Vote of Security Holders 32 Item 5. Other Information 32 Item 6. Exhibits and Reports on Form 8-K 32 Signatures 33 Exhibit Index 34 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Salton Sea Funding Corporation Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Funding Corporation as of March 31, 1998, and the related statements of operations and cash flows for the three month periods ended March 31, 1998 and 1997. 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, 1997, and the related statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 12, 1998, 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, 1997 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 22, 1998 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) March 31, December 31, 1998 1997 ___________ __________ (unaudited) ASSETS Cash $ 70,155 $ 15,568 Prepaid expenses and other assets 11,406 2,823 Secured project notes from Guarantors 448,754 448,754 Investment in 1% of net assets of Guarantors 7,305 7,144 __________ __________ $ 537,620 $ 474,289 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 11,080 $ 2,782 Due to affiliates 67,246 12,598 Senior secured notes and bonds 448,754 448,754 __________ __________ Total liabilities 527,080 464,134 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 5,174 4,789 __________ __________ Total stockholder's equity 10,540 10,155 __________ __________ $ 537,620 $ 474,289 ========== ========== 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 March 31, 1998 1997 Revenues: Interest income $ 8,990 $ 10,405 Equity in earnings of Guarantors 161 143 ________ ________ Total revenues 9,151 10,548 ________ ________ Expenses: General and administrative expenses 238 240 Interest expense 8,259 9,774 ________ ________ Total expenses 8,497 10,014 ________ ________ Income before income taxes 654 534 Provision for income taxes 269 220 ________ ________ Net income $ 385 $ 314 ======== ========= The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months ended March 31, 1998 1997 Cash flows from operating activities: Net income $ 385 $ 314 Adjustments to reconcile net income to net cash flow from operating activities: Equity in earnings of Guarantors (161) (143) Changes in assets and liabilities: Prepaid expenses and other assets (8,583) (10,145) Accrued liabilities 8,298 9,774 __________ _________ Net cash flows from operating activities (61) (200) __________ _________ Cash flows from investing activities: Decrease in restricted cash --- 1,633 __________ _________ Cash flows from financing activities: Increase in due to affiliates 54,648 36,689 __________ _________ Net change in cash 54,587 38,122 Cash at the beginning of period 15,568 13,218 __________ _________ Cash at the end of period $ 70,155 $ 51,340 ========== ========= Non-cash investing and financing activities: Adjustments resulting from capital transactions of Guarantors $ --- $ (14) ========== ========= 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 March 31, 1998 and the results of operations for the three months ended March 31, 1998 and 1997 and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements should be read in conjunction with the financial statements included in the Funding Corporation's annual report on Form 10-K for the year ended December 31, 1997. The Funding Corporation was formed on September 20, 1995 for the sole purpose of acting as issuer of senior secured notes and bonds. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Salton Sea Guarantors as of March 31, 1998, and the related combined statements of operations and cash flows for the three month periods ended March 31, 1998 and 1997. 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, 1997, 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 February 12, 1998, 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, 1997 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 22, 1998 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 1998 1997 (unaudited) ASSETS Accounts receivable $ 12,623 $ 15,823 Prepaid expenses and other assets 12,177 13,043 Property, plant, contracts and equipment, net 476,111 478,001 Excess of cost over fair value of net assets acquired, net 49,160 49,486 _________ _________ $ 550,071 $ 556,353 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 578 $ 390 Accrued liabilities 12,690 7,826 Due to affiliates 30,596 47,741 Senior secured project note 266,208 266,208 _________ _________ Total liabilities 310,072 322,165 Total Guarantors' equity 239,999 234,188 _________ _________ $ 550,071 $ 556,353 ========= ========= 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 March 31 _____________________ 1998 1997 ________ ________ Revenues: Sales of electricity $ 20,185 $ 23,254 Interest and other income 15 9 _______ _______ Total revenues 20,200 23,263 _______ _______ Expenses: Operating, general and administrative expenses 6,747 7,161 Depreciation and amortization 3,714 3,642 Interest expense 5,260 5,864 Less capitalized interest (1,332) (1,225) _______ _______ Total expenses 14,389 15,442 _______ _______ Net income $ 5,811 $ 7,821 ======= ======= The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months Ended March 31, ____________________ 1998 1997 Cash flows from operating activities: Net income $ 5,811 $ 7,821 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 3,714 3,642 Changes in assets and liabilities: Accounts receivable 3,200 (547) Prepaid expenses and other assets 866 1,694 Accounts payable and accrued liabilities 5,052 5,331 _________ _________ Net cash flows from operating activities 18,643 17,941 _________ _________ Cash flows from investing activities: Capital expenditures (1,498) (2,448) _________ _________ Cash flows from financing activities: Decrease in due to affiliates (17,145) (15,493) _________ _________ 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 GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 1. General: In the opinion of management of the Salton Sea Guarantors (the "Guarantors"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1998 and the results of operations for the three months ended March 31, 1998 and 1997 and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements should be read in conjunction with the financial statements included in the Salton Sea Funding Corporation's annual report of Form 10-K for the year ended December 31, 1997. The combined financial statements include the accounts of the partnerships in which the Guarantors have a 100% interest. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 2. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consist of the following: March 31, December 31, 1998 1997 ________ ________ (unaudited) Plant and equipment $ 330,471 $ 330,306 Power sale agreements 64,609 64,609 Mineral extraction 73,112 71,780 Exploration and development costs 43,628 43,627 ________ ________ 511,820 510,322 Less accumulated depreciation and amortization (35,709) (32,321) ________ ________ $ 476,111 $ 478,001 ======== ======== INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Partnership Guarantors as of March 31, 1998, and the related combined statements of operations and cash flows for the three month periods ended March 31, 1998 and 1997. 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, 1997, 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 February 12, 1998, 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, 1997 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 22, 1998 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 1998 1997 (unaudited) ASSETS Accounts receivable $ 23,461 $ 23,481 Prepaid expenses and other assets 11,953 13,121 Due from affiliates 136,457 124,311 Property, plant, contracts and equipment, net 372,730 370,666 Management fee from affiliates 70,134 70,082 Excess of cost over fair value of net assets acquired, net 134,231 135,122 _________ _________ $ 748,966 $ 736,783 ========= ========= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 2,910 $ 1,338 Accrued liabilities 24,145 23,285 Senior secured project notes 143,610 143,610 Deferred income taxes 110,652 106,851 _________ _________ Total liabilities 281,317 275,084 Guarantors' equity: Common stock 3 3 Additional paid-in capital 387,663 387,663 Retained earnings 79,983 74,033 _________ _________ Total Guarantors' equity 467,649 461,699 _________ _________ $ 748,966 $ 736,783 ========= ========= The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) Three Months Ended March 31 1998 1997 Revenues: Sales of electricity $ 34,097 $ 34,746 Interest and other income 734 545 Total revenues 34,831 35,291 _________ _________ Expenses: Operating, general and administrative expenses 14,090 16,282 Depreciation and amortization 10,155 9,644 Interest expense 3,297 3,651 Less capitalized interest (2,462) (2,246) Total expenses 25,080 27,331 _________ _________ Income before income taxes 9,751 7,960 Provision for income taxes 3,801 3,103 _________ _________ Net income $ 5,950 $ 4,857 ========= ========= The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months Ended March 31, 1998 1997 Cash flows from operating activities: Net income $ 5,950 $ 4,857 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 10,155 9,644 Deferred income taxes 3,801 3,103 Changes in assets and liabilities: Accounts receivable 20 (34) Prepaid expenses and other assets 1,168 3,059 Accounts payable and accrued liabilities 2,432 4,034 Net cash flows from operating activities 23,526 24,663 Cash flows from investing activities: Capital expenditures (10,675) (10,236) Management fee (705) (506) Net cash flows from investing activities (11,380) (10,742) Cash flows from financing activities: Increase in due from affiliates (12,146) (12,550) Distributions to parent --- (1,371) Net cash flows from financing activities (12,146) (13,921) _________ _________ 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. 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 March 31, 1998 and the results of operations for the three months ended March 31, 1998 and 1997 and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements should be read in conjunction with the financial statements included in the Salton Sea Funding Corporation's annual report on Form 10-K for the year ended December 31, 1997. The combined financial statements include the proportionate share of the accounts of the partnerships in which the Guarantors have an interest. PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (in thousands) ____________________ 2. Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: March 31, December 31, 1998 1997 (unaudited) Plant and equipment $ 77,153 $ 73,830 Power sale agreements 123,588 123,588 Process license 46,290 46,290 Mineral reserves 132,984 130,522 Exploration and development costs 80,868 75,978 __________ __________ 460,883 450,208 Less accumulated depreciation and amortization (88,153) (79,542) __________ __________ $ 372,730 $ 370,666 ========== ========== INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Royalty Company as of March 31, 1998, and the related statements of operations and cash flows for the three month periods ended March 31, 1998 and 1997. 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, 1997, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 12, 1998, 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, 1997 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 22, 1998 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) March 31, December 31, 1998 1997 (unaudited) ASSETS Due from affiliates $ 32,134 $ 19,114 Royalty stream, net 29,596 31,818 Excess of cost over fair value of net assets acquired, net 33,869 34,096 Prepaid expenses and other assets 864 981 __________ __________ $ 96,463 $ 86,009 ========== ========== LIABILITIES AND EQUITY Liabilities: Accrued liabilities $ 28,308 $ 21,306 Senior secured project note 38,934 38,934 Deferred income taxes 6,391 7,268 __________ __________ Total liabilities 73,633 67,508 Equity: Common stock, par value $.01 per share; 100 share authorized, issued and outstanding - - Additional paid-in capital 1,561 1,561 Retained earnings 21,269 16,940 __________ __________ Total equity 22,830 18,501 __________ __________ $ 96,463 $ 86,009 ========== ========== 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 March 31 1998 1997 Revenues: Royalty income $ 12,038 $ 7,861 Expenses: Operating, general and administrative expenses 1,859 1,877 Amortization of royalty stream and goodwill 2,449 2,449 Interest expense 776 1,132 ____________________ Total expenses 5,084 5,458 ____________________ Income before income taxes 6,954 2,403 Provision for income taxes 2,625 737 ____________________ Net income $ 4,329 $ 1,666 ==================== The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Three Months Ended March 31, 1998 1997 Cash flows from operating activities: Net income $ 4,329 $ 1,666 Adjustments to reconcile net income to net cash flow from operating activities: Amortization of royalty stream and goodwill 2,449 2,449 Changes in assets and liabilities: Prepaid expenses and other assets 117 177 Accrued liabilities and deferred income taxes 6,125 1,692 Net cash flows from operating activities 13,020 5,984 Net cash flows from financing activities: Decrease (increase) in due from affiliates (13,020) (5,984) _________ _________ 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 March 31, 1998 and the results of operations for the three months ended March 31, 1998 and 1997 and cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements should be read in conjunction with the financial statements included in the Salton Sea Funding Corporation's annual report on Form 10-K for the year ended December 31, 1997. 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 bonus 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 14.6 cents per kWh in 1998 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 energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket 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) of indices. The time period weighted average energy payment for Salton Sea I was 5.4 cents per kWh during the three months ended March 31, 1998. 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 that provide for 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 2000 for Salton Sea II and February 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 September 30, 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 three months ended March 31, 1998, Edison's average Avoided Cost of Energy was 3.0 cents per kWh which is substantially below the contract energy prices earned for the three months ended March 31, 1998. 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 March 31, 1998 1997 Overall capacity factor 81.4% 98.8% Capacity (NMW)(weighted average) 119.4 119.4 kWh produced (in thousands) 209,900 254,800 The overall capacity factor for the Salton Sea Project decreased for the three months ended March 31, 1998 compared to the same period in 1997 due to scheduled overhauls in February 1998. The following data includes the aggregate capacity and electricity production of Vulcan, Del Ranch, Elmore and Leathers: Three Months Ended March 31, 1998 1997 Overall capacity factor 98.38% 101.8% Capacity NMW (average) 148 148 kWh produced (in thousands) 314,500 325,300 The overall capacity factor for the Partnership Projects decreased for the three months ended March 31, 1998 compared to the same period in 1997 due to scheduled overhauls at Leathers and Elmore. Revenues: The Salton Sea Guarantors' sales of electricity decreased to $20,185 for the three months ended March 31, 1998 from $23,254 for the same period of 1997, a 13.2% decrease. This decrease was primarily due to the timing of overhauls. The 1997 overhauls were performed in the second quarter, while the 1998 overhauls were performed in the first quarter. The Partnership Guarantors' sales of electricity marginally decreased to $34,097 for the three months ended March 31, 1998 from $34,746 for the same period in 1997. 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 Guarantor revenue increased to $12,038 for the three months ended March 31, 1998 from $7,861 for the same period last year. This increase was due primarily to an increase in East Mesa royalty income related to the royalty settlement agreement. Operating Expenses: The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $6,747 for the three months ended March 31, 1998 from $7,161 for the same period in 1997. The decrease was due to a reduction in operating and maintenance costs. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $14,090 for the three months ended March 31, 1998 from $16,282 for the same period in 1997, a 13.5% decrease. The decrease was due to a reduction in operating and maintenance costs. The Royalty Guarantors' operating expenses marginally decreased to $1,859 for the three months ended March 31, 1998 from $1,877 for the same period in 1997. Depreciation and Amortization: The Salton Sea Guarantors' depreciation and amortization increased to $3,714 for the three months ended March 31, 1998 from $3,642 for the same period of 1997. The Partnership Guarantors' depreciation and amortization increased to $10,155 for the three months ended March 31, 1998 from $9,644 for the same period in 1997. The increase was due primarily to plant improvements. The Royalty Guarantors' amortization was $2,449 for the three months ended March 31, 1998 compared to $2,449 for the same period of 1997. Interest Expense: The Salton Sea Guarantors' interest expense, net of capitalized amounts, decreased to $3,928 for the three months ended March 31, 1998 from $4,639 for the same period in 1997, a 15.3% decrease. The decrease was a result of reduced indebtedness. The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $835 for the three months ended March 31, 1998 from $1,405 for the same period in 1997. The decrease was a result of reduced indebtedness. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: (continued) The Royalty Guarantors' interest expense decreased to $776 for the three months ended March 31, 1998 from $1,132 for the same period in 1997. The decrease was 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 Partnership Guarantors income tax provision increased to $3,801 for the three months ended March 31, 1998 from $3,103 for the same period in 1997, a 22.5% increase. This increase was primarily due to an increase in income before income taxes. Income taxes will be paid by the parent of the Guarantors from distributions to the parent company by the Guarantors which occur after operating expenses and debt service. The Royalty Guarantor's income tax provision increased to $2,625 for the three months ended March 31, 1998 from $737 for the same period in 1997. This increase was primarily due to an increase in income before income taxes. 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 March 31, 1998 was $385 compared to $314 for the same period in 1997. 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 decreased to $5,811 for the three months ended March 31, 1998 compared to $7,821 for the same period of 1997. The Partnership Guarantors' net income increased to $5,950 for the three months ended March 31, 1998 compared to $4,857 for the same period of 1997. The Royalty Guarantors' net income increased to $4,329 for the three months ended March 31, 1998 compared to $1,666 for the same period of 1997. 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 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: May 14, 1998 /s/ Craig M. Hammett Craig M. Hammett Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Page No. No. 27 Financial Data Schedule 35 EX-27 2
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 70,155 0 0 0 0 0 0 0 537,620 0 448,754 0 0 0 10,540 537,620 0 9,151 0 0 238 0 8,259 654 269 385 0 0 0 385 0 0
-----END PRIVACY-ENHANCED MESSAGE-----