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
June 30, 1994
Commission File No. 1-9874
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10831 Old Mill Road, Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 330-8900
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
Former name, former address and former fiscal year, if changed
since last report. N/A
32,639,978 shares of Common Stock, $0.0675 par value were
outstanding as of June 30, 1994.
CALIFORNIA ENERGY COMPANY, INC.
Form 10-Q
June 30, 1994
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Report of Independent Accountants 3
Consolidated Balance Sheets, June 30, 1994
and December 31, 1993 4
Consolidated Statements of Operations for the Three
Months and Six Months Ended June 30, 1994 and 1993 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults on Senior Securities 25
Item 4. Submission of Matters to a Vote of
Security Holders 25
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 28
Exhibit Index 29
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
California Energy Company, Inc.
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of
California Energy Company, Inc. and subsidiaries as of June 30,
1994, and the related consolidated statements of operations for the
three month and six month periods ended June 30, 1994 and 1993 and
the related consolidated statements of cash flows for the six month
periods ended June 30, 1994 and 1993. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of California
Energy Company, Inc. and subsidiaries as of December 31, 1993, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 24, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1993 is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE
July 15, 1994
<TABLE>
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
<CAPTION>
June 30 December 31
1994 1993
(unaudited)
<S> <C> <C>
ASSETS
Cash and short-term investments $ 379,461 $ 127,756
Joint venture cash and short-term investments 3,361 14,943
Restricted cash and short-term investments 98,476 48,105
Accounts receivable 30,445 21,658
Due from joint ventures 1,090 1,394
Properties and plants, net (Note 3) 487,653 458,974
Equipment, net of depreciation 4,266 4,540
Notes receivable - joint ventures 11,884 11,280
Other investments 2,383 10,445
Deferred charges and other assets 28,123 16,889
Total assets $1,047,142 $ 715,984
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 811 $ 607
Other accrued liabilities 20,058 19,866
Income taxes payable 230 4,000
Construction loans 5,811 -
Project loans 233,080 246,880
Senior Notes (Note 7) - 35,730
Senior Discount Notes (Note 4) 410,850 -
Convertible Subordinated Debentures 100,000 100,000
Deferred income taxes 20,761 18,310
Total liabilities 791,601 425,393
Deferred income 19,849 20,288
Redeemable preferred stock 61,150 58,800
Commitments and contingencies (Note 5)
Stockholders' equity:
Preferred stock - authorized 2,000 shares, no
par value
Common stock - authorized 60,000 shares,
par value $0.0675 per share, issued and
outstanding 32,640 and 35,446 shares at
June 30, 1994 and December 31, 1993,
respectively 2,407 2,404
Additional paid in capital 101,343 100,965
Retained earnings 123,598 111,031
Treasury stock - 3,009 and 157 common
shares, at June 30, 1994 and
December 31, 1993, respectively, at cost (52,806) (2,897)
Total stockholders' equity 174,542 211,503
Total liabilities and stockholders' equity $1,047,142 $ 715,984
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
CALIFORNIA ENERGY COMPANY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales of electricity and steam $36,850 $31,996 $67,669 $59,613
Interest and other income 8,404 3,926 12,995 7,470
Total revenues 45,254 35,922 80,664 67,083
Costs and expenses:
Plant operations 7,892 6,999 14,041 13,020
General and administration 2,941 3,188 6,320 6,237
Royalties 2,397 1,935 4,394 3,521
Depreciation and amortization 5,002 4,555 9,800 8,700
Interest expense 17,594 6,045 26,827 12,809
Less interest capitalized (2,628) (889) (5,431) (2,140)
Total costs and expenses 33,198 21,833 55,951 42,147
Income before income taxes 12,056 14,089 24,713 24,936
Provision for income taxes 3,677 3,439 7,727 6,802
Income before extraordinary item
and change in accounting principle 8,379 10,650 16,986 18,134
Extraordinary item (less applicable
income taxes of $945) (Note 7) - - (2,007) -
Cumulative effect of change
in accounting principle - - - 4,100
Net income 8,379 10,650 14,979 22,234
Preferred dividends
(paid in kind)* 1,236 1,143 2,436 2,250
Net income attributable to
common shares $ 7,143 $ 9,507 $12,543 $19,984
Income per share before extraordinary
item and change in accounting
principle $ .20 $ .25 $ .40 $ .41
Extraordinary item (Note 7) - - (.06) -
Cumulative effect of change in
accounting principle - - - .11
Net income per share $ 0.20 $ 0.25 $ 0.34 $ 0.52
Average number of common and
common equivalent shares
outstanding 35,883 38,443 36,827 38,557
</TABLE>
The accompanying notes are an integral part of these financial statements.
[FN]
* Reflects dividends on the Company's Series C Redeemable Convertible Preferred
Stock, which are payable in kind.
<TABLE>
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
________________________________
<CAPTION>
Six Months Ended
June 30
1994 1993
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,979 $ 22,234
Adjustments to reconcile net cash flow from
operating activities:
Depreciation and amortization 9,800 8,700
Amortization of original issue discount 10,850 -
Amortization of deferred financing costs 957 418
Provision for deferred income taxes 2,451 (2,071)
Changes in other items:
Accounts receivable (8,787) (8,048)
Accounts payable and accrued liabilities 396 (5,978)
Deferred income (439) (436)
Income tax payable (3,770) 290
Other - (56)
Net cash flows from operating activities 26,437 15,053
Cash flows from investing activities:
Capital expenditures relating to existing
power plants (7,068) (8,835)
Well and resource development expenditures for
existing projects (6,835) (10,134)
Acquisition of equipment (271) 27
Yuma plant - construction in progress (5,903) (13,692)
Foreign projects - construction in progress
and development (13,406) -
Pacific Northwest, Nevada and Utah Developments (4,722) (14,704)
Transmission line deposit - 7,684
Increase in restricted cash (50,371) (226)
Decrease (increase) in other investments
and assets 7,072 (382)
Net cash flows from investing activities (81,504) (40,262)
Cash flows from financing activities:
Proceeds and net benefits from sale of common,
treasury, and preferred stock and exercise
of options 319 546
Deferred financing costs - Senior Discount Notes (11,201) -
Proceeds from issue of Senior Discount Notes 400,000 -
Defeasance of Senior Notes (35,730) -
Repayment of project loans (13,800) (8,362)
Deferred financing costs - Convertible
Subordinated Debentures - (2,500)
Proceeds from issue of Convertible Subordinated
Debentures - 100,000
Proceeds from construction loan 5,811 -
Increase in amounts due from joint ventures (300) (2,007)
Purchase of treasury stock (49,909) -
Net cash flows from financing activities 295,190 87,677
Net increase in cash and cash equivalents 240,123 62,468
Cash and cash equivalents at beginning of period 142,699 63,519
Cash and cash equivalents at end of period $382,822 $125,987
Supplemental disclosures
Interest paid, net of amount capitalized $ 12,531 $ 9,671
Income taxes paid $ 3,100 $ 1,710
</TABLE>
The accompanying notes are an integral part of these financial statements.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and per kWh amounts)
________________________________
1. General:
In the opinion of management of California Energy Company, Inc.
(the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (including normal recurring
accruals) necessary to present fairly the financial position as of
June 30, 1994 and the results of operations for the three and six
months ended June 30, 1994 and 1993, and cash flows for the six
months ended June 30, 1994 and 1993.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, and its proportionate
share of the accounts of the partnerships and joint ventures in
which it has invested.
The results of operations for the three and six months ended June
30, 1994 and 1993 are not necessarily indicative of the results to
be expected for the full year.
Certain amounts in the 1993 financial statements and supporting
footnote disclosures have been reclassified to conform to the 1994
presentation. Such reclassification did not impact previously
reported net income or retained earnings.
2. Other Footnote Information:
Reference is made to the Company's most recently issued annual
report that included information necessary or useful to the
understanding of the Company's business and financial statement
presentations. In particular, the Company's significant accounting
policies and practices were presented as Note 2 to the consolidated
financial statements included in that report.
<TABLE>
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and per kWh amounts)
________________________________
3. Properties and Plants:
Properties and plants comprise the following:
<CAPTION>
June 30 December 31
1994 1993
(unaudited)
<S> <C> <C>
Project costs:
Power plants and gathering systems $ 300,651 $ 246,219
Wells and resource development 168,511 161,137
469,162 407,356
Less accumulated depreciation
and amortization (77,068) (67,813)
Net facilities 392,094 339,543
Resource development in progress 400 939
Total project costs 392,494 340,482
Yuma plant - construction in progress - 41,461
Upper Mahiao plant - construction in progress 12,722 -
Other foreign project development 684 -
Pacific Northwest costs 44,416 41,539
Nevada and Utah properties costs 37,337 35,492
Total $ 487,653 $ 458,974
</TABLE>
In June 1994 Yuma was transferred to power plants and gathering systems from
Yuma plant - construction in progress.
4. Senior Discount Notes:
In March 1994, the Company issued $400,000 of 10 1/4% Senior Discount
Notes which accrete to an aggregate principal amount of $529,640 at
maturity in 2004. The original issue discount (the difference
between $400,000 and $529,640) will be amortized from issue date
through January 15, 1997, during which time no cash interest will
be paid on the Senior Discount Notes. Commencing July 15, 1997,
cash interest on the Senior Discount Notes will be payable
semiannually on January 15 and July 15 of each year. The Senior
Discount Notes are redeemable at any time on or after January 15,
1999. The redemption prices commencing in the twelve month period
beginning January 15, 1999 (expressed in percentages of the
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
4. Senior Discount Notes: (continued)
principal amount) are 105.125%, 103.417%, 101.708%, and 100% for
1999, 2000, 2001, and 2002, respectively, plus accrued interest
through the redemption date in each case. The Senior Discount
Notes are unsecured senior obligations of the Company.
5. Commitments and Contingencies:
In April 1994, the Company closed the financing for the 128 GMW
Upper Mahiao geothermal power project located in the Philippines.
The total project cost for the facility is approximately $218,000.
The Company will supply approximately $56,000 of equity and project
debt financing will constitute the balance of approximately
$162,000. A syndicate of international commercial banks is
providing the construction financing. The Export-Import Bank of
the U.S. (Ex-Im Bank) is providing political risk insurance to the
commercial banks on the construction loan and will provide the
preponderance of project term financing upon satisfaction of
conditions associated with commercial operation. As of June 30,
1994, draws totaling $5,811 have been made on the construction loan
and equity investments of $6,911 have been made by a subsidiary of
the Company. The Overseas Private Investment Corporation (OPIC) is
providing political risk insurance on the equity investment by the
Company in this project. The Upper Mahiao project has begun
construction, and is expected to be in service by July of 1996.
The project is structured as a ten year Build-Own-Transfer (BOT),
in which the Company's subsidiary CE Cebu, the project company,
will be responsible for implementing the construction of the
geothermal power plant and providing the operations and maintenance
during the ten year BOT period. The electricity generated by the
Upper Mahiao geothermal power plant will be provided to the
Philippine National Oil Company - Energy Development Corporation
(PNOC-EDC), which is also responsible for supplying the facility
with the geothermal steam. After a ten year cooperation period,
and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at no
cost. Ormat Inc. of Sparks, Nevada is the turnkey contractor for
the project.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
5. Commitments and Contingencies: (continued)
In 1993 the Company and the Philippine National Oil Company -
Energy Development Corporation ("PNOC-EDC") signed an Energy
Conversion agreement for a 180 GMW project at the Mahanagdong
geothermal site with a target completion date of June 1997. As
with the Upper Mahiao project, the Mahanagdong project is
structured as a ten year Build-Own-Transfer (BOT), in which the
Company will be responsible for implementing the construction of
the geothermal power plant and for the operations thereafter for
the ten year BOT period. The electricity generated by the
geothermal power plant will be provided to PNOC-EDC, which is also
responsible for supplying the facility with the geothermal steam.
After a ten year cooperation period, and the recovery by the
Company of its capital investment plus incremental return, the
plant will be transferred to PNOC at no cost.
The Mahanagdong project will be built, owned and operated by CE
Luzon Geothermal Power Company, a Philippine corporation, that is
expected to be owned post completion as follows: 45% by the
Company, 45% by Kiewit, and up to 10% by another industrial
company. Kiewit Construction Group, Inc. (with an 80% interest)
and The Ben Holt Co., Inc. (with a 20% interest), will be the
consortium acting as the turnkey contractor.
The Company estimates that Mahanagdong will have a total project
cost of approximately $320 million. The anticipated capital
structure will be a term loan of $240 million and approximately $80
million in equity contributions. The Company is in the process of
arranging financing for the project on a structural basis similar
to the arrangements for Upper Mahiao. The construction debt
financing is expected to be provided $40 million by OPIC, $20
million by an international commercial bank and $172 million by
American Pacific Finance Company ("APFC"), a wholly owned finance
company subsidiary of the Company. APFC construction debt
financing will be provided from the Company's existing cash
balances and may be sold down by APFC in secondary syndications to
other international commercial banks. The debt provided by APFC
and commercial banks will be insured against political risks by Ex-
Im Bank. Ten year term debt financing will be provided by Ex-Im
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
5. Commitments and Contingencies: (continued)
Bank and OPIC. The Company intends to provide its approximately
$40 million share of the equity for the Mahanagdong project from
existing cash, which investment will be insured against political
risks by OPIC.
The Yuma Cogeneration Associates (YCA) 50 MW cogeneration power
plant commenced commercial operation pursuant to its power purchase
agreement with San Diego Gas & Electric ("SDG&E") at the end of
May, 1994. In June, 1994 SDG&E filed a complaint in U.S. District
Court seeking to be released from its power purchase agreement with
YCA and has reduced payments to YCA.
The Company has reviewed SDG&E's complaint and believes it to be
without merit. Contrary to assertions made by SDG&E, YCA has
constructed and is operating its facility in accordance with the
terms and conditions of the power purchase agreement with SDG&E and
remains ready and willing to perform in accordance with those terms
and conditions. In contrast, the Company believes that SDG&E's
attempts to reduce payments to YCA constitute a breach of the power
purchase agreement. The Company intends to defend the lawsuit
vigorously and will seek to recover damages for any harm caused to
the Company by this lawsuit and SDG&E's attempt to reduce payments
to YCA.
6. Income Taxes:
On January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 (FAS 109), Accounting for Income Taxes.
The adoption of FAS 109 changed the Company's method of accounting
for income taxes from the deferred method as required by Accounting
Principles Board No. 11 to an asset and liability approach. Under
FAS 109, the net excess deferred tax liability as of January 1,
1993 was determined to be $4,100. This amount was reflected in
1993 income as the cumulative effect of a change in accounting
principle. It primarily represented the recognition of the
Company's tax credit carryforwards as a deferred tax asset. There
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
6. Income Taxes: (continued)
was no cash impact to the Company upon the required adoption of FAS
109. Under FAS 109, the effective tax rate has increased due to
the Company's tax credit carryforwards being recognized as an asset
upon the adoption of FAS 109 and unavailable to reduce the current
period's effective tax rate for computing the Company's provision
for income taxes.
The Company's effective tax rate continues to be less than the
statutory rate primarily due to the depletion deduction and the
generation of energy tax credits in 1994. The significant
components of the deferred tax liability are the temporary
differences between the financial reporting basis and income tax
basis of the power plant and the well and resource development
costs, and in addition, the offsetting benefits of operating loss
carryforwards and investment and geothermal energy tax credits.
The income tax provision for the six months ended June 30, 1994, is
approximately 68% current tax expense and 32% deferred tax expense.
7. Extraordinary Item:
In conjunction with the Company's Senior Discount Note offering
(See Note 4), the 12% Senior Notes were defeased. This resulted in
an extraordinary item in the amount of $2,007, after the income tax
effect of $945. The extraordinary item represents the amount
necessary to defease the interest payments and the unamortized
portion of the deferred financing costs on the $35,730 Senior
Notes. The 1994 contingent interest component of these Senior
Notes, calculated by reference to the Company's share of available
cash flow from the Coso Project, remains undefeased and outstanding
through the end of the calculation period, December 31, 1994.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included in
the accompanying statement of operations.
For purposes of consistent financial presentation, plant capacity
factors are based upon a capacity amount of 88 gross MW/80 net MW
for each plant at the Coso Project. Each plant possesses an
operating margin which allows for production in excess of the
amount listed above. Utilization of this operating margin is based
upon a variety of factors and can be expected to vary between
calendar quarters, under normal operating conditions.
Sales of electricity and steam increased to $36,850 in the second
quarter of 1994 from $31,996 in the second quarter of 1993, a 15.2%
increase. This improvement was primarily due to an increase in the
Coso Project's electric kilowatt hour sales to 549.9 million kWh
from 528.7 million kWh and an increased price per kWh in accordance
with the S04 Agreements. For the six months ended June 30, sales
of electricity and steam increased to $67,669 in 1994 from $59,613
in 1993, a 13.5% increase. Similarly, the increase was due to an
increase in the Coso projects electric kilowatt hour sales to
1,079.0 million kWh from 1,032.2 million kWh and the aforementioned
increased price per kWh.
The following operating data represent the aggregate capacity and
electricity production of the Coso Project:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <S> <S> <S> <S>
Overall capacity
factor 104.9% 100.9% 103.5% 99.0%
kWh produced 549,900,000 528,700,000 1,079,000,000 1,032,200,000
Installed capacity
NMW (average) 240 240 240 240
</TABLE>
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
The Navy I plant capacity factor was 112.0% in the second quarter
of 1994 compared to 104.3% in the second quarter of 1993. For the
six months ended June 30, the Navy I plant capacity factor was
114.1% in 1994 compared to 105.9% for the same period in 1993.
Several successful well workovers and the addition of a new well
contributed to the improved performance. The Navy II plant
capacity factor was 105.8% in the second quarter of 1994 compared
to 97.0% in the second quarter of 1993. For the six months ended
June 30, the Navy II plant capacity factor was 98.5% in 1994
compared to 97.5% for the same period in 1993. Navy II output
benefitted from gathering system improvements completed in June of
1993. The BLM plant capacity factor was 97.0% in the second
quarter of 1994 compared to 101.4% in the second quarter of 1993.
For the six months ended June 30, the BLM plant capacity factor was
97.8% in 1994 compared to 93.6% for the same period in 1993. BLM
output was reduced in the second quarter of 1994 due to planned
maintenance outages. The 1993 six month plant capacity factor was
reduced due to the plant overhaul completed in the first quarter of
that year.
As a result of the successful performance of the BLM H2S abatement
system, which was installed in 1992, the Navy I and Navy II Joint
Ventures obtained authority to construct (ATC) permits for the
installation of similar H2S abatement systems in an effort to
enhance operational efficiency and improve long term reservoir
management. Such abatement systems are expected to have an
aggregate Coso Project capital cost of approximately $12,176.
Completion of construction of the Navy I and Navy II abatement
systems is currently expected to occur by year end of 1994. In
conjunction with the ATC the Great Basin Unified Air Pollution
Control District agreed to provide an eighteen month variance to
Navy I which allows venting of a portion of Navy I's non-
condensable gas while the abatement system is constructed and
tested.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
The Coso Projects' average electricity prices per kWh in 1994,
1993, and 1992, were comprised of (in cents):
Capacity
Energy and Bonus Total
Three Months Ended
June 30, 1994 10.91 1.94 12.85
March 31, 1994 10.85 .70 11.55
June 30, 1993 10.16 1.94 12.10
March 31, 1993 10.01 .74 10.75
Average Fiscal 1993 10.11 1.93* 12.04*
Average Fiscal 1992 9.23 2.10* 11.33*
* Represents annualized price per kWh. Typically, the capacity
price is significantly higher in the months June through
September.
In late May the Yuma plant commenced commercial operation pursuant
to its power purchase agreement and operated at 82.7% of its 52.89
megawatt nameplate rating.
Roosevelt Hot Springs steam field supplied 100% of customer power
plant steam requirements in the second quarter and for the six
months ended June 30, 1994. The Company has approximately 70%
interest in the Roosevelt Hot Springs field.
The Desert Peak power plant operated at 106.3% of its nine net
megawatt capacity in the second quarter of 1994. For the six
months ended June 30, 1994, the Desert Peak plant capacity factor
was 107.7%.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
Interest and other income increased in the second quarter of 1994
to $8,404 from $3,926 for the same period in 1993. For the six
months ended June 30, interest and other income increased to
$12,995 in 1994 from $7,470 for the same period in 1993. The
increase primarily reflects interest income on higher average cash
balances from the issuance of the Senior Discount Notes.
The Company's expenses as a percentage of sales of electricity and
steam were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Plant operations (net of
Company's operator fees) 17.9% 18.3% 17.1% 18.1%
General and administration 8.0% 10.0% 9.3% 10.5%
Royalties 6.5% 6.0% 6.5% 5.9%
Depreciation and
amortization 13.6% 14.2% 14.5% 14.6%
Interest (less amounts
capitalized) 40.6% 16.1% 31.6% 17.9%
86.6% 64.6% 79.0% 67.0%
</TABLE>
Plant operations increased to $7,892 in the second quarter of 1994
from $6,999 in the second quarter of 1993, a 12.8% increase. For
the six months ended June 30, plant operations increased to $14,041
in 1994 from $13,020 in 1993, a 7.8% increase. The increase was
due to the inclusion of the plant operating costs of the Yuma
cogeneration plant which started operations in May 1994.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
General and administration costs decreased to $2,941 in the second
quarter of 1994 from $3,188 in the second quarter of 1993, a 7.7%
decrease. For the six months ended June 30, general and
administration costs increased to $6,320 in 1994 from $6,237 in
1993, a 1.3% increase.
Royalty costs increased to $2,397 in the second quarter of 1994
from $1,935 in the second quarter of 1993, a 23.9% increase. For
the six months ended June 30, royalties increased to $4,394 in 1994
from $3,521 in 1993, a 24.8% increase. The increases were due to
the increase in sales of electricity and an increase in the
effective royalty rate at BLM.
Depreciation and amortization increased to $5,002 in the second
quarter of 1994 from $4,555 in the second quarter of 1993, a 9.8%
increase. For the six months ended June 30, depreciation and
amortization increased to $9,800 in 1994 from $8,700 in 1993, a
12.6% increase. The increase was due primarily to capital
expenditures at the Coso Project and depreciation of the Yuma
plant.
Interest expense before amounts capitalized increased to $17,594 in
the second quarter of 1994 from $6,045 in the second quarter of
1993, a 191.1% increase. For the six months ended June 30,
interest expense increased to $26,827 in 1994 from $12,809 in 1993,
an 109.4% increase. The increase was primarily due to the original
issue discount amortization expense on the Senior Discount Notes
issued in March 1994 and interest expense on the convertible
subordinated debentures which were issued in June 1993, offset in
part by the defeasance of the Senior Notes in March 1994.
The provision for income taxes increased to $3,677 in the second
quarter of 1994 from $3,439 in the second quarter of 1993 a 6.9%
increase. For the six months ended June 30, the provision for
income taxes increased to $7,727 in 1994 from $6,802 in 1993, a
13.6% increase. The increases are due to a higher tax rate in
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
1994, and reflects the impact to the 1993 effective tax rate of tax
credits taken as a result of the Mission Power Engineering
settlement. The Company's effective rate continues to be less than
the expected statutory rate primarily due to the percentage
depletion deduction and energy tax credits generated in the current
year.
Income before extraordinary item and the cumulative effect of a
change in accounting principle decreased to $8,379 in the second
quarter of 1994 from $10,650 in the second quarter of 1993, a 21.3%
decrease. Net income attributable to common shares in the second
quarter of 1994 decreased to $7,143 or 20 cents per share from
$9,507 or 25 cents per share in the second quarter of 1993. Net
income excluding the effect of the Senior Discount Notes was
approximately $10,346 or 29 cents per share for the second quarter
of 1994. For the six months ended June 30, income before
extraordinary item and the cumulative effect of a change in
accounting principle decreased to $16,986 or 40 cents per share
from $18,134 or 41 cents per share, a 6.3% decrease. Net income
attributable to common shares for the six months ended June 30,
decreased to $12,543 or 34 cents per share from $19,984 or 52 cents
per share, a 37.2% decrease. Net income excluding the effect of
the Senior Discount Notes was approximately $17,926 or 49 cents per
share for the six months ended June 30, 1994.
Liquidity and Capital Resources:
The Company's cash and investments were $379,461 at June 30, 1994
as compared to $127,756 at December 31, 1993. In addition, the
Company's share of Coso Project retained cash and investments in
project control accounts at June 30, 1994 and December 31, 1993 was
$3,361 and $14,943, respectively. Distributions out of the project
control account are made monthly to the Company for operation and
maintenance and capital costs and semiannually to each Coso Joint
Venture partner for profit sharing under a prescribed calculation
subject to mutual agreement by the partners. In addition, the
Company recorded separately restricted cash and short-term
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
investments of $98,476 and $48,105 at June 30, 1994 and December
31, 1993, respectively. The restricted balances were comprised
primarily of amounts deposited in restricted accounts from which
the Company will source its equity contribution requirements
relating to the Upper Mahiao project and of its proportionate share
of Coso Project cash reserves for a debt service reserve fund. The
Coso Project established these reserves in conjunction with the
refinancing of its previous bank debt.
In March 1994, the Company issued $400,000 of 10 1/4% Senior Discount
Notes which accrete to an aggregate principal amount of $529,640 at
maturity in 2004. The original issue discount (the difference
between $400,000 and $529,640) will be amortized from issue date
through January 15, 1997, during which time no cash interest will
be paid on the Senior Discount Notes. Commencing July 15, 1997,
cash interest on the Senior Discount Notes will be payable
semiannually on January 15 and July 15 of each year. The Senior
Discount Notes are redeemable at any time on or after January 15,
1999. The redemption prices commencing in the twelve month period
beginning January 15, 1999 (expressed in percentages of the
principal amount) are 105.125%, 103.417%, 101.708%, and 100% for
1999, 2000, 2001, and 2002, respectively, plus accrued interest
through the redemption date in each case. The Senior Discount
Notes are unsecured senior obligations of the Company.
The Company's Senior Notes in the principal amount of $35,730 which
were due in March 1995, together with the fixed 12% interest due
thereon, were defeased in the first quarter of 1994 in conjunction
with the issuance of the Senior Discount Notes. The 1994
contingent interest component of these Senior Notes, calculated by
reference to the Company's share of available cash flow from the
Coso Project, remains undefeased and outstanding through the end of
the calculation period, December 31, 1994.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
In June of 1993, the Company issued $100,000 principal amount of 5%
Convertible Subordinated Debentures ("Debentures") due July 31,
2000. The Debentures are convertible into shares of the Company's
common stock at any time prior to redemption or maturity at a
conversion price of $22.50 per share, subject to adjustment in
certain circumstances. Interest on the Debentures is payable semi-
annually in arrears on July 31 and January 31 of each year, and
commenced on July 31, 1993. The Debentures may be redeemed for
cash at any time on or after July 31, 1996 at the option of the
Company. The redemption prices commencing in the twelve month
period beginning July 31, 1996 (expressed in percentages of the
principal amount) are 102%, 101%, 100% and 100% for 1996, 1997,
1998 and 1999, respectively. The Debentures are unsecured general
obligations of the Company and subordinated to all senior
indebtedness of the Company.
In December 1992, the Company entered into an agreement with
Community Energy Alternatives Incorporated ("CEA") to purchase
CEA's interest in the Coso Project for $9,800. The terms of the
agreement granted the Company's Coso Project Joint Venture Partner
an option to purchase the CEA interest for a price which provided
the Company with a 17% per annum return for the period the Company
owned the CEA interest. In April 1994, the Coso Project Joint
Venture Partner purchased the CEA interest from the Company for the
defined price.
In May 1994, pursuant to a special antidilution provision of the
1991 Stock Purchase Agreement between the Company and Kiewit Energy
Company, the Company increased Kiewit Energy Company's existing
option (granted in 1991) to purchase 3 million shares at $12 per
share by an additional 289,163 shares as a final adjustment under
such provision.
Proceeds from options for shares of common stock exercised in the
three months ended June 30, 1994 aggregated approximately $319.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
The Company is actively seeking to develop, construct, own and
operate new power projects utilizing geothermal and other
technologies, both domestically and internationally, the completion
of any of which is subject to substantial risk. Development can
require the Company to expend significant sums for preliminary
engineering, field development, permitting, legal and other
expenses in preparation for competitive bids which the Company may
not win or before it can be determined whether a project is
feasible, economically attractive or capable of being financed.
Successful development is contingent upon, among other things,
negotiation of construction, fuel supply and power sales contracts
with other project participants on terms satisfactory to the
Company, and receipt of required governmental permits and consents.
Further, there can be no assurance that the Company will obtain
access to the substantial debt and equity capital required to
develop and construct electric power projects or to refinance
projects for which the Company has provided initial construction
financing. The Company's future growth is dependent, in large
part, upon the demand for significant amounts of additional
electrical generating capacity and the Company's ability to obtain
contracts to supply portions of this capacity. There can be no
assurance that development efforts on any particular project, or
the Company's efforts generally, will be successful.
The Company believes that the international independent power
market holds the majority of new opportunities for financially
attractive private power development in the next several years.
The financing and development of projects outside the United States
entail significant political and financial risks (including,
without limitation, uncertainties associated with first time
privatization efforts in the countries involved, currency exchange
rate fluctuations, currency repatriation restrictions, political
instability, civil unrest and expropriation) and other structuring
issues that have the potential to cause substantial delays or
material impairment of value to the project being developed, which
the Company may not be fully capable of insuring against. The
uncertainty of the legal environment in certain foreign countries
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
in which the Company may develop or acquire projects could make it
more difficult for the Company to enforce its rights under
agreements relating to such projects. In addition, the laws and
regulations of certain countries may limit the ability of the
Company to hold a majority interest in some of the projects that
it may develop or acquire. The Company's international projects
may, in certain cases, be terminated by a government.
In April 1994, the Company closed the financing for the 128 GMW
Upper Mahiao geothermal power project located in the Philippines.
The total project cost for the facility is approximately $218,000.
The Company will supply approximately $56,000 of equity and project
debt financing will constitute the balance of approximately
$162,000. A syndicate of international commercial banks is
providing the construction financing. The Export-Import Bank of
the U.S. (Ex-Im Bank) is providing political risk insurance to the
commercial banks on the construction loan and will provide the
preponderance of project term financing upon satisfaction of
conditions associated with commercial operation. As of June 30,
1994, draws totaling $5,811 have been made on the construction loan
and equity investments of $6,911 have been made by a subsidiary of
the Company. The Overseas Private Investment Corporation (OPIC) is
providing political risk insurance on the equity investment by the
Company in this project. The Upper Mahiao project has begun
construction, and is expected to be in service by July of 1996.
The project is structured as a ten year Build-Own-Transfer (BOT),
in which the Company's subsidiary CE Cebu, the project company,
will be responsible for implementing the construction of the
geothermal power plant and providing the operations and maintenance
during the ten year BOT period. The electricity generated by the
Upper Mahiao geothermal power plant will be provided to the
Philippine National Oil Company - Energy Development Corporation
(PNOC-EDC), which is also responsible for supplying the facility
with the geothermal steam. After a ten year cooperation period,
and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at no
cost. Ormat Inc. of Sparks, Nevada is the turnkey contractor for
the project.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
In 1993 the Company and the Philippine National Oil Company -
Energy Development Corporation ("PNOC-EDC") signed an Energy
Conversion agreement for a 180 GMW project at the Mahanagdong
geothermal site with a target completion date of June 1997. As
with the Upper Mahiao project, the Mahanagdong project is
structured as a ten year Build-Own-Transfer (BOT), in which the
Company will be responsible for implementing the construction of
the geothermal power plant and for the operations thereafter for
the ten year BOT period. The electricity generated by the
geothermal power plant will be provided to PNOC-EDC, which is also
responsible for supplying the facility with the geothermal steam.
After a ten year cooperation period, and the recovery by the
Company of its capital investment plus incremental return, the
plant will be transferred to PNOC at no cost.
The Mahanagdong project will be built, owned and operated by CE
Luzon Geothermal Power Company, a Philippine corporation, that is
expected to be owned post completion as follows: 45% by the
Company, 45% by Kiewit, and up to 10% by another industrial
company. Kiewit Construction Group, Inc. (with an 80% interest)
and The Ben Holt Co., Inc. (with a 20% interest), will be the
consortium acting as the turnkey contractor.
The Company estimates that Mahanagdong will have a total project
cost of approximately $320 million. The anticipated capital
structure will be a term loan of $240 million and approximately $80
million in equity contributions. The Company is in the process of
arranging financing for the project on a structural basis similar
to the arrangements for Upper Mahiao. The construction debt
financing is expected to be provided $40 million by OPIC, $20
million by an international commercial bank and $172 million by
American Pacific Finance Company ("APFC"), a wholly owned finance
company subsidiary of the Company. APFC construction debt
financing will be provided from the Company's existing cash
balances and may be sold down by APFC in secondary syndications to
other international commercial banks. The debt provided by APFC
and commercial banks will be insured against political risks by Ex-
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
Im Bank. Ten year term debt financing will be provided by Ex-Im
Bank and OPIC. The Company intends to provide its approximately
$40 million share of the equity for the Mahanagdong project from
existing cash, which investment will be insured against political
risks by OPIC.
The Company commenced commercial operation of its 50 MW
cogeneration project in Yuma Arizona pursuant to the power purchase
agreement. See Note 5 of the Notes to Consolidated Financial
Statements regarding San Diego Gas & Electric litigation.
As of June 30, 1994 the Company has repurchased 3,009 shares of its
common shares at a cost of $52,806. This repurchase provides
shares for issuance under the Company's employee stock option plan
and other outstanding convertible securities. The shares may also
be used for any future convertible securities or employee benefit
plans.
CALIFORNIA ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
See Note 5 to the 1993 Annual Consolidated Financial
Statements. See Notes to the 10-Q for the quarter ended June
30, 1994.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
a. The Company's Annual Meeting of Stockholders was held on
May 12, 1994.
b. Not applicable.
c. The following proposals were voted at the annual meeting:
(i) Proposal 1 - Election for Director (with terms expiring
at the 1997 annual meeting) of each of the persons
named below as follows:
Withholding
Nominees For Authority
Edgar D. Aronson 33,841,001 63,229
Richard R. Jaros 33,804,625 99,605
Ben Holt 33,802,001 101,285
(ii) Proposal 2 - Ratification of the appointment of
Deloitte & Touche as independent auditors for the
fiscal year 1994.
Such proposal passed with 33,826,970 affirmative votes.
22,476 votes were cast against such proposal.
CALIFORNIA ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
(continued)
(iii) Proposal 3 - Ratification of the Company's 1994
Employee Stock Purchase Plan which provides for an
aggregate of 750,000 shares to be purchased by
employees.
Such proposal passed with 26,167,643 affirmative
votes. 2,836,302 votes were cast against such
proposal.
(iv) Proposal 4 - Ratification of an amendment to the
Company's Employee Option Plan to increase the
aggregate number of stock options that may be granted
to employees by 1,586,000 shares.
Such proposal passed with 24,833,861 affirmative
votes. 4,144,640 votes were cast against such
proposal.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
(b) Reports on Form 8-K:
During the quarter ended June 30, 1994, the Company filed the
following:
CALIFORNIA ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
(continued)
(i) Form 8-K dated April 11, 1994 reporting the close of
financing for the 128 GMW Upper Mahiao geothermal power
project located in the Philippines. The Export-Import
Bank of the U.S. (Ex-Im Bank) is the project term
lender, with the Overseas Private Investment
Corporation (OPIC) providing political risk insurance
on the equity investment by the Company.
(ii) Form 8-K dated May 6, 1994 reporting that David L.
Sokol, the President, Chief Executive Officer and a
Director, was named Chairman of the Board of Directors.
He succeeded the vacancy created by the resignation of
Richard R. Jaros.
(iii) Form 8-K dated June 8, 1994 reporting that San Diego
Gas & Electric had filed a complaint in U.S. District
court seeking to be released from its power purchase
agreement with Yuma Cogeneration Associates (YCA) and
has stated its intent to reduce payments to YCA.
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.
CALIFORNIA ENERGY COMPANY, INC.
/s/ John G. Sylvia
Date: August 5, 1994
John G. Sylvia
Senior Vice President and
Chief Financial Officer
/s/ Gregory E. Abel
Gregory E. Abel
Vice President, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 30
15 Awareness Letter of Independent Accountants 31
<TABLE>
EXHIBIT 11
CALIFORNIA ENERGY COMPANY, INC.
CALCULATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
(dollars in thousands, except per share amounts)
___________________
<CAPTION>
Three Months Ended Six months Ended
June 30 June 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding for the period 33,411,002 35,428,393 34,182,853 35,387,238
Dilutive stock options and warrants
using average market prices 2,472,489 3,014,112 2,644,035 3,170,104
Total number of shares based on
shares outstanding and the
assumption that dilutive stock
options and warrants will be
exercised at average stock market
prices 35,883,491 38,442,505 36,826,888 38,557,342
Additional dilutive stock options
and warrants using ending market
price - - - -
Total shares based on shares out-
standing and the assumption that
dilutive stock options and warrants
will be exercised at ending market
price if more dilutive 35,883,491 38,442,505 36,826,888 38,557,342
Income before extraordinary item and
change in accounting principle $ 8,379 $ 10,650 $ 16,986 $ 18,134
Extraordinary item - - (2,007) -
Cumulative effect of change in
accounting principle - - - 4,100
Net income 8,379 10,650 14,979 22,234
Less: Series C preferred stock
dividends 1,236 1,143 2,436 2,250
Net income available for common
shares $ 7,143 $ 9,507 $ 12,543 $ 19,984
Primary earnings per share before
extraordinary item and change in
accounting principle $ .20 $ .25 $ .40 $ .41
Extraordinary item per share - - (.06) -
Cumulative effect of change in
accounting principle per share - - - .11
Primary earnings per share $ .20 $ .25 $ .34 $ .52
Fully diluted earnings per share
based on SEC interpretive release
No. 34-9083 $ .20 $ .25 $ .34 $ .52
</TABLE>
EXHIBIT 15
California Energy Company, Inc.
Omaha, Nebraska
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of California Energy Company, Inc. for the three and
six month periods ended June 30, 1994, as indicated in our report dated July
15, 1994; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, is
incorporated by reference in Registration Statements No. 33-41152 and No. 33-
52147 on Form S-8 and Registration Statement No. 35-51363 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act, is not considered a part of a Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Section 7 and 11 of that
Act.
DELOITTE & TOUCHE
August 3, 1994
