-----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, ETDsWyH193QtSi23t+o+McjYmjW+TdQXSajXm8c15iyQ9AzFny983RDGSaGkF5B1 haU/WtC7lKgnFBlkr2wePA== 0000949149-99-000005.txt : 19990517 0000949149-99-000005.hdr.sgml : 19990517 ACCESSION NUMBER: 0000949149-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621450 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, 1999 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 LLC Delaware 33-0453364 Vulcan Power Company Nevada 95-3992087 CalEnergy Operating Corporation Delaware 33-0268085 Salton Sea Royalty LLC Delaware 47-0790492 VPC Geothermal LLC 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, 1999. SALTON SEA FUNDING CORPORATION Form 10-Q March 31, 1999 _____________ 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, 1999 and December 31, 1998 5 Statements of Operations for the Three Months Ended March 31, 1999 and 1998 6 Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 7 Notes to Financial Statements 8 SALTON SEA GUARANTORS Independent Accountants' Report 9 Combined Balance Sheets, March 31, 1999 and December 31, 199810 Combined Statements of Operations for the Three Months Ended March 31, 1999 and 1998 11 Combined Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 12 Notes to Combined Financial Statements 13 PARTNERSHIP GUARANTORS Independent Accountants' Report 14 Combined Balance Sheets, March 31, 1999 and December 31, 199815 Combined Statements of Operations for the Three Months Ended March 31, 1999 and 1998 16 Combined Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 17 Notes to Combined Financial Statements 18 SALTON SEA ROYALTY COMPANY Independent Accountants' Report 19 Balance Sheets, March 31, 1999 and December 31, 1998 20 Statements of Operations for the Three Months Ended March 31, 1999 and 1998 21 Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998 22 Notes to Financial Statements 23 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 PART II: OTHER INFORMATION Item 1. Legal Proceedings 34 Item 2. Changes in Securities 34 Item 3. Defaults on Senior Securities 34 Item 4. Submission of Matters to a Vote of Security Holders 34 Item 5. Other Information 34 Item 6. Exhibits and Reports on Form 8-K 34 Signatures 35 Exhibit Index 36 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, 1999, and the related statements of operations and cash flows for the three month periods ended March 31, 1999 and 1998. 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, 1998, and the related statements of operations, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated January 28, 1999, (March 3, 1999 as to Note 4) 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, 1998 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 28, 1999 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) March 31, December 31, 1999 1998 ___________ __________ (unaudited) ASSETS Cash $ 41,990 $ 17,629 Prepaid expenses and other assets 17,129 6,768 Secured project notes from Guarantors 626,816 626,816 Investment in 1% of net assets of Guarantors 8,240 8,124 __________ __________ $ 694,175 $ 659,337 ========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities $ 15,708 $ 3,971 Due to affiliates 39,541 16,612 Senior secured notes and bonds 626,816 626,816 __________ __________ Total liabilities 682,065 647,399 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 6,744 6,572 __________ __________ Total stockholder's equity 12,110 11,938 __________ __________ $ 694,175 $ 659,337 ========== ========== 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, 1999 1998 Revenues: Interest income $ 12,129 $ 8,990 Equity in earnings of Guarantors 116 161 _ ____ ________ Total revenues 12,245 9,151 _________ ________ Expenses: General and administrative expenses 215 238 Interest expense 11,737 8,259 _________ ________ Total expenses 11,952 8,497 _________ ________ Income before income taxes 293 654 Provision for income taxes 121 269 _________ ________ Net income $ 172 $ 385 ========= ========= 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, 1999 1998 Cash flows from operating activities: Net income $ 172 $ 385 Adjustments to reconcile net income to net cash flow from operating activities: Equity in earnings of guarantors (116) (161) Changes in assets and liabilities: Prepaid expenses and other assets (10,361) (8,583) Accrued liabilities 11,737 8,298 __________ _________ Net cash flows from operating activities 1,432 (61) __________ _________ Cash flows from investing activities: Principal repayments of secured project notes from Guarantors --- --- __________ _________ Net cash flows from investing activities --- --- __________ _________ Cash flows from financing activities: Increase in due to affiliates 22,929 54,648 Repayment of senior secured notes and bonds --- --- __________ _________ Net cash flows from financing activities 22,929 54,648 __________ _________ Net change in cash 24,361 54,587 Cash at the beginning of period 17,629 15,568 __________ _________ Cash at the end of period $ 41,990 $ 70,155 ========== ========= Supplemental disclosures: Interest paid $ --- $ --- =========== ========= 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, 1999 and the results of operations for the three months ended March 31, 1999 and 1998 and cash flows for the three months ended March 31, 1999 and 1998. The results of operations for the three months ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements shall 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, 1998. The Funding Corporation was formed on June 20, 1995 for the sole purpose of acting as issuer of senior secured notes and bonds. 2. Disposition of power generation assets: On February 8, 1999, MidAmerican Energy Holdings Company, the successor to CalEnergy Company, Inc. ("MidAmerican") created a new subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its interest in the power generation assets in the Imperial Valley to CE Generation. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to an affiliate of El Paso Energy Corporation. 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, 1999, and the related combined statements of operations and cash flows for the three month period ended March 31, 1999 and 1998. 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, 1998, 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 28, 1999, (March 3, 1999 as to Note 6), 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, 1998 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 28, 1999 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 1999 1998 __________ _________ (unaudited) ASSETS Restricted cash $ 63,913 $ 71,673 Accounts receivable 10,269 15,957 Prepaid expenses and other assets 11,199 12,410 Property, plant, contracts and equipment, net 486,389 480,293 Excess of cost over fair value of net assets acquired, net 47,856 48,182 _________ _________ $ 619,626 $ 628,515 ======== ======== LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 371 $ 504 Accrued liabilities 12,476 7,166 Due to affiliates 13,260 30,688 Senior secured project note 310,030 310,030 _________ _________ Total liabilities 336,137 348,388 Total Guarantors' equity 283,489 280,127 _________ _________ $ 619,626 $ 628,515 ========= ========= 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 _____________________ 1999 1998 ________ ________ Revenues: Sales of electricity $ 18,272 $ 20,185 Interest and other income 792 15 _______ _______ Total revenues 19,064 20,200 _______ _______ Expenses: Operating, general and administration 7,308 6,747 Depreciation and amortization 4,022 3,714 Interest expense 6,076 5,260 Less capitalized interest (1,704) (1,332) _______ _______ Total expenses 15,702 14,389 _______ _______ Net income $ 3,362 $ 5,811 ======= ======= 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, ___________________ 1999 1998 _________ _________ Cash flows from operating activities: Net income $ 3,362 $ 5,811 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 4,022 3,714 Changes in assets and liabilities: Accounts receivable 5,688 3,200 Prepaid expenses and other assets 1,211 866 Accounts payable and accrued liabilities 5,177 5,052 _________ _________ Net cash flows from operating activities 19,460 18,643 _________ _________ Cash flows from investing activities: Capital expenditures (9,792) (1,498) Decrease in restricted cash 7,760 --- _________ _________ Net cash flows from investing activities (2,032) (1,498) Cash flows from financing activities: Decrease in due to affiliates (17,428) (17,145) Repayments of senior secured project note --- --- ___________________ Net cash flows from financing activities (17,428) (17,145) _________ _________ 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, 1999 and the results of operations for the three months ended March 31, 1999 and 1998 and cash flows for the three months ended March 31, 1999 and 1998. The results of operations for the three months ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements shall 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, 1998. The combined financial statements include the accounts of the partnerships in which the Guarantors have a 100% interest. 2. Disposition of power generation assets: On February 8, 1999, MidAmerican Energy Holdings Company, the successor to CalEnergy Company, Inc. ("MidAmerican") created a new subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its interest in the power generation assets in the Imperial Valley to CE Generation. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to an affiliate of El Paso Energy Corporation. 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, 1999, and the related combined statements of operations and cash flows for the three month periods ended March 31, 1999 and 1998. 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, 1998, 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 28, 1999, (March 3, 1999 as to Note 10), 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, 1998 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 28, 1999 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) March 31, December 31, 1999 1998 (unaudited) ASSETS Restricted cash $ 154,403 $ 164,983 Accounts receivable 21,245 33,404 Prepaid expenses and other assets 22,898 23,088 Due from affiliates 141,599 121,130 Property, plant, contracts and equipment, net 412,761 399,817 Management fee 71,277 71,596 Excess of cost over fair value of net assets acquired, net 130,667 131,558 _________ _________ $ 954,850 $ 945,576 ========= ========= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 2,647 $ 1,879 Accrued liabilities 58,490 53,647 Senior secured project notes 293,576 293,576 Deferred income taxes 98,758 97,641 _________ _________ Total liabilities 453,471 446,743 Commitments and Contingencies (Note 3) Guarantors' equity: Common stock 3 3 Additional paid-in capital 387,663 387,663 Retained earnings 113,713 111,167 _________ _________ Total Guarantors' equity 501,379 498,833 _________ _________ $ 954,850 $ 945,576 ========= ========= 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, 1999 1998 _________ _________ Revenues: Sales of electricity $ 22,030 $ 34,097 Interest and other income 2,319 734 _________ _________ Total revenues 24,349 34,831 _________ _________ Expenses: Operating, general and administration 11,207 14,090 Depreciation and amortization 6,218 10,155 Interest expense 5,694 3,297 Less capitalized interest (2,433) (2,462) _________ _________ Total expenses 20,686 25,080 _________ _________ Income before income taxes 3,663 9,751 Provision for income taxes 1,117 3,801 _________ _________ Net income $ 2,546 $ 5,950 ========= ========= 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, 1999 1998 _________ _________ Cash flows from operating activities: Net income $ 2,546 $ 5,950 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 6,218 10,155 Deferred income taxes 1,117 3,801 Changes in assets and liabilities: Accounts receivable 12,159 20 Prepaid expenses and other assets 190 1,168 Accounts payable and accrued liabilities 5,611 2,432 _________ _________ Net cash flows from operating activities 27,841 23,526 _________ _________ Cash flows from investing activities: Capital expenditures (17,568) (10,675) Decrease in restricted cash 10,580 --- Management fee (384) (705) _________ _________ Net cash flows from investing activities (7,372) (11,380) _________ _________ Cash flows from financing activities: Repayments of senior secured project notes --- --- Increase in due from affiliates (20,469) (12,146) _________ _________ Net cash flows from financing activities (20,469) (12,146) _________ _________ 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, 1999 and the results of operations for the three months ended March 31, 1999 and 1998 and cash flows for the three months ended March 31, 1999 and 1998. The results of operations for the three months ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements shall 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, 1998. The combined financial statements include the proportionate share of the accounts of the partnerships in which the Guarantors have an interest. 2. Disposition of power generation assets: On February 8, 1999, MidAmerican Energy Holdings Company, the successor to CalEnergy Company, Inc. ("MidAmerican") created a new subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its interest in the power generation assets in the Imperial Valley to CE Generation. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to an affiliate of El Paso Energy Corporation. 3. Contingencies: On February 26, 1998, Del Ranch and Elmore initiated an action against Edison in Imperial County Superior Court for payment for energy delivered to Edison pursuant to long term power sale agreements at the escalated rate of 14.6 cents for 1998. For the Elmore and Del Ranch partnerships, Edison has asserted that prices should not be escalated for 1998 and made payments for energy deliveries at 13.6 cents per kWh in 1998. That action is in the early discovery stages and the Del Ranch and Elmore partnerships intend to vigorously prosecute all available claims. 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, 1999, and the related statements of operations and cash flows for the three month periods ended March 31, 1999 and 1998. 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, 1998, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 28, 1999, (March 3, 1999 as to Note 5), 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, 1998 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 28, 1999 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) March 31, December 31, 1999 1998 ___________ ___________ (unaudited) ASSETS Due from affiliates $ 53,961 $ 50,928 Royalty stream, net 20,710 22,932 Excess of cost over fair value of net assets acquired, net 32,961 33,188 Prepaid expenses and other assets 443 513 __________ __________ $ 108,075 $ 107,561 ========== ========== LIABILITIES AND EQUITY Liabilities: Accrued liabilities $ 35,332 $ 39,584 Senior secured project note 23,210 23,210 Deferred income taxes 5,891 6,769 __________ __________ Total liabilities 64,433 69,563 Equity: Common stock, par value $.01 per share; 100 share authorized, issued and outstanding - - Additional paid-in capital 1,561 1,561 Retained earnings 42,081 36,437 __________ __________ Total equity 43,642 37,998 __________ __________ $ 108,075 $ 107,561 ========== ========== 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, _____________________ 1999 1998 _______ _______ Revenues: Royalty income $ 13,459 $ 12,038 Expenses: Operating, general and administrative expenses 1,108 1,859 Amortization of royalty stream and goodwill 2,449 2,449 Interest expense 468 776 _________ __________ Total expenses 4,025 5,084 _________ __________ Income before income taxes 9,434 6,954 Provision for income taxes 3,790 2,625 _________ __________ Net income $ 5,644 $ 4,329 ========= ========== 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, _____________________ 1999 1998 _________ ________ Cash flows from operating activities: Net income $ 5,644 $ 4,329 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 70 117 Accrued liabilities and deferred income taxes (5,130) 6,125 Net cash flows from operating activities 3,033 13,020 Net cash flows from financing activities: Increase in due from affiliates (3,033) (13,020) Repayment of senior secured project note --- --- _________ _________ Net cash flows from financing activities (3,033) (13,020) 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, 1999 and the results of operations for the three months ended March 31, 1999 and 1998 and cash flows for the three months ended March 31, 1999 and 1998. The results of operations for the three months ended March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. The unaudited financial statements shall 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, 1998. 2. Disposition of power generation assets: On February 8, 1999, MidAmerican Energy Holdings Company, the successor to CalEnergy Company, Inc. ("MidAmerican") created a new subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its interest in the power generation assets in the Imperial Valley to CE Generation. On March 3, 1999, MidAmerican closed the sale of 50% of its ownership interests in CE Generation to an affiliate of El Paso Energy Corporation. 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 plants operations 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, December 1998, for the Hoch (Del Ranch) and Elmore Partnerships, and extend until December 1999 for the Leathers Partnership. For 1999, Vulcan, Hoch and Elmore are receiving Edison's Avoided Cost of Energy pursuant to their respective SO4 Agreements. The SO4 Agreement for Leathers provides for energy rates of 15.6 cents per kWh in 1999. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Results of Operations: (continued) The Salton Sea 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 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, 1999. 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 4, 2000 for Salton Sea II and expired on 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 three months ended March 31, 1999, Edison's average Avoided Cost of Energy was 2.6 cents per kWh which is substantially below the contract energy prices earned for the three months ended March 31, 1999. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. 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 Company cannot predict the likely level of Avoided Cost of Energy prices under the SO4 Agreements and the modified SO4 Agreements at the expiration of the scheduled payment periods. The revenues generated by each of the projects operating under such Agreements will likely 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, _____________________ 1999 1998 ________ _________ Overall capacity factor 83.8% 81.4% Capacity (NMW) (average) 119.4 119.4 kWh produced (in thousands) 216,000 209,900 The overall capacity factor for the Salton Sea Projects increased for the three months ended March 31, 1999 compared to the same period in 1998 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, _____________________ 1999 1998 ________ _________ Overall capacity factor 106.8% 98.4% Capacity (NMW) (average) 148 148 kWh produced (in thousands) 341,500 314,500 The overall capacity factor for the Partnership Projects increased for the three months ended March 31, 1999 compared to the same period in 1998 due to scheduled overhauls at Leathers and Elmore in 1998. 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) Revenues: The Salton Sea Guarantors' sales of electricity decreased to $18,272 for the three months ended March 31, 1999 from $20,185 for the same period in 1998, a 9.5% decrease. This decrease was primarily due to the expiration of the scheduled price period at Salton Sea Unit III in February, 1999. The Partnership Guarantors' sales of electricity decreased to $22,030 for the three months ended March 31, 1999 from $34,097 for the same period in 1998, a 35.4% decrease. This decrease was due to the expiration of the fixed price period at Elmore and Del Ranch at December 31, 1998. The Royalty Guarantor revenue increased to $13,459 for the three months ended March 31, 1999 from $12,038 for the same period last year. This increase was due primarily to an increase in East Mesa royalty income related to a royalty settlement. Operating Expenses: The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $7,308, for the three months ended March 31, 1999 from $6,747 for the same period in 1998. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $11,207 for the three months ended March 31, 1999 from $14,090 for the same period in 1998. The decrease was due to a reduction in royalty expenses due to the lower revenues. The Royalty Guarantors' operating expenses decreased to $1,108 for the three months ended March 31, 1999 from $1,859 for the same period in 1998, a 40.4% decrease. This decrease was due to lower royalty costs due to the end of the scheduled price period at Del Ranch and Elmore. Depreciation and Amortization: The Salton Sea Guarantors' depreciation and amortization increased to $4,022 for the three months ended March 31, 1999 from $3,714 for the same period of 1998, an 8.3% increase. 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 $6,218 for the three months ended March 31, 1999 from $10,155 for the same period in 1998. The decrease was due primarily to lower step up depreciation amortization after the end of the scheduled price period at Del Ranch and Elmore. The Royalty Guarantors' amortization was $2,449 for the three months ended March 31, 1999 compared to $2,449 for the same period of 1998. Interest Expense: The Salton Sea Guarantors' interest expense, net of capitalized amounts, increased to $4,372 for the three months ended March 31, 1999 from $3,928 for the same period in 1998, a 11.3% increase. The increase was due to increased indebtedness from the issuance of the Series F notes in October 1998. The Partnership Guarantors' interest expense, net of capitalized amounts, increased to $3,261 for the three months ended March 31, 1999 from $835 for the same period in 1998. The increase was due to increased indebtedness from the issuance of the Series F notes in October 1998. The Royalty Guarantors' interest expense decreased to $468 for the three months ended March 31, 1999 from $776 from the same period in 1998. The decrease was due to 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 decreased to $1,117 for the three months ended March 31, 1999 from $3,801 for the same period in 1998, a 70.6% decrease. This decrease was primarily due to a lower pre-tax income. 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 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's income tax provision was $3,790 for the three months ended March 31, 1999 compared to $2,625 for the same period in 1998. This increase was primarily due to higher pre-tax income. 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, 1999 was $172 compared to $385 for the same period in 1998. 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 $3,362 for the three months ended March 31, 1999 compared to $5,811 for the same period of 1998. The Partnership Guarantors' net income decreased to $2,546 for the three months ended March 31, 1999 compared to $5,950 for the same period of 1998. The Royalty Guarantors' net income increased to $5,644 for the three months ended March 31, 1999 compared to $4,329 for the same period of 1998. Liquidity and Capital Resources: Salton Sea Minerals LLC, a Partnership Guarantor ("Minerals LLC") developed and owns the rights to proprietary processes for the extraction of zinc from elements in solution in the geothermal brine and fluids utilized at its Imperial Valley plants (the "Zinc Recovery Project") as well as the production of power to be used in the extraction process. A pilot plant has successfully produced commercial quality zinc at the Company's Imperial Valley Project. Minerals LLC is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Four facilities will be installed near Imperial Valley Project sites to extract a zinc chloride solution from the brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tonnes per year and is scheduled to commence commercial operation in mid-2000. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Liquidity and Capital Resources: (continued) The zinc produced by the Zinc Recovery Project is expected to be sold primarily to U.S. West Coast customers such as steel companies, alloyers and galvanizers. The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procurement and construction contract (the "Zinc Recovery Project EPC Contract"). Kvaerner is a wholly- owned indirect subsidiary of Kvaerner ASA, an internationally recognized engineering and construction firm experienced in the metals, mining and processing industries. Total project costs of the Zinc Recovery Project are expected to be approximately $200,900. The Company has incurred $31,500 of such costs through March 31, 1999. Salton Sea Power LLC, a Salton Sea Guarantor, is constructing Salton Sea V. Salton Sea V will be a 49 net MW geothermal power plant which will sell approximately one-third of its net output to the Zinc Recovery Project. The remainder will be sold through the California Power Exchange ("PX"). Salton Sea V is being constructed pursuant to a date certain, fixed price, turn-key engineering, procurement and construction contract (the "Salton Sea V EPC Contract") by Stone & Webster Engineering Corporation ("SWEC"). SWEC is one of the world's leading engineering and construction firms for the construction of electric power plants and, in particular, geothermal power plants. Salton Sea V is scheduled to commence commercial operation in mid-2000. Total project costs of Salton Sea V are expected to be approximately $119,100. CE Turbo LLC, a Partnership Guarantor, is constructing the CE Turbo Project. The CE Turbo Project will have a capacity of 10 net MW. The net output of the CE Turbo Project will be sold to the Zinc Recovery Project or sold through the PX. The Partnership Projects are upgrading the geothermal brine processing facilities at the Vulcan and Del Ranch Projects with the Region 2 Brine Facilities Construction. In addition to incorporating the pH modification process, which has reduced operating costs at the Salton Sea Projects, the new, more efficient facilities will achieve economies through improved brine processing systems and the utilization of more modern equipment. The Partnership Projects expect these improvements will reduce brine-handling operating costs at the Vulcan Project and the Del Ranch Project. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Liquidity and Capital Resources: (continued) The CE Turbo Project and the Region 2 Brine Facilities Construction are being constructed by SWEC pursuant to a date certain, fixed price, turnkey engineering, procurement and construction contract (the "Region 2 Upgrade EPC Contract"). The obligations of SWEC will be guaranteed by Stone & Webster, Incorporated. The CE Turbo Project is scheduled to commence initial operations in mid-2000 and the Region 2 Brine Facilities Construction is scheduled to be completed in early-2000. Total project costs for both the CE Turbo Project and the Region 2 Brine Facilities Construction are expected to be approximately $63,700. Total equity funding for these projects is expected to be approximately $122,500. The operating 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 operating Partnership Guarantors' primary source of revenue is payments received pursuant to long term power sales agreements with Edison. The Royalty Guarantor's only source of revenue is Royalties received 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. What is generally known as the year 2000 ("Y2K") computer issue arose because many existing computer programs and embedded systems use only the last two digits to refer to a year. Therefore, those computer programs do not properly distinguish between a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The failure to correct a material Y2K item could result in an interruption in, or a failure of, certain normal business activities or operations including the generation, distribution, and supply of electricity. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. The Y2K issue creates uncertainty for the Company from potential issues with its own computer systems and from third parties with whom the Company deals on transactions worldwide. The Company's operations utilize systems and equipment provided by other organizations. As a result, Y2K readiness of suppliers, vendors, service providers or customers could impact the Company's operations. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Liquidity and Capital Resources: (continued) The Company is assessing the readiness of such constituent entities and the impacts on those entities that rely upon the Company's services. The Company is unable to determine at this time whether the consequences of Y2K failures of third parties will have a material impact on the Company's results of operations, liquidity or financial condition. The Company has commenced, for all of its information systems, a Y2K date conversion project to address all necessary code changes, testing and implementation in order to resolve the Y2K issue. The Company created a Y2K project team to identify, assess and correct all of its information technology (IT) and non- IT systems, as well as, identify and assess third party systems. The Company has identified and assessed substantially all of its IT and non-IT systems and is currently in the process of repairing or replacing those systems which it believes are not year 2000 compliant. Through March 31, 1999, the Company is approximately 99% complete in repairing or replacing those systems. The Company expects to be 100% complete of correcting, testing, and compliance of those systems by June, 1999. Total Y2K expenditures, for both repairing or replacing non- compliant systems, are expected to total approximately $100. The Company has renovated or replaced several non-compliant systems to gain enhanced functionalities. The cost of these types of renovations and replacements is not reported herein since their development and installation were not driven by Y2K concerns. The Company is not aware of any additional material costs needed to be incurred to bring all of its systems into compliance; however, there is no assurance that additional costs will not be incurred. A contingency plan identifying credible worst-case scenarios is being developed. The contingency plan is comprised of both mitigation and recovery aspects. Mitigation entails planning to reduce the impact of unresolved year 2000 problems, and recovery entails planning to restore services in the event that year 2000 problems occur. It is expected that the contingency plan will be complete by mid-year 1999. Although management believes that the Y2K project will be substantially complete before January 1, 2000, any unforeseen failures of the Company's and/or third parties' computer systems could have a material impact on the Company's ability to conduct its business. Inflation has not had a significant impact on the Guarantors' operating revenue and costs. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per kwh data) _________________________________ Liquidity and Capital Resources: (continued) Certain information included in this report contains forward- looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Such statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results and performance of the Company to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statements. In connection with the safe harbor provisions of the Reform Act, the Company has identified important factors that could cause actual results to differ materially from such expectations, including development uncertainty, operating uncertainty, acquisition uncertainty, uncertainties relating to doing business outside of the United States, uncertainties relating to geothermal resources, uncertainties relating to domestic and international economic and political conditions and uncertainties regarding the impact of regulations, changes in government policy, industry deregulation and competition. Reference is made to all of the Company's SEC filings, incorporated herein by reference, for a description of such factors. The Company assumes no responsibility to update forward-looking information contained herein. SALTON SEA FUNDING CORPORATION PART II - OTHER INFORMATION Item 1 - Legal proceedings. Neither the Salton Sea Funding Corporation nor the Guarantors are parties to any material legal matters except those described in Footnote 3 of the Partnership Guarantors financial statements. 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 13, 1999 /s/ Patrick J. Goodman Patrick J. Goodman Senior Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Page No. No. 27 Financial Data Schedule 37 EX-27 2
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 41,990 0 0 0 0 0 0 0 694,175 0 626,816 0 0 0 12,110 694,175 0 12,245 0 0 215 0 11,737 293 121 172 0 0 0 172 0 0
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