-----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, RVLx2RU3iPYEXOIX9fW6hiRXVGAamwuz8UPPWhOSR84zuXuDZb3Qb+3AYZncClD7 OIRzXGT589vo1Kou7tqOvw== 0000949149-02-000010.txt : 20021114 0000949149-02-000010.hdr.sgml : 20021114 20021114142415 ACCESSION NUMBER: 0000949149-02-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 1934 Act SEC FILE NUMBER: 033-95538 FILM NUMBER: 02824203 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALENERGY OPERATING CORP CENTRAL INDEX KEY: 0001087421 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-18 FILM NUMBER: 02824194 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA MINERALS CORP CENTRAL INDEX KEY: 0001087420 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-17 FILM NUMBER: 02824196 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CE SALTON SEA INC CENTRAL INDEX KEY: 0001087419 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-16 FILM NUMBER: 02824197 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CE TURBO LLC CENTRAL INDEX KEY: 0001087418 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-15 FILM NUMBER: 02824198 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALENERGY MINERALS LLC CENTRAL INDEX KEY: 0001087417 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-14 FILM NUMBER: 02824199 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA POWER LLC CENTRAL INDEX KEY: 0001087416 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 470810713 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-13 FILM NUMBER: 02824200 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VPC GEOTHERMAL LLC CENTRAL INDEX KEY: 0001087415 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 330268085 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-12 FILM NUMBER: 02824201 BUSINESS ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 S 36TH STE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4023414500 MAIL ADDRESS: STREET 1: C/O SALTON SEA FUNDING CORP STREET 2: 302 SOUTH 36TH ST #400A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELMORE LP CENTRAL INDEX KEY: 0001017947 IRS NUMBER: 330278294 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-14 FILM NUMBER: 02824202 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA BRINE PROCESSING L P CENTRAL INDEX KEY: 0000949256 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 330601721 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538-01 FILM NUMBER: 02824204 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NIGUEL ENERGY CO CENTRAL INDEX KEY: 0001087460 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 330268502 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-79581-19 FILM NUMBER: 02824205 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEATHERS L P CENTRAL INDEX KEY: 0001017945 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 330305342 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-12 FILM NUMBER: 02824206 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONEJO ENERGY CO CENTRAL INDEX KEY: 0001017943 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 330268500 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-10 FILM NUMBER: 02824207 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN FELIPE ENERGY CO CENTRAL INDEX KEY: 0001017941 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 330315787 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-09 FILM NUMBER: 02824208 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN/BN GEOTHERMAL POWER CO CENTRAL INDEX KEY: 0001017939 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 953992087 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-07 FILM NUMBER: 02824209 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN POWER CO /NV CENTRAL INDEX KEY: 0000949462 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 953992087 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538-04 FILM NUMBER: 02824210 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400 A CITY: OMAJA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA ROYALTY CO CENTRAL INDEX KEY: 0000949262 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 470790492 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538-06 FILM NUMBER: 02824212 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FISH LAKE POWER LLC CENTRAL INDEX KEY: 0000949260 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 330453364 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538-03 FILM NUMBER: 02824213 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FORMER COMPANY: FORMER CONFORMED NAME: FISH LAKE POWER CO DATE OF NAME CHANGE: 19950810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALTON SEA POWER GENERATION L P CENTRAL INDEX KEY: 0000949258 STANDARD INDUSTRIAL CLASSIFICATION: STEAM & AIR CONDITIONING SUPPLY [4961] IRS NUMBER: 330567411 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-95538-02 FILM NUMBER: 02824215 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEL RANCH LP CENTRAL INDEX KEY: 0001017946 IRS NUMBER: 330278290 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-07527-13 FILM NUMBER: 02824216 BUSINESS ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 BUSINESS PHONE: 4022311641 MAIL ADDRESS: STREET 1: 302 SOUTH 36TH STREET STREET 2: SUITE 400-A CITY: OMAHA STATE: NE ZIP: 68131 10-Q 1 ssfc3rd02.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 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 Salton Sea Power L.L.C. Delaware 47-0810713 CalEnergy Minerals LLC Delaware 47-0810718 CE Turbo LLC Delaware 47-0812159 CE Salton Sea Inc. Delaware 47-0810711 Salton Sea Minerals Corp. Delaware 47-0811261 (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, 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) 341-4500 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 November 14, 2002. SALTON SEA FUNDING CORPORATION Form 10-Q September 30, 2002 _____________ C O N T E N T S PART I: FINANCIAL INFORMATION Item 1. Financial Statements Page SALTON SEA FUNDING CORPORATION Independent Accountants' Report 4 Balance Sheets, September 30, 2002 and December 31, 2001 5 Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 6 Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 7 Notes to Financial Statements 8 SALTON SEA GUARANTORS Independent Accountants' Report 10 Combined Balance Sheets, September 30, 2002 and December 31, 2001 11 Combined Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 12 Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 13 Notes to Combined Financial Statements 14 PARTNERSHIP GUARANTORS Independent Accountants' Report 17 Combined Balance Sheets, September 30, 2002 and December 31, 2001 18 Combined Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 19 Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 20 Notes to Combined Financial Statements 21 SALTON SEA ROYALTY LLC Independent Accountants' Report 25 Balance Sheets, September 30, 2002 and December 31, 2001 26 Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 27 Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 28 Notes to Financial Statements 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Item 4 Internal Controls and Procedures 39 PART II: OTHER INFORMATION Item 1. Legal Proceedings 40 Item 2. Changes in Securities 40 Item 3. Defaults on Senior Securities 40 Item 4. Submission of Matters to a Vote of Security Holders 40 Item 5. Other Information 40 Item 6. Exhibits and Reports on Form 8-K 40 Signatures 41 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 (the "Company") as of September 30, 2002, and the related statements of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the related statements of cash flows for the nine-month periods ended September 30, 2002 and 2001. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of the Salton Sea Funding Corporation as of December 31, 2001, 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 17, 2002 (March 1, 2002 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, 2001 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Omaha, Nebraska November 8, 2002 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) September 30, December 31, 2002 2001 (unaudited) ASSETS Cash $ 15,090 $ 4,361 Restricted cash 36,123 2,949 Accrued interest receivable and other assets 12,956 3,351 Current portion of secured project notes from Guarantors 28,329 28,572 ------------ ----------- Total current assets 92,498 39,233 Secured project notes from Guarantors 477,635 491,678 Investment in 1% of net assets of Guarantors 9,901 9,669 ------------ ----------- Total assets $ 580,034 $ 540,580 ============ =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued interest $ 12,867 $ 3,333 Due to affiliates 47,784 3,899 Current portion of long term debt 28,329 28,572 ------------ ----------- Total current liabilities 88,980 35,804 Senior secured notes and bonds 477,635 491,678 ------------ ----------- Total liabilities 566,615 527,482 Commitments and contingencies (Note 3) Stockholder's equity: Common stock--authorized 1,000 shares, par value $.01 per share; issued and outstanding 100 shares --- --- Additional paid-in capital 5,564 5,366 Retained earnings 7,855 7,732 ------------ ----------- Total stockholder's equity 13,419 13,098 ------------ ----------- Total liabilities and stockholder's equity$ 580,034 $ 540,580 ============ =========== The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 Revenues: Interest income $ 9,984 $ 10,753 $ 30,057 $ 31,489 Equity in earnings of Guarantors 156 22 34 209 ----------- ----------- ----------- --------- Total revenues 10,140 10,775 30,091 31,698 ----------- ----------- ----------- --------- General and administrative expenses 135 283 581 746 Interest expense 9,679 10,183 29,301 30,676 ----------- ----------- ----------- --------- Total expenses 9,814 10,466 29,882 31,422 ----------- ----------- ----------- --------- Income before income taxes 326 309 209 276 Provision for income taxes 134 128 86 114 ----------- ----------- ----------- --------- Income before cumulative effect of accounting change 192 181 123 162 Cumulative effect of accounting change, net of tax --- --- --- (100) ----------- ----------- ----------- --------- Net income $ 192 $ 181 $ 123 $ 62 =========== =========== =========== =========
The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net income $ 123 $ 62 Adjustments to reconcile net income to net cash flow from operating activities: Equity in earnings of Guarantors, net of contributions (34) (209) Equity in cumulative effect of accounting change --- 100 Changes in assets and liabilities: Prepaid expenses and other assets (9,605) (10,400) Accrued liabilities 9,534 10,034 ------------ ------------ Net cash flows from operating activities 18 (413) ------------ ------------ Cash flows from investing activities: Principal repayments of secured project notes from Guarantors 14,286 11,830 ------------ ------------ Net cash flows from investing activities 14,286 11,830 ------------ ------------ Cash flows from financing activities: Increase in due to affiliates 43,885 38,350 Increase in restricted cash (33,174) --- Repayment of senior secured notes and bonds (14,286) (11,830) ------------ ------------ Net cash flows from financing activities (3,575) 26,520 ------------ ------------ Net change in cash 10,729 37,937 Cash at the beginning of period 4,361 8,467 ------------ ------------ Cash at the end of period $ 15,090 $ 46,404 ============ ============ Supplemental disclosures: Interest paid $ 19,800 $ 20,677 ============ ============
The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. General: In the opinion of management of the Salton Sea Funding Corporation (the "Funding Corporation"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2002 and the results of operations for the three and nine months ended September 30, 2002 and 2001 and cash flows for the nine-months ended September 30, 2002 and 2001. The results of operations for the three and nine-months ended September 30, 2002 and 2001 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, 2001. Certain prior year amounts have been reclassified to conform with current year classifications. 2. Accounting Policies: On January 1, 2002, the Funding Corporation adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes the accounting for acquired goodwill and other intangible assets and provides goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Funding Corporation's related amortization consists solely of its share of the goodwill amortization at the Guarantors, which has no income tax effect. Following is a reconciliation of net income as originally reported for the three and nine-months ended September 30, 2002 and 2001, to adjusted net income (in thousands): Three Months Nine Months Ended September 30, Ended September 30, 2002 2001 2002 2001 Reported net income $ 192 $ 181 $ 123 $ 62 Goodwill amortization --- 14 --- 43 --------- -------- -------- --------- Adjusted net income $ 192 $ 195 $ 123 $ 105 ========= ======== ======== ========= In accordance with SFAS No. 142, the Guarantors have determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter primarily using a discounted cash flow methodology as of January 1, 2002. The results of the transitional impairment tests indicated potential goodwill impairment at the Salton Sea and Partnership Guarantors. The Guarantors will determine the potential impairment charge, if any, and record such charge in the financial statements during the quarterending December 31, 2002. The impairment charge will be recorded as a cumulative effect of change in accounting as of January 1, 2002. The Guarantors will complete their annual goodwill impairment test during the fourth quarter of 2002. In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 is effective for the Guarantors' fiscal year beginning January 1, 2003. The Guarantors have not determined the impact resulting from the adoption of this standard. In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". The standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. There was no financial statement impact as a result of the Funding Corporation's adoption of SFAS No. 144 on January 1, 2002. 3. Contingencies: Southern California Edison ("Edison"), a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $119 million owed under the power purchase agreements with certain Guarantors (Imperial Valley Projects, excluding the Salton Sea V and Turbo Projects) for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the Guarantors had established an allowance for doubtful accounts of approximately $21.0 million as of December 31, 2001. The final payment of past due amounts by Edison was received March 1, 2002. Following the receipt of Edison's final payment of past due balances, the Guarantors released the remaining allowance for doubtful accounts. As a result of uncertainties related to Edison, the letter of credit that supports the debt service reserve fund at the Funding Corporation has not been extended beyond its current July 2004 expiration date, and as such cash distributions are not available to CE Generation, LLC until the Funding Corporation debt service reserve fund of approximately $67.6 million has been funded or the letter of credit has been extended beyond its July 2004 expiration date or replaced. In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a result, the Salton Sea V and Turbo Projects have not received payment for power sold under the Transaction Agreements during December 2000 and January 2001 of approximately $3.8 million. The Guarantors have established an allowance for doubtful accounts for the full amount of this receivable. Edison has failed to pay approximately $3.9 million of capacity bonus payments for the months from October 2001 through May 2002. On December 10, 2001 certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required capacity bonus payments under the Power Purchase Agreements. The Project entities will vigorously pursue collection of the capacity bonus payments. However, due to Edison's failure to pay the contractual obligations, certain Guarantors have established an allowance for doubtful accounts of approximately $1.3 million as of September 30, 2002. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Salton Sea Guarantors as of September 30, 2002, and the related combined statements of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the related statements of cash flows for the nine-month periods ended September 30, 2002 and 2001. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the combined balance sheet of the Salton Sea Guarantors as of December 31, 2001, 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 17, 2002 (March 1, 2002 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, 2001 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Omaha, Nebraska November 8, 2002 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands)
September 30, December 31, 2002 2001 (unaudited) ASSETS Accounts receivable, net of allowance of $3,373 and $9,829, respectively $ 26,424 $ 36,647 Prepaid expenses and other assets 5,927 5,314 ------------ ------------- Total current assets 32,351 41,961 Property, plant, contracts and equipment, net 537,892 543,719 Excess of cost over fair value of net assets acquired, net 44,270 44,270 ------------ ------------- Total assets $ 614,513 $ 629,950 ============ ============= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 568 $ 2,862 Accrued liabilities 7,977 9,414 Accrued interest 6,523 1,721 Current portion of long term debt 21,625 20,487 ------------ ------------- Total current liabilities 36,693 34,484 Due to affiliates 25,057 27,109 Senior secured project note 235,034 246,412 ------------ ------------- Total liabilities 296,784 308,005 Commitment and contingencies (Note 3) Total Guarantors' equity 317,729 321,945 ------------ ------------- Total liabilities and Guarantors' equity $ 614,513 $ 629,950 ============ =============
The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 _________ _________ _________ _________ Revenues: Sales of electricity $ 27,438 $ 22,853 $ 66,936 $ 77,847 Interest and other income 2,185 652 2,615 1,629 _________ _________ _________ _________ Total revenues 29,623 23,505 69,551 79,476 _________ _________ _________ _________ Expenses: Operating, general and administration 14,374 15,438 42,709 43,004 Depreciation and amortization 4,721 4,372 15,686 13,382 Interest expense 5,053 5,574 15,372 16,878 Less capitalized interest --- --- --- (1,692) _________ _________ _________ _________ Total expenses 24,148 25,384 73,767 71,572 _________ _________ _________ _________ Income (loss) before cumulative effect of accounting change 5,475 (1,879) (4,216) 7,904 Cumulative effect of accounting change --- --- --- (8,743) _________ _________ _________ _________ Net income (loss) $ 5,475 $ (1,879) $ (4,216) $ (839) ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net loss $ (4,216) $ (839) Adjustments to reconcile net loss to net cash flows from operating activities: Cumulative effect of change in accounting principle --- 8,743 Depreciation and amortization 15,686 13,382 Changes in assets and liabilities: Accounts receivable 10,223 (4,433) Prepaid expenses and other assets (613) (5,777) Accounts payable and accrued liabilities 1,071 5,738 ____________ _________ Net cash flows from operating activities 22,151 16,814 ____________ _________ Cash flows from investing activities: Capital expenditures (9,859) (7,055) Decrease in restricted cash --- 17 ____________ _________ Net cash flows from investing activities (9,859) (7,038) ____________ _________ Cash flows from financing activities: Decrease in due to affiliates (2,052) (1,117) Repayment of senior secured project note (10,240) (8,659) ____________ _________ Net cash flows from financing activities (12,292) (9,776) ____________ _________ Net change in cash --- --- Cash at beginning of period --- --- ____________ _________ Cash at end of period $ --- $ --- ============ ========= Supplemental disclosures: Interest paid $ 10,077 $ 11,020 ============ =========
The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) 1. General: In the opinion of management of the Salton Sea Guarantors (the "Guarantors"), the accompanying unaudited combined financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2002 and the results of operations for the three and nine-months ended September 30, 2002 and 2001 and cash flows for the nine-months ended September 30, 2002 and 2001. The results of operations for the nine-months ended September 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. The unaudited combined financial statements shall be read in conjunction with the combined financial statements included in the Funding Corporation's annual report on Form 10-K for the year ended December 31, 2001. Certain prior year amounts have been reclassified in order to conform with current year classification. 2. Accounting Pronouncements: Effective January 1, 2001, the Guarantors changed their accounting policy for overhaul and well workover costs. These costs, had historically been accounted for using the deferral method, and are now expensed as incurred. The Guarantors have recorded a cumulative effect of this change of approximately $8.7 million in the nine months ended September 30, 2001. On January 1, 2002, the Guarantors adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Guarantor's related amortization consists solely of goodwill amortization. Following is a reconciliation of net income as originally reported for the three and nine-months ended September 30, 2002 and 2001, to adjusted net income (loss) (in thousands): Three Months Nine months Ended September 30, Ended September 30, 2002 2001 2002 2001 Reported net income (loss) $ 5,475 $ (1,879) $ (4,216) $ (839) Goodwill amortization --- 326 --- 978 Adjusted net income (loss) $ 5,475 $ (1,553) $ (4,216) $ 139 The Guarantors' acquired intangible assets consists of power purchase contracts (the "contracts") with a cost of $7.9 million and accumulated amortization of $3.1 million at September 30, 2002, and are included in property, plant, contracts and equipment in the accompanying combined balance sheet. Amortization expense on the contracts was $0.2 million for the nine months ended September 30, 2002. The Guarantors expect amortization expense on the contracts to be $.1 million for the remainder of fiscal 2002 and $.3 million for each of the five succeeding fiscal years. In accordance with SFAS No. 142, the Guarantors have determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter primarily using a discounted cash flow methodology as of January 1, 2002. The results of the transitional impairment tests indicated potential goodwill impairment at the Guarantors. The Guarantors will determine the potential impairment charge, if any, and record such charge in the financial statements during the quarter ending December 31, 2002. The impairment charge will be recorded as a cumulative effect of change in accounting as of January 1, 2002. The Guarantors will complete their annual goodwill impairment test during the fourth quarter of 2002. August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 is effective for the Guarantors' fiscal year beginning January 1, 2003. The Guarantors have not quantified the impact resulting from the adoption of this standard. In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". The standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. There was no financial statement impact as a result of the Guarantors' adoption of SFAS No. 144 on January 1, 2002. 3. Contingencies: A. Southern California Edison Southern California Edison ("Edison"), a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $42.3 million owed under the power purchase agreements with certain Guarantors (excluding the Salton Sea V Project) for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the Guarantors had established an allowance for doubtful accounts of approximately $6.8 million as of December 31, 2001. The final payment of the past due amounts by Edison was received March 1, 2002. Following the receipt of Edison's final payment of past due balances, the Guarantors released the remaining allowance for doubtful accounts. As a result of uncertainties related to Edison, the letter of credit that supports the debt service reserve fund at Salton Sea Funding Corporation has not been extended beyond its current July 2004 expiration date, and as such, cash distributions are not available to CE Generation, LLC until the Salton Sea Funding Corporation debt service reserve fund of approximately $67.6 million has been funded or the letter of credit has been extended beyond its July 2004 expiration date or replaced. In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a result, the Salton Sea V Project has not received payment for power sold under the Transaction Agreements during December 2000 and January 2001 of approximately $3.0 million. The Guarantors have established an allowance for doubtful accounts for the full amount of this receivable. Edison has failed to pay approximately $1.1 million of capacity bonus payments for the months from October 2001 through May 2002. On December 10, 2001 certain Guarantors (except the Salton Sea V Project) filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required capacity bonus payments under the Power Purchase Agreements. The Guarantors will vigorously pursue collection of the capacity bonus payments. However, due to Edison's failure to pay these contractual obligations, the Guarantors have established an allowance for doubtful accounts of approximately $.3 million. B. Stone and Webster The Salton Sea V Project was constructed by Stone & Webster, Inc. (formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of the Shaw Group ("Stone & Webster"), pursuant to date certain, fixed-price, turnkey engineering, procure, construct and manage contract (the "Salton Sea V Project EPC Contract"). On March 7, 2002, Salton Sea Power L.L.C., the owner of the Salton Sea V Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster's design, engineering, construction and procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea V Project EPC Contract. The arbitration relating to the Salton Sea V Project is currently scheduled to commence in April 2003, with no current stated claim amount. C. Environmental Liabilities The Guarantors are subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement, and land use aesthetics. State and federal environmental laws and regulations currently have, and future modifications may have, the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of the Guarantors' existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Guarantors' cost of waste disposal and (vi) reducing the reliability of service provided by the Guarantors and the amount of energy available from the Guarantors' facilities. Any of such items could have a substantial impact on amounts required to be expended by the Guarantors in the future. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating sites, other companies' clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying balance sheets at their undiscounted amounts. As of September 30, 2002 and December 31, 2001, the environmental liabilities recorded on the balance sheet were not material. 4. Related Party Transactions On September 29, 2000, Salton Sea Power L.L.C. ("Salton Sea Power") entered into an agreement to sell all available power from the Salton Sea V Project to El Paso Merchant Energy Company ("EPME"). Under the terms of the agreement, EPME purchased and sold available power on behalf of Salton Sea Power, into the California ISO markets. The purchase price for the available power was equivalent to the value actually received by EPME for the sale of such power, including renewable premiums. On January 17, 2001, Salton Sea Power entered into Transaction Agreements to sell available power from the Salton Sea V Project to EPME. Under the terms of the agreement, at the option of Salton Sea Power, EPME purchased all available power from the Salton Sea V Project based on day ahead price quotes received from EPME. On March 27, 2001 and May 1, 2001, the Imperial Valley Projects entered into Transaction Agreements to sell available power to EPME based on percentages of the Dow Jones SP-15 Index. On June 22, 2001, the Imperial Valley Projects (excluding the Salton Sea V Project and Turbo Project) ceased selling available power to EPME and resumed power sales to Edison under the Power Purchase Agreements ("PPAs"). Effective September 16, 2002, Salton Sea Power entered into a Transaction Agreement to sell available power to EPME at increased percentages of the Dow Jones SP-15 Index. Pursuant to these agreements, sales to EPME from the Company totaled $2.7 million and $3.5 million for the three months ended September 30, 2002 and 2001, respectively and $6.1 million and $29.9 million for the nine months ended September 30, 2002 and 2001, respectively. As of September 30, 2002 and December 31, 2001, accounts receivable from EPME were $.7 million and $.9 million, respectively. Effective August 1, 2002, Salton Sea Power amended the power sales agreement with CalEnergy Minerals, LLC ("Minerals") to provide for a fixed price of $31.00 per Megawatt hour for all hours of August 1, 2002 through December 31, 2002. Pursuant to this agreement, sales to Minerals from Salton Sea Power totaled $.1 million and $.1 million for the three and nine months ended September 30, 2002 and 2001, respectively and $.2 million and $.9 million for the nine months ended September 30, 2002 and 2001, respectively. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Partnership Guarantors as of September 30, 2002, and the related combined statements of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the related statements of cash flows for the nine-month periods ended September 30, 2002 and 2001. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the combined balance sheet of the Partnership Guarantors as of December 31, 2001, 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 17, 2002 (March 1, 2002 as to Note 8A), 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, 2001 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Omaha, Nebraska November 8, 2002 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands)
September 30, December 31, 2002 2001 (unaudited) ASSETS Cash $ 67 $ --- Accounts receivable, net of allowance of $1,611 and $14,925, respectively 34,948 59,384 Prepaid expenses and other assets 19,902 19,358 ------------ ------------- Total current assets 54,917 78,742 Restricted cash --- 21,282 Property, plant, contracts and equipment, net 676,023 633,574 Management fee 69,405 70,806 Due from affiliates 49,051 13,072 Excess of cost over fair value of net assets acquired, net 120,866 120,866 ------------ ------------- Total assets $ 970,262 $ 938,342 ============ ============= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable $ 2,254 $ 5,480 Accrued liabilities 19,887 12,853 Accrued interest 6,289 1,605 Current portion of long term debt 4,822 4,625 ------------ ------------- Total current liabilities 33,252 24,563 Senior secured project notes 241,607 244,117 Deferred income taxes 103,958 102,083 ------------ ------------- Total liabilities 378,817 370,763 Commitments and contingencies (Note 3) Guarantors' equity: Common stock 3 3 Additional paid-in capital 407,451 387,663 Retained earnings 183,991 179,913 ------------ ------------- Total Guarantors' equity 591,445 567,579 ------------ ------------- Total liabilities and Guarantors' equity $ 970,262 $ 938,342 ============ =============
The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 _________ _________ _________ _________ Revenues: Sales of electricity $ 33,229 $ 20,782 $ 75,724 $ 64,352 Interest and other income 1,103 1,702 1,768 2,642 _________ _________ _________ _________ Total revenues 34,332 22,484 77,492 66,994 _________ _________ _________ _________ Expenses: Operating, general and administration 15,668 8,974 48,373 35,646 Depreciation and amortization 5,484 5,877 17,636 17,895 Interest expense 4,792 4,857 14,328 14,479 Less capitalized interest (3,050) (2,855) (8,798) (10,338) _________ _________ _________ _________ Total expenses 22,894 16,853 71,539 57,682 _________ _________ _________ _________ Income before income taxes 11,438 5,631 5,953 9,312 Provision for income taxes 3,602 1,944 1,875 3,213 _________ _________ _________ _________ Income before cumulative effect of accounting change 7,836 3,687 4,078 6,099 Cumulative effect of accounting change, net of tax --- --- --- (8,254) _________ _________ _________ _________ Net income (loss) $ 7,836 $ 3,687 $ 4,078 $ (2,155) ========= ========= ========= ==========
The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net income (loss) $ 4,078 $ (2,155) Adjustments to reconcile net income (loss) to net cash flow from operating activities: Cumulative effect of change in accounting principle, net of tax --- 8,254 Depreciation and amortization 17,636 17,895 Deferred income taxes 1,875 3,213 Changes in assets and liabilities: Accounts receivable 24,436 (14,007) Prepaid expenses and other assets (1,347) (5,481) Accounts payable and accrued liabilities 8,492 8,849 ______________ _____________ Net cash flows from operating activities 55,170 16,568 ______________ _____________ Cash flows from investing activities: Capital expenditures (16,938) (11,394) Capital expenditures - construction (39,453) (14,322) Receipt of liquidated damages --- 29,648 Decrease (increase) in restricted cash 21,282 (29,551) Management fee (724) 163 ______________ _____________ Net cash flows from investing activities (35,833) (25,456) ______________ _____________ Cash flows from financing activities: Repayments of senior secured project notes (2,313) (954) Decrease (increase) in due from affiliates (36,745) 9,842 Equity contribution 19,788 --- Net cash flows from financing activities (19,270) 8,888 ______________ _____________ Net change in cash 67 --- Cash at beginning of period --- --- ______________ _____________ Cash at end of period $ 67 $ --- ============== ============= Supplemental disclosures: Interest paid $ 9,465 $ 9,547 ============== =============
The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) 1. General: In the opinion of management of the Partnership Guarantors (the "Guarantors"), the accompanying unaudited combined financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2002 and the results of operations for the three and nine-months ended September 30, 2002 and 2001 and cash flows for the nine-months ended September 30, 2002 and 2001. The results of operations for the three and nine-months ended September 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. The unaudited combined financial statements shall be read in conjunction with the combined financial statements included in the Funding Corporation's annual report on Form 10-K for the year ended December 31, 2001. 2. Accounting Policies: Effective January 1, 2001, the Guarantors changed their accounting policy for overhaul and well workover costs. These costs, had historically been accounted for using the deferral method, and are now expensed as incurred. The Guarantors have recorded a cumulative effect of this change of approximately $8.3 million, net of tax in the nine months ended September 30, 2001. On January 1, 2002, the Guarantors adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes the accounting for acquired goodwill and other intangible assets and provides goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Guarantors' related amortization consists solely of goodwill amortization, which has no income tax effect. Following is a reconciliation of net income (loss) as originally reported for the three and nine-months ended September 30, 2002 and 2001, to adjusted net income (in thousands): Three Months Nine Months Ended September 30, Ended September 30, 2002 2001 2002 2001 Reported net income (loss) $ 7,836 $ 3,687 $ 4,078 $ (2,155) Goodwill amortization --- 891 --- 2,673 --------- -------- --------- --------- Adjusted net income $ 7,836 $ 4,578 $ 4,078 $ 518 ========= ======== ========= ========= The following table summarizes the acquired intangible assets as of September 30, 2002 (in thousands): Gross Carrying Accumulated Amount Amortization Amortized Intangible Assets: Power Purchase Contract $ 123,002 $ 96,502 Patented Technology 46,290 14,903 ---------- --------- Total $ 169,292 $ 111,405 ========== ========= Amortization expense on acquired intangible assets was $2.6 million for the nine-months ended September 30, 2002. The Guarantors expect amortization expense on acquired intangible assets to be $.9 million for the remainder of fiscal 2002 and $3.5 million for each of the five succeeding fiscal years. In accordance with SFAS No. 142, the Guarantors have determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter primarily using a discounted cash flow methodology as of January 1, 2002. The results of the transitional impairment tests indicated potential goodwill impairment at the Guarantors. The Guarantors will determine the potential impairment charge, if any, and record such charge in the financial statements during the quarter ending December 31, 2002. The impairment charge will be recorded as a cumulative effect of change in accounting as of January 1, 2002. The Guarantors will complete their annual goodwill impairment test during the fourth quarter of 2002. In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses financial accounting and reporting for obligations related to the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 is effective for the Guarantors' fiscal year beginning January 1, 2003. The Guarantors have not determined the impact resulting from the adoption of this standard. In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". The standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. There was no financial statement impact as a result of the Guarantors' adoption of SFAS No. 144 on January 1, 2002. 3. Contingency: A. Southern California Edison Southern California Edison ("Edison"), a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $76.9 million owed under the power purchase agreements with certain Guarantors (excluding the Turbo Project) for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the Guarantors had established an allowance for doubtful accounts of approximately $14.1 million as of December 31, 2001. The final payment of the past due amounts by Edison was received March 1, 2002. Following the receipt of Edison's final payment of past due balances, the Guarantors released the remaining allowance for doubtful accounts. In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a result, the Turbo Project has not received payment for power sold under the Transaction Agreements during December 2000 and January 2001 of approximately $.8 million. The Guarantors have established an allowance for doubtful accounts for the full amount of this receivable. Edison has failed to pay approximately $2.7 million of capacity bonus payments for the months from October 2001 through May 2002. On December 10, 2001 certain Guarantors (excluding the Turbo Project) filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required capacity bonus payments under the Power Purchase Agreements. The Guarantors will vigorously pursue collection of the capacity bonus payments. However, due to Edison's failure to pay these contractual obligations, the Guarantors have established an allowance for doubtful accounts of approximately $.8 million. B. Stone and Webster The Turbo Project was constructed by Stone & Webster, Inc. (formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of the Shaw Group ("Stone & Webster"), pursuant to date certain, fixed-price, turnkey engineering, procure, construct and manage contract ( the "Turbo Project EPC Contract"). On March 7, 2002, Vulcan/BN Geothermal Power Company, Del Ranch, L.P., and CE Turbo LLC, the owners of the Turbo Project, filed a Demand for Arbitration against Stone & Webster for breach of contract and breach of warranty arising from deficiencies in Stone & Webster's design, engineering, construction and procurement of equipment for the Turbo Project pursuant to the Turbo Project EPC Contract. The arbitration is currently scheduled for December 2002, with a stated claim amount of approximately $6 million of actual damages and an as yet undetermined amount of consequential damages. C. Minerals The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procure, construct and manage contract (the "Zinc Recovery Project EPC Contract"). On June 14, 2001, Minerals LLC issued notices of default, termination and demand for payment of damages to Kvaerner under the Zinc Recovery Project EPC Contract due to failure to meet performance obligations. As a result of Kvaerner's default under the Zinc Recovery EPC Contract, the Guarantors drew $29.6 million under the EPC Contract Letter of Credit ("LOC") on July 20, 2001 and claimed the retainage and balance of the contract price. The LOC draw, retainage and balance of the contract price have been accounted for as a reduction of the capitalized costs of the project. The Guarantors have entered into a time and materials engineering, procurement and construction management contract with AMEC E&C Services, Inc. to complete the Zinc Recovery Project. On July 11, 2001, Kvaerner filed an Amended Demand For Arbitration against Minerals LLC characterizing the nature of the dispute as concerns regarding change orders and performance penalties. Kvaerner did not state the amount of its claim. On August 7, 2001, Minerals LLC filed an Answering Statement and Counterclaim against Kvaerner. Minerals LLC denied all material allegations in Kvaerner's Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for breach of contract and specific performance. Minerals LLC alleged that its total estimated damage for Kvaerner's breach of contract are in excess of approximately $60 million; however, Minerals LLC has offset approximately $42.5 million of these damages by exercising its rights under the EPC Contract to claim the balance of the contract price, the retainage and by drawing on the LOC. On May 23, 2002, Minerals LLC and Kvaerner entered into a Settlement Agreement. Under the terms of the agreement, Minerals retained the amounts drawn under the LOC, the EPC retainage amounts and the EPC contract balance and will pay to Kvaerner three equal installments of $2.25 million payable in January of 2003, 2004 and 2005. D. Environmental Liabilities The Guarantors are subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement, and land use aesthetics. State and federal environmental laws and regulations currently have, and future modifications may have, the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of the Guarantors' existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Guarantors' cost of waste disposal and (vi) reducing the reliability of service provided by the Guarantors and the amount of energy available from the Guarantors' facilities. Any of such items could have a substantial impact on amounts required to be expended by the Guarantors in the future. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating sites, other companies' clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying balance sheets at their undiscounted amounts. As of September 30, 2002 and December 31, 2001, the environmental liabilities recorded on the balance sheet were not material. 4. Related Party Transactions On September 29, 2000, CE Turbo LLC ("CE Turbo") entered into an agreement to sell all available power from the Turbo Project to EPME. Under the terms of the agreement, EPME purchased and sold available power on behalf of CE Turbo, into the California ISO markets. The purchase price for the available power was equivalent to the value actually received by EPME for the sale of such power, including renewable premiums. On January 17, 2001, CE Turbo entered into a Transaction Agreement to sell available power from the Turbo Project to EPME. Under the terms of the agreement, at the option of CE Turbo, EPME purchased all available power from the Turbo Project based on day ahead price quotes received from EPME. On March 27, 2001 and May 1, 2001, the Guarantors entered into Transaction Agreements to sell available power to EPME based on percentages of the Dow Jones SP-15 Index. On June 22, 2001, the Guarantors (excluding the Turbo Project) ceased selling available power to EPME and resumed power sales to Edison under the Power Purchase Agreements. Effective September 16, 2002 CE Turbo entered into a Transaction Agreement to sell available power to EPME at increased percentages of the Dow Jones SP-15 Index. Pursuant to these agreements, sales to EPME from the Company totaled $.4 million and $.5 million for the three-months and $1.0 million and $49.3 million for the nine months ended September 30, 2002 and 2001, respectively. As of September 30, 2002 and December 31, 2001, accounts receivable from EPME were $.1 million and $.1 million, respectively. Effective August 1, 2002, CE Turbo amended the power sales agreement with CalEnergy Minerals, LLC ("Minerals") to provide for a fixed price of $31.00 per megawatt hour for all hours of August 1, 2002 through December 31, 2002. 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 LLC as of September 30, 2002, and the related statements of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the related statements of cash flows for the nine-month periods ended September 30, 2002 and 2001. These financial statements are the responsibility of the Salton Sea Royalty LLC'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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet of the Salton Sea Royalty LLC as of December 31, 2001, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 17, 2002 (March 1, 2002 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, 2001 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Omaha, Nebraska November 8, 2002 SALTON SEA ROYALTY LLC BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) September 30, December 31, 2002 2001 (unaudited) ASSETS Prepaid expenses and other assets $ 17 $ 31 -------------- -------------- Total current assets 17 31 Royalty stream, net 14,225 14,865 Excess of cost over fair value of net assets acquired,net 30,464 30,464 Due from affiliates 39,138 33,940 -------------- -------------- Total assets $ 83,844 $ 79,300 ============== ============== LIABILITIES AND EQUITY Liabilities: Accrued interest $ 72 $ 29 Current portion of long term debt 1,882 3,460 -------------- -------------- Total current liabilities 1,954 3,489 Senior secured project note 995 1,147 -------------- -------------- Total liabilities 2,949 4,636 Commitment and contingencies (Note 3) Equity: Common stock, par value $.01 per share; 100 share authorized, issued and outstanding --- --- Additional paid-in capital 1,561 1,561 Retained earnings 79,334 73,103 -------------- -------------- Total equity 80,895 74,664 Total liabilities and equity $ 83,844 $ 79,300 ============= ============== The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY LLC STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 _________ _________ _________ _________ Revenues: Royalty income $ 3,371 $ 759 $ 9,585 $ 6,598 Expenses: Operating, general and administrative expenses 863 126 2,488 1,655 Amortization of royalty stream and goodwill 214 487 641 1,462 Interest expense 76 139 225 482 ------------ ------------ ----------- ----------- Total expenses 1,153 752 3,354 3,599 ------------ ------------ ----------- ----------- Net income $ 2,218 $ 7 $ 6,231 $ 2,999 ------------ ------------ ----------- -----------
The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY LLC STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net income $ 6,231 $ 2,999 Adjustments to reconcile net income to net cash flow from operating activities: Amortization 641 1,462 Changes in assets and liabilities: Prepaid expenses and other assets 14 38 Accrued liabilities 42 111 ------------- ------------- Net cash flows from operating activities 6,928 4,610 ------------- ------------- Net cash flows from financing activities: Increase in due from affiliates (5,198) (2,393) Repayment of senior secured project note (1,730) (2,217) ------------- ------------- Net cash flows from financing activities (6,928) (4,610) Net change in cash --- --- Cash at beginning of period --- --- ------------- ------------- Cash at end of period $ --- $ --- ============= ============= Supplemental disclosures: Interest paid $ 169 $ 333 ============= ============= The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY LLC NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. General: In the opinion of management of Salton Sea Royalty LLC (the "Company"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2002 and the results of operations for the three and nine-months ended September 30, 2002 and 2001 and cash flows for the nine-months ended September 30, 2002 and 2001. The results of operations for the three and nine months ended September 30, 2002 and 2001 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, 2001. 2. Accounting Policies: On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes the accounting for acquired goodwill and other intangible assets and provides goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Company's related amortization consists soley of goodwill amortization. Following is a reconciliation of net income as originally reported for the three and nine-months ended September 30, 2002 and 2001, to adjusted net income (in thousands): Three Months Nine Months Ended September 30, Ended September, 2002 2001 2002 2001 Reported net income $ 2,218 $ 7 $ 6,231 $ 2,999 Goodwill amortization --- 227 --- 681 --------- -------- -------- --------- Adjusted net income $ 2,218 $ 234 $ 6,231 $ 3,680 ========= ======== ======== ========= The Company's acquired intangible assets consist of the royalty stream with a cost of $60.5 million and accumulated amortization of $46.3 million at September 30, 2002. Amortization expense on the royalty stream was $0.6 million for the nine-months ended September 30, 2002. The Company expects amortization expense on the royalty stream to be $0.2 million for the remainder of fiscal 2002 and $0.9 million for each of the five succeeding fiscal years. In accordance with SFAS No. 142, the Company has determined its reporting units and completed the transitional impairment testing of goodwill in the second quarter primarily using a discounted cash flow methodology as of January 1, 2002. No impairment was indicated as a result of the transitional impairment test. The Company will complete its annual goodwill impairment test in the fourth quarter of 2002. 3. Contingency: Southern California Edison ("Edison"), a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $119 million owed under the power purchase agreements with certain Guarantors (Imperial Valley Projects, excluding the Salton Sea V and Turbo Projects) for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the Guarantors had established an allowance for doubtful accounts of approximately $21.0 million as of December 31, 2001. The final payment of past due amounts by Edison was received March 1, 2002. Following the receipt of Edison's final payment of past due balances, the Guarantors released the remaining allowance for doubtful accounts. As a result of uncertainties related to Edison, the letter of credit that supports the debt service reserve fund at Salton Sea Funding Corporation has not been extended beyond its current July 2004 expiration date, and as such cash distributions are not available to CE Generation until the Salton Sea Funding Corporation debt service reserve fund of approximately $67.6 million has been funded or the letter of credit has been extended beyond its July 2004 expiration date or replaced. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS _________________________________ Forward-Looking Statements The following is management's discussion and analysis of significant factors, which have affected the Company's financial condition and results of operations during the periods included in the accompanying statements of operations. The Company's actual results in the future could differ significantly from the historical results. 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 and construction uncertainty, operating uncertainty, acquisition uncertainty, uncertainties relating to geothermal resources, uncertainties relating to 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. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in the Combined Financial Statements and accompanying notes. Note 2 to the Combined Financial Statements in the Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Combined Financial Statements. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, impairment of long-lived assets and contingent liabilities. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the Combined Financial Statements. Allowance for Doubtful Accounts The allowance for doubtful accounts is based on the Guarantors' assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration of a major customer's credit worthiness or actual defaults are higher than the Guarantors' historical experience, estimates of the recoverability of amounts due could be adversely affected. Impairment of Long-Lived Assets The Guarantors' long-lived assets consist primarily of property, plant and equipment and intangible assets with useful lives, which range from 3 to 40 years, and goodwill. The Guarantors believe the useful lives of its long-lived assets are reasonable. The Guarantors evaluate goodwill impairment on an annual basis. The Guarantors evaluate the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Triggering events include a significant change in the extent or manner in which long-lived assets are being used or in its physical condition, in legal factors, or in the business climate that could affect the value of the long-lived assets, including changes in regulation. The interpretation of such events requires judgment from management as to whether such an event has occurred and is required. If an event occurs that could affect the carrying value of the asset and management does not identify it as a triggering event, future results of operations could be significantly affected. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Guarantors expect to recover from the future use of the asset, undiscounted and without interest, plus the asset's residual value on disposal. Where the recoverable amount of the long-lived asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value which is based on discounted estimated cash flows from the future use of the asset. The estimated cash flows arising from future use of the asset that are used in the impairment analysis requires judgment regarding what the Guarantors would expect to recover from future use of the asset. Any changes in the estimates of cash flows arising from future use of the asset or the residual value of the asset on disposal based on changes in the market conditions, changes in the use of the assets, management's plans, the determination of the useful life of the assets and technology change in the industry could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss, which could significantly affect the results of operations. In accordance with SFAS No. 142, the Guarantors have determined their reporting units and completed their transitional impairment testing of goodwill in the second quarter primarily using a discounted cash flow methodology as of January 1, 2002. The results of the transitional impairment tests indicated potential goodwill impairment at the Salton Sea Guarantors and Partnership Guarantors. The Guarantors will determine the potential impairment charge, if any, and record such charge in the financial statements no later than the period ending December 31, 2002. The impairment charge will be recorded as a cumulative effect of change in accounting as of January 1, 2002. The Guarantors will complete their annual goodwill impairment test in the fourth quarter of 2002. Contingent Liabilities The Guarantors are subject to the possibility of various loss contingencies, including tax, legal and environmental, arising in the ordinary course of business. The Guarantors consider the likelihood of the loss or the incurrence of a liability as well as the ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Guarantors regularly evaluate current information available to determine whether such accruals should be adjusted. 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"), Salton Sea Guarantors', the Partnership Guarantors' and the Salton Sea Royalty LLC's (collectively, the "Guarantors") financial condition and results of operations during the periods included in the accompanying statements of operations. Revenues: The Salton Sea Guarantors' sales of electricity increased to $27.4 million for the three months ended September 30, 2002 from $22.9 million for the same period in 2001, a 19.7% increase. This increase was due to higher production and a $3.2 million accrual for the allowance for doubtful accounts in 2001. For the nine months ended September 30, 2002 sales of electricity decreased to $66.9 million from $77.9 million for the same period in 2001, a 14.0% decrease. Sales of electricity for the nine-months ended September 30, 2002 included the impact of a $6.8 million reduction in the allowance for doubtful accounts. Sales of electricity for the nine months ended September 30, 2001 included the impact of a $9.3 million increase in the allowance for doubtful accounts. Excluding the impact of the adjustments related to the allowance for doubtful accounts, sales of electricity decreased $27.0 million or 31.0% to $60.1 million for the nine months ended September 30, 2002 from $87.1 million for the nine-months September 30, 2001. This decrease was primarily due to lower electricity rates in 2002. The following data includes the aggregate capacity and electricity production of the Salton Sea Guarantors: Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 Overall capacity factor 85.6% 79.9% 79.4% 79.9% Capacity (NMW) (average) 168.4 168.4 168.4 168.4 kWh produced (in thousands) 318,300 297,200 875,500 881,900 The overall capacity factor for the Salton Sea Guarantors increased for the three months ended September 30, 2002 compared to the same period in 2001 primarily due to higher availability. For the nine months, ended September 30, 2002 the capacity factor decreased compared to the same period in 2001 primarily due to overhauls and other maintenance. The 2002 overhauls include an uncontrollable force event at the Salton Sea II Project. Salton Sea II's 10 MW turbine went out of service on March 25, 2002 and is expected to be placed back into service in December 2002. The Guarantors expect to collect lost revenues under the Salton Sea II PPA and through insurance coverage excluding deductibles. The Partnership Guarantors' sales of electricity increased to $33.2 million for the three months ended September 30, 2002 from $20.8 million for the same period in 2001, a 59.6% increase. This increase was due to higher rates in 2002. For the nine-months ended September 30, 2002 sales of electricity increased to $75.7 million from $64.4 million for the same period in 2001, a 17.5% increase. Sales of electricity for the nine months ended September 30, 2002 included the impact of $14.1 million reduction in the allowance for doubtful accounts. Sales of electricity for the nine months ended September 30, 2001 included the impact of a $28.9 million increase in the allowance for doubtful accounts. Excluding the impact of the adjustments related to the allowance for doubtful accounts, sales of electricity decreased $31.7 million or 34.0% to $61.6 million for the nine months ended September 30, 2002 from $93.3 million for the nine months ended September 30, 2001. This decrease was due to lower electricity rates and decreased production from scheduled overhauls. The following data includes the aggregate capacity and electricity production of the Partnership Guarantors: Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 Overall capacity factor 104.7% 105.9% 100.4% 102.2% Capacity (NMW) (average) 158 158 158 158 kWh produced (in thousands) 365,200 369,600 1,039,800 1,508,200 The overall capacity factor for the Partnership Guarantors decreased for the three and nine months ended September 30, 2002 compared to the same period in 2001. The decrease for the periods ended September 30, 2002 compared to 2001 was due to overhauls in 2002. As a result of the Settlement Agreements, Edison has elected to pay the Guarantors (except Salton Sea Projects IV and V and the Turbo Project) a fixed energy price in lieu of Edison's Average Avoided Cost of Energy. The fixed energy price was 3.25 cents/per kilowatt-hour from January through April 30, 2002 and increased to 5.37 cents/per kilowatt hour effective May 1, 2002 through April 30, 2007. Edison's Average Avoided Cost of Energy was 3.6 cents per kilowatt-hour for the three months and 8.9 cents per kilowatt-hour for the nine-months ended September 30, 2001, respectively. The Royalty Guarantor revenue increased to $3.4 million for the three months ended September 30, 2002 from $.8 million for the same period last year. The increase relates to higher royalties based on higher revenue at the Partnership Guarantor. For the nine months ended September 30, 2002 revenue increased to $9.6 million from $6.6 million for the same period in 2001. The increase relates to higher revenue at the Partnership Guarantors and additional royalties recognized on the past due interest payments from Edison. Operating Expenses: The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, decreased to $14.4 million for the three months ended September 30, 2002 from $15.4 million for the same period in 2001. For the nine months ended September 30, 2002 operating expenses decreased marginally to $42.7 million from $43.0 million for the same period in 2001. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $15.7 million for the three months ended September 30, 2002 from $9.0 million for the same period in 2001. The increase was primarily due to higher royalties from higher revenues and additional start-up costs at the zinc plant. For the nine months ended September 30, 2002 operating expenses increased to $48.4 million from $35.6 million for the same period in 2001. The increase was due to higher royalties, zinc start-up costs and higher overhaul costs in 2002. The Royalty Guarantors' operating expenses increased to $.9 million for the three months ended September 30, 2002, from $.1 million for the same period in 2001. For the nine months ended September 30, 2002 operating expenses increased to $2.5 million from $1.7 million for the same period in 2001. This increase was due to higher royalty costs resulting from higher revenue. Depreciation and Amortization: The Salton Sea Guarantors' depreciation and amortization increased to $4.7 million for the three months ended September 30, 2002 from $4.4 million for the same period of 2001. For the nine months ended September 30, 2002 depreciation and amortization increased to $15.7 million from $13.4 million for the same period in 2001. These increases were due to significant capital additions and the write off of miscellaneous equipment, partially offset by the discontinuation of goodwill amortization in 2002. The Partnership Guarantors' depreciation and amortization decreased to $5.5 million for the three months ended September 30, 2002 from $5.9 million for the same period in 2001. The decrease was due to the discontinuation of goodwill amortization in 2002, partially offset by depreciation on capital additions. For the nine months ended September 30, 2002 depreciation and amortization decreased to $17.6 million from $17.9 million for the same period in 2001. The decrease was due primarily to capital additions, partially offset by the discontinuation of goodwill amortization in 2002 of $2.7 million. The Royalty Guarantors' amortization decreased to $0.2 million for the three months ended September 30, 2002 compared to $.5 million for the same period of 2001. For the nine months ended September 30, 2002, amortization decreased to $.6 million from $1.5 million for the same period in 2001. The decreases were due to the discontinuation of goodwill amortization in 2002. Interest Expense: The Salton Sea Guarantors' interest expense, decreased to $5.1 million for the three months ended September 30, 2002 from $5.6 million for the same period in 2001. The decrease was due to reduced indebtedness. For the nine months ended September 30, 2002 interest expense, net of capitalized amounts, amounts increased to $15.4 million from $15.2 million for the same period in 2001. The increase was due to the discontinuation of capitalized interest on the minerals extraction process partially offset by reduced indebtedness. The Partnership Guarantors' interest expense, net of capitalized amounts, decreased to $1.7 million for the three months ended September 30, 2002 from $2.0 million for the same period in 2001. The decrease was due to reduced indebtedness. For the nine months ended September 30, 2002 interest expense, net of capitalized amounts, increased to $5.5 million from $4.1 million for the same period in 2001. The increase was due to discontinuation of capitalized interest on the minerals extraction process. The Royalty Guarantors' interest expense decreased to $0.1 million for the three months ended September 30, 2002 from $0.1 million from the same period in 2001. For the nine months ended September 30, 2002 interest expense decreased to $.2 million from $.5 million from the same period in 2001. The decrease was due to reduced indebtedness. Income Tax Provision: The Partnership Guarantors' income tax provision increased to $3.6 million for the three months ended September 30, 2002 from a provision of $1.9 million for the same period in 2001. For the nine months ended September 30, 2002 the income tax provision decreased to $1.9 million from $3.2 million for the same period in 2001. 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 effective tax rate was 31.5% and 34.5% for the nine months ended September 30, 2002 and 2001, respectively. Cumulative Effect of Accounting Policy Change: On January 1, 2001, the Guarantors changed their policy of accounting for the overhaul and well workover costs. These costs, which have historically been accounted for using the deferral method, are expensed as incurred. The Salton Sea Guarantors recorded a cumulative effect of $8.7 million. The Partnership Guarantors recorded a cumulative effect of $8.3 million, net of tax of $4.3 million. Related Party Transactions On September 29, 2000, Salton Sea Power L.L.C. ("Salton Sea Power") and CE Turbo LLC ("CE Turbo") entered into an agreement to sell all available power from the Salton Sea V Project and Turbo Project to El Paso Merchant Energy Company ("EPME"). Under the terms of the agreement, EPME purchased and sold available power on behalf of Salton Sea Power and CE Turbo, into the California ISO markets. The purchase price for the available power was equivalent to the value actually received by EPME for the sale of such power, including renewable premiums. On January 17, 2001, Salton Sea Power and CE Turbo entered into Transaction Agreements to sell available power from the Salton Sea V Project and Turbo Project to EPME. Under the terms of the agreements, at the option of Salton Sea Power and CE Turbo, EPME purchased all available power from the Salton Sea V Project and Turbo Project based on day ahead price quotes received from EPME. On March 27, 2001 and May 1, 2001, the Imperial Valley Projects entered into Transaction Agreements to sell available power to EPME based on percentages of the Dow Jones SP-15 Index. On June 22, 2001, the Imperial Valley Projects (excluding the Salton Sea V Project and Turbo Project) ceased selling available power to EPME and resumed power sales to Edison under the Power Purchase Agreements. Effective September 16, 2002 Salton Sea Power and CE Turbo entered into a Transaction Agreement to sell available power to EPME at increased percentages of the Dow Jones SP-15 Index. Pursuant to these agreements, sales to EPME from the Company totaled $2.7 million and $3.5 million for the three months ended September 30, 2002 and 2001, respectively and $6.1 million and $29.9 million for the nine months ended September 30, 2002 and 2001, respectively. As of September 30, 2002 and December 31, 2001, accounts receivable from EPME were $.7 million and $.9 million, respectively. Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective power sale agreements with CalEnergy Minerals, LLC to provide for a fixed price of $31.00 per megawatt hour for all hours of August 1, 2002 through December 31, 2002. Pursuant to these agreements, sales to Minerals from Salton Sea Power and CE Turbo totaled $.1million and $.1 million for the three and nine months ended September 30, 2002 and 2001, respectively and $.2 million and $.9 million for the nine months ended September 30, 2002 and 2001, respectively. Liquidity and Capital Resources The Salton Sea Guarantors' cash flows from operating activities increased to $22.2 million for the nine months ended September 30, 2002 from $16.8 million for the same period in 2001. The operating Salton Sea Guarantors' only source of revenue is payments received pursuant to long-term power sales agreements with Edison, other than Salton Sea V Project revenue and interest earned on funds on deposit. The increase was primarily due to the receipt of past due balances from Edison offset by lower revenues and higher operation and maintenance payments in 2002. The Partnership Guarantors' cash flows from operating activities increased to $55.2 million for the nine months ended September 30, 2002 from $16.6 million for the same period in 2001. The operating Partnership Guarantors' primary source of revenue is payments received pursuant to long term power sales agreements with Edison, other than Turbo Project and Zinc Recovery Project revenue and interest earned on funds on deposit. The increase was primarily due to the receipt of past due balances from Edison. The Royalty Guarantors' cash flow from operations was $6.9 million for the nine months ended September 30, 2002 from $4.6 million for the same period in 2001. The Royalty Guarantors' only source of revenue is royalties received pursuant to resource lease agreements with the Partnership Projects. Edison, a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $119 million owed under the power purchase agreements with certain Guarantors (Imperial Valley Projects, excluding the Salton Sea V and Turbo Projects) for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the Guarantors had established an allowance for doubtful accounts of approximately $21.0 million as of December 31, 2001. The final payment of the past due amounts by Edison was received March 1, 2002. Following the receipt of Edison's final payment of past due balances, the Guarantors released the remaining allowance for doubtful accounts. As a result of uncertainties related to Edison, the letter of credit that supports the debt service reserve fund at Salton Sea Funding Corporation has not been extended beyond its current July 2004 expiration date, and as such cash distributions are not available to CE Generation until the Salton Sea Funding Corporation debt service reserve fund of approximately $67.6 million has been funded or the letter of credit has been extended beyond its July 2004 expiration date or replaced. As of September 30, 2002 the balance in the debt service reserve fund was approximately $36.1 million. In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a result, the Salton Sea V and Turbo Projects have not received payment for power sold under the Transaction Agreements during December 2000 and January 2001 of approximately $3.8 million. The Guarantors have established an allowance for doubtful accounts for the full amount of this receivable. Edison has failed to pay approximately $3.9 million of capacity bonus payments for the months from October 2001 through May 2002. On December 10, 2001 certain Guarantors filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required capacity bonus payments under the Power Purchase Agreements. The Guarantors are vigorously pursuing collection of the capacity bonus payments. However, due to Edison's failure to pay the contractual obligations, the Imperial Valley Projects have established an allowance for doubtful accounts of approximately $1.1 million. The Salton Sea Guarantors' cash flow used in investing activities increased to $9.9 million for the nine months ended September 30, 2002 from $7.0 million for the same period in 2001. Capital expenditures are the primary component of investing activities. The Partnership Guarantors' cash flow used in investing activities increased to $35.8 million for the nine months ended September 30, 2002 from $25.5 million for the same period in 2001. Capital expenditures are the primary component of investing activities. Minerals LLC is constructing the Zinc Recovery Project, which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities are being installed near the sites of the Imperial Valley Projects to extract a zinc chloride solution from the geothermal 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 initial commercial operations in 2002. In September 1999, Minerals LLC entered into a sales agreement whereby all high-grade zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005. Total project costs of the Zinc Recovery Project are expected to be approximately $235.3 million, net of funds received in connection with the settlement of disputes with Kvaerner U.S. Inc (Kvaerner), which is being funded by $140.5 million of debt and the balance from equity contributions. The Zinc Recovery Project has incurred $206.2 million, net of the funds received in connection with the settlement with Kvaerner, of such costs through September 30, 2002. The Zinc Recovery Project was being constructed by Kvaerner pursuant to a date certain, fixed-price, turnkey engineering, procure, construct and manage contract (the "Zinc Recovery Project EPC Contract"). On June 14, 2001, Minerals LLC issued notices of default, termination and demand for payment of damages to Kvaerner under the Zinc Recovery Project EPC Contract due to failure to meet performance obligations. As a result of Kvaerner's default under the Zinc Recovery EPC Contract, the Partnership Guarantors claimed the balance of the contract price, the retainage and drew $29.6 million under the EPC Contract Letter of Credit on July 20, 2001. The Partnership Guarantors have entered into a time and materials reimbursable engineering, procurement and construction management contract with AMEC E&C Services, Inc. to complete the Zinc Recovery Project. On July 11, 2001, Kvaerner filed an Amended Demand For Arbitration against Minerals LLC characterizing the nature of the dispute as concerns regarding change orders and performance penalties. Kvaerner did not state the amount of its claim. On August 7, 2001, Minerals LLC filed an Answering Statement and Counterclaim against Kvaerner. Minerals LLC denied all material allegations in Kvaerner's Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for breach of contract and specific performance. Minerals LLC alleged that its total estimated damage for Kvaerner's breach of contract are in excess of approximately $60 million; however, Minerals LLC has offset approximately $42.5 million of these damages by exercising its rights under the EPC Contract to claim the balance of the contract price, the retainage and by drawing on the LOC. On May 23, 2002, Minerals LLC and Kvaerner entered into a Settlement Agreement. Under the terms of the agreement, Minerals retained the amounts drawn under the LOC, the EPC retainage amounts and the EPC contract balance and will pay to Kvaerner three equal installments of $2.25 million payable in January of 2003, 2004 and 2005. Salton Sea Funding Corporation's net cash flows from financing activities decreased to a net cash use of $3.6 million for the nine months ended September 30, 2002 from a net cash flow of $26.5 million for the same period in 2001. Salton Sea Guarantors' net cash flows used in financing activities increased to $12.3 million from $9.8 million for the same period in 2001. Partnership Guarantors' net cash used in financing activities increased to $19.3 million for the nine months ended September 30, 2002 from a net cash provided of $8.9 million for the same period in 2001. The changes in net cash flows from financing activities are primarily the result of the funding of the debt service reserve fund and debt repayments. These receipts were deposited into cash accounts at Salton Sea Funding Corporation and are recorded as amounts due to the Salton Sea and Partnership Guarantors. Environmental Liabilities The Guarantors are subject to numerous legislative and regulatory environmental protection requirements involving air and water pollution, waste management, hazardous chemical use, noise abatement and land use aesthetics. State and federal environmental laws and regulations currently have, and future modifications may have, the effect of (i) increasing the lead time for the construction of new facilities, (ii) significantly increasing the total cost of new facilities, (iii) requiring modification of the Guarantors' existing facilities, (iv) increasing the risk of delay on construction projects, (v) increasing the Guarantors' cost of waste disposal and (vi) reducing the reliability of service provided by the Guarantors and the amount of energy available from the Guarantors' facilities. Any of such items could have a substantial impact on amounts required to be expended by the Guarantors in the future. Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated. Estimates of the liability are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other social and economic factors, and include estimates of associated legal costs. These amounts also consider prior experience in remediating sites, other companies' clean-up experience and data released by the Environmental Protection Agency or other organizations. These estimated liabilities are subject to revision in future periods based on actual costs or new circumstances, and are included in the accompanying balance sheets at their undiscounted amounts. As of September 30, 2002 and December 31, 2001, the Guarantors' environmental liabilities recorded on the balance sheet were not material. Inflation Inflation has not had a significant Impact on the Guarantors' cost structure. Quantitative and Qualitative Disclosure about Market Risk There have been no material changes in the market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of the Funding Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. Contractual Obligations and Commercial Commitments There have been no material changes in the contractual obligations and commercial commitments from the information provided in Item 7 of the Funding Corporation's Annual Report on Form 10-K for the year ended December 31, 2001. Item 4. Controls and Procedures The Company's chief executive officer and chief financial officer have established "disclosure controls and procedures" (as defined in Rule 13a-14 (C) and Rule 15d - 14(C) of the Securities and exchange Act of 1934) to ensure that material information of the companies and their subsidiaries is made known to them by others within the respective companies. Under their supervision, an evaluation of the disclosure controls and procedures was performed within 90 days prior to the filing of this quarterly report. Based on that evaluation, the above-mentioned officers have concluded that, as of the date of the evaluation, the disclosure controls and procedures were operating effectively. Additionally, the above-mentioned officers find that there have been no signification changes in internal controls, or in other factors that could significantly affect internal controls, subsequent to the date of that evaluation. 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 as noted in footnote 3 of the Salton Sea Funding Corporation 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: Not applicable. (b) Reports on Form 8-K: Not applicable. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf and on behalf of the other registrants by the undersigned thereunto duly authorized, in the City of Omaha, State of Nebraska, on this 14th day of November 2002. SALTON SEA FUNDING CORPORATION Date: November 14, 2002 /s/ Joseph M. Lillo By: Joseph M. Lillo Vice President and Controller SECTION 302 CERTIFICATION FOR FORM 10-Q CERTIFICATIONS I, Edward J. Heinrich, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salton Sea Funding Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Edward J. Heinrich Edward J. Heinrich President (chief executive officer) SECTION 302 CERTIFICATION FOR FORM 10-Q CERTIFICATIONS I, Joseph M. Lillo, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salton Sea Funding Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Joseph M. Lillo Joseph M. Lillo Vice President and Controller (chief financial officer) -----END PRIVACY-ENHANCED MESSAGE-----