<PAGE>
FORM 10-Q --QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
------------------
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
---------------------- -----------------------
Commission File Number: 333-83815
---------
CAITHNESS COSO FUNDING CORP.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3328762
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1114 Avenue of the Americas, 41/st/ Floor, New York, NY 10036-7790
- -------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(212) 921-9099
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
300 shares in Caithness Coso Funding Corp. as of November 9, 1999
-----------------------------------------------------------------
<PAGE>
CAITHNESS COSO FUNDING CORP.
Form 10-Q
For the Quarter Ended September 30, 1999
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
ITEM 1. Financial Statements
Caithness Coso Funding Corp.
Unaudited condensed balance sheet at September 30, 1999 4
Unaudited condensed statement of operations for the period ended
September 30, 1999 5
Unaudited condensed statement of cash flows for the period ended
September 30, 1999 6
Notes to the unaudited condensed financial statements 7
Coso Finance Partners
Unaudited condensed combined balance sheets at September 30, 1999
and December 31, 1998 8
Unaudited condensed combined statements of operations for the three
months ended September 30, 1999 and 1998, the two months ended
February 28, 1999, the seven months ended September 30, 1999 and the
nine months ended September 30, 1999 and 1998 9
Unaudited condensed combined statements of cash flows for the two months
ended February 28, 1999, the seven months ended September 30, 1999, and
the nine months ended September 30, 1999 and 1998. 10
Notes to the unaudited condensed combined financial statements 11
Coso Energy Developers
Unaudited condensed balance sheets at September 30, 1999 and
December 31, 1998 13
Unaudited condensed statements of operations for the three months
ended September 30, 1999 and 1998, the two months ended February 28,
1999, the seven months ended September 30, 1999 and the nine months
ended September 30, 1999 and 1998 14
Unaudited condensed statements of cash flows for the two months ended
February 28, 1999, the seven months ended September 30, 1999, and the nine
months ended September 30, 1999 and 1998 15
Notes to the unaudited condensed financial statements 16
Coso Power Developers
Unaudited condensed balance sheets at September 30, 1999 and
December 31, 1998 18
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Unaudited condensed statements of operations for the three months
ended September 30, 1999 and 1998, the two months ended February 28,
1999, the seven months ended September 30, 1999 and the nine months
ended September 30, 1999 and 1998 19
Unaudited condensed statements of cash flows for the two months ended
February 28, 1999, the seven months ended September 30, 1999, and the
nine months ended September 30, 1999 and 1998 20
Notes to the unaudited condensed financial statements 21
ITEM 2. Management's Discussion and Analysis of Financial Condition 23
and Results of Operations
PART II. OTHER INFORMATION 35
ITEM 1. Legal Proceedings
ITEM 2. Change in Securities and Use of Proceeds
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
</TABLE>
3
<PAGE>
CAITHNESS COSO FUNDING CORP.
UNAUDITED CONDENSED BALANCE SHEET
(Dollars in thousands)
September 30, 1999
<TABLE>
<CAPTION>
Assets:
<S> <C>
Accrued interest receivable $ 11,459
Project loan to Coso Finance Partners 151,550
Project loan to Coso Energy Developers 107,900
Project loan to Coso Power Developers 153,550
--------
$424,459
========
Liabilities and Stockholders' Equity:
Senior secured notes:
Accrued interest payable $ 11,459
6.80% notes due 2001 110,000
9.05% notes due 2009 303,000
--------
Total liabilities 413,000
Stockholders' equity --
$424,459
========
</TABLE>
See accompanying notes to the unaudited condensed financial statements
4
<PAGE>
CAITHNESS COSO FUNDING CORP.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands)
For the
period ended
September 30, 1999
Interest income $ 11,459
Interest expense (11,459)
---------------
Net income $ --
===============
See accompanying notes to the unaudited condensed financial statements
5
<PAGE>
CAITHNESS COSO FUNDING CORP.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the
period ended
September 30, 1999
------------------
Cash flows from investing activities $(413,000)
Cash flows from financing activities 413,000
----------
Net change in cash $ --
==========
See accompanying notes to the unaudited condensed financial statements
6
<PAGE>
CAITHNESS COSO FUNDING CORP.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Organization and Operations
Caithness Coso Funding Corp. (Funding Corp.) was incorporated on April 22, 1999,
in Delaware. Funding Corp. is a special purpose corporation that was formed for
the purpose of issuing senior secured notes on behalf of Coso Finance Partners,
Coso Energy Developers and Coso Power Developers (the Coso partnerships),
affiliates of Funding Corp. Funding Corp. has loaned all of the proceeds from
the offering of 6.80% senior secured notes due 2001 and 9.05% senior secured
notes due 2009 (for a total of $413 million) to the Coso partnerships, and the
Coso partnerships have jointly and severally guaranteed on a senior secured
basis, repayment of the senior secured notes.
Funding Corp. has no material assets other than the loans that have been made to
the Coso partnerships. Also, Funding Corp. does not conduct any business, other
than issuing the senior secured notes and making the loans to the Coso
partnerships.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules.
The financial information herein presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented.
The results for the interim periods are not necessarily indicative of results to
be expected for the full year.
7
<PAGE>
COSO FINANCE PARTNERS
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
(1999) 1998
(new basis) (Note)
Assets:
- -------
Cash $ 10,591 $ --
Restricted cash and investments 27,076 7,524
Accounts receivable 12,158 5,404
Prepaid expense & other assets 84 426
Amounts due from related parties -- 3,782
Property, plant & equipment, net 155,912 180,380
Power purchase agreement, net 13,990 --
Advances to China Lake Plant Services, Inc. 4,292 4,139
Deferred financing costs, net 3,618 233
-------- --------
$227,721 $201,888
======== ========
Liabilities and Partners' Capital:
- ---------------------------------
Accounts payable and accrued liabilities $ 13,971 $ 11,389
Amounts due to related parties 6,334 --
Project loan 151,550 40,566
-------- --------
171,855 51,955
Partners' capital 55,866 149,933
-------- --------
$227,721 $201,888
======== ========
</TABLE>
Note: The condensed balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to the unaudited condensed financial statements
8
<PAGE>
COSO FINANCE PARTNERS
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended Ended Ended
September 30 September 30, February 28, September 30, September 30, September 30,
1999 1998 1999 1999 1999 1998
(new basis) (old basis) (old basis) (new basis) (old basis)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Energy revenues $10,047 $ 9,625 $ 8,098 $23,615 $31,713 $28,751
Capacity 8,174 8,148 474 11,643 12,117 12,318
Interest and other income 427 88 824 1,501 2,325 381
------- ------- ------ ------- ------- -------
Total revenue 18,648 17,861 9,396 36,759 46,155 41,450
Operating expenses:
Plant operating expenses 2,963 3,385 3,125 6,877 10,002 10,629
Royalty expense 3,899 3,009 987 6,484 7,471 5,386
Depreciation and amortization 2,453 2,946 1,604 5,627 7,231 8,857
------- ------- ------ ------- ------- -------
Total operating expenses 9,315 9,340 5,716 18,988 24,704 24,872
Operating income 9,333 8,521 3,680 17,771 21,451 16,578
Other expenses:
Interest expense 3,210 1,053 663 5,216 5,836 3,285
Interest expense - acquisition debt -- -- -- 1,962 1,962 --
Costs related to acquisition debt -- -- -- 1,984 2,027 --
------- ------- ------ ------- ------- -------
Total other expenses 3,210 1,053 663 9,162 9,825 3,285
Income before
extraordinary item 6,123 7,468 3,017 8,609 11,626 13,293
Extraordinary item -
loss on extinguishment of debt -- -- -- 2,374 2,374 --
------- ------- ------ ------- ------- -------
Net income $ 6,123 $ 7,468 $ 3,017 $ 6,235 $ 9,252 $13,293
======= ======= ======= ======== ======= =======
</TABLE>
See accompanying notes to the unaudited condensed combined financial statements
9
<PAGE>
COSO FINANCE PARTNERS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, 1999 September 30, 1999 September 30, 1999 September 30, 1998
(old basis) (new basis)
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 6,592 $ 6,880 $ 13,472 $ 22,295
Net cash used by investing activities (538) (21,705) (22,243) (3,811)
Net cash provided (used) by financing activities (1,926) 21,288 19,362 (13,280)
------- ------ --------- --------
Net change in cash and cash equivalents $ 4,128 $ 6,463 $ 10,591 $ 5,204
======= ======== ========= ========
</TABLE>
See accompanying notes to the unaudited condensed combined financial statements
10
<PAGE>
COSO FINANCE PARTNERS
NOTES TO THE UNAUDITED CONDENSED
COMBINED FINANCIAL STATEMENTS
(1) Organization and Operation
Coso Finance Partners (CFP), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the China Lake Naval Air Weapons
Station, China Lake California. CFP sells all electricity produced to Southern
California Edison under a 24-year power purchase contract expiring in 2011.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules.
Management believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto in the audited financial statements for the year ended
December 31, 1998.
On May 27, 1999 Coso Finance Partners II was merged into Coso Finance Partners
to form one partnership.
The financial information herein presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented.
The results for the interim periods are not necessarily indicative of results to
be expected for the full year. CFP has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
energy revenues, expenses and net income will continue.
(3) Acquisition
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition), a wholly owned subsidiary of Caithness Energy LLC, purchased all
of CalEnergy Company Inc.'s (CalEnergy) interest in CFP for approximately $62.0
million. The acquisition was accounted for under the purchase method, and no
goodwill was recorded. After Caithness Acquisition's purchase of CalEnergy's
interest in CFP, a new basis of accounting was adopted. The purchase was
allocated to the portion of the assets and liabilities purchased from CalEnergy
based upon their fair values, with the amount of fair value of net assets in
excess of the purchase price being allocated to long-lived assets on a pro-rata
basis.
In order to complete the purchase of CalEnergy's interest in CFP, Caithness
Acquisition arranged for short-term debt financing of approximately $77.6
million. This short-term debt was repaid on May 28, 1999 from a portion of the
proceeds from the offering of senior secured notes (see note 4). Financing
11
<PAGE>
costs associated with the short term financing is included in interest expense-
acquisition debt, during the seven months ending September 30, 1999.
The following unaudited pro forma financial information for the nine months
ended September 30, 1999 and 1998 present the combined results of operations of
CFP as if the acquisition had occurred at the beginning of each period
presented, after giving effect to certain adjustments including amortization of
intangible assets, reduced depreciation and operating expense and increased
interest expense. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the acquisition
been completed at the beginning of the periods presented.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Total revenues $ 46,155 $ 41,450
------ ------
Net income $ 9,216 $ 7,932
====== ======
</TABLE>
(4) Debt Financing
On May 28, 1999 Caithness Coso Funding Corp. loaned approximately $151.6 million
to CFP from a portion of the proceeds from the offering of senior secured notes.
The loan consists of one note of $29.0 million at 6.80% and another of $122.6
million at 9.05% with maturity dates of December 15, 2001 and December 15, 2009,
respectively. All prior project loans of approximately $180.0 million were
repaid from the proceeds of the financing and an extraordinary loss from the
early extinguishment of this debt was incurred for approximately $2.4 million.
The extraordinary loss was due to a premium and other costs incurred to pay the
prior project loans before maturity.
12
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(new basis) (Note)
Assets:
- -------
<S> <C> <C>
Cash $ 11,165 $ --
Restricted cash and investments 13,485 290
Accounts receivable 10,814 19,835
Prepaids and other assets 204 1,526
Amounts due from related parties 321 --
Property, plant and equipment, net 161,356 201,600
Power purchase agreement, net 19,982 --
Investment in Coso Transmission Line Partners 3,946 3,107
Advances to China Lake Plant Services, Inc. 1,488 1,567
Deferred financing costs, net 2,597 162
-------- --------
$225,358 $228,087
======== ========
<CAPTION>
Liabilities and Partners' Capital:
- ------------------------------------------------
Accounts payable and accrued liabilities $ 3,575 $ 3,314
Amounts due to related parties 22,949 23,624
Project loan 107,900 37,958
-------- --------
134,424 64,896
Partners' capital 90,934 163,191
-------- --------
$225,358 $228,087
======== ========
</TABLE>
Note: The condensed balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to the unaudited condensed financial statements
13
<PAGE>
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended Ended Ended
September 30, September 30, February 28, September 30, September 30, September 30,
1999 1998 1999 1999 1999 1998
(new basis) (old basis) (old basis) (new basis) (old basis)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Energy revenues $ 6,378 $23,942 $16,716 $13,171 $29,887 $69,063
Capacity 8,002 8,001 817 11,896 12,713 12,621
Interest and other income 294 249 78 666 744 722
------- ------- ------- ------- ------- -------
Total revenue 14,674 32,192 17,611 25,733 43,344 82,406
Operating expenses:
Plant operating expenses 3,867 4,545 4,039 9,383 13,422 15,360
Royalty expense 911 3,267 1,592 1,590 3,182 8,092
Depreciation and amortization 3,766 3,666 2,550 8,853 11,403 10,930
------- ------- ------- ------- ------- -------
Total operating expenses 8,544 11,478 8,181 19,826 28,007 34,382
Operating income 6,130 20,714 9,430 5,907 15,337 48,024
Other expenses:
Interest expense 2,313 1,355 616 4,266 4,856 4,911
Interest expense - acquisition debt -- -- -- 1,415 1,415 --
Costs related to acquisition debt -- -- -- 1,496 1,522 --
------- ------- ------- ------- ------- -------
Total other expenses 2,313 1,355 616 7,177 7,793 4,911
Income before
extraordinary Item 3,817 19,359 8,814 (1,270) 7,544 43,113
------- ------- ------- ------- ------- -------
Extraordinary item -
loss on extinguishment of debt -- -- -- 1,822 1,822 --
------- ------- ------- ------- ------- -------
Net income (loss) $ 3,817 $19,359 $ 8,814 $(3,092) $ 5,722 $43,113
======= ======= ======== ======= ======= =======
</TABLE>
See accompanying notes to the unaudited condensed financial statements
14
<PAGE>
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, 1999 September 30, 1999 September 30, 1999 September 30, 1998
(old basis) (new basis)
<S> <C> <C> <C> <C>
Net cash provided by operating activities $10,367 $ 17,129 $ 27,496 $ 53,624
Net cash provided (used) by investing activities 120 (20,568) (20,448) (15,074)
Net cash provided (used) by financing activities 425 3,692 4,117 (20,755)
------- -------- -------- --------
Net change in cash and cash equivalents $10,912 $ 253 $ 11,165 $ 17,795
======= ======== ======== ========
</TABLE>
See accompanying notes to the unaudited condensed financial statements
15
<PAGE>
COSO ENERGY DEVELOPERS
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Organization and Operation
Coso Energy Developers (CED), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the Coso Hot Springs, China Lake
California. CED sells all electricity produced to Southern California Edison
under a 24-year power purchase contract expiring in 2019.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules.
Management believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto in the audited financial statements for the year ended
December 31, 1998.
The financial information herein presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented.
The results for the interim periods are not necessarily indicative of results to
be expected for the full year. CED has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
energy revenues, expenses and net income will continue.
(3) Acquisition
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition), a wholly owned subsidiary of Caithness Energy LLC, purchased all
of CalEnergy Company, Inc.'s (CalEnergy) interest in CED for approximately $69.0
million. The acquisition was accounted for under the purchase method, and no
goodwill was recorded. After Caithness Acquisition's purchase of CalEnergy's
interest in CED, a new basis of accounting was adopted. The purchase was
allocated to the portion of the assets and liabilities purchased from CalEnergy
based upon their fair values, with the amount of fair value of net assets in
excess of the purchase price being allocated to long-lived assets on a pro-rata
basis.
In order to complete the purchase of CalEnergy's interest in CED, Caithness
Acquisition arranged for short-term debt financing of approximately $55.2
million. This short-term debt was repaid on May 28, 1999 from a portion of the
proceeds from the offering of senior secured notes (see note 4). Financing
costs associated with the short term financing is included in interest expense-
acquisition debt, during the seven months ending September 30, 1999.
16
<PAGE>
The following unaudited pro forma financial information for the nine months
ended September 30, 1998 and 1999 present the combined results of operations of
CED as if the acquisition had occurred at the beginning of the periods
presented, after giving effect to certain adjustments including amortization of
intangible assets, reduced depreciation and operating expense and increased
interest expense. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the acquisition
been completed at the beginning of the periods presented.
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
Total revenues $ 43,344 $ 82,406
------ ------
Net income $ 6,817 $ 43,687
===== ======
(4) Debt Financing
On May 28, 1999 Caithness Coso Funding Corp. loaned approximately $107.9 million
to CED from a portion of the proceeds from the offering of senior secured notes.
The loan consists of one note of $11.65 million at 6.80% and another of $96.25
million at 9.05% with maturity dates of December 15, 2001 and December 15,
2009, respectively. All prior project loans of approximately $93.2 million were
repaid from the proceeds of the financing and an extraordinary loss from the
early extinguishment of this debt was incurred for approximately $1.8 million.
The extraordinary loss was due to a premium and other costs incurred to pay the
prior project loans before maturity.
17
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(new basis) (Note)
Assets:
- -------
<S> <C> <C>
Cash $ 38,078 $ 818
Restricted cash and investments 18,833 --
Accounts receivable 25,544 19,656
Prepaids and other assets 129 694
Amounts due from related parties 3,562 2,848
Property, plant and equipment, net 145,055 188,862
Power purchase agreement, net 27,391 --
Investment in Coso Transmission Line Partners 3,698 3,802
Advances to China Lake Plant Services, Inc. 2,178 2,086
Deferred financing costs, net 3,587 199
-------- --------
$268,055 $218,965
======== ========
Liabilities and Partners' Capital:
- ----------------------------------
Accounts payable and accrued liabilities $ 5,177 $ 3,981
Amounts due to related parties 4,405 --
Project loan 153,550 61,323
-------- --------
163,132 65,304
Partners' capital 104,923 153,661
-------- --------
$268,055 $218,965
======== ========
</TABLE>
Note: The condensed balance sheet at December 31, 1998 has been derived from
the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to the unaudited condensed financial statements
18
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Three Months Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended Ended Ended
September 30, September 30, February 28, September 30, September 30, September 30,
1999 1998 1999 1999 1999 1998
(new basis) (old basis) (old basis) (new basis) (old basis)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Energy revenues $26,183 $29,035 $16,687 $57,455 $74,142 $78,955
Capacity 8,047 8,047 822 11,963 12,785 12,785
Interest and other income 533 363 150 1,266 1,416 1,143
------- ------- ------- ------- ------- -------
Total revenue 34,763 37,445 17,659 70,684 88,343 92,883
Operating expenses:
Plant operating expenses 2,494 3,700 3,195 6,904 10,099 12,370
Royalty expense 3,238 3,463 1,806 7,174 8,980 8,863
Depreciation and amortization 3,665 3,531 2,339 8,419 10,758 10,547
------- ------- ------- ------- ------- -------
Total operating
expenses 9,397 10,694 7,340 22,497 29,837 31,780
Operating income 25,366 26,751 10,319 48,187 58,506 61,103
Other expenses:
Interest expense 3,195 1,834 953 5,607 6,496 6,286
Interest expense - acquisition debt -- -- -- 2,010 2,010 --
Costs related to acquisition debt -- -- -- 2,024 2,088 --
------- ------- ------- ------- ------- -------
Total other expenses 3,195 1,834 953 9,641 10,594 6,286
Income before
extraordinary item 22,171 24,917 9,366 38,546 47,912 54,817
Extraordinary item -
loss on extinguishment of debt -- -- -- 2,147 2,147 --
------- ------- ------- ------- ------- -------
Net income $22,171 $24,917 $ 9,366 $36,399 $45,765 $54,817
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to the unaudited condensed financial statements
19
<PAGE>
COSO POWER DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Two Months Seven Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, 1999 September 30, 1999 September 30, 1999 September 30, 1998
(old basis) (new basis)
<S> <C> <C> <C> <C>
Net cash provided by operating activities $12,016 $ 42,418 $ 54,434 $ 60,975
Net cash used by investing activities (1,126) (19,724) (20,850) (5,399)
Net cash provided (used) by financing activities 1,766 1,910 3,676 (33,212)
------- -------- -------- --------
Net change in cash and cash equivalents $12,656 $ 24,604 $ 37,260 $ 22,364
======= ======== ======== ========
</TABLE>
See accompanying notes to the unaudited condensed financial statements
20
<PAGE>
COSO POWER DEVELOPERS
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Organization and Operation
Coso Power Developers (CPD), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the Coso Hot Springs, China Lake
California. CPD sells all electricity produced to Southern California Edison
under a 24-year power purchase contract expiring in 2010.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules.
Management believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto in the audited financial statements for the year ended
December 31, 1998.
The financial information herein presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented.
The results for the interim periods are not necessarily indicative of results to
be expected for the full year. CPD has experienced significant quarterly
fluctuations in operating results and it expects that these fluctuations in
energy revenues, expenses and net income will continue.
(3) Acquisition
On February 25, 1999, Caithness Acquisition Company, LLC (Caithness
Acquisition), a wholly owned subsidiary of Caithness Energy LLC, purchased all
of CalEnergy Company, Inc.'s (CalEnergy) interest in CPD for approximately $75.0
million. The acquisition was accounted for under the purchase method, and no
goodwill was recorded. After Caithness Acquisition's purchase of CalEnergy's
interest in CPD, a new basis of accounting was adopted. The purchase was
allocated to the portion of the assets and liabilities purchased from CalEnergy
based upon their fair values, with the amount of fair value of net assets in
excess of the purchase price being allocated to long-lived assets on a pro-rata
basis.
In order to complete the purchase of CalEnergy's interest in CPD, Caithness
Acquisition arranged for short-term debt financing of approximately $78.6
million. This short-term was repaid on May 28, 1999 from a portion of the
proceeds from the offering of senior secured notes (see note 4). Financing
costs associated with the short term financing is included in interest
21
<PAGE>
expense- acquisition debt, during the seven months ending September 30, 1999.
The following unaudited pro forma financial information for the nine months
ended September 30, 1999 and 1998 present the combined results of operations of
CPD as if the acquisition had occurred at the beginning of the periods
presented, after giving effect to certain adjustments including amortization of
intangible assets, reduced depreciation and operating expense and increased
interest expense. The pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the acquisition
been completed at the beginning of the periods presented.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Total revenues $ 88,343 $ 92,883
--------- ---------
Net income $ 46,831 $ 52,886
========= =========
</TABLE>
(4) Debt Financing
On May 28, 1999 Caithness Coso Funding Corp. loaned approximately $153.6 million
to CPD from a portion of the proceeds from the offering of senior secured notes.
The loan consists of one note of $69.4 million at 6.80% and another note of
$84.2 million at 9.05% with maturity dates of December 15, 2001 and December 15,
2009, respectively. All prior project loans of approximately $139.9 million were
repaid from the proceeds of the financing and an extraordinary loss from the
early extinguishment of this debt was incurred for approximately $2.1 million.
The extraordinary loss was due to a premium and other costs incurred to pay the
prior project loans before maturity.
22
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for historical financial information contained herein, the matters
discussed in this quarterly report may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and subject to
the safe harbor created by the Securities Litigation Reform Act of 1995. Such
statements include declarations regarding the intent, belief or current
expectations of Caithness Coso Funding Corp. ("Funding Corp."), Coso Finance
Partners ("the Navy I partnership"), Coso Energy Developers ("the BLM
partnership"), and Coso Power Developers ("the Navy II partnership", and
together with the Navy I partnership and the BLM partnership (the "Coso
partnerships") and their respective management. Any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties; actual results could differ materially from those
indicated by such forward-looking statements. Among the important factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements are: (i) that the information is of a preliminary
nature and may be subject to further adjustment, (ii) risks related to the
operation of power plants, (iii) the impact of avoided cost pricing, (iv)
general operating risks, (v) the dependence on third parties, (vi) changes in
government regulation, (vii) the effects of competition, (viii) the dependence
on senior management, (ix) fluctuations in quarterly results and (x)
seasonality.
General
- -------
The Coso projects consist of three 80MW geothermal power plants, which we call
Navy I, BLM and Navy II, and their transmission lines, wells, gathering system
and other related facilities. The Coso projects are located near one another at
the United States Naval Air Weapons Center at China Lake, California. The Navy
I partnership owns Navy I and its related facilities. The BLM partnership owns
BLM and its related facilities. The Navy II partnership owns Navy II and its
related facilities. Affiliates of Caithness Corporation and CalEnergy Company,
Inc. ("CalEnergy"), which is now known as MidAmerican Energy Holdings Company,
formed the Coso partnerships in the 1980s to develop, construct, own and operate
the Coso projects. On February 25, 1999 one of our affiliates, Caithness
Acquisition Company, LLC, purchased all of CalEnergy's interests in the Coso
projects for $205.0 million in cash, plus $5.0 million in contingency payments,
plus the assumption of CalEnergy's and its affiliates' share of debt outstanding
at the Coso projects which then totaled approximately $67.0 million.
Each Coso partnership sells 100% of the electrical energy generated at its plant
to Southern California Edison ("Edison") under a long-term Standard Offer No.4
power purchase agreement. Each Company's power purchase agreement expires after
the final maturity date of the 6.80% Series B Senior Secured Notes due 2001 and
the 9.05% Series B Senior Secured Notes due 2009 issued by Funding Corp.
Each Coso partnership receives the following payments under its power purchase
agreement:
23
<PAGE>
. Capacity payments for being able to produce electricity at certain levels.
Capacity payments are fixed throughout the life of each power purchase
agreement;
. Capacity bonus payments if the Coso partnership is able to produce above a
specified higher level. The maximum annual capacity bonus payment available is
also fixed throughout the life of each power purchase agreement; and
. Energy payments which are based on the amount of electricity the Coso
partnership's plant actually produces.
Energy payments are fixed for the first ten years of firm operation under each
power purchase agreement. Firm operation was achieved for each Coso partnership
when Edison and that Coso partnership agreed that each generating unit at such
Coso partnership's plant was a reliable source of generation and could
reasonably be expected to operate continuously at its effective rating. After
the first ten years of firm operation and until a Coso partnership's power
purchase agreement expires, Edison makes energy payments to the Coso partnership
based on Edison's "avoided cost of energy". Edison's avoided cost of energy is
Edison's cost to generate electricity if Edison were to produce it itself or buy
it from another power producer rather than buy it from the relevant Coso
partnership. The power purchase agreement for the Navy I partnership will
expire in August 2011, the power purchase agreement for the BLM partnership will
expire March 2019, and the power purchase agreement for the Navy II partnership
will expire in January 2010.
Edison has taken the position that the fixed energy price period expired in
August 1997 for the Navy I partnership and in March 1999 for the BLM
partnership, and will expire in January 2000 for the Navy II partnership. The
Coso partnerships believe that the power purchase agreements provide that each
of the three separate turbine generator units at each Coso project has its own
full ten-year fixed energy price period. This issue is one of several currently
in dispute and subject to an ongoing lawsuit between, among others, the Coso
partnerships and Edison.
The Coso partnerships have implemented and intend to expand a steam-sharing
program which they established under a Coso Geothermal Exchange Agreement they
entered into in 1994. The purpose of the steam sharing program is to enhance
the management of the Coso geothermal resource and to optimize the resource's
overall benefits to the Coso partnerships by transferring steam among the Coso
projects.
For the three months ended September 30, 1999, Edison's average avoided cost of
energy paid to the Navy I and the BLM partnership was 3.38c per kWh, which is
substantially below the fixed energy prices earned by the partnerships prior to
the expiration of the fixed energy price periods of their respective power
purchase agreements. Estimates of Edison's future avoided cost of energy vary
significantly, and no one can predict the likely level of avoided cost of energy
prices following the end of the fixed energy price period under the Navy II
partnership's power purchase agreement in January 2000.
24
<PAGE>
Capacity Utilization
- --------------------
For purposes of consistency in financial presentation, the plant capacity factor
for each of the Coso partnerships is based on a nominal capacity amount of 80MW
(240MW in the aggregate). The Coso partnerships have a gross operating margin
that allows for the production of electricity in excess of their nominal
capacity amounts. Utilization of this operating margin is based upon a number
of factors and can be expected to vary throughout the year under normal
operating conditions.
The following data includes the operating capacity factor, capacity and
electricity production (in kWh) for each Coso partnership on a stand-alone
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Navy I Partnership (stand alone)
Operating capacity factor 112.3% 103.2% 92.6% 90.7%
Capacity (MW) (average) 89.84 82.56 74.10 72.54
kWh produced (000s) 198,375 182,300 485,503 475,300
BLM Partnership (stand alone)
Operating capacity factor 101.0% 108.5% 106.1% 103.1%
Capacity (MW) (average) 80.83 86.78 84.90 82.46
kWh produced (000s) 178,469 191,600 556,265 540,300
Navy II Partnership (stand alone)
Operating capacity factor 114.9% 112.4% 111.3% 108.5%
Capacity (MW) (average) 91.94 89.90 89.00 86.77
kWh produced (000s) 203,001 198,500 583,128 568,500
</TABLE>
The Navy I partnership's kWh's produced were 198.4 million and 485.5 million for
the three and nine months ended September 30, 1999 respectively, as compared to
182.3 million and 475.3 million for the comparable periods in 1998, increases of
8.8% and 2.1%, respectively. The increased production was due to the utilization
of steam resource was transferred to the BLM partnership in 1998. In March of
1999 the fixed energy price period under BLM's power purchase agreement expired
and their subsequent receipt of energy payments is now based on Edison's avoided
cost of energy.
The BLM partnership's KWh's produced were 178.5 million and 556.3 million for
the three and nine months ended September 30, 1999 respectively, as compared to
191.6 million and 540.3 million for the comparable periods in 1998. The decrease
for the three months ended September 30, 1999 and 1998 of 6.8% was due to
decreased steam transfers to the BLM partnership from the Navy I partnership
after the fixed energy price period under BLM partnership's power purchase
agreement expired in March of 1999. The increase for the nine
25
<PAGE>
months ended September 30, 1999 and 1998 was due to the increased steam
purchases from the Navy I partnership and a resultant increase in production
through March of 1999 while the BLM partnership was receiving fixed energy
prices under its power purchase agreement.
The Navy II partnership's kWh's produced were 203.0 million and 583.1 million
for the three and nine months ended September 30, 1999 respectively, as compared
to 198.5 million and 568.5 million for the comparable periods in 1998, increases
of 2.3% and 2.6% respectively. These increases were due to the increased
purchase of steam from the Navy I partnership as Navy II is receiving fixed
energy prices under its power purchase agreement.
Results of Operations for the three and nine months ended September 30, 1999 and
1998
The following discusses the results of operations of the Coso partnerships for
the three and nine months ending September 30, 1999 and 1998 (dollar amounts in
tables in thousands, except per kWh data):
<TABLE>
<CAPTION>
Revenue
-------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ----------------- -----------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Operating
Revenues
Navy I partnership 18,221 9.2 17,773 9.7 43,830 9.0 41,069 8.6
BLM partnership 14,380 8.1 31,943 16.7 42,600 7.7 81,684 15.1
Navy II partnership 34,230 16.9 37,082 18.7 86,927 14.9 91,740 16.1
Capacity & Capacity
Bonus Revenues
Navy I partnership 8,174 4.1 8,148 4.5 12,117 2.5 12,318 2.6
BLM partnership 8,002 4.5 8,001 4.2 12,713 2.3 12,621 2.3
Navy II partnership 8,047 4.0 8,047 4.1 12,785 2.2 12,785 2.2
Energy Revenues
Navy I partnership 10,047 5.1 9,625 5.3 31,713 6.5 28,751 6.1
BLM partnership 6,378 3.6 23,942 12.5 29,887 5.4 69,063 12.8
Navy II partnership 26,183 12.9 29,035 14.6 74,142 12.7 78,955 13.9
</TABLE>
Total operating revenues for the Navy I partnership which consist of capacity
payments, capacity bonus payments and energy payments were $18.2 million and
$43.8 million for the three and nine months ended September 30, 1999,
respectively as compared to $17.8 million and $41.1 million for the comparable
periods in 1998 respectively, resulting in increases of 2.2% and 6.6%,
respectively. The Navy I partnership's energy revenues increased to $10.0
million and $31.7 million for the three and nine months ended September 30,
1999, respectively as compared to $9.6 million and $28.8 million for the
comparable periods in 1998, increases of 4.2% and 10.1%, respectively. These
increases in operating and energy revenues for the three and nine month
26
<PAGE>
periods ending September 30, were due to the Navy I partnership's ability to
transfer geothermal steam to the BLM partnership and the Navy II partnership.
The Navy II partnership is still receiving higher fixed energy prices under its
power purchase agreement, however, the BLM partnership's fixed energy price
period under its power purchase agreement expired in March of 1999. Accordingly,
the BLM partnership stopped purchasing steam in the second quarter of 1999. For
the three and nine months ended September 30, 1999 Navy I partnership recorded
steam transfer revenues of approximately $0 and $5.2 million, respectively, from
the BLM partnership and $3.5 million and $11.0 million, respectively from the
Navy II partnership. Total steam transfer revenues for the three and nine months
ended September 30, 1999 were therefore $3.5 million and $16.2 million,
respectively, as compared to $4.0 million and $14.0 million for the same periods
in 1998.
Total operating revenues for the BLM partnership were $14.4 million and $42.6
million for the three and nine months ended September 30, 1999, respectively as
compared to $31.9 million and $81.7 million for the comparable periods in 1998,
decreases of 54.9% and 47.9%, respectively. The BLM partnership's energy
revenues decreased to $6.4 million and $29.9 million for the three and nine
months ended September 30, 1999, respectively as compared to $23.9 million and
$69.1 million for the comparable periods in 1998, decreases of 73.2% and 56.7%,
respectively. These significant decreases were due to the expiration of the
fixed energy price period under the BLM partnership's power purchase agreement
in March 1999 and the receipt of energy payments based on Edison's avoided cost
of energy since that time. Until March 1999 and during 1998 the BLM partnership
received approximately 14.6 cents per kWh for energy delivered. Under the
avoided cost of energy formula, for the three months ended September 30, 1999,
the BLM partnership received an average of approximately 3.38 cents per kWh for
energy delivered.
Total operating revenues for the Navy II partnership were $34.2 million and
$86.9 million for the three and nine months ended September 30, 1999,
respectively, as compared to $37.1 million and $91.7 million for the comparable
periods in 1998, decreases of 7.8% and 5.2%, respectively. The Navy II
partnership's energy revenues were $26.2 million and $74.1 million for the three
and nine months ended September 30, 1999, respectively as compared to $29.0
million and $79.0 million for the comparable periods in 1998, decreases of 9.7%
and 6.2%, respectively. The decreases for the three and nine month periods ended
September 30, 1999 as compared to 1998, despite 2.3% and 2.6% increases,
respectively, in kWhs produced over the same periods, were due to increased
steam transfers from the Navy I partnership. Steam transfer charges during the
three and nine months ended September 30, 1999 amounted to $3.5 million and
$11.0 million respectively, compared to $0 million and $4.1 million during the
same periods in 1998, increases of $3.5 million and $6.9 million, respectively.
<TABLE>
<CAPTION>
Interest and Other Income
-------------------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership 427 0.2 88 0.1 2,325 0.5 381 0.1
BLM partnership 294 0.2 249 0.1 744 0.1 722 0.1
Navy II partnership 533 0.3 363 0.2 1,416 0.2 1,143 0.2
</TABLE>
27
<PAGE>
The Navy I partnership's interest and other income were $427,000 and $2.3
million for the three and nine months ended September 30, 1999, respectively as
compared to $88,000 and $381,000 for the comparable periods in 1998 increases of
385.2% and 503.7%, respectively. The increase for nine months ended September
30, 1999 was attributable to the recording of a $1.6 million business loss
insurance recovery during the first quarter of 1999 in connection with the
shutdown of one of the Navy I partnership's turbine generator units. The shut
down unit was returned to service in May 1999. The BLM partnership's interest
and other income was $294,000 and $744,000 for the three and nine month periods
ending September 30, 1999, respectively as compared to $249,000 and $722,000 for
the same periods in 1998, increases of 18.0% and 3.0%, respectively. The Navy II
partnership's interest and other income was $533,000 and $1.4 million for the
three and nine month periods ending September 30, 1999, respectively as compared
to $363,000 and $1.1 million for the same periods in 1998 increases of 46.8% and
27.3%, respectively. These increases for the Navy I, BLM and Navy II
partnerships were attributable to higher cash balances including the debt
service reserve fund as required by the 6.80% Series B Senior Secured Note due
2001, and the 9.05% Series B Senior Secured Note due 2009.
<TABLE>
<CAPTION>
Plant Operations
----------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership 2,963 1.4 3,385 1.9 10,002 2.0 10,629 2.2
BLM partnership 3,867 2.2 4,545 2.4 13,422 2.4 15,360 2.8
Navy II partnership 2,494 1.2 3,700 1.9 10,099 1.7 12,370 2.2
</TABLE>
The Navy I partnership's operating expenses, including operating and general and
administrative expenses, were $3.0 million and $10.0 million for the three and
nine months ended September 30, 1999, respectively, as compared to $3.4 million
and $10.6 million for the comparable periods in 1998, decreases of 11.8% and
5.7% respectively. The BLM partnership's operating expenses, including operating
and general and administrative expenses, were $3.9 million and $13.4 million for
the three and nine months ended September 30, 1999, respectively as compared to
$4.5 million and $15.4 million for the comparable periods in 1998, decreases of
13.3% and 13.0%, respectively. The Navy II partnership's operating expenses,
including operating and general and administrative expenses, were $2.5 million
and $10.1 million for the three and nine months ended September 30, 1999,
respectively, as compared to $3.7 million and $12.4 million for the comparable
periods in 1998, decreases of 32.4% and 18.6%, respectively. The decreases for
each partnership for the three months and nine months ended September 30, 1999
as compared to 1998 were due in large part to a significant reduction in
operator and management committee fees due to the replacement of the prior
operator and managing partner of the Coso projects.
28
<PAGE>
<TABLE>
<CAPTION>
Royalty Expenses
----------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership 3,899 2.0 3,009 1.7 7,471 1.5 5,386 1.1
BLM partnership 911 0.5 3,267 1.7 3,182 0.6 8,092 1.5
Navy II partnership 3,238 1.6 3,463 1.7 8,980 1.5 8,863 1.6
</TABLE>
The Navy I partnership's royalty expenses, were $3.9 million and $7.5 million
for the three and nine months ended September 30, 1999, respectively, as
compared to $3.0 million and $5.4 million for the comparable periods in 1998,
increases of 30.0% and 38.9%, respectively. These increases were due to the
combination of increased steam sharing revenues over the same period, and a
scheduled increase in the royalty rate paid to the Navy in November 1998 from
10% to 15%. The BLM partnership's royalty expenses, were $911,000 and $3.2
million for the three and nine months ended September 30, 1999, respectively as
compared to $3.3 million and $8.1 million for the comparable periods in 1998,
decreases of 72.4% and 60.5%, respectively. This decrease was due to a reduction
in BLM partnership revenues caused by the expiration of the fixed energy price
period under the BLM partnership's power purchase agreement in March 1999 and
the receipt of energy payments under Edison's avoided cost of energy since that
time. The Navy II partnership's royalty expenses were $3.2 million and $9.0
million for the three and nine months ended September 30, 1999, respectively as
compared to $3.5 million and $8.9 million for the comparable periods in 1998 a
decrease of 8.6% and an increase of 1.1%, respectively. The three months ended
September 30, 1999 decreased as compared to the same period in 1998 due to a
decrease in revenue for that period. The change in royalty expense over the
nine month period ended September 30, 1999 and 1998 is insignificant.
<TABLE>
<CAPTION>
Depreciation and Amortization
-----------------------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C>
Navy I partnership 2,453 1.2 2,946 1.6 7,231 1.5 8,857 1.9
BLM partnership 3,766 2.1 3,666 1.9 11,403 2.1 10,930 2.0
Navy II partnership 3,665 1.8 3,531 1.8 10,758 1.8 10,547 1.9
</TABLE>
The Navy I partnership's depreciation and amortization expense was $2.5 million
and $7.2 million for the three and nine months ended September 30, 1999,
respectively, as compared to $2.9 million and $8.9 million for the comparable
periods in 1998, decreases of 13.8% and 19.1%, respectively. These
29
<PAGE>
decreases were primarily due to the cessation of depreciation expenses for
certain wells which became fully depreciated during these periods. The BLM
partnership's depreciation and amortization expense was $3.8 million and $11.4
million for the three and nine months ended September 30, 1999, respectively, as
compared to $3.7 million and $10.9 million for the comparable periods in 1998.
The Navy II partnership's depreciation and amortization expense was $3.7 million
and $10.8 million for the three and nine months ended September 30, 1999 as
compared to $3.5 million and $10.5 million for the comparable periods in 1998.
The changes in depreciation and amortization expense for each of the BLM
partnership and Navy II partnership are insignificant over the two periods.
<TABLE>
<CAPTION>
Operating Income
----------------
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------ ------------ ------------ ------------
1999 1998 1999 1998
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership 9,333 4.8 8,521 4.7 21,451 4.5 16,578 3.5
BLM partnership 6,130 3.4 20,714 10.8 15,337 2.8 48,024 8.9
Navy II partnership 25,366 12.5 26,751 13.5 58,506 10.0 61,103 10.7
</TABLE>
The Navy I partnership's operating income was $9.3 million and $21.5 million for
the three and nine months ended September 30, 1999, respectively, as compared to
$8.5 million and $16.6 million for the comparable periods in 1998, increases of
9.4% and 29.5%, respectively. These increases were due to the combination of
increased interest and other income, increased revenue from steam transfers, and
decreased plant operations and depreciation and amortization costs, somewhat
offset by increased royalty expenses. The BLM partnership's operating income
was $6.1 million and $15.3 million for the three and nine months ended September
30, 1999, respectively, as compared to $20.7 million and $48.0 million for the
comparable periods in 1998, decreases of 70.5% and 68.1%, respectively. These
decreases were mainly due to a reduction in energy revenues due to the
expiration of the fixed energy price period under the BLM partnership's power
purchase agreement. The Navy II partnership's operating income was $25.4
million and $58.5 million for the three and nine months ended September 30,
1999, respectively as compared to $26.8 million and $61.1 million for the
comparable periods in 1998, decreases of 5.2% and 4.3%, respectively. This
decrease in operating income for the three and nine months ended September 30,
1999 was due to an increase in steam transfer charges partially offset by a
decrease in plant operation costs.
<TABLE>
<CAPTION>
Interest Expense
----------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1999 September 30, 1998 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------ ------------------
$ cents/kWh $ cents/kWh $ cents/kWh $ cents/kWh
- --------- - --------- - --------- - ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Navy I partnership 3,210 1.6 1,053 0.6 5,836 1.2 3,285 0.7
BLM partnership 2,313 1.3 1,355 0.7 4,856 0.9 4,911 0.9
Navy II partnership 3,195 1.6 1,834 0.9 6,496 1.1 6,286 1.1
</TABLE>
30
<PAGE>
The Navy I partnership's interest expense, was $3.2 million and $5.8 million for
the three and nine months ended September 30, 1999, respectively, as compared to
$1.1 million and $3.3 million for the comparable periods in 1998, increases of
190.9% and 75.8%, respectively. The BLM partnership's interest expense, was $2.3
million and $4.9 million for the three and nine months ended September 30, 1999,
respectively, as compared to $1.4 million and $4.9 million for the comparable
periods in 1998, an increase of 64.3% and no change for the three and nine
months ended September 30, 1999. The Navy II partnership's interest expense was
$3.2 million and $6.5 million for the three and nine months ended September 30,
1999, respectively, as compared to $1.8 million and $6.3 million for the
comparable periods in 1998, increases of 77.8% and 3.2%, respectively. These
increases were due to higher outstanding debt balances resulting from the $413
million senior secured notes which were issued on May 28, 1999.
Interest Expense - Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred interest expense - acquisition
debt of $2.0 million, $1.4 million, and $2.0 million, respectively, for the nine
months ended September 30, 1999. This interest expense related to acquisition
debt in the amount of $211.5 million was incurred on February 25, 1999 to
acquire the interests of CalEnergy in the Coso partnerships. This acquisition
debt was repaid with the proceeds of the $413.0 million senior secured notes
issued on May 28, 1999.
Costs Related To Acquisition Debt
The Navy I, BLM and Navy II partnerships incurred other expenses of $2.0
million, $1.5 million and $2.0 million, respectively, for the nine months ended
September 30, 1999. These other expenses, which consist primarily of lending,
legal and other fees, related to the acquisition debt in the amount of $211.5
million was incurred on February 25, 1999 to acquire the interests of CalEnergy
in the Coso partnerships. This acquisition debt was repaid with the proceeds of
the $413.0 million senior secured notes issued on May 28, 1999.
Loss on early extinquishment of debt
The Navy I, BLM and Navy II partnerships recorded a loss on the early
extinguishment of its previous debt in the amounts of $2.4 million, $1.8 million
and $2.1 million, respectively for the nine months ended September 30, 1999.
This loss was due to a premium and other costs incurred to pay the existing
project debt of the Coso partnerships before its scheduled maturity date. These
costs included tender premiums paid to the holders of the previous debt and the
write off of the remaining balance of deferred financing costs related to the
issuance of the previous debt. The previous debt was repaid with the proceeds
of the $413.0 million senior secured notes issued on May 28, 1999.
31
<PAGE>
Liquidity and Capital Resources
Each of the Navy I partnership, the BLM partnership and the Navy II partnership
derive substantially all of its cash flow from Edison under its power purchase
agreement and from interest income earned on funds on deposit. The Coso
partnerships have used their cash primarily for capital expenditures for power
plant improvements, resource and development costs, distributions to partners
and payments with respect to the project debt.
The following table sets forth a summary of each Coso partnership's cash
flows for the nine months ended September 30, 1999 and September 30, 1998.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Navy I partnership (stand alone)
Net cash provided by operating activities $ 13,472 $ 22,295
Net cash used in investing activities (22,243) (3,811)
Net cash provided (used) by financing activities 19,362 (13,280)
-------- --------
Net change in cash and cash equivalents $ 10,591 $ 5,204
======== ========
BLM partnership (stand alone)
Net cash provided by operating activities $ 27,496 $ 53,624
Net cash used in investing activities (20,448) (15,074)
Net cash provided (used) by financing activities 4,117 (20,755)
-------- --------
Net change in cash and cash equivalents $ 11,165 $ 17,795
======== ========
Navy II partnership (stand alone)
Net cash provided by operating activities $ 54,434 $ 60,975
Net cash used in investing activities (20,850) (5,399)
Net cash provided (used) by financing activities 3,676 (33,212)
-------- --------
Net change in cash and cash equivalents $ 37,260 $ 22,364
======== ========
</TABLE>
The Navy I partnership's cash flows from operating activities decreased by $8.8
million for the nine months ended September 30, 1999 as compared to September
30, 1998, primarily due to financing costs associated with the short term debt
obtained to complete the purchase of CalEnergy's interest in the Navy I
partnership and also due to the debt interest cost relating to the $413.0
million senior secured notes issued on May 28, 1999.
Cash outflows from investing activities at the Navy I partnership increased by
$18.4 million for the nine months ended September 30, 1999 as compared to
September 30, 1998, primarily due to the increase in restricted cash associated
with the project loan from Funding Corp.
The Navy I partnership's cash flows from financing activities increased by $32.6
million for the
32
<PAGE>
nine months ended September 30, 1999 as compared to September 30, 1998 as a
result of the project loan from Funding Corp. offset in part by increased
distributions to partners.
The BLM partnership's cash flows from operating activities decreased by $26.1
million for the nine months ended September 30, 1999 as compared to September
30, 1998, primarily due to a decrease in energy revenues as a result of the
switch to avoided cost and also due to financing costs associated with the short
term debt obtained to complete the purchase of CalEnergy's interest in the BLM
partnership.
Cash outflows from investing activities at the BLM partnership increased by $5.4
million for the nine months ended September 30, 1999 as compared to September
30, 1998 primarily due to the increase in restricted cash associated with the
project loan from Funding Corp.
The BLM partnership's cash flows from financing activities increased by $24.9
million for the nine month ended September 30, 1999 as compared to September 30,
1998 as a result of the project loan from Funding Corp. offset in part by
increased distributions to partners.
The Navy II partnership's cash flows from operating activities decreased by $6.5
million for the nine months ended September 30, 1999 as compared to September
30, 1998, primarily due to; decreased revenue as a result of increased steam
transfers from the Navy I partnership, financing costs associated with the short
term debt obtained to complete the purchase of CalEnergy's interest in the Navy
II partnership, and a write off of related party receivable due to Caithness
Acquisition's purchase of CalEnergy's interest.
Cash outflows from investing activities at the Navy II partnership increased by
$15.5 million for the nine months ended September 30, 1999 to September 30, 1998
primarily due to the increase in restricted cash associated with the project
loan from Funding Corp.
The Navy II partnership's cash flows from financing activities increased by
$36.9 million for the nine months ended September 30, 1999 as compared to
September 30, 1998 as a result of the project loan from Funding Corp. offset in
part by increased distributions to partners.
Year 2000 Issue
The Year 2000 issue refers to the fact that certain management
information and operating systems use two-digit data fields which recognize
dates using the assumption that the first two digits are "19" (for example,
the number 98 is recognized as the year 1998). When the year 2000 occurs, these
systems could interpret the year 2000 as 1900, which, in turn, could result in
system failures or miscalculations. This could cause disruptions of operations
at the Coso projects and at Edison, their sole customer.
The Coso partnerships have implemented a comprehensive program to
address the potential impact of the Year 2000 issue. This program involves
several stages, including inventory and impact assessment, remediation, testing
and implementation. The inventory and impact assessment of the information
technology infrastructure, computer applications and
33
<PAGE>
computerized processes embedded in certain operating equipment has been
completed, and all of the necessary modifications have been remediated, tested
and implemented.
The Coso partnerships depend substantially for their operating
revenues on Edison's purchase of all electrical energy generated by the plants.
If Edison fails to fulfill its contractual obligations under the power purchase
agreements because it has failed to resolve its own Year 2000 issues, it could
have a material adverse effect on the Coso partnerships' revenues and ability to
make payments on the project notes and guarantees. The Coso partnerships have
contacted Edison. Edison indicated that its Year 2000 program will be completed
by December 31, 1999. Further, Edison has reported in its annual report filed on
Form 10-K for the year ended December 31, 1998, that its informational and
operational systems have been assessed, and detailed plans have been developed
to address modifications required to be completed, tested and operational by
December 31, 1999. The Coso partnerships will continue to contact Edison in an
effort to minimize any potential Year 2000 compliance impact, however, it is not
possible to guarantee Edison's compliance. Edison and other third parties might
fail to resolve timely their own Year 2000 issues, or might experience delays or
changes in the estimated time it takes to fix these problems.
The total expenditures to date for the Year 2000 program have been
minimal. The Coso partnerships expect to incur a nominal amount in the future to
make their computer systems Year 2000 compliant.
The Coso partnerships' Year 2000 contingency planning is currently
underway to address risk scenarios at the operating level (such as generation
and transmission), as well as at the business level (such as procurement and
accounting) and include developing strategies for dealing with the most
reasonably likely worst case scenario concerning Year 2000-related processing
failures or malfunctions caused by internal systems that would include a
temporary disruption of service to Edison or the possible disruption of
electricity sales to Edison due to Edison's failure to resolve their own Year
2000 issues in a timely manner. Contingency plans will be completed and
implemented during the fourth quarter of 1999.
Although we believe that we and the Coso partnerships have an
effective program in place to adequately address the Year 2000 issue in a timely
manner, failure of third parties upon whom the Coso partnerships' business
relies could result in disruption of the Coso partnerships' generation of
revenues and payments on their project notes and guarantees.
34
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Edison Litigation Southern California Edison
On June 9, 1997, Edison filed a lawsuit in the Superior Court of Los Angeles
County (later transferred to Inyo County), California, against CalEnergy, the
Coso partnerships and the managing partners of the Coso partnerships--China Lake
Operating Company, now known as New CLOC; Coso Technology Corporation, now known
as New CTC; and Coso Hotsprings Intermountain Power, Inc., now known as New
CHIP. We collectively refer to the defendants in Edison's lawsuit as the Coso
Parties. In this lawsuit, Edison asserts breach of contract claims against the
Coso Parties that relate to the alleged surreptitious venting of certain non-
condensable gases from unmonitored reinjection wells located adjacent to the
plants. The Coso Parties have been vigorously defending themselves against
Edison's claims.
The events relating to Edison's breach of contract claims date back to the
late 1980's and mid-1990's, and focus on the plants' initial period of
operations. The plants had difficulty at that time achieving full compliance
with applicable air quality district regulations which, the Coso Parties
believe, was due in large part to defective equipment installed during the
construction of the plants, as more fully discussed below. As a result, the Coso
partnerships self-reported to the Great Basin Unified Air Pollution Control
District a series of instances of venting primarily from the plants, and the
Great Basin Unified Air Pollution Control District issued Notices of Violations
(which are the functional equivalent of an allegation, not an adjudication of
any violation). The Coso partnerships chose not to contest these Notices of
Violations and paid the agreed-upon fines. There was no formal finding that any
environmental violations occurred.
Edison does not base its claims against the Coso Parties on this self-reported
venting. Rather, Edison alleges that CalEnergy, the prior operator of the
plants, surreptitiously vented hydrogen sulfide gas from unmonitored reinjection
wells in violation of applicable operating permits and environmental laws and
regulations. Edison alleges that the Coso partnerships did not report some or
all of these alleged violations and breached their contractual obligations to
comply with all applicable laws, rules and regulations. Edison argues that a
provision in the power purchase agreements requiring the Coso partnerships to
comply with applicable laws, rules and regulations allows it to seek damages for
any such failures. Edison also asserts that the output of the plants would have
been lower but for the alleged surreptitious venting.
Originally, Edison sought to terminate the three power purchase agreements
with the Coso partnerships and to recover damages equal to the total amount
Edison had paid for electricity delivered by the Coso partnerships to Edison
since inception. In June 1998, the Coso partnerships obtained a ruling from the
trial court dismissing Edison's efforts to terminate the three power purchase
agreements. In addition, the trial court ruled that Edison could not recover
damages based on the total amount that Edison had paid to the Coso partnerships
for electricity
35
<PAGE>
delivered under the power purchase agreements. Edison's damage theory is now
limited to breach of contract damages for energy deliveries which it believes
were higher than they would have been had the alleged surreptitious venting not
occurred. Edison seeks damages spanning an extended period of time based on the
difference between the contract price it paid to the Coso partnerships for the
excess electricity they allegedly delivered and the spot market price it would
have paid for the amount of such excess electricity.
In October 1997, the Coso Parties filed a motion for summary judgment arguing
that Edison's claims were barred by the 1993 Settlement Agreement (as defined
below) and that the statute of limitations for Edison's claims had expired. In
June 1993, Mission Power Engineering Company, a California corporation, and The
Mission Group, a California corporation (collectively, the "Mission Entities"),
on behalf of themselves and their respective subsidiaries and affiliates,
including Edison, and CalEnergy and the Coso partnerships, for themselves and on
behalf of their respective subsidiaries and affiliates, entered into a
Settlement Agreement and Release dated June 9, 1993 (the "1993 Settlement
Agreement"). The Mission Entities were at that time, and still are, affiliates
of Edison. The 1993 Settlement Agreement resolved, among other things, certain
claims the Coso partnerships asserted against the Mission Entities for the
Mission Entities' alleged defective construction of the Coso projects.
Pursuant to three "turnkey" engineering procurement and construction contracts
entered into in the late 1980's, the Mission Entities had agreed to construct
Navy I, BLM and Navy II so that these plants operated in compliance with all
applicable laws, rules and regulations. The Coso partnerships' claims against
the Mission Entities related in significant part to the Mission Entities'
alleged breach of this contractual provision. The 1993 Settlement Agreement also
provided for mutual releases of claims, whether known or unknown, arising out of
or relating to the construction of the Coso projects. The trial court denied the
Coso Parties' motion for summary judgment, finding that triable issues of fact
existed. The Coso Parties also assert other defenses, including, among others,
that Edison's claims for damages are not causally related to the alleged venting
and do not state legally cognizable claims.
In September 1997, the Coso Parties filed a cross-complaint against Edison and
the Mission Entities. In its present form, the cross-complaint alleges, among
other things, breach of contract claims, violations of state law and of
decisions rendered by the California Public Utilities Commission, and that
Edison's lawsuit constitutes a breach of the 1993 Settlement Agreement. The Coso
partnerships have each asserted three separate breach of contract claims against
Edison under the power purchase agreements and are seeking damages in excess of
$125 million, exclusive of interest, accruing through the life of the respective
applicable contractual provisions. The three breach of contract claims are as
follows:
First, Edison has refused to pay the forecasted energy prices as to each of the
three units at each respective Coso project--Navy I, BLM and Navy II--for the
full ten-year "First Period" under the power purchase agreements. Edison has
taken the position that the power purchase agreements provide that, with respect
to each Coso project, the First Period expires ten years after the first unit
for each respective Coso project established firm operation. This would mean
that the fixed energy price period expired in August 1997 for the Navy I
partnership and in March 1999 for the
36
<PAGE>
BLM partnership, and will expire in January 2000 for the Navy II partnership.
The Coso partnerships argue, in contrast, that thepower purchase agreements
provide that each of the three units at each respective Coso project has its own
full ten-year fixed energy price period. This would mean, for example, that each
of Units 1, 2 and 3 at Navy I has its own separate ten-year fixed energy price
period. Under Edison's position, the fixed energy price periods for Units 2 and
3 at Navy I end at the same time that Unit 1's fixed energy price period ends
because Unit 1 was the first unit at Navy I to establish firm operation;
accordingly, the fixed energy price periods for Units 2 and 3 are less than ten
years.
Second, Edison has refused to accept the Coso partnerships' election of a
simultaneous purchase and sale arrangement under which Edison is obligated to
pay the full forecasted price for all energy produced by the Coso projects,
without deduction for power used by the plants and their related operations, and
to serve the Coso partnerships' power needs under a tariff applicable to
industrial customers. Instead of accepting the Coso partnerships' election,
Edison has paid the Coso partnerships for only the net amount of electricity
delivered to Edison.
Third, Edison has refused to extend and escalate the price tables included in
the power purchase agreements for the full ten-year fixed energy price period of
forecasted prices. The Coso partnerships argue that Edison attached the wrong
price tables to the power purchase agreements because the tables leave out the
years 1999 and 2000.
While we strongly dispute Edison's positions and believe the Coso
partnerships' positions are the correct interpretations of the power purchase
agreements, we have assumed, for purposes of this prospectus only, including the
historical and pro forma financial information included herein, that (1) the
full ten-year period expires after the first of the three units at each
respective Coso project established firm capacity, (2) the Coso partnerships
cannot make the election of a simultaneous purchase and sale arrangement and (3)
the pricing tables included in the power purchase agreements are correct. We
believe that this assumption is conservative and reasonable for purposes of this
prospectus given that we cannot predict the outcome of this issue.
On September 9, 1997, the Coso partnerships filed a separate lawsuit in the
Superior Court of Inyo County, California, against Edison seeking restitution
and injunctive relief for unfair competition and false advertising. The unfair
competition claim raises a series of electric industry issues concerning
Edison's alleged program of anti-competitive activities aimed at QFs, such as
the Coso projects, and at other competitors, including electric service
providers or "ESPs." The Coso partnerships have also alleged that Edison
willfully violated decisions and orders of the California Public Utilities
Commission, which includes a claim for punitive damages in an unspecified
amount.
In December 1997, the Superior Court consolidated Edison's and the Coso
partnerships' lawsuits into one proceeding. The parties to the consolidated
actions had been engaged in extensive discovery and motion practice, discovery
(other than expert discovery) was scheduled to be completed by December 31, 1999
and a trial date had been set for March 1, 2000.
However, these dates have been vacated, and no new dates have been set,
pursuant to a
37
<PAGE>
stipulation entered into by the parties and an order of the trial court. In
essence, Edison and the Coso Parties agreed to a moratorium on all ongoing
activities in these lawsuits from March 29, 1999 to September 30, 1999, in order
to explore the possibility of reaching a negotiated settlement. Edison and the
Coso Parties agreed to attempt to mediate their disputes and held a mediation
session during the week of September 7, 1999, before a former California supreme
court justice. Subsequent to that mediation session, the parties agreed to
extend further the moratorium through October 28, 1999, to allow the parties to
continue their settlement discussions. Following further settlement discussions,
that moratorium was further extended to November 30, 1999. If the parties are
unable to reach a negotiated settlement by November 30, 1999, the lawsuits will
continue where they left off, and the court will probably set a trial date for
some time in the early summer of 2000.
Neither we, the Coso partnerships nor anyone else can predict at this time
whether Edison will prevail on its claims against any or all of the Coso Parties
or whether any or all of the Coso Parties will prevail on their claims against
Edison, in part because pre-trial discovery has not been completed and is now
subject to the moratorium and because of the complexity of the factual and legal
issues involved. Further, no one can give you any assurance that the parties
will be able to reach a negotiated settlement of the lawsuits and, if they do,
what the terms of such a settlement would be. It is possible that the parties
will be unable to reach a settlement and Edison could recover significant
damages. Edison has not yet provided the Coso Parties with any formal
calculation of its alleged damages but, if the parties are unable to reach a
negotiated settlement, the Coso Parties expect Edison to seek damages in an
amount which would be material to the financial condition and results of
operations of the Coso partnerships, either individually or taken as a whole.
Dow litigation
In addition, the BLM partnership is currently involved in an arbitration
proceeding against Dow Chemical Company ("Dow"). The BLM partnership is seeking
to recover certain damages incurred by the BLM partnership prior to 1998 as a
result of problems associated with the installation by Dow in 1992 of a hydrogen
sulfide abatement system at BLM. See "--Power Production Process." The
arbitration proceeding is a result of a settlement agreement entered into
between the BLM partnership and Dow in 1997 in which Dow stipulated to the issue
of its liability based on negligent misrepresentation. Dow has not made any
claims against the BLM partnership in the arbitration proceeding.
Fuji litigation
In March 1998, China Lake Plant Services, Inc., one of our affiliates, and the
Coso partnerships filed a lawsuit in Superior Court of the State of California,
County of Orange (Case No. 791982), against Fuji Electric Co., Ltd. and Fuji
Electric Corporation of America for breach of warranty related to the Coso
partnerships' nine geothermal turbine rotors. The Coso partnerships sought to
recover repair costs and other damages totaling approximately $16.0 million
incurred as a result of vibrations alleged to have occurred during operations,
which resulted in cracking and one catastrophic failure. Fuji made no
counterclaims against the Coso partnerships.
On June 23, 1999, the parties to the lawsuit entered into a Settlement
Agreement and Mutual Release which provides for the settlement of the breach of
warranty claims made against Fuji and releases of all parties with respect to
the subject matter of the lawsuit if the parties satisfy several specific
conditions. These conditions have been satisfied and the lawsuit has been
dismissed with prejudice.
General
Except as otherwise described above, the Coso partnerships are currently
parties to various minor items of litigation, none of which, if determined
adversely, would be material to the financial condition and results of
operations of the Coso partnerships, either individually or taken as a whole.
38
<PAGE>
ITEM 2. Change in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
On November 10, 1999, Caithness Coso Funding Corp. completed its offer to
exchange up to $110.0 million aggregate principal amount of its newly issued
6.80% Series B Senior Secured Notes due 2001 for a like amount of its privately
placed 6.80% Series A Senior Secured Notes due 2001 and up to $303.0 million
aggregate principal amount of its newly issued 9.05% Series B Senior
Secured Notes due 2009 for a like amount of its privately placed 9.05% Series A
Senior Secured Notes due 2009. The offer to exchange and withdrawal rights
expired at 5:00 p.m., New York City time, on November 10, 1999, at which
time $413.0 million aggregate principal amount of the Series A Senior Secured
Notes, including $110.0 million aggregate principal amount of its 6.80% Series A
Senior Secured Notes due 2001 and $303.0 million aggregate principal amount of
its 9.05% Series A Senior Secured Notes due 2009, had been validly tendered to
the exchange agent and not withdrawn prior to the expiration of the exchange
offer.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No Reports on Form 8-K during the quarter ended September 30, 1999.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1999 CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
By: /s/ Christopher T. McCallion
------------------------------
Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 11,459
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 424,459
<CURRENT-LIABILITIES> 0 11,459
<BONDS> 0 413,000
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 424,459
<SALES> 0 0
<TOTAL-REVENUES> 0 11,459
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 11,459
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
