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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission File No. 1-9874
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10831 Old Mill Road, Omaha, NE 68154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 330-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
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Common Stock, $0.0675 New York Stock Exchange
par value ("Common Stock") Pacific Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: N/A
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of Common Stock on the New York Stock
Exchange on March 13, 1995, the aggregate market value of the Common Stock held
by non-affiliates of the Company was $660,189,676.
50,036,621 shares of Common Stock were outstanding on March 13, 1995.
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DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into this Form 10-K, in response to Item 3 Part I,
Items 6 through 8 of Part II, and Items 10 through 13 of Part III, are the
portions indicated herein of (i) the annual report of California Energy
Company, Inc. (the "Company") to security holders for the fiscal year ended
December 31, 1994 (the "Annual Report"), and (ii) the Company's proxy statement
dated March 27, 1995 for the annual meeting of stockholders to be held on May
11, 1995 (the "Proxy Statement").
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Documents Incorporated By Reference................................................................ ii
Table of Contents ................................................................................. iii
PART 1 ........................................................................................... 1
Item 1. BUSINESS................................................................ 1
Magma Acquisition....................................................... 1
Expansion and Enhancement of Development Efforts........................ 3
Benefits of Increased Size.............................................. 3
Opportunities for Operational and Administrative Cost Savings........... 3
Diversification in Sources of Revenue and Operations.................... 3
Geothermal Energy....................................................... 4
The Global Power Market.......................................................... 5
Strategy......................................................................... 6
The Company's Projects........................................................... 7
International Projects-Discussion................................................ 10
Projects in Construction....................................... 10
The Philippines................................................. 10
Upper Mahiao.................................................... 10
Mahanagdong..................................................... 12
Malitbog........................................................ 13
Projects in Development................................................. 13
Casecnan........................................................ 13
Alto Peak....................................................... 14
Indonesia....................................................... 14
Dieng........................................................... 15
Patuha.......................................................... 16
Bali............................................................ 16
Domestic Projects................................................................ 16
Projects in Operation................................................... 16
The Coso Project....................................... 16
The Navy I Project..................................... 17
The BLM Project........................................ 17
The Navy II Project.................................... 17
Salton Sea Known Geothermal Resource Area Projects..... 18
Vulcan................................................. 18
Hoch (Del Ranch)....................................... 18
Elmore................................................. 19
Leathers............................................... 19
Salton Sea 1 Project................................... 19
Salton Sea 2 Project................................... 20
Salton Sea 3 Project................................... 20
Yuma................................................... 21
Roosevelt Hot Springs.................................. 21
Desert Peak............................................ 21
Mammoth Plants......................................... 21
The East Mesa Plant ................................... 21
Projects in Development........................................ 22
The BRPU Process....................................... 22
Fish Lake/Salton Sea 1 Expansion....................... 22
Newberry............................................... 22
Regulatory and Environmental Matters............................................. 23
Environmental Regulation................................................ 23
Federal Energy Regulations.............................................. 23
Employees........................................................................ 23
Item 2. Properties....................................................................... 24
Item 3. Legal Proceedings................................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.............................. 24
PART II............................................................................................ 24
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER'S MATTERS................................................... 24
The Company...................................................................... 24
Item 6. Selected Financial Data.......................................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation........................................................................ 25
Item 8. Financial Statements and Supplementary Data...................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 26
PART III........................................................................................... 26
Item 10. Directors and Executive Officers of the Registrant.......................... 26
Item 11. Executive Compensation...................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 28
Item 13. Certain Relationships and Related Transactions.............................. 28
PART IV............................................................................................ 28
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............. 28
Exhibit Index ..................................................................................... 32
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PART 1
ITEM 1. BUSINESS
California Energy Company, Inc. (the "Company") was founded in 1971.
The Company is primarily engaged in the exploration for, and development and
operation of, environmentally responsible independent power production
facilities worldwide utilizing geothermal resources or other energy sources,
such as hydroelectric, natural gas, oil and coal.
With the completion of the acquisition of Magma Power Company
("Magma"), the Company became the largest independent geothermal power producer
in the world (on the basis of aggregate megawatts ("MW") of electric generating
capacity in operation and under construction). The Company has an aggregate net
ownership interest of 354 MW of electric generating capacity in power
production facilities in the United States having an aggregate net capacity of
571 MW. All of these facilities are managed and operated by the Company and are
principally located in California. In addition to the electricity sales revenue
earned from its net ownership position in such facilities, the Company receives
significant fee and royalty income from operating such plants and managing
production from the geothermal reservoirs for such facilities. Additionally,
the Company has an aggregate net ownership interest of 409 MW of electric
generating capacity in three geothermal power projects in the Philippines,
having an aggregate net capacity of 500 MW, which projects are financed and
under construction. The Company is also developing eight additional projects
with executed or awarded power sales contracts in the Philippines, Indonesia
and the United States which could potentially represent an aggregate net
capacity of 1,589 MW of additional electric generating capacity, of which the
Company's approximate net ownership interest is expected to be 935 MW. Actual
MW may vary depending on operating and reservoir conditions and plant design.
The Company's Common Stock is traded on the New York, Pacific and
London Stock Exchanges. As of the record date for the annual meeting of
stockholders, March 13, 1995, Peter Kiewit Sons' Inc. ("PKS") was an
approximate 34% stockholder of the Company (on a fully diluted basis). The
percentage ownership of PKS reflects the direct sale to Kiewit Energy Company
of 1.5 million shares of the Company's Common Stock on February 24, 1995 (the
"Direct Sale") and the public offering (the "Offering"), including an
overallotment thereunder, of 16,670,000 shares of the Company's Common Stock in
connection with financing the acquisition of Magma, but not the exchange by the
Company of the Company's 9.5% Convertible Subordinated Debentures Due 2003
("Subordinated Debentures") for the Company's Series C Redeemable Convertible
Exchangeable Preferred Stock ("Series C Preferred Stock") effective March 15,
1995. As of March 15, 1995, the Subordinated Debentures were convertible into
3,529,252 shares of the Company's Common Stock. PKS is a large employee-owned
construction, mining and telecommunications company with approximately $3
billion in revenues in 1994. PKS is one of the largest construction companies
in North America and has been in the construction business since 1884.
The principal executive offices of the Company are located at 10831
Old Mill Road, Omaha, Nebraska 68154 and its telephone number is (402)
330-8900. The Company was incorporated in 1971 under the laws of the State of
Delaware.
MAGMA ACQUISITION
On December 5, 1994, the Company and its subsidiary, CE Acquisition
Company, Inc., signed a definitive Agreement and Plan of Merger with Magma.
Pursuant to such Agreement, the Company completed a cash tender offer for about
51% of Magma's shares of Common Stock and assumed control of Magma on January
10, 1995. The merger was consummated and Magma became a wholly owned subsidiary
of the Company on February 24, 1995. A total of approximately $957 million was
required to complete the Magma acquisition. A secured bank financing facility
of $500 million ("the Merger Facilities") was provided on specified terms and
subject to customary conditions. Such funds, together with the net proceeds of
the Offering, the proceeds of the Direct Sale and general corporate funds of
the Company, were sufficient to complete the Magma acquisition.
The Merger Facilities are comprised of (i) a six year term loan ("Term
Loan A") in a principal amount of $350 million, to be amortized in semi-annual
payments, (ii) a seven year term loan ("Term Loan B") in a principal amount of
$75 million, to be amortized in semi-annual payments in the seventh year of
such Term Loan and (iii) an eight year term loan ("Term Loan C") in a principal
amount of $75 million to be amortized in semi-annual payments in the eighth
year of such Term Loan. Loans under the Merger Facilities were made to the
Company on a non-recourse basis, and the Company lent the proceeds of such
loans to Magma in exchange for a secured term note of Magma (the "Magma Note").
The loans under the Merger Facilities are amortized from payments received by
the Company from Magma pursuant to a promissory note from Magma (the "Magma
Note") which is amortized from internally generated funds of Magma. Loans under
the Merger Facilities are secured by an assignment and pledge by the Company of
the Magma Note and 100% of the capital stock of Magma. The Magma Note is
secured by an assignment of certain otherwise unencumbered assets of Magma.
The Company may elect to have loans bear interest based on either
LIBOR or the Base Rate (as defined in the Merger Facilities). Interest on loans
under the Merger Facilities is expected to be payable at spreads of 2.50% above
LIBOR (adjusted for reserves) or 1.50% above the Base Rate for Term Loan A, and
3.50% above LIBOR (adjusted for reserves) or 2.50% above the Base Rate for Term
Loan B and Term Loan C.
The Merger Facilities contain affirmative and negative covenants
customary for similar non-recourse credit facilities. Such covenants include a
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negative pledge of all stock and unencumbered assets of Magma; a limitation on
contingent obligations by Magma; a limitation on mergers and sales of assets by
Magma; a limitation on investments in other persons by Magma; a limitation on
dividends and certain other payments by Magma to the Company unless the
proceeds are used to pay down the Merger Facilities; a prohibition on the sale
of ownership interests in Magma; a limitation on the incurrence of additional
debt by Magma; a requirement that the Company deliver each fiscal quarter a
certificate as to the absence of material adverse changes in the Company or
Magma which could reasonably be expected to materially affect the ability of
the Company to repay the Merger Facilities or the ability of the lenders to
realize on the collateral for the Merger Facilities; a restriction on a change
in the nature of the business of the Company and Magma; and requirements that
certain levels of debt service coverage, interest coverage, cash balances and
net worth be maintained.
The Merger Facilities also contain financial covenants and customary
events of default, including events of default based on breaches of certain
representations, warranties and covenants; cross defaults with respect to
certain debt of the Company and Magma; bankruptcy and similar events; the
failure to pay certain final judgments; the failure to make a payment with
respect to the Merger Facilities when due; and the failure of the pledge
agreement with respect to the capital stock of Magma and the Magma Note to be
in full force and effect.
The Offering consisted of the sale of 13,170,000 shares of the
Company's Common Stock to the public in the United States and Canada and
2,000,000 shares of the Company's Common Stock to the public outside the United
States and Canada. In addition, the underwriter's exercised an overallotment
option and acquired an additional 1,500,000 shares of the Company's Common
Stock. The Offering closed on February 24, 1995 at a price of $17 per share.
Net proceeds to the Company from the Offering after underwriting discounts and
commissions (but before expenses payable by the Company of about $2.5 million)
was approximately $16.49 per share or an aggregate of approximately $250
million.
The Direct Sale consisted of the sale of 1,500,000 shares of the
Company's Common Stock directly to Kiewit Energy Company, a wholly owned
subsidiary of PKS. The Direct Sale closed on February 24, 1995 at a price of
$17 per share or an aggregate of $25.5 million. No commissions were paid on the
Direct Sale.
The Company believes that Magma is an excellent strategic fit and that
the acquisition of Magma creates significant benefits, including:
o EXPANSION AND ENHANCEMENT OF DEVELOPMENT EFFORTS
Development of new opportunities, particularly internationally, is a
key component of the Company's strategy. Since 1990, the Company and Magma have
each pursued international development opportunities, primarily in Southeast
Asia. By pursuing additional development opportunities rather than competing
with Magma for the same opportunities, the Company expects to expand its
development efforts to cover additional projects and thereby more effectively
capitalize on the numerous opportunities in the growing international
independent power market. Furthermore, the Company now has the technology of
both companies available to it. The Company now owns production technology
compatible with the relatively low mineral content of its wells at the Coso
Project and technology compatible with the high levels of mineral precipitates
found in the geothermal resource at the Imperial Valley Projects. The Company
expects that access to these technologies will enable it to compete for new
power development projects from geothermal reservoirs encompassing a wide range
of geothermal resource characteristics.
o BENEFITS OF INCREASED SIZE
The Company believes that size is an important factor in determining
the success of an independent power producer. This view is based on the
Company's belief that potential customers consider both the price of power and
the provider's capability to fulfill its obligations as primary factors in the
selection of power suppliers. The Company's expanded size and capabilities are
expected to further enhance the Company's reputation and credibility with
sovereign governments and state utility customers and therefore enhance its
ability to successfully compete for new projects. Following the Merger, the
Company has over $2 billion of total assets and an aggregate net ownership
interest of 1,698 MW of electric generating capacity in projects in operation,
under construction or in development, which projects have an aggregate net
generating capacity of 2,660 MW. The Company also believes that the acquisition
of Magma creates the opportunity to reduce the Company's average cost per kWh
by expanding its asset base, without materially expanding its cost structure.
This is expected to allow the Company to be more price competitive with other
geothermal power producers and traditional fossil fuel power plants, which the
Company believes will be its primary competition in the future.
o OPPORTUNITIES FOR OPERATIONAL AND ADMINISTRATIVE COST SAVINGS
Based in part on its experience in restructuring the operations of the
Company since 1991, management of the Company believes that it can achieve
meaningful cost savings from the combination of Magma and the Company. Through
the implementation of the Company's existing organizational structure,
management policies and cost controls, the Company presently expects that the
cost of duplicate functions will be substantially eliminated and that the
productivity of its combined operating and administrative staff will be
significantly increased.
o DIVERSIFICATION IN SOURCES OF REVENUE AND OPERATIONS
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The combination of the Company's and Magma's operations increased the
Company's sources of revenue and increased the number of operating sites
(including projects under construction) from eight to 16. The Company believes
that the resulting diversification in sources of revenue and operations can be
expected to reduce the risk profile of the Company, thereby enhancing its
overall credit position and improving its access to capital in relation to
competitors with more concentrated sources of revenue and operations.
However, as a result of the Magma acquisition, the Company's total
assets, liabilities and total resources will each approximately double. Such
rapid expansion could divert the resources and management of the Company and
will require integration of Magma's operations with those of the Company. There
can be no assurance that the Company will be successful in managing such growth
or that it will be able to achieve any of the anticipated benefits of the Magma
acquisition.
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable
energy source that releases significantly lower levels of emissions than result
from energy generation based on the burning of fossil fuels. Geothermal energy
is derived from the natural heat of the earth when water comes sufficiently
close to hot rock to heat the water to temperatures of 400 degrees Fahrenheit
or more. The heated water then ascends naturally toward the surface of the
earth where it can be extracted by drilling geothermal wells. The energy
necessary to operate a geothermal power plant is typically obtained from
several such wells, which are drilled using established technology similar to
that employed in the oil and gas industry.
Geothermal production wells are normally located within approximately
one to two miles of the power plant as geothermal fluids cannot be transported
economically over longer distances. From the well heads, the heated fluid flows
through pipelines to a series of separators where it is separated into water,
brine and steam. The steam is passed through a turbine which drives a generator
to generate electricity. Once the steam has passed through the turbine, it is
then cooled and condensed back into water which, along with any brine, is
returned to the geothermal reservoir via injection wells. Geothermal plants in
the United States are eligible to be qualifying facilities ("QFs") under the
Public Utility Regulatory Policies Act of 1978 ("PURPA"), which provides for
certain beneficial Federal regulatory treatment. The geothermal reservoir is a
renewable source of energy if natural ground water sources and re-injection of
extracted geothermal fluids are adequate over the long term to replenish the
geothermal reservoir after the withdrawal of geothermal fluids.
The generation of electric power from geothermal resources has certain
advantages when compared to other methods of electric power generation.
Geothermal energy facilities produce significantly less emissions than fossil
fuel power plants. Geothermal energy facilities typically have higher capital
costs but tend to have significantly lower variable costs than fossil fuel
based power plants. The utilization of geothermal power is preferred by certain
governments so as to minimize the import, or maximize the export, of
hydrocarbons. Geothermal power facilities also enjoy certain tax benefits in
the United States.
Geothermal energy is most prevalent where the different sections or
plates of the Earth's crust meet. Productive geothermal resources are found
throughout the Pacific Rim (the so-called "Ring of Fire"), including the
western United States, Latin America, Hawaii, Indonesia, the Philippines,
Malaysia and New Zealand. These areas are experiencing high rates of population
growth and increased demand for new electric generating capacity.
Geothermal exploration, development and operations are subject to
uncertainties similar to those typically associated with oil and gas
exploration and development, including dry holes and uncontrolled releases.
Because of the geological complexities of geothermal reservoirs, the geographic
area and sustainable output of geothermal reservoirs can only be estimated and
cannot be definitively established. There is, accordingly, a risk of an
unexpected decline in the capacity of geothermal wells and a risk of geothermal
reservoirs not being sufficient for sustained generation of the electrical
power capacity desired. In addition, geothermal power resources usually occur
in areas of high seismic activity. Accordingly, there can be no assurance that
earthquake, property damage or business interruption insurance will be adequate
to cover all potential losses sustained in the event of serious seismic
disturbances or that such insurance will be available on commercially
reasonable terms.
The success of a geothermal project depends on the quality of the
geothermal resource and operational factors relating to the extraction of the
geothermal fluids involved in such project. The quality of a geothermal
resource is affected by a number of factors, including the size of the
reservoir, the temperature and pressure of the geothermal fluids in such
reservoir, the depth and capacity of the production and injection wells, the
amount of dissolved solids and noncondensible gases contained in such
geothermal fluids, and the permeability of the subsurface rock formations
containing such geothermal resource, including the presence, extent and
location of fractures in such rocks. The quality of a geothermal resource may
decline as a result of a number of factors, including the intrusion of
lower-temperature fluid into the producing zone. An incorrect estimate by the
Company of the quality of geothermal resource, or a decline in such quality,
could have a material adverse effect on the Company's results of operations.
THE GLOBAL POWER MARKET
The opportunity for independent power generation has expanded from a
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United States market consisting of cogeneration and small power production
projects to a global competitive market for power generation. Many foreign
countries have privitization programs patterned after developments in the
independent power generation market in the United States.
In the United States, the independent power industry expanded rapidly
in the 1980s, facilitated by the enactment of PURPA. PURPA was enacted to
encourage the production of electricity by non-utility companies as well as to
lessen reliance on imported fuels. According to the Utility Data Institute,
independent power producers were responsible for the installation of
approximately 30,000 MW of capacity, or 50%, of the U.S. electric generation
capacity which has been placed in service since 1988.
As the size of the United States independent power market has
increased, available domestic power capacity and competition in the industry
have also significantly increased. Over the past decade, obtaining a power
sales contract from a U.S utility has generally become increasingly difficult,
expensive and competitive. Many states now require power sales contracts to be
awarded through competitive bidding, which both increases the cost of obtaining
such contracts and decreases the chances of obtaining such contracts as bids
significantly outnumber awards in most competitive solicitations. The federal
Energy Policy Act of 1992 is expected to further increase domestic competition.
As a result of this increased competition, it may be difficult to obtain a
power sales agreement for a proposed project in the United States, and the
terms and conditions of any such contract may be less favorable than those in
prior agreements.
Large amounts of new electric power generating capacity are required
in developing countries. The movement toward privatization in some developing
countries has created significant new markets outside the United States. In
1990, the World Bank estimated that developing countries will need
approximately 380,000 MW of new power generating capacity through the end of
the decade. The need for such rapid expansion has caused many countries to
select private power development as their only practical alternative and to
restructure their legislative and regulatory systems to facilitate such
development. The Company believes that this significant need for power has
created strong local support for private power projects in many foreign
countries and increased the availability of attractive long-term power
contracts. The Company intends to take advantage of opportunities in these new
markets and to develop, construct and acquire power generation projects outside
the United States.
The international power production market is characterized by numerous
strong and capable competitors, many of which have more extensive and more
diversified developmental or operating experience (including international
experience) and greater financial resources than the Company. Many of these
competitors also participate in the domestic market.
STRATEGY
Domestically, the Company is focusing on market opportunities in which
it believes it has relative competitive advantages due to its geotechnical,
project management and operating expertise. In addition, the Company expects to
continue diversification into other environmentally responsible sources of
energy primarily through selected acquisitions of partially developed or
existing power generating projects and contracts.
The Company presently believes that the international independent
power market holds the majority of new opportunities for financially attractive
private power development in the next several years, in large part because the
demand for new generating capacity is growing more rapidly in emerging nations
than in the United States. In developing its international strategy, the
Company pursues development opportunities in countries which it believes have
an acceptable risk profile and where the Company's geothermal resource
development and operating experience, project development expertise or
strategic relationship with PKS or local partners are expected to provide it
with a competitive advantage. The Company has financed and has under
construction three projects representing an aggregate of 409 MW of net
ownership of electric generating capacity in the Philippines. In addition, the
Company is currently pursuing a number of other electric power project
opportunities in countries including the Philippines and Indonesia. These
countries are ideally suited for the Company to develop, finance and operate
power projects successfully because of their excellent population demographics,
extensive geothermal resources and stated commitments to the development of
private power programs. The Company's development efforts include both
so-called "greenfield" development as well as the acquisition of or
participation in the joint venture development of projects which are under
development or already operating. In greenfield development, the Company
attempts to negotiate power sales contracts for new generation capacity or
engages in competitive bids in response to government agency or utility
requests for proposals for new capacity.
In pursuing its international strategy, the Company intends to own a
significant equity interest in, and to operate, the projects it develops or
acquires. In order to compete more effectively internationally, the Company's
strategy is to attempt to diversify its project portfolio, extend its future
equity funding capacity through joint ventures and utilize fixed-price, turnkey
construction contracts with contractors experienced in the construction of
power plants or other infrastructure facilities. The Company also believes that
it is important in foreign transactions to work with local partners who are
knowledgeable concerning local culture, politics and commercial practices and
who provide a visible local presence and local project representation.
With respect to emerging market projects, the Company's policy is to
attempt to minimize currency risks, including the devaluation of local
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currencies versus the U.S. dollar, as well as the risk of availability of hard
currency convertibility. To date, all of the Company's executed power sales
contracts contain provisions which index the Company's returns to U.S. dollars
or provide for the payment of capacity payments in U.S. dollars. To the extent
possible, the Company attempts to secure "political risk" insurance from the
Overseas Private Investment Corporation ("OPIC") or similar multilateral
agencies to limit its risk in emerging market countries. In addition, the
Company endeavors to involve the World Bank, export credit agencies or
multilateral funding sources in its international project financings. The
Company believes multilateral lending agencies and foreign source financing and
political risk insurance are available for certain international private power
projects, particularly those utilizing indigenous fuel sources in renewable or
otherwise environmentally responsible generating facilities. The Company
believes that the involvement of these institutions will enhance an
international project's position in emerging market countries.
The Company has an international joint venture agreement with PKS
which the Company believes enhances the Company's capabilities in foreign power
markets. The joint venture agreement is limited to international activities and
provides that if both the Company and PKS agree to participate in a project,
they will share all development costs equally. Each of the Company and PKS will
provide 50% of the equity required for financing a project developed by the
joint venture, and the Company will operate and manage such project. The
agreement creates a joint development structure under which, on a project by
project basis, the Company will be the development manager, managing partner
and/or project operator, an equal equity participant with PKS and a preferred
participant in the construction consortium and PKS will be an equal equity
participant and the preferred turnkey construction contractor. The joint
venture agreement may be terminated by either party on 15 days written notice,
provided that such termination cannot affect the pre-existing contractual
obligations of either party.
Development can require the Company to expend significant sums for
preliminary engineering, 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 and construction is contingent upon,
among other things, negotiation on terms satisfactory to the Company of
engineering, construction, fuel supply and power sales contracts with other
project participants, receipt of required governmental permits and consents and
timely implementation of construction. Further, there can be no assurance that
the Company will obtain access to the substantial debt and equity capital
required to continue to develop and construct electric power projects or to
refinance projects. The future growth of the Company is dependent, in large
part, upon the demand for significant amounts of additional electrical
generating capacity and its 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 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 in respect of or material impairment of the value of the
project being developed, which the Company may not be capable of fully insuring
against. The uncertainty of the legal environment in certain foreign countries
in which the Company is developing and 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 the applicable
foreign governments.
THE COMPANY'S PROJECTS
With completion of the acquisition of Magma the Company has net
ownership interests of an aggregate of (i) 354 MW in 13 projects in operation
representing an aggregate net capacity of 571 MW of electric generating
capacity, (ii) 409 MW in three projects under construction representing an
aggregate net capacity of 500 MW of electric generating capacity and (iii) 935
MW in eight projects in development stages with signed power sales agreements
or under award representing an aggregate net capacity of 1,589 MW of electric
generating capacity. The following table sets out the Company's various
projects in operation, under construction and in the latter stages of
development pursuant to signed power sales agreements or awarded mandates in
each case subsequent to the merger.
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INTERNATIONAL PROJECTS - DISCUSSION
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PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. (3) TYPE (3) PURCHASER (4)
CAPACITY (IN MW)(2) (IN MW) DATE
(IN MW)(1)
Upper Mahiao 128 119 119 Leyte, the 1996 CO+10 Build, Own PNOC-EDC
Philippines Transfer (GOP) (5)
Mahanagdong 180 165 74 Leyte, the 1997 CO+10 Build, Own PNOC-EDC
(6) Philippines Transfer (GOP)(5)
Malitbog- 231 216 216 Leyte, the 1996- CO+10 Build, Own PNOC-EDC
Phase I and II Philippines 1997 Transfer (GOP) (5)
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TOTAL UNDER
CONSTRUCTION 539 500 409
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PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(4)
CAPACITY (IN MW)(2)(7) (IN MW)(7) DATE
(IN MW)(7)
Dieng (6) 400 400 188 Central Java, 1997-1999 CO+30 Build, Own PLN (GO1)
Indonesia Transfer
Patuha (6) 400 400 140 Western Java, 1997-1999 CO+30 Build, Own PLN (GO1)
Indonesia Transfer
Casecnan (8) 140 140 98 Luzon, the 1998 CO+20 Build, Own NIA (GOP) (5)
Philippines Transfer
Bali (8)(9) 350 350 210 Bali, 1998-1999 CO+30 Build, Own PLN (GOI)
Indonesia Transfer
Alto Peak 70 70 70 Leyte, the 1997 CO+10 Build, Own PNOC-EDC
Philippines Transfer (GOP)(5)
TOTAL
CONTRACTED/
AWARDED 1,360 1,360 706
TOTAL
INTERNATIONAL
PROJECTS 1,899 1,860 1,115
</TABLE>
(1) Actual MW may vary depending on operating and reservoir conditions and
plant design. Facility Gross Capacity (in MW) for projects under construction
prepresents gross electric output of the facility prior to subtraction of the
parasitic load. Parasitic load is electrical output used by the facility and
not made available for sale to utilities or other outside purchasers. Facility
Gross Capacity (in MW) does not necessarily reflect electric output available
for sale to utilities or other purchasers.
(2) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(3) Commercial Operation (CO).
(4) PNOC-Energy Development Corporation (PNOC-EDC); Government of the
Philippines (GOP); P.T. PLN (Persero) (PLN); Government of Indonesia (GOI); and
Philippine National Irrigation Administration (NIA).
(5) Government of the Philippines undertaking supports PNOC-EDC's and
NIA's respective ogligations.
(6) PKS has elected to exercise its ownership option pursuant to its joint
venture agreement with the Company.
(7) Actual MW may vary depending on operating and reservoir conditions and
final plant design. Facility Gross Capacity (in MW) for awarded projects equals
maximum sales amount. Significant contingencies exist in respect of awards,
including without limitation, the need to obtain financing, permits and
licenses, and the completion of construction.
(8) PKS has not indicated whether it intends to exercise its ownership
option pursuant to its joint venture agreement with the Company and such net
ownership interest remains subject to the PKS option. The Casecnan Project is a
combined hydroelectric and irrigation project and will also sell water to NIA.
(9) Geothermal resource development rights have been awarded and the power
sales contract is subject to negotiation.
<PAGE>
<PAGE>
<TABLE>
DOMESTIC PROJECTS
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(5)
CAPACITY (IN MW)(2)(3) (IN MW) DATE
(IN MW)(1)
Navy I 96 88 41 China Lake, 8/1987 8/2011 SO4 SCE
CA
BLM 96 88 42 China Lake, 3/1989 3/2019 SO4 SCE
CA
Navy II 96 88 44 China Lake, 1/1990 1/2010 SO4 SCE
CA
Vulcan 41 34 17 Imperial 2/1986 2/2016 SO4 SCE
Valley, CA
Hoch (Del 46 38 19 Imperial 1/1989 12/2018 SO4 SCE
Ranch) Valley, CA
Elmore 46 38 19 Imperial 1/1989 12/2018 SO4 SCE
Valley, CA
Leathers 46 38 19 Imperial 1/1990 12/2019 SO4 SCE
Valley, CA
Salton Sea I 11 8 8 Imperial 7/1987 6/2017 Negot. SCE
Valley, CA
Salton Sea II 20 18 18 Imperial 4/1990 4/2020 SO4 SCE
Valley, CA
Salton Sea III 54 50 50 Imperial 2/1989 2/2019 SO4 SCE
Valley, CA
Yuma Cogen. 55 50 50 Yuma, AZ 5/1994 5/2024 Negot. SDG&E
Roosevelt Hot 25 23 17 Milford, UT 5/1984 1/2021 Gathered UP&L
Springs Steam
Desert Peak 10 10 10 Desert Peak, 12/1985 12/1995 Negot. SPPC
NV
-- -- --
TOTAL IN 642 571 354
OPERATION
</TABLE>
<PAGE>
<PAGE>
<TABLE>
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(5)
CAPACITY (IN MW)(2)(5) (IN MW) DATE
(IN MW)(5)
BRPU (7) 163 163 163 Imperial TBD TBD FS04 SCE
Valley, CA
Fish Lake(8) 36 36 36 Imperial est. 1996 CO+30 Negot. SCE
Valley, CA
Newberry 30 30 30 Bend, OR est. 1997 CO+50 Negot. BPA/EWEB
-- -- --
TOTAL CONTRACTED/
AWARDED 229 229 229
--- --- ---
TOTAL DOMESTIC
PROJECTS 871 800 583
--- --- ---
TOTAL
PROJECTS 2,770 2,660 1,698
----- ----- -----
</TABLE>
(1) In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee and
royalty income from operating such plants and managing the production from the
geothermal reservoirs for such facilities.
(2) Actual MW may vary depending on operating and reservoir conditions and
plant design. Facility Gross Capacity (in MW) for projects in operation
represents gross electric output of the facility prior to subtraction of the
parasitic load. Parasitic load is electrical output used by the facility and
not made available for sale to utilities or other outside purchasers. Facility
Gross Capacity (in MW) does not necessarily reflect electric output available
for sale to utilities or other outside purchasers.
(3) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(4) With respect to the Vulcan, Hoch (Del Ranch), Elmore, Leathers, Salton
Sea I, Salton Sea II and Salton Sea III Projects, this represents contract
nameplate.
(5) Southern California Edison Company (SCE); San Diego Gas & Electric
Company (SDG&E); Utah Power & Light Company (UP&L); Sierra Pacific Power
Company (SPPC); Bonneville Power Administration (BPA); and Eugene Water and
Electric Board (EWEB).
(6) Actual MW may vary depending on operating and reservoir conditions and
final plant design. Facility Gross Capacity (in MW) for awarded projects equals
maximum sales amount. Significant contingencies exist in respect of awards,
including without limitation, the need to obtain financing, permits and
licenses, and the completion of construction.
(7) SCE and SDG&E are contesting the BRPU award; accordingly, no power
sales contracts are currently signed.
(8) Combined Fish Lake and Salton Sea Expansion.
<PAGE>
<PAGE>
INTERNATIONAL PROJECTS DISCUSSION
PROJECTS IN CONSTRUCTION
The Philippines. The Company believes that increasing industrialization,
a rising standard of living and an expanding power distribution network has
significantly increased demand for electrical power in the Philippines.
According to the 1993 Power Development Program of the National Power
Corporation of the Philippines ("NAPOCOR"), demand for electricity exceeds
supply. NAPOCOR has also reported that its ability to sustain desired levels of
electric production from existing facilities has been limited due to frequent
breakdowns in many of its older electric generating plants. As a result, the
Philippines has experienced severe power outages, with Manila suffering
significant daily brownouts during much of 1993 and periodic brownouts during
1994. Although the occurrence of brownouts has been recently reduced, NAPOCOR
has said that it still anticipates significant energy shortages in the future.
In 1993, the Philippine Congress, pursuant to Republic Act 7648,
granted President Ramos emergency powers to remedy the Philippine energy
crisis, including authority to (i) exempt power projects from public bidding
requirements, (ii) increase power rates and (iii) reorganize NAPOCOR. Until
1987, NAPOCOR had a monopoly on power generation and transmission in the
Philippines. In 1987, then President Aquino issued Executive Order No. 215,
which granted private companies the right to develop certain power generation
projects, such as those using indigenous energy sources, on a
"build-operate-transfer" or "build-transfer" basis. In 1990, the Philippine
Congress enacted Republic Act No. 6957, which authorized private development of
priority infrastructure projects on a "build-operate-transfer" and a
"build-transfer" basis. In addition, under that Act, such power projects were
made eligible for certain tax benefits, including exemption from Philippine
national income taxes for at least six years and exemption from, or
reimbursement for, customs duties and value added taxes on capital equipment to
be incorporated into such projects. In 1994, certain amendments to Republic Act
No. 6957 were approved by the Philippine Congress and signed into law (R.A.
7718). Among other things, such amendments provide for the financing of
"unsolicited proposals" on a "build-operate-transfer" basis.
In an effort to remedy the shortfall of electricity, the Philippines,
NAPOCOR and PNOC-Energy Development Corporation ("PNOC-EDC") continue to
jointly solicit bids for private power projects. Among private power projects
selected through this solicitation process were the Upper Mahiao (the "Upper
Mahiao Project"), Mahanagdong (the "Mahanagdong Project"), Malitbog (the
"Malitbog Project") and Alto Peak (the "Alto Peak Project") geothermal power
projects, as described below. Geothermal power has been identified as a
preferred alternative by the Government of the Philippines due to the domestic
availability and the minimal environmental effects of geothermal power in
comparison to other forms of power production. PNOC-EDC, which is responsible
for developing the Philippines' domestic energy sources, has been successful in
the exploration and development of geothermal resources.
The Company has financed and commenced construction of the Upper
Mahiao, Mahanagdong and Malitbog Projects, which have an aggregate net capacity
of 500 MW, of which the Company's aggregate net ownership interest is 409 MW
subsequent to the Merger.
Upper Mahiao. The Company has closed the financing and commenced
construction of the Upper Mahiao Project, a 128 gross MW geothermal project to
be located in the GreaterTongonan area of the island of Leyte in the
Philippines. The Upper Mahiao Project will be built, owned and operated by CE
Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine corporation that
is approximately 100% indirectly owned by the Company. It will sell 100% of its
capacity on a "take-or-pay" basis (described below) to PNOC-EDC, which will in
turn sell the power to NAPOCOR for distribution to the island of Cebu, located
about 40 miles west of Leyte.
<PAGE>
<PAGE>
The Upper Mahiao Project will have a total project cost of
approximately $218 million, including interest during construction, project
contingency costs and a debt service reserve fund. A consortium of
international banks has committed to provide approximately $162 million in a
construction loan, supported by political risk insurance from the Export-Import
Bank of the United States ("ExIm Bank"). The largest portion of the term loan
for the project will also be provided by ExIm Bank. The Company's equity
contribution to the Upper Mahiao Project is $56 million. Subject to the pledge
of the project company's stock to the lenders, the Company has arranged for
political risk insurance of its equity investment through OPIC. The financing
is collateralized by all the assets of the project.
The Upper Mahiao Project is being constructed by Ormat, Inc. ("Ormat")
and its affiliates pursuant to supply and construction contracts (collectively,
the "Upper Mahiao EPC"), which, taken together, provide for the construction of
the plant on a fixed-price, date-certain, turnkey basis. Ormat is an
international manufacturer and construction contractor that builds binary
geothermal turbines. It has provided its equipment to several geothermal power
projects throughout the United States, the Philippines and elsewhere
internationally. The Upper Mahiao EPC provides liquidated damage protection of
up to 30% of the Upper Mahiao EPC price. Ormat's performance under the Upper
Mahiao EPC is substantially backed by a completion guaranty of Ormat, by
letters of credit, and by a limited guaranty of Ormat Industries, Ltd., an
Israeli corporation and the parent of Ormat, in each case for the benefit of
the project lenders.
Under the terms of an energy conversion agreement, executed on
September 6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate
the Upper Mahiao Project during the approximately two-year construction period
and the ten-year cooperation period, after which ownership will be transferred
to PNOC-EDC at no cost.
The Upper Mahiao plant will be located on land provided by PNOC-EDC at
no cost. It will take geothermal steam and fluid, also provided by PNOC-EDC at
no cost, and convert its thermal energy into electrical energy to be sold to
PNOC-EDC on a "take-or-pay" basis. Specifically, PNOC-EDC will be obligated to
pay for the electric capacity that is nominated each year by CE Cebu,
irrespective of whether PNOC-EDC is willing or able to accept delivery of such
capacity. PNOC-EDC will pay to CE Cebu a fee (the "Capacity Fee") based on the
plant capacity nominated to PNOC-EDC in any year (which, at the plant's design
capacity, is approximately 95% of total contract revenues) and a fee (the
"Energy Fee") based on the electricity actually delivered to PNOC-EDC
(approximately 5% of total contract revenues). The Capacity Fee serves to
recover the capital costs of the project, to recover fixed operating costs and
to cover return on investment. The Energy Fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under the Upper
Mahiao ECA will be denominated in U.S. dollars, or computed in U.S. dollars and
paid in Philippine pesos at the then-current exchange rate, except for the
Energy Fee, which will be used to pay Philippine peso-denominated expenses. The
convertibility of Philippine peso receipts into U.S. dollars is insured by
OPIC. Significant portions of the Capacity Fee and Energy Fee will be indexed
to U.S. and Philippine inflation rates, respectively. PNOC-EDC's payment
requirements, and its other obligations under the Upper Mahiao ECA, are
supported by the Government of the Philippines through a performance
undertaking.
The payment of the Capacity Fee is not excused if PNOC-EDC fails to
deliver or remove the steam or fluids or fails to provide the transmission
facilities, even if its failure was caused by a force majeure event. In
addition, PNOC-EDC must continue to make Capacity Fee payments if there is a
force majeure event (e.g., war, nationalization, etc.) that affects the
operation of the Upper Mahiao Project and that is within the reasonable control
of PNOC-EDC or the Government of the Philippines or any agency or authority
thereof. If CE Cebu fails to meet certain construction milestones or the power
plant fails to achieve 70% of its design capacity by the date that is 120 days
after the scheduled completion date (as that date may be extended for force
majeure and other reasons under the Upper Mahiao ECA), the Upper Mahiao Project
may, under certain circumstances, be deemed "abandoned," in which case the
Upper Mahiao Project must be transferred to PNOC-EDC at no cost, subject to any
liens existing thereon.
PNOC-EDC is obligated to purchase CE Cebu's interest in the facility
under certain circumstances, including (i) extended outages resulting from the
failure of PNOC-EDC to provide the required geothermal fluid, (ii) certain
material changes in policies or laws which adversely affect CE Cebu's interest
in the project, (iii) transmission failure, (iv) failure of PNOC-EDC to make
timely payments of amounts due under the Upper Mahiao ECA, (v) privatization of
PNOC-EDC or NAPOCOR, and (vi) certain other events. Prior to completion of the
Upper Mahiao Project, the buy-out price will be equal to all costs incurred
through the date of the buy-out, including all Upper Mahiao Project debt, plus
an additional rate of return on equity of ten percent per annum. In a
post-completion buy-out, the price will be the net present value (at a discount
rate based on the last published Commercial Interest Reference Rate of the
Organization for Economic Cooperation and Development) of the total remaining
amount of Capacity Fees over the remaining term of the Upper Mahiao ECA.
Mahanagdong. The Company has also closed the financing and commenced
construction of the Mahanagdong Project, a 180 gross MW geothermal project,
which will also be located on the island of Leyte. The Mahanagdong Project will
be built, owned and operated by CE Luzon Geothermal Power Company, Inc. ("CE
Luzon"), a Philippine corporation that during construction is indirectly owned
50% by the Company and 50% by PKS. Up to a 10% financial interest in CE Luzon
may be sold at completion to another industrial company at the option of such
<PAGE>
company. The Mahanagdong Project will sell 100% of its capacity on a similar
basis as described above for the Upper Mahiao Project to PNOC-EDC, which will in
turn sell the power to NAPOCOR for distribution to the island of Luzon.
Mahanagdong has a total project cost of approximately $320 million,
including interest during construction, project contingency costs and a debt
service reserve fund. The capital structure consists of a project financing
construction and term loan of approximately $240 million provided by OPIC, ExIm
Bank and a consortium of international banks, and approximately $80 million in
equity contributions. Political risk insurance from ExIm Bank has been obtained
for the commercial lenders. The Company's equity investment for the Mahanagdong
Project will be approximately $40 million. Subject to the pledge of the project
company's stock to the lenders, the Company has arranged for political risk
insurance on its equity investment through OPIC. The financing is
collateralized by all the assets of the project.
The Mahanagdong Project is being constructed by a consortium (the "EPC
Consortium") of Kiewit Construction Group, Inc. ("KCG") and The Ben Holt Co., a
wholly owned subsidiary of the Company ("BHCO"), pursuant to fixed-price,
date-certain, turnkey supply and construction contracts (collectively, the
"Mahanagdong EPC"). The obligations of the EPC Consortium under the Mahanagdong
EPC are supported by a guaranty of KCG at an aggregate amount equal to
approximately 50% of the Mahanagdong EPC price. KCG, a wholly owned subsidiary
of PKS, is the lead member of the EPC Consortium, with an 80% interest. KCG
performs construction services for a wide range of public and private customers
in the U.S. and internationally. The Mahanagdong EPC provides for maximum
liability for liquidated damages of up to $100.5 million and total liability of
up to $201 million. Construction projects undertaken by KCG during 1993
included transportation projects, including highways, bridges, airports and
railroads, power facilities, buildings and sewer and waste disposal systems,
and water supply systems, utility facilities, dams and reservoirs. KCG accounts
for 80% of PKS's revenues, contributing $1.7 billion in revenues in 1993. KCG
has an extensive background in power plant construction.
BHCO will provide design and engineering services for the EPC Consortium,
and holds a 20% interest. The Company has provided a guaranty of BHCO's
obligations under the Mahanagdong EPC Contract.
The terms of an energy conversion agreement (the "Mahanagdong ECA"),
executed on September 18, 1993, are substantially similar to those of the Upper
Mahiao ECA. The Mahanagdong ECA provides for an approximately three-year
construction period and a ten-year cooperation period. At the end of the
cooperation period, the facility will be transferred to PNOC-EDC at no cost.
All of PNOC-EDC's obligations under the Mahanagdong ECA are supported by the
Government of the Philippines through a performance undertaking. The capacity
fees are expected to be approximately 97% of total revenues at the design
capacity levels and the energy fees are expected to be approximately 3% of such
total revenues.
Malitbog. In December 1994, the Company closed the financing and
commenced construction of the Malitbog Project, a 231 gross MW geothermal
project, which will also be located on the island of Leyte. The Malitbog Project
will be built, owned and operated by Visayas Geothermal Power Company ("VGPC"),
a Philippine general partnership that is wholly owned, indirectly, by the
Company. VGPC will sell 100% of its capacity on substantially the same basis as
described above for the Upper Mahiao Project to PNOC-EDC, which will in turn
sell the power to NAPOCOR.
The Malitbog Project has a total project cost of approximately $280
million, including interest during construction and project contingency costs.
A consortium of international banks and OPIC have provided a total of $210
million of construction and term loan facilities, the $135 million
international bank portion of which is supported by political risk insurance
from OPIC. The Company's equity contribution to VGPC was $70 million. The
Company's equity participation is covered by political risk insurance from
OPIC.
The Malitbog Project will be constructed by Sumitomo Corporation
("Sumitomo") pursuant to a fixed-price, date-certain, turnkey supply and
construction contract (the "Malitbog EPC"). The Malitbog EPC provides that
certain liquidated damages will be paid by Sumitomo for failure to meet certain
scheduled performance test dates, including the payment of any liquidated
damages or penalties required to be paid by VGPC to PNOC-EDC under an energy
conversion agreement (the "Malitbog ECA"), subject to limitations on the total
amount of liquidated damages payable by Sumitomo. The Malitbog EPC also
provides for the payment of certain liquidated damages on a per unit basis if
upon completion of the facility, tests do not demonstrate such unit's ability
to operate at a net generating capacity of at least 74.1 MW. The liquidated
damages for each generating unit are capped at 13 1/3 % of the total Malitbog
EPC price. Pursuant to a reimbursement undertaking, Magma has agreed to
reimburse Sumitomo for draws, if any, by PNOC-EDC on the construction bond
provided by Sumitomo on behalf of Magma in excess of the liquidated damage
amounts provided in the Malitbog EPC.
Sumitomo is one of the principal trading and investment companies in
Japan, and has built power plants around the world, often on a turnkey basis.
As of October 20, 1994, Sumitomo had a credit rating of "Aa3" from Moody's
Investors Service, Inc. ("Moody's"). The Malitbog EPC requires Sumitomo to
provide engineering, procurement, construction, start-up and testing services
with respect to the facility.
Construction of the facility has begun, with commercial operation of unit
1 scheduled to commence in July 1996, and commercial operation of unit 2 and
unit 3 scheduled to commence in July 1997.
The terms of the Malitbog ECA, executed on September 10, 1993, are
<PAGE>
substantially similar to those of the Upper Mahiao ECA. The Malitbog ECA
provides for a two-phase construction period, of three identical 77 gross MW
units. The cooperation period is ten years from the completion of unit 3. At
the end of the cooperation period, the facility will be transferred to PNOC-EDC
at no cost. All of PNOC-EDC's obligations under the Malitbog ECA are supported
by the Government of the Philippines through a performance undertaking. The
capacity fees are 100% of total revenues and there is no energy fee.
PROJECTS IN DEVELOPMENT
Casecnan. In November 1994, the Company signed a "Project Agreement"
with the Philippine National Irrigation Administration ("NIA") to develop an
estimated $320 million combined irrigation and hydroelectric power generation
project (the "Casecnan Multipurpose Project"). Such project will deliver excess
water from the Casecnan and Denip (Cagayan) watershed in Northern Luzon to the
Pampanga watershed and the Pantabangan Reservoir for irrigation use in the
Central Luzon Valley. The Casecnan Multipurpose Project, which has satisfied the
requirements for an unsolicited proposal under the amended BOT law, will also
provide 140 MW of net electric generation capacity to the Luzon grid.
The project agreement is structured as a build, operate and transfer
agreement under which NIA will supply the water for the project and provides
for a 20-year cooperation period with significant "take-or-pay" obligations for
water and electricity. At the end of the 20-year cooperation period, the
Casecnan Multipurpose Project will be transferred to NIA at no cost. The
Company anticipates commencing construction in 1995.
Completion of such project remains subject to a number of significant
uncertainties, including arranging financing, obtaining certain required
permits and licenses and completing construction, none of which can be assured.
Alto Peak. The Alto Peak Project is a smaller geothermal project in the
same general area of Leyte as the Upper Mahiao, Mahanagdong and Malitbog
Projects. A subsidiary of the Company and PNOC-EDC have executed a 70 net MW
Energy Conversion Agreement, dated May 7, 1994. The general terms and conditions
are similar to the Malitbog ECA. However, the plant design has not been
initiated because PNOC-EDC has not finalized the steam conditions (pressure,
composition and pH). PNOC-EDC is still drilling and testing the geothermal wells
that will supply steam to such project. Consequently, the Company has not
commenced financing arrangements for the Alto Peak Project.
Indonesia. Indonesia, which has the world's fourth largest population,
has experienced rapid growth in electricity demand. The Company believes that
load growth has exceeded 13% since 1980. Furthermore, the Company believes that
rapid expansion in industrial growth has created a backlog of unconnected
industrial users in excess of 4,000 MW. In its sixth five-year plan, the
Indonesian government has called for the addition of 12,000 MW of additional
generating capacity by 1999. The long range plan calls for an additional 15,000
MW to be added by the year 2004. The plans call for approximately 75% of this
capacity to be added by independent power producers. Although Indonesia is a
member of OPEC and is also the world's largest exporter of liquified natural
gas, the government has announced that it wishes to maintain sufficient amounts
of oil for export, which will require a shift to coal fired generation and the
use of other energy sources, such as geothermal.
It is estimated that Indonesia has sufficient geothermal steam
potential to generate 16,000 MW, centered in the Java and Sumatra areas (the
two most populous of the 13,000 islands in Indonesia). To date, less than 150
MW of geothermal facilities have been commissioned, as the Government of
Indonesia was not encouraging the development of geothermal energy.
The Indonesian state-owned utility has recently been converted to a
limited liability company, P.T. PLN (Persero) ("PLN"), as a first step toward
the privatization of its two largest generating subsidiaries. The main
objective of Indonesia's electric energy policy has been to secure a continuity
of supply at reasonable rates for households (more than 50% of which have been
reported to have no power) and to minimize the utilization of hydrocarbons.
Rural electrification will remain an important component of the energy policy
as PLN is targeting the addition of 2 million customers a year.
Indonesia is rated "Baa3" by Moody's and "BBB " by Standard & Poor's
Ratings Group ("S&P"). The Company believes that Indonesia represents an
attractive development opportunity, as it combines growing power needs with
ample geothermal resources and creditworthy contract parties.
The following is a summary description of certain information concerning
the Company's projects in Indonesia. Since these projects are still in
development, however, there can be no assurance that this information will not
change materially over time. In addition, there can be no assurance that
development efforts on any particular project, or the Compnay's efforts
generally, will be successful.
Dieng. On December 2, 1994, a subsidiary of the Company executed a joint
operation contract (the "Dieng JOC") for the development of the geothermal steam
field and geothermal power facilities at the Dieng geothermal field, located in
Central Java (the "Dieng Project") with Perusahaan Pertambangan Minyak Dan Gas
Bumi Negara ("Pertamina"), the Indonesian national oil company, and executed a
"take-or-pay" energy sales contract (the "Dieng ESC") with both Pertamina and
PLN, the Indonesian national electric utility.
A subsidiary of the Company has entered into a joint development
agreement with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its Indonesian
partner, which is a subsidiary of Himpurna, an association of Indonesian
military veterans, whereby the Company and P.T. HEA have agreed to work
together on an exclusive basis to develop the Dieng Project (the "Dieng Joint
Venture"). The Dieng Joint Venture is structured with subsidiaries of the
<PAGE>
Company having a minimum 47% interest, subsidiaries of PKS having the option to
take a 47% interest and P.T. HEA having a 6% interest in the Dieng Project.
Pursuant to the Dieng JOC and ESC, Pertamina will grant to the Dieng
Joint Venture the geothermal field and the wells and other facilities presently
located thereon and the Dieng Joint Venture will build, own and operate power
production units with an aggregate capacity of up to 400 MW. The Dieng Joint
Venture will accept the field operation responsibility for developing and
supplying the geothermal steam and fluids required to operate the plants. The
Dieng JOC is structured as a build own transfer agreement and will expire
(subject to extension by mutual agreement) on the date which is the later of
(i) 42 years following effectiveness of the Dieng JOC and (ii) 30 years
following the date of commencement of commercial generation of the final unit
completed. Upon the expiration of the proposed Dieng JOC, all facilities will
be transferred to Pertamina at no cost. The Dieng Joint Venture is required to
pay Pertamina a production allowance equal to three percent of the Dieng Joint
Venture's net operating income from the Dieng Project, plus a further amount
based upon the negotiated value of existing Pertamina geothermal production
facilities that the Company expects will be made available by Pertamina.
Pursuant to the Dieng ESC, PLN agreed to purchase and pay for all of
the Project's capacity and energy output on a "take or pay" basis regardless of
PLN's ability to accept such energy made available from the Dieng Project for a
term equal to that of the Dieng JOC. The price paid for electricity includes a
base energy price per kWh multiplied by the number of kWhs the plants deliver
or are "capable of delivering," whichever is greater. Energy price payments are
also subject to adjustment for inflation. PLN will also pay a capacity payment
based on plant capacity. All such payments are payable in U.S. dollars.
The Company presently intends to begin well testing by the second
quarter of 1995 and to commence construction of an initial 55 MW unit in the
4th quarter of 1995, and then to proceed on a modular basis with construction
of three additional units to follow shortly thereafter, resulting in an
aggregate first phase net capacity at this site of 220 MW. The Company
estimates that the total project cost of these units will be approximately $450
million. The next phase is expected to expand the total capacity to 400 MW. The
cost of the full Dieng Project is estimated to approximate $1 billion. The
Company anticipates a consortium consisting of KCG and BHCO will submit a
proposal for the design and construction of the Dieng Project, and that the
Company, through a subsidiary, will be responsible for operating and managing
the Dieng Project.
The Dieng field has been explored domestically for over 20 years and
BHCO has been active in the area for more than five years. Pertamina has
drilled a total of 27 wells to date. The Company has a significant amount of
data, which it believes to be reliable as to the production capacity of the
field. However, a number of significant steps, both financial and operational,
must be completed before the Dieng Project can proceed further. These steps,
none of which can be assured, include obtaining required regulatory permits and
approvals, completing the well testing, entering into a construction agreement
and other project contracts, and arranging financing.
Patuha. The Company is also developing a geothermal power plant with
respect to the Patuha geothermal field in Java, Indonesia (the "Patuha
Project"). The Company has entered into a joint venture (the "Patuha Joint
Venture") for Patuha with P.T. Enerindo Supra Abadi ("P.T. ESA"), an Indonesian
company. P.T. ESA is an affiliate of the Bukaka Group, which has extensive
experience in general construction, fabrication and electrical transmission
construction in Indonesia. In exchange for project development services, P.T.
ESA will receive a 10% equity interest in the Patuha Project with an option to
acquire an additional 20% interest for cash upon the satisfaction of certain
conditions. Subject to the exercise of that option, subsidiaries of the Company
will have a 45% interest and subsidiaries of PKS will have the option to take a
45% interest in the Patuha Project.
On December 2, 1994, the Patuha Joint Venture executed both a joint
operation contract and an energy sales contract, each of which currently
contains terms substantially similar to those described above for the Dieng
Project. The Patuha Joint Venture intends to proceed on a modular basis similar
to the Dieng Project, with an aggregate capacity of up to 400 MW. The Company
estimates that the total cost will be approximately $1 billion. The Company
presently intends to begin well testing and further exploration in the fourth
quarter of 1995 with construction of the first unit expected to begin by 1996.
The Patuha Project remains subject to a number of significant
uncertainties, as described above in connection with the Dieng Project, and
there can be no assurance that the Patuha Project will proceed or reach
commercial operation.
Bali. The Company and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint venture to pursue the
development of geothermal resources in Bali (the "Bali Project") and to obtain a
power sales contract from PLN.
The Company presently intends to develop the Bali Project and other
possible projects in Indonesia using a structure similar to that contemplated
for the Dieng Project.
The Bali Project remains subject to a number of significant
uncertainties, as described above for the Dieng Project, and there can be no
assurance that the Company will pursue the Bali Project or that it will proceed
or reach commercial operation.
DOMESTIC PROJECTS
<PAGE>
PROJECTS IN OPERATION
The Coso Project. In 1979, the Company entered into a 30-year contract
(the "Navy Contract") with the United States Department of the Navy (the "Navy")
to develop geothermal power facilities located on approximately 5,000 acres of
the Naval Air Weapons Station at China Lake, California (150 miles northeast of
Los Angeles). In 1985, the Company entered into a 30-year lease (the "BLM
Lease") with the United States Bureau of Land Management ("BLM") for
approximately 19,000 acres of land adjacent to the land covered by the Navy
Contract. The Navy Contract and the BLM Lease provide for certain royalty
payments as a percentage of gross revenue and certain other formulas. The
Company formed three joint ventures (the "Coso Joint Ventures") with one primary
joint venture partner to develop and construct the three facilities which
comprise the Navy I project (the "Navy I Project"), the BLM project (the "BLM
Project") and the Navy II project (the "Navy II Project") (collectively the
"Coso Project").
The Coso Joint Ventures are as follows: (i) Coso Finance Partners,
which owns the Navy I Project (the "Navy I Partnership"), (ii) Coso Energy
Developers, which owns the BLM Project (the "BLM Partnership") and (iii) Coso
Power Developers, which owns the Navy II Project (the "Navy II Partnership"
and, together with the Navy I Partnership and the BLM Partnership, the "Coso
Partnerships"). The Company holds ownership interests of approximately 46% in
the Navy I Partnership; approximately 48% in the BLM Partnership, after payout
to the Company and its joint venture partner; and 50% in the Navy II
Partnership. The Company consolidates its respective share of the operating
results of the Coso Partnerships into its financial statements. The Company is
the managing partner of each of the Coso Partnerships and operates the Coso
Project, for which it receives fees from the Coso Partnerships.
The Coso Project sells all electricity generated by the respective
plants pursuant to three long-term standard offer No. 4 power purchase
contracts ("SO4 Agreements") between the Navy I Partnership, the BLM
Partnership, and the Navy II Partnership, respectively, and Southern California
Edison Company ("SCE"). These SO4 Agreements provide for capacity payments,
capacity bonus payments and energy payments. SCE makes fixed annual capacity
payments to the Coso Partnerships and, to the extent that capacity factors
exceed certain benchmarks, is required to make capacity bonus payments. The
price for capacity and capacity bonus payments is fixed for the life of the SO4
Agreements. Energy is sold at increasing fixed rates for the first ten years of
each contract and thereafter at SCE's Avoided Cost of Energy. The fixed price
periods of the SO4 Agreements extend until August 1997, March 1999 and January
2000 for each of the Navy I, BLM and Navy II Partnerships, respectively, at
rates ranging from 11.0 cents per kWh in 1994 to 14.6 cents per kWh in 2000.
The Company's share of the revenues received by the Coso Partnerships for 1993
and 1994 was $124.7 million and $137.0 million, respectively.
The physical facilities used for geothermal energy production are
substantially the same at the Navy I, BLM and Navy II Projects.
The Navy I Project. The geothermal resource for the Navy I Project
currently is produced from approximately 32 wells. The Navy I Project consists
of three turbine generators, each with approximately 32 MW of electrical
generating capacity. The Navy I Project has an aggregate gross electrical
generating capacity of approximately 96 MW. Based on an assumed net capacity of
80 MW, the Navy I Project operated at an average operating capacity factor of
99.8% in 1992, 111.2% in 1993 and 114.0% in 1994.
The BLM Project. The BLM Project.'s geothermal resource currently is
produced from approximately 20 wells. The BLM Project consists of three turbine
generators. Two of these turbine generators are located at the BLM East site in
a dual flash system, and one is located at the BLM West site in a single flash
system, each with an electrical generating capacity of 32 MW. The BLM Project
has an aggregate gross electrical generating capacity of approximately 96 MW.
Based on an assumed net capacity of 80 MW, the BLM Project operated at an
average operating capacity factor of 87.2% in 1992, 98.1% in 1993, and 99.5% in
1994.
The Navy II Project. The geothermal resource for the Navy II Project
currently is produced from approximately 25 wells. The Navy II Project consists
of three individual turbine generators, each with approximately 32 MW of
electrical generating capacity. The Navy II Project has an aggregate gross
electrical capacity of approximately 96 MW. Based on an assumed net capacity of
80 MW, the Navy II Project operated at an average operating capacity factor of
98.1% in 1992, 102.6% in 1993, and 105.9% in 1994.
In December 1992, the Coso Joint Ventures refinanced the existing bank
debt on the Coso Project with the proceeds of the sale of approximately $560
million in non-recourse senior secured notes (the "Notes") in a private
placement pursuant to Rule 144A under the Securities Act. The Notes were issued
by Coso Funding Corp. ("Coso Funding"), a corporation owned by the Coso Joint
Ventures and formed exclusively for the purpose of issuing the Notes. Coso
Funding lent the Coso Joint Ventures substantially all of the net proceeds of
the sale of the Notes. At the time of their issuance, the Notes were rated
"Baa3" by Moody's, "BBB-" by S&P and "BBB" by Duff & Phelps Credit Rating Co.,
all investment grade ratings. The outstanding balance of the Notes on December
31, 1994 was $483.5 million with a remaining average life of 3.4 years, and the
average interest rate on the Notes for the twelve months ending on the same
date was 8.13%. The obligations of each Coso Partnership under the loans from
Coso Funding are non-recourse to the Company. Coso Funding may look solely to
each Coso Partnership's pledged assets for satisfaction of such Coso
Partnership's loan. In addition, the loans are cross-collateralized by certain
support loans only to the extent of the other Coso Joint Ventures' available
cash flow and, under certain circumstances, the debt service reserve funds, and
<PAGE>
not as to other assets.
Salton Sea Known Geothermal Resource Area Projects. Magma acquired three
geothermal power plants which comprise the Salton Sea 1
project (the "Salton Sea 1 Project"), the Salton Sea 2 project (the "Salton Sea
2 Project") and the Salton Sea 3 project (the "Salton Sea 3 Project")
(collectively, the "Salton Sea Projects") and all related wellfield, land and
other related assets in March 1993 from Union Oil Company of California. Each
of the Vulcan, Hoch (Del Ranch), Elmore and Leathers projects (the "Vulcan
Project," the "Hoch (Del Ranch) Project," the "Elmore Project" and the
"Leathers Project," respectively, and collectively, the "Partnership Projects")
is owned by an equal partnership (the "Vulcan Partnership," the "Del Ranch
Partnership," the "Elmore Partnership" and the "Leathers Partnership,"
respectively, and collectively, the "Partnerships") between Magma and a
subsidiary of Mission Energy, a wholly owned subsidiary of SCE. In the case of
the Vulcan Project, the Vulcan Partnership owns certain geothermal resources
supplying the Vulcan Project plant. In the case of the other three Partnership
Project plants, Magma owns the geothermal resources and receives royalty
payments from the Del Ranch, Elmore and Leathers Partnerships. In 1994, such
royalties together with the senior royalty from the East Mesa Plant and
royalties from the Mammoth Plants (as defined below) totaled $21.1 million.
Magma's share of the aggregate electricity revenues received by the Salton Sea
Projects and the Partnerships for 1994 was $158.4 million. In each case, a
subsidiary of Magma is the managing general partner, and Magma consolidates
one-half of the operating results of each Partnership Project plant into its
financial statements. A subsidiary of Magma operates each of the Salton Sea
Project plants and the Partnership Project plants.
The Salton Sea Projects operated at a combined contract nameplate
factor of 94.1% in the nine months ended December 31, 1993 and 88.5% in 1994.
The Partnership Projects operated at a combined contract nameplate factor of
100.7% in 1993 and 103.8% in 1994.
Vulcan. The Vulcan Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW, respectively. Under the
SO4 Agreement, SCE is obligated to pay the Vulcan Project a capacity payment, a
capacity bonus payment and an energy payment.
The price for contract capacity payments is fixed for the life of such
SO4 Agreement. The as-available capacity price is based on a payment schedule
as approved by the CPUC from time to time. The contract energy payment
increases each year for the first ten years, which period expires on February
9, 1996. Thereafter, the energy payments will be based on SCE's Avoided Cost of
Energy. The energy payment per kWh is 10.9 cents for 1994, 11.8 cents for 1995
and 12.6 cents for 1996. Thereafter, the energy payments will be based on SCE's
Avoided Cost of Energy. The Vulcan Project is unleveraged.
Hoch (Del Ranch). The Hoch (Del Ranch) Project sells electricity to SCE
under a 30-year SO4 Agreement that commenced on January 1, 1989. The contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The
provisions of such SO4 Agreement are substantially the same as the SO4 Agreement
with respect to the Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 10.9 cents for
1994 to 14.6 cents for 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Del Ranch Partnership entered into a $66 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2001. The secured credit agreement was amended to
allow for the issuance of commercial paper and medium-term notes supported by a
letter of credit as an alternative to borrowing directly from the banks.
Elmore. The Elmore Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract capacity and contract
nameplate are 34 MW and 38 MW, respectively. The provisions of such SO4
Agreement are substantially the same as the SO4 Agreement with respect to the
Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 10.9 cents in
1994 to 14.6 cents in 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Elmore Partnership entered into a $66 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2001. The secured credit agreement was amended and
restated on April 18, 1990 to allow for the issuance of commercial paper and
medium-term notes supported by a letter of credit as an alternative to
borrowing directly from the banks.
Leathers. The Leathers Project sells electricity to SCE pursuant to a
30-year SO4 Agreement that commenced on January 1, 1990. The contract capacity
and contract nameplate are 34 MW and 38 MW, respectively. The provisions of such
SO4 Agreement are substantially the same as the SO4 Agreement with respect to
the Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1999, are fixed at rates ranging from 10.9 cents in
1994 to 15.6 cents in 1999. Thereafter, the energy payments are based on SCE's
Avoided Cost of Energy.
<PAGE>
The Leathers Partnership entered into an $82 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2002. The secured credit agreement was amended to
allow for the issuance of commercial paper and medium-term notes supported by a
letter of credit as an alternative to borrowing directly from the banks.
Salton Sea 1 Project. The Salton Sea 1 Project sells electricity to SCE
pursuant to a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea 1 PPA"), which provides for capacity and energy payments. The
initial contract capacity and contract nameplate are each 10 MW. The Salton Sea
1 Project may add subsequent increments of contract capacity (subject to
notification requirements), the sum of which may not exceed 20 MW. See "--
Projects in Development--Fish Lake/Salton Sea 1 Expansion."
The capacity payment is based on the firm capacity price which is
currently $123.61/kW-year. The contract capacity payment adjusts quarterly
based on a basket of energy indices for the term of the Salton Sea 1 PPA. The
energy payment is calculated using a Base Price (defined as the initial value
of the energy payment (4.701 cents per kWh for the second quarter of 1992)),
which is subject to quarterly adjustments based on a basket of indices. The
time period weighted average energy payment for Unit 1 was 4.8 cents per kWh
during 1994. As the Salton Sea 1 PPA is not an SO4 Agreement, the energy
payments do not revert to SCE's Avoided Cost of Energy.
Salton Sea 2 Project. The Salton Sea 2 Project sells electricity to SCE
pursuant to a 30-year modified SO4 Agreement that commenced on April 15, 1990.
The contract capacity and contract nameplate are 15 MW and 20 MW, respectively.
The contract requires SCE to make capacity payments, capacity bonus payments and
energy payments. The price for contract capacity and contract capacity bonus
payments is fixed for the life of the modified SO4 Agreement. The energy
payments for the first ten-year period, which period expires on April 4, 2000,
are levelized at a time period weighted average of 10.6 cents per kWh.
Thereafter, the monthly energy payments will be SCE's Avoided Cost of Energy.
For the period April 1, 1994 through March 31, 2004, SCE is entitled to receive,
at no cost, 5% of all energy delivered in excess of 80% of contract capacity.
Salton Sea 3 Project. The Salton Sea 3 Project sells electricity to SCE
pursuant to a 30-year modified SO4 Agreement. The contract capacity is 47.5 MW
and the contract nameplate is 49.8 MW. The SO4 Agreement requires SCE to make
capacity payments, capacity bonus payments and energy payments for the life of
the SO4 Agreement. The price for contract capacity payments is fixed. The energy
payments for the first ten-year period, which period expires on February 13,
1999, are levelized at a time period weighted average of 9.8 cents per kWh.
Thereafter, the monthly energy payments will be SCE's Avoided Cost of Energy.
The partnerships that own the Salton Sea Projects (the "Salton Sea
Partnerships") are parties to a secured credit facility with commercial banks.
The agreement provides for a $130 million term loan consisting of two tranches,
(i) tranche A (covers Units 1 and 2) in the original principal amount of $37
million with a final maturity date of March 15, 2000 and (ii) tranche B (covers
Unit 3) in the original principal amount of $93 million with a final maturity
date of January 31, 1999. In addition, the agreement provides for a renewable
working capital loan in the aggregate principal amount of $5 million with an
initial maturity date of February 27, 1995.
The Company currently relies on long-term power purchase contracts
(each, an SO4 Agreement) with a single customer, SCE, to generate substantially
all of its operating revenues from the Coso Projects and the Salton Sea
Projects. Any material failure by SCE to fulfill its contractual obligations
under any of such contracts is likely to have a material adverse effect on the
Company's results of operations.
Each of the Company's SO4 Agreements provides for both capacity
payments and energy payments for a term of between 20 and 30 years. During the
first ten years of the term of each SO4 Agreement, energy payments are based on
a pre-set schedule. Thereafter, while the basis for the capacity payment
remains the same, the required energy payment is SCE's then-current published
avoided cost of energy ("Avoided Cost of Energy"), as determined by the
California Public Utility Commission ("CPUC"). The initial ten-year period
expires in August 1997 for the Company's Navy I Project, March 1999 for its BLM
Project and January 2000 for its Navy II Project. Such ten-year period expires
in 1996 with respect to the Vulcan Project, in 1999 for Hoch, Elmore and Salton
Sea III Projects and in 2000 for the Leathers and Salton Sea II Projects.
Estimates of SCE's future Avoided Cost of Energy vary substantially in
any given year. The Company cannot predict the likely level of Avoided Cost of
Energy prices under its SO4 Agreements with SCE at the expiration of the
fixed-price periods. SCE's Avoided Cost of Energy as determined by the CPUC is
currently substantially below the current energy prices under the Company's
respective SO4 Agreements and is expected to remain so. For example, for
September 1994, the time period-weighted average of SCE's Avoided Cost of
Energy was 2.2(cent) per kWh, compared to the time period-weighted average
September 1994 selling prices for energy in the range of 10.9(cent) and
10.6(cent) per kWh, for the Company. Thus, the revenues generated by each of
the Company's facilities operating under SO4 Agreements are likely to decline
significantly after the expiration of the fixed-price period.
Yuma. During 1992, the Company acquired a development stage 50 MW
natural gas-fired cogeneration project in Yuma, Arizona (the "Yuma Project").
The Yuma Project is designed to be a QF under PURPA and to provide 50 MW of
electricity to San Diego Gas & Electric Company ("SDG&E") under an existing 30-
year power purchase contract. The electricity is sold at SDG&E's Avoided Cost of
Energy. The power is wheeled to SDG&E over transmission lines constructed and
<PAGE>
owned by Arizona Public Service Company ("APS"). An agreement for
interconnection and a firm transmission service agreement have been executed
between APS and the Yuma Project entity and have been accepted for filing by the
Federal Energy Regulatory Commission ("FERC").
The Yuma Project commenced commercial operation in May 1994. The
project entity has executed steam sales contracts with an adjacent industrial
entity to act as its thermal host in order to maintain its status as a QF,
which is a requirement of its SDG&E contract. Since the industrial entity has
the right under its contract to terminate the agreement upon one year's notice
if a change in its technology eliminates its need for steam, and in any case to
terminate the agreement at any time upon three years notice, there can be no
assurance that the Yuma Project will maintain its status as a QF. However, if
the industrial entity terminates the agreement, the Company anticipates that it
will be able to locate an alternative thermal host in order to maintain its
status as a QF or build a greenhouse at the site for which the Company believes
it would obtain QF status. A natural gas supply and transportation agreement
has been executed with Southwest Gas Corporation, terminable under certain
circumstances by the Company and Southwest Gas Corporation. The Yuma Project is
unleveraged other than intercompany debt.
Roosevelt Hot Springs. The Company operates and owns an approximately
70% interest in a 25 MW geothermal steam field which supplies geothermal steam
to a power plant owned by Utah Power & Light Company ("UP&L") located on the
Roosevelt Hot Springs property under a 30-year steam sales contract. The Company
obtained approximately $20.3 million of cash under a pre-sale agreement with
UP&L whereby UP&L paid in advance for the steam produced by the steam field. The
Company must make certain penalty payments to UP&L if the steam produced does
not meet certain quantity and quality requirements.
Desert Peak. The Company is the owner and operator of a 10 MW geothermal
plant at Desert Peak, Nevada that is currently selling electricity to Sierra
Pacific Power Company under a power sales contract that expires December 31,
1995 and that may be extended on a year-to-year basis as agreed by the parties.
The price for electricity under this contract is 6.3 cents per kWh, comprising
an energy payment of 1.8 cents per kWh (which is adjustable pursuant to an
inflation-based index) and a capacity payment of 4.5 cents per kWh. The Company
is currently negotiating the terms of an extension to this contract.
Mammoth Plants. Magma receives royalty revenues from a 10 MW and a 12 MW
contract nameplate geothermal power plant (the "First Mammoth Plant" and the
"Second Mammoth Plant", respectively, and referred to herein, collectively, as
the "Mammoth Plants") at Mammoth Lakes, California. Electricity from the Mammoth
Plants is sold to SCE under two long-term power purchase agreements. The First
Mammoth Plant and the Second Mammoth Plant began commercial operation in 1985
and 1991, respectively. Magma leases both property and geothermal resources to
support the Mammoth Plants in return for certain base royalty and bonus royalty
payments. For the First Mammoth Plant and the Second Mammoth Plant, the base
royalty is 12.5% and 12%, respectively, of gross electricity sales revenues.
The bonus royalty for the Mammoth Plants is 50% of the excess of annual gross
electricity sales revenues over an annual revenue standard based on the Mammoth
Plants operating at 85% of contract capacity.
The East Mesa Plant. Magma also receives royalty revenues from a 37 MW
contract nameplate geothermal power plant (with two units) at East Mesa in
Imperial Valley, California (the "East Mesa Plant"). Electricity from the plant
is sold to SCE pursuant to two SO4 Agreements formerly held by Magma, and Magma
is entitled to receive a senior payment of 4% of gross electricity sales
revenues and a junior payment of 10% of gross electricity sales revenues. To
date, such junior payment has not been received.
PROJECTS IN DEVELOPMENT
The BRPU Process. Magma is seeking new long-term final standard offer
no. 4 power purchase agreements in the Salton Sea area through the bidding
process adopted by the CPUC under its 1992 Biennial Resource Plan Update
("BRPU"). In its 1992 BRPU, the CPUC cited the need for an additional 9,600 MW
of power production through 1999 among California's three investor-owned
utilities, SCE, SDG&E and Pacific Gas and Electric Company. Of this amount, 275
MW was set aside for bidding by independent power producers (such as Magma)
utilizing renewable resources. Pursuant to an order of the CPUC dated June 22,
1994 (confirmed on December 21, 1994), Magma was awarded 163 MW for sale to SCE
and SDG&E, with in-service dates in 1997 and 1998. On February 23, 1995 the
Federal Energy Regulatory Commission ("FERC") issued an order finding that the
CPUC's BRPU program violated PURPA and FERC's implementing regulations. The CPUC
is evaluating the impact of this order on the BRPU program and the CPUC has
issued an interim stay on the BRPU proceedings. The utilities are expected to
continue to challenge the BRPU and, in the light of the regulatory uncertainty,
there can be no assurance that power sales contracts will be executed or that
any such projects will be completed. A Magma subsidiary executed an agreement
with SCE on March 16, 1995 providing that in certain circumstances it would
withdraw its SCE BRPU bid in consideration for the payment of certain sums. Such
agreement does not effect Magma's award from SDG&E.
Fish Lake/Salton Sea 1 Expansion. The Salton Sea 1 Project has an option
to supply an additional 20 MW of power to SCE under the Salton Sea 1 PPA. Magma,
through its wholly-owned subsidiary, Fish Lake Power Company ("FLPC"), acquired
in 1992 a modified SO4 power purchase agreement (the "Fish Lake SO4") to supply
electric power to SCE from a 16 MW geothermal power plant proposed to be built
at Fish Lake in Esmeralda County, Nevada (the "Fish Lake Project").
The Fish Lake SO4 is a 30-year contract providing for a contract
capacity of 14 MW and a contract nameplate of 16 MW. The contract capacity
payment under the Fish Lake SO4 is levelized in the contract for the full
30-year term of the contract at $180 per kW-year. The capacity portion (plus
bonus capacity) of such revenues is levelized at approximately 2.5 cents per
<PAGE>
kWh for 30 years (assuming a 90% nameplate capacity factor). The energy payment
thereunder is fixed for the first ten years starting at 10.2 cents per kWh in
1996 and escalates at an average annual rate of 3.9%. For years 11 through 15,
such energy payment is set at SCE's Avoided Cost of Energy, plus an additional
specified amount which decreases each year. For the last 15 years of the Fish
Lake SO4, the energy payment will be based on SCE's Avoided Cost of Energy.
On November 29, 1994, SCE filed an application with the CPUC seeking
approval for the proposed restructuring of (i) the Salton Sea 1 PPA and (ii)
the Fish Lake SO4, whereby the Fish Lake Project would not be developed at its
present site in Nevada's Fish Lake Valley and instead would be developed under
an amended and restated 30-year power purchase agreement (the "Amended PPA") in
conjunction with the Salton Sea 1 PPA. If approved, the Amended PPA will
consolidate the Salton Sea 1 Project Expansion with the Fish Lake Project. The
Amended PPA also would reduce the price for contract capacity payments to
$158/kW-year and would alter the energy payment schedule to commence in 1996 at
8.8 cents per kWh.
Newberry. Under a Bonneville Power Administration ("BPA") geothermal
pilot program, the Company is developing a 30 MW net geothermal project within
the Newberry Known Geothermal Resource Area of Deschutes County, Oregon (the
"Newberry Project"). Pursuant to two power sales contracts executed in September
1994, after the final environmental impact statement for the Newberry Project
was issued, the Company has agreed to sell 20 MW to BPA and 10 MW to Eugene
Water and Electric Board ("EWEB") from the Newberry Project. In addition, BPA
and EWEB together have an option to purchase up to an additional 100 MW of
production from the Newberry Project under certain circumstances. In a public-
private development effort, the Company is responsible for development,
permitting, financing, construction and operation of the project (which will be
100% owned by the Company), while EWEB will cooperate in the development efforts
by providing assistance with government and community affairs and sharing in
certain development costs (up to 30%). The Newberry Project is currently
expected to commence commercial operation in 1997. The power sales contracts
provide that under certain circumstances the contracts may be utilized at an
alternative location. Completion of the Newberry Project is subject to a number
of significant uncertainties and cannot be assured.
REGULATORY AND ENVIRONMENTAL MATTERS
Environmental Regulation. The Company is subject to a number of
environmental laws and regulations affecting many aspects of its present and
future operations, including the disposal of various forms of waste, the
construction or permitting of new facilities and the drilling and operation of
new wells. Such laws and regulations generally require the Company to obtain and
comply with a wide variety of licenses, permits and other approvals. The Company
also remains subject to a varied and complex body of regulations that both
public officials and private individuals may seek to enforce. There can be no
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company which could have an
adverse impact on its operations. The implementation of regulatory changes
imposing more comprehensive or stringent requirements of the Company, which
would result in increased compliance costs, could have a material adverse effect
on the Company's results of operations. In addition, regulatory compliance for
the construction of new facilities is a costly and time-consuming process, and
intricate and rapidly changing environmental regulations may require major
expenditures for permitting and create the risk of expensive delays or material
impairment of project value if projects cannot function as planned due to
changing regulatory requirements or local opposition.
Federal Energy Regulations. The principal federal regulatory legislation
relating to the Company's activities is PURPA. PURPA and associated state
legislation have conferred certain benefits on the independent power production
industry. In particular, PURPA exempts certain electricity producers
("Qualifying Facilities") from federal and state regulation as a public utility.
PURPA also requires utilities, such as SCE, to purchase electricity from
qualifying facilities at the particular utility's avoided cost.
Each of the Company's domestic projects meets the requirements
promulgated under PURPA to be Qualifying Facilities. Qualifying Facility status
under PURPA provides two primary benefits. First, regulations under PURPA
exempt qualifying facilities from the Public Utility Holding Company Act of
1935 ("PUHCA"), most provisions of the Federal Power Act (the "FPA") and state
laws concerning rates of electric utilities, and financial and organizational
regulations of electric utilities. Second, FERC's regulations promulgated under
PURPA require that (1) electric utilities purchase electricity generated by
Qualifying Facilities, the construction of which commenced on or after November
9, 1978, at a price based on the purchasing utility's full avoided cost; (2)
the electric utility sell back-up, interruptable, maintenance and supplemental
power to the Qualifying Facility on a non-discriminatory basis; and (3) the
electric utility interconnect with the Qualifying Facility in its service
territory.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 278
people, of which approximately 149 people were employed at the Navy I, Navy II
and BLM Projects, collectively. The Coso Joint Ventures do not hire or retain
any employees. All employees necessary to the operation of the Coso Project are
provided by the Company under certain plant and field operations and
maintenance agreements.
ITEM 2. PROPERTIES
<PAGE>
The Company's most significant physical properties are its twelve
operating power facilities described above and related real property interests.
The Company also maintains an inventory of more than 500,000 acres of
geothermal property leases. The Company owns a one-story office building in
Omaha, Nebraska, which currently houses its principal executive offices. The
Company recently signed an 8 year lease for new executive offices; the Company
expects to relocate its principal executive offices into the new facility in
May of 1995 and to sell or lease the building in which it is currently located.
Certain of the producing acreage owned by Magma is leased to Mammoth-Pacific as
owner and operator of the Mammoth Plants, and Magma, as lessor, receives
royalties from the revenues earned by such power plants. The Company, as
lessee, pays certain royalties and other fees to the property owners from the
revenue generated by the SSKGRA Plants.
Lessors are generally paid a monthly or annual rental payment during
the term of the lease unless and until the acreage goes into production, in
which case the rental typically stops and the (generally higher) royalty
payments begin. Leases of federal property are transacted with the Department
of Interior, Bureau of Land Management, pursuant to standard geothermal leases
under the Geothermal Steam Act and the regulations promulgated thereunder (the
"Regulations"), and are for a primary term of 10 years, extendible for an
additional five years if drilling is commenced within the primary term and is
diligently pursued for two successive five-year periods upon certain conditions
set forth in the Regulations. A secondary term of up to 40 years is available
so long as geothermal resources from the property are being produced or used in
commercial quantities. Leases of state lands may vary in form. Leases of
private lands vary considerably, since their terms and provisions are the
product of negotiations with the landowners.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The Company. The Common Stock is listed on the NYSE under the symbol
"CE". The Common Stock is also listed on the Pacific Stock Exchange (the "PSE")
and the London Stock Exchange (the "LSE"). The following table sets forth the
quarterly high and low last reported sales price per share for the Common Stock,
as reported on the NYSE Composite Tape, based on published financial sources,
for the fiscal quarters indicated.
QUARTER HIGH LOW
1994:
Fourth 17.13 15.25
Third 17.75 16.00
Second 18.13 16.00
First 19.25 17.13
1993:
Fourth 20.13 18.13
Third 18.38 16.00
Second 20.13 17.25
First 21.50 16.50
As of March 13, 1995, there were approximately 1277 holders of record
of Common Stock. The Company's present policy is to retain earnings to provide
sufficient funds for the operation and expansion of its business. Accordingly,
the Company has not paid, and does not have any present plan to pay, cash
dividends on the Common Stock.
The agreements relating to Senior Discount Notes issued by the Company
prohibit the payment of dividends unless certain circumstances are present such
as the aggregate amount of all restricted payments by the Company, after giving
effect to the payment of such dividends, are less than 50% of the Company's
adjusted consolidated net income accumulated after March 30, 1994, plus the
proceeds of any stock issuance. Reference is made to the indenture relating to
the Senior Discount Notes for a detailed description of these restrictions.
The Certificate of Designation with respect to the Series C Preferred
Stock prohibits cash dividend payments with respect to the Common Stock unless
all accumulated dividends on the Series C Preferred Stock have been paid. The
Company elected to exchange its Subordinated Debentures for the Series C
Preferred Stock effective March 15, 1995.
The Company's ability to pay dividends is dependent upon receipt of
dividends or other distributions from the Company's subsidiaries and the
partnerships and joint ventures in which the Company has interests. The
availability of distributions from one of the Company's joint ventures is
subject to the satisfaction of various covenants and conditions contained in
the venture's financing documents and the Company anticipates that future
project level financings will contain certain conditions and similar
restrictions on the distribution of cash flow to the Company.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information which
appears under the caption "Selected Financial Data" in the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information which
appears under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the information which
appears in the Consolidated Financial Statements and notes thereto in the
Annual Report. In 1995 the Company completed the acquisition of Magma Power
Company and concurrently received debt proceeds of $500 million and completed a
public offering of Common Stock, including an overallotment, and a direct sale
providing net proceeds of approximately $300 million. See the Consolidated
Financial Statements at footnote 17, "Subsequent Event."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information which
appears under the caption "Information Regarding Nominees for Election as
Directors, Directors Continuing in Office and Directors Retiring at the Annual
<PAGE>
Meeting" in the Proxy Statement.
Set forth below are the current executive officers of the Company and
their positions with the Company:
<TABLE>
<CAPTION>
Executive Officer Position
<S> <C>
David L. Sokol Chairman of the Board and Chief Executive Officer
Thomas R. Mason President and Chief Operating Officer
Gregory E. Abel Vice President, Controller and Chief Accounting Officer
Edward F. Bazemore Vice President, Human Resources
David P. Maystrick Vice President, Construction
Vincent R. Fesmire Vice President, Domestic Development and Implementation
David W. Cox Vice President, Legislative and Regulatory Affairs
Steven A. McArthur Senior Vice President, General Counsel and Secretary
Donald M. O'Shei, Jr. Vice President, Indonesia
Donald M. O'Shei, Sr. Senior Vice President, Asia Division and President, California Energy
International Ltd.
John G. Sylvia Senior Vice President, Chief Financial Officer and Treasurer
Dale R. Schuster Vice President, Administration
Russ L. Tenney Vice President, International Operations
</TABLE>
Set forth below is certain information with respect to each executive
officer of the Company other than Mr. Sokol (for whom information is
incorporated by reference from the Proxy Statement):
GREGORY E. ABEL, 32, Vice President, Controller and Chief Accounting
Officer. Mr. Abel joined the Company in 1992. Mr. Abel is a Chartered
Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a
Manager in the San Francisco office of Price Waterhouse, he was responsible for
clients in the energy industry.
EDWARD F. BAZEMORE, 58, Vice President, Human Resources. Mr. Bazemore
joined the Company in July 1991. From 1989 to 1991, he was Vice President,
Human Resources, at Ogden Projects, Inc. in New Jersey. Prior to that, Mr.
Bazemore was Director of Human Resources for Ricoh Corporation, also in New
Jersey. Previously, he was Director of Industrial Relations for Scripto, Inc.
in Atlanta, Georgia.
DAVID W. COX, 39, Vice President, Legislative and Regulatory Affairs. Mr.
Cox joined the Company in 1990. From 1987 to 1990, Mr. Cox was a Vice President
with Bank of America N.T. & S.A. in the Consumer Technology and Finance Group.
From, 1984 to 1987, Mr. Cox held a variety of management positions at First
Interstate Bank.
VINCENT R. FESMIRE, 54, Vice President, Domestic Development and
Implementation. Mr. Fesmire joined the Company in October 1993. In January 1995
Mr. Fesmire's responsibilities were realigned to provide a concentrated focus
on the critical domestic development projects that were in part obtained with
the Magma Power Company Acquisition. Prior to joining the Company, Mr. Fesmire
was employed for 19 years with Stone & Webster, a engineering firm, serving in
various management level capacities with an expertise in geothermal design
engineering.
THOMAS R. MASON, 51, President and Chief Operating Officer of the Company.
Mr. Mason joined the Company in March 1991. From October 1989 to March 1991,
Mr. Mason was Vice President and General Manager of Kiewit Energy Company.
Prior to that Mr. Mason was Director of Marketing for Energy Factors, Inc. (now
Sithe Energies U.S.A., Inc.), a non-utility developer of power facilities.
Prior to that Mr. Mason was a worldwide Market Manager of power generation for
Solar Gas Turbines, a gas turbine manufacturer.
DAVID P. MAYSTRICK, 43, Vice President, Construction. Mr. Maystrick joined
the Company in April 1994. From 1978 to 1994 Mr. Maystrick was employed as
Senior Project Manager with HDR Engineering, Inc. and was responsible for
implementing and monitoring several full service contracts to design, construct
and operate electric and steam generating facilities. From 1974 to 1977 Mr.
Maystrick was a design engineer of fossil fuel and nuclear power plants at
Gibbs & Hill, Inc.
STEVEN A. MCARTHUR, 37, Senior Vice President, General Counsel and
Secretary. Mr. McArthur joined the Company in February 1991. From 1988 to 1991
he was an attorney in the Corporate Finance Group at Shearman & Sterling in San
Francisco. From 1984 to 1988 he was an attorney in the Corporate Finance Group
at Winthrop, Stimson, Putnam & Roberts in New York.
DONALD M. O'SHEI, JR., 35, Vice President, Indonesia. Mr. O'Shei joined
the Company in August 1992. Prior to Mr. O'Shei's appointment to Vice
President, Indonesia he served as a Financial Analyst, Project Development
Manager and Vice President of CE International Investments, Ltd. for the
Company. From 1991 to 1992 he was employed by Proven Alternatives Capital
Corporation as a Financial Analyst. Prior to 1991, Mr. O'Shei served in the
U.S. Army in the Special Forces, Airborne and Pathfinder Units.
DONALD M. O'SHEI, SR., 61, Senior Vice President; Asia Division and
President, California Energy International Ltd. General O'Shei was in charge of
engineering and operations for the Company from October 1988 until October
1991. He rejoined the Company as a Vice President in August, 1992. Previously
he was President and Chief Executive Officer of AWD Technologies, Inc., a
hazardous waste remediation firm, and President and General Manager of its
predecessor company, Atkinson-Woodward Clyde. He was a brigadier general in the
U.S. Army prior to joining the Guy F. Atkinson Co. in 1982 as Director of
<PAGE>
Corporate Planning and Development.
JOHN G. SYLVIA, 36, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Sylvia joined the Company in 1988. From 1985 to 1988, Mr. Sylvia
was a Vice President in the San Francisco office of the Royal Bank of Canada,
with responsibility for corporate and capital markets banking. From 1986 to
1990, Mr. Sylvia served as an Adjunct Professor of Applied Economics at the
University of San Francisco. From 1982 to 1985, Mr. Sylvia was a Vice President
with Bank of America.
DALE R. SCHUSTER, 42, Vice President, Administration. Mr. Schuster joined
the Company in July 1994. From 1991 until joining the Company he was Senior
Vice President and General Manager of AutoInfo, Inc., a software development
and information systems company, and prior to that, Vice President and General
Manager of ValCom, Inc.
RUSS L. TENNEY, 41, Vice President, International Operations. Mr. Tenney
joined the Company in January 1995. Prior to that he was employed by Magma
Power Company and its affiliates in various capacities from 1981 to 1995. He
was Vice President, Asian Operations from February 1994 to January 1995; Vice
President, Project Development and Project Management from 1992 to 1994; Vice
President, Technology and Capital Projects from 1989 to 1992; President and
General Manager of Red Hill Geothermal, Inc., a subsidiary of Magma Power
Company from 1986 to 1989; and Manager of Operations from 1983 to 1986.
David L. Sokol filed a Form 5 with respect to one transaction
involving the purchase of 10,000 shares of the Company's Common Stock on
December 6, 1995. Dale R. Schuster filed a late Form 4 on January 26, 1995 with
respect to one transaction involving the December 5, 1994 grant of options to
acquire 5,000 shares of the Company's Common Stock. The late filing resulted
from clerical errors in the Company's legal department.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information which
appears under the caption "Executive Officer and Director Compensation" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information which
appears under the caption "Security Ownership of Significant Stockholders and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information which
appears under the caption "Certain Transactions and Relationships" in the Proxy
Statement.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedule
(i) Financial Statements
Filed herewith are the consolidated balance sheets
of California Energy Company, Inc. and subsidiaries as of December 31, 1994,
and December 31, 1993, and the consolidated statements of operations, cash
flows and stockholder's equity for the years ended December 31, 1994, 1993 and
1992, and the related report of independent auditors.
(ii) Financial Statement Schedule
Independent Auditor's Report on Schedule I,
Financial Statements of the Company (Parent Company only)
The other financial statement schedules are either not
required for the Company or are included at the notes to the financial
statements.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on October 6,
1994 reporting the commencement of a tender offer for 12,400,000 shares of
common stock of Magma.
The Company filed a Current Report on Form 8-K on October 21,
1994 reporting the increase in the offering price per share for Magma common
stock pursuant to the tender offer from $35.00 to $38.50.
The Company filed a Current Report on Form 8-K on November
15, 1994 reporting the execution of the Philippine Casecnan Project Agreement
with the Philippine National Irrigation Administration for a combined
hydroelectric and irrigation project and the award of a project at the Dieng
Geothermal Field in Central Java, Indonesia.
The Company filed a Current Report on Form 8-K on December 2,
1994 reporting the execution of a Joint Operating Contract and Energy Sales
Contract with Pertamina and PLN for a facility at the Patuha Geothermal Field
in West Java and at the previously announced Dieng Geothermal Field in Central
Java.
The Company filed a Current Report on Form 8-K on December 9,
1994 reporting the execution of an Agreement and Plan of Merger between the
Company, CE Acquisition Company, Inc. and Magma.
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index (except
in the case of Exhibit 13.0, in which case only the portion of the Annual
Report which constitutes the Company's Consolidated Financial Statements and
notes thereto) are filed as part of this Annual Report.
For the purposes of complying with the amendments to the
rules governing Form S-8 effective July 13, 1990 under the Securities Act of
1933, the undersigned Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Company's currently
effective Registration Statements on Form S-8:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer of controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on this 15th day of March, 1995.
CALIFORNIA ENERGY COMPANY, INC.
/s/ DAVID L. SOKOL*
By David L. Sokol
President and Chief Executive Officer
By: /s/ Steven A. McArthur
Steven A. McArthur
Attorney-in-Fact
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Date
<S> <C>
/s/ David L. Sokol* March 15, 1995
David L. Sokol
Chairman of the Board,
Chief Executive Officer, and
Director
/s/ John G. Sylvia March 15, 1995
John G. Sylvia,
Senior Vice President,
Chief Financial Officer, and
Treasurer
*By:/s/ Steven A. McArthur March 15, 1995
Steven A. McArthur
Attorney-in-Fact
<PAGE>
<PAGE>
/s/ Edgar D. Aronson* March 15, 1995
Edgar D. Aronson
Director
/s/ Judith E. Ayres* March 15, 1995
Judith E. Ayres
Director
/s/ James Q. Crowe* March 15, 1995
James Q. Crowe
Director
/s/ Richard K. Davidson* March 15, 1995
Richard K. Davidson
Director
/s/ Richard R. Jaros* March 15, 1995
Director
/s/ Ben Holt* March 15, 1995
Ben Holt
Director
/s/ Everett B. Laybourne* March 15, 1995
Everett B. Laybourne
Director
/s/ Herbert L. Oakes, Jr.* March 15, 1995
Herbert L. Oakes, Jr.
Director
/s/ Walter Scott, Jr.* March 15, 1995
Walter Scott, Jr.
Director
/s/ Barton W. Shackelford* March 15, 1995
Barton W. Shackelford
Director
/s/ David E. Wit* March 15, 1995
David E. Wit
Director
*By:/s/ Steven A. McArthur March 15, 1995
Steven A. McArthur
Attorney-in-Fact
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
3.1 The Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K for the year ended December
31, 1992, File No. 1-9874 (the "1992 Form 10-K")).
3.2 Certificate of Amendment of the Company's Restated Certificate of
Incorporation, dated June 23, 1993 (incorporated by reference to the Company's
Form 8-A, dated July 28, 1993, File No. 1-9874 ("Form 8-A")).
3.3 Certificate of Amendment of the Company's Restated Certificate of
Incorporation dated, February 23, 1995.
3.4 The Company's Certificate of Designation with respect to the Company's
Series C Redeemable Convertible Exchangeable Preferred Stock, dated November
20, 1991, including a form of the 9.5% Convertible Subordinated Debentures due
2003 (incorporated by reference to Exhibit 3.1 of the Company's 1992 Form
10-K).
3.5 The Company's By-Laws as amended through February 24, 1995.
4.1 Specimen copy of form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-K for the year ended December
31, 1993, File No. 1-9874 (the "1993 Form 10-K")).
4.2 Shareholders Rights Agreement between the Company and Manufacturers
Hanover Trust Company of California dated December 1, 1988 (incorporated by
reference to Exhibit 1 to Company's Form 8-K dated December 5, 1988, File No.
1-9874).
4.3 Amendment Number 1 to Shareholder Rights Agreement, dated February 15,
1991 (incorporated by reference to Exhibit 4.2 to the Company's 1992 Form
10-K).
4.4 Note Purchase Agreement between the Company and Principal Mutual Life
Insurance Company dated March 15, 1988 (incorporated by reference to Exhibit 1
to Company's Form 8-K dated April 11, 1988).
4.5 Defeasance Agreement between Principal Mutual Life Insurance Company
and the Company dated March 24, 1994 (incorporated by reference to Exhibit 4.5
to the Company's 1993 Form 10-K).
4.6 Consent and Agreement between Principal Mutual Life Insurance Company
and the Company dated March 24, 1994 (incorporated by reference to Exhibit 4.6
to the Company's 1993 Form 10-K).
4.7 Escrow Deposit Agreement between Bank of American National Trust and
Savings Association and the Company dated March 3, 1994 (incorporated by
reference to Exhibit 4.7 to the Company's 1993 Form 10-K).
10.1 Joint Venture Agreement for China Lake Joint Venture between the
Company and Caithness Geothermal 1980 Ltd., restated as of January 1, 1984
(incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, 33-7770).
<PAGE>
10.2 Amended Joint Venture Agreement for Coso Land Company between the
Company and Caithness Geothermal 1980 Ltd., dated as of June 1, 1983
(incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1, 33-7770).
10.3 Amended General Partnership Agreement for Coso Finance Partners
between China Lake Operating Company and ESCA I L.P. dated July 13, 1988
(incorporated by reference to Exhibit 10.3 to the Company's 1992 Form 10-K).
10.4 First Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. (Undated) (incorporated by reference to Exhibit 10.4 to
the Company's 1992 Form 10-K).
10.5 Second Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. dated as of July 13, 1988 (incorporated by reference to
Exhibit 10.5 to the Company's 1992 Form 10-K).
10.6 Third Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. dated as of December 16, 1992 (incorporated by reference
to Exhibit 10.6 to the Company's 1992 Form 10-K).
10.7 General Partnership Agreement for Coso Finance Partners II between
China Lake Geothermal Management Company and ESCA II L.P. dated July 7, 1987
(incorporated by reference to Exhibit 10.7 to the Company's 1992 Form 10-K).
10.8 Restated General Partnership Agreement for Coso Energy Developers
between Coso Hotsprings Intermountain Power Inc. and Caithness Coso Holdings
L.P. dated as of March 31, 1988 (incorporated by reference to Exhibit 10.8 to
the Company's 1992 Form 10-K).
10.9 First Amendment to the Restated General Partnership Agreement for
Coso Energy Developers between Coso Hotsprings Intermountain Power, Inc. and
Caithness Coso Holdings, L.P. dated as of March 31, 1988 (incorporated by
reference to Exhibit 10.9 to the Company's 1992 Form 10-K).
10.10 Second Amendment to the Restated General Partnership Agreement for
Coso Energy Developers between Coso Hotsprings Intermountain Power, Inc. and
Caithness Coso Holdings L.P. dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.10 to the Company's 1992 Form 10-K).
10.11 Amended and Restated General Partnership Agreement for Coso Power
Developers between Coso Technology Corporation and Caithness Navy II Group L.P.
dated July 31, 1989 (incorporated by reference to Exhibit 10.11 to the
Company's 1992 Form 10-K).
10.12 First Amendment to the Amended and Restated General Partnership for
Coso Power Developers between Coso Technology Corporation and Caithness Navy II
Group L.P. dated as of March 19, 1991 (incorporated by reference to Exhibit
10.12 to the Company's 1992 Form 10-K).
10.13 Second Amendment to the Amended and Restated General Partnership
Agreement for Coso Power Developers between Coso Technology Corporation and
Caithness Navy II Group L.P. dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.13 to the Company's 1992 Form 10-K).
<PAGE>
10.14 Form of Amended and Restated Field Operation and Maintenance
Agreement between Coso Joint Ventures and the Company dated as of December 16,
1992 (incorporated by reference to Exhibit 10.14 of the Company's 1992 Form
10-K).
10.15 Form of Amended and Restated Project Operation and Maintenance
Agreement between Coso Joint Venture and the Company dated as of December 16,
1992 (incorporated by reference to Exhibit 10.15 to the Company's 1992 Form
10-K).
10.16 Trust Indenture between Coso Funding Corp. and Bank of America
National Trust and Savings Association dated as of December 16 1992
(incorporated by reference to Exhibit 10.16 to the Company's 1992 Form 10-K).
10.17 Form of Amended and Restated Credit Agreement between Coso Funding
Corp. and Coso Joint Ventures dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.17 to the Company's 1992 Form 10-K).
10.18 Form of Support Loan Agreement among Coso Joint Ventures dated
December 16, 1992 (incorporated by reference to Exhibit 10.18 to the Company's
1992 Form 10-K).
10.19 Form of Project Loan Pledge Agreement between Coso Joint Ventures
and Bank of America National Trust and Savings dated as of December 16, 1992
(incorporated by reference to Exhibit 10.19 to the Company's 1992 Form 10-K).
10.20 Power Purchase Contracts between Southern California Edison Company
and:
(a) China Lake Joint Venture, executed June 4, 1984 with a term of 24
years;
(b) China Lake Joint Venture, executed February 1, 1985 with a term of 23
years; and
(c) Coso Geothermal Company, executed February 1, 1985 with a term of 30
years (incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, 33-7770).
10.21 Contract No. N62474-79-C-5382 between the United States of America
and China Lake Joint Venture, restated October 19, 1983 as "Modification
P00004," including modifications through "Modification P00026", dated December
16, 1992 (the "Navy Contract")(incorporated by reference to Exhibit 10.21 to
the Company's 1992 Form 10-K).
10.22 Modification to Contract No. P00028, dated June 28, 1993,
Modification to Contract No. P00029, dated October 4, 1994 and Modification to
Contract No. P00031, dated December 19, 1994 all amending the Navy Contract.*
10.23 Lease between the BLM and Coso Land Company, effective November 1,
1985 (with Designation of Geothermal Operator) (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1, 33-7770).
10.24 Stock Purchase Agreement between the Company and Kiewit Energy
Company dated as of February 18, 1991, as amended as of June 19, 1991
(incorporated by reference to Exhibit 1 to the Company's Form 8-K dated
February 26, 1991).
10.25 Amendment No. 2 to Stock Purchase Agreement between Kiewit Energy
Company and the Company dated as of January 8, 1992 (incorporated by reference
to Exhibit 10.24 to the Company's 1992 Form 10-K).
<PAGE>
10.26 Amendment No. 3 to Stock Purchase Agreement between Kiewit Energy
Company and the Company dated as of April 2, 1993 (incorporated by reference to
Exhibit 10.25 to the Company's 1993 Form 10-K).
10.27 Shareholders Agreement between the Company and Kiewit Energy Company
dated as of February 18, 1991, as amended as of June 19, 1991 and as of
November 20, 1991 (incorporated by reference to Exhibit 1 to the Company's Form
8-K dated February 26, 1991, Exhibit 1 to the Company's Form 8-K dated July 18,
1992, and Exhibit 3 to the Company's Form 8-K dated November 23, 1991).
10.28 Amendment No. 3 to Shareholder's Agreement between the Company and
Kiewit Energy Company dated as of April 2, 1993 (incorporated by reference to
Exhibit 14 to the Company's Form 8-A).
10.29 Amendment No. 4 to Shareholder's Agreement between the Company and
Kiewit Energy Company dated as of July 20, 1993 (incorporated by reference to
Exhibit 10.28 to the Company's 1993 Form 10-K).
10.30 Registration Rights Agreement between the Company and Kiewit Energy
Company dated as of February 18, 1991, as amended as of June 19, 1991
(incorporated by reference to Exhibit 1 to the Company's Form 8-K dated
February 26, 1991, and Exhibit 1 to the Company's Form 8-K dated July 18,
1992).
10.31 Registration Rights Agreement between the Company and Kiewit Energy
Company dated June 19, 1991, as amended November 20, 1991 (incorporated by
reference to Exhibit 1 of the Company's Form 8-K dated June 19, 1991 and
Exhibit 4 to the Company's Form 8-K dated November 21, 1991).
10.32 Stock Option Agreement between the Company and Kiewit Energy Company
dated as of February 18, 1991, as amended as of June 19, 1991 (incorporated by
reference to Exhibit 1 to the Company's Form 8-K dated February 26, 1991, and
Exhibit 1 to the Company's Form 8-K dated July 18, 1992).
10.33 Amendment No. 2 to Stock Option Agreement between the Company and
Kiewit Energy Company dated as of May 12, 1994.*
10.34 Stock Option Agreement between the Company and Kiewit Energy Company
dated as of June 19, 1991 (incorporated by reference to Exhibit 1 to the
Company's Form 8-K dated July 18, 1991).
10.35 Securities Purchase Agreement between the Company and Kiewit Energy
Company dated as of November 20, 1991 (incorporated by reference to Exhibit 2
to the Company's Form 8-K dated November 21, 1991).
10.36 Sublease between the Company and Kiewit Energy Company dated March
15, 1991 (incorporated by reference to Exhibit 10.32 to the Company's 1992 Form
10-K).
10.37 Amended and Restated 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.33 to the Company's 1992 Form 10-K).
10.38 1994 Employee Stock Purchase Plan (incorporated by reference
to Exhibit A to the Company's 1994 Proxy Statement).
<PAGE>
10.39 Indenture between the Company and The Chemical Trust Company of
California dated as of June 24, 1993 (incorporated by reference to the
Company's Form 8-K dated June 24, 1993, File No. 1-9874).
10.40 Registration Rights Agreement among the Company, Lehman Brothers,
Inc. and Alex Brown & Sons Incorporated dated June 24, 1993 (incorporated by
reference to the Company's Form 8-K dated June 24, 1993, File No. 1-9874).
10.41 Indenture dated March 24, 1994 between the Company and IBJ Schroder
Bank and Trust Company (incorporated by reference to Exhibit 3 to the Company's
Form 8-K dated March 28, 1994).
10.42 Employment Agreement between the Company and David L. Sokol dated as
of April 2, 1993 (incorporated by reference to Exhibit 10.40 to the Company's
1993 Form 10-K).
10.43 Amendment No. 1 to the Employment Agreement between the Company and
David L. Sokol dated as of January 21, 1995.*
10.44 Termination Agreement between the Company and Richard R. Jaros dated
as of December 9, 1993 (incorporated by reference to Exhibit 10.41 to the
Company's 1993 Form 10-K).
10.45 Employment Agreement between the Company and Thomas R. Mason dated
as of January 21, 1995.*
10.46 Standard Offer Number 2, Standard Offer for Power Purchase with a
Firm Capacity Qualifying Facility effective June 15, 1990 ("SO2") between San
Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated
by reference to Exhibit 10.42 to the Company's 1993 Form 10-K).
10.47 Amendment Number One to the SO2 dated September 25, 1990
(incorporated by reference to Exhibit 10.43 to the Company's 1993 Form 10-K).
10.48 Joint Venture Agreement among the Company, Kiewit Diversified Group
Inc. and Kiewit Construction Group Inc. dated December 14, 1993 (incorporated
by reference to Exhibit 10.44 to the Company's 1993 Form 10-K).
10.49 Agreement and Plan of Merger between the Company, CE Acquisition
Company, Inc. and Magma dated December 5, 1994 (incorporated by reference to
(c)(3) to Exhibit 99.1 to the Company's Current Report on Form 8-K dated
December 9, 1994).
10.50 Non-Recourse Credit Agreement dated February 24, 1995 by and among
the Company, the Banks and other Financial Institutions Parties thereto, and
Credit Suisse, as Agent.*
10.51 Standard Offer No. 4 Power Purchase Agreement (Elmore), dated June
15, 1984, between Southern California Edison Company and Magma Electric Company
including Amendments No. 1 and No. 2 (incorporated by reference to Exhibit
10.14 to Magma Power Company's Amendment No. 1 to Registration Statement Form
S-4 dated February 2, 1988, ("Magma 1988 Form S-4")).
10.52 Standard Offer No. 4 Power Purchase Agreement (Del Ranch) dated
February 22, 1984, between Southern California Edison Company and Imperial
Energy Corporation, including Amendments No. 1 and No. 2 (incorporated by
reference to Exhibit 10.15 to the Magma 1988 Form S-4).
<PAGE>
10.53 Standard Offer No. 4 Power Purchase Agreement (Vulcan), dated June
15, 1984, between Southern California Edison Company and Magma Electric Company
including Amendment No. 1 (incorporated by reference to Exhibit 10.16 to the
Magma 1988 Form S-4).
10.54 Standard Offer No. 4 Power Purchase Agreement (River Ranch), dated
April 16, 1985, between Southern California Edison Company and Imperial Energy
Corporation, including Amendment No. 1 (incorporated by reference to Exhibit
10.20 to the Magma 1988 Form S-4).
10.55 Partnership Agreement dated August 30, 1985 between Vulcan Power
Company and BN Geothermal, Inc. (incorporated by reference to Exhibit 10.88 to
the Magma Power Company's Form 8 Amendment (dated December 18, 1990) to Magma
Power Company's Form 10-K for the year ended December 31, 1989 ("Magma Form
8")).
10.56 Amended and Restated Limited Partnership Agreement of Del Ranch,
Ltd., a California Limited Partnership, dated March 14, 1988 by and among Red
Hill Geothermal, Inc. and Conejo Energy Company, as General Partners, and Magma
Power Company and Conejo Energy Company, as Original Limited Partners
(incorporated by reference to Exhibit 10.53 to the Magma Power Company Annual
Report on Form 10-K for the year ended December 31, 1987, File No. 0-10533
("1987 Magma Form 10-K")).
10.57 Limited Partnership Agreement of Leathers, L.P., dated August 15,
1988 by and among Red Hill Geothermal, Inc. and San Felipe Energy Company, as
General Partners, and Magma Power Company and San Felipe Energy Company, as
Limited Partners (incorporated by reference to Exhibit 10.79 to the Magma Power
Company Annual Report on Form 10-K for the year ended December 31, 1988, File
No. 0-10533 ("1988 Magma Form 10-K")).
10.58 Amended and Restated Limited Partnership Agreement of Elmore, Ltd.,
a California Limited Partnership, dated March 14, 1988 by and among Red Hill
Geothermal, Inc. and Niguel Energy Company, as General Partners, and Magma
Power Company and Niguel Energy Company, as Original Limited Partners
(incorporated by reference to Exhibit 10.55 to the 1987 Magma Form 10-K).
10.59 Operating and Maintenance Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Del Ranch, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.56 to the 1987 Magma Form
10-K).
10.60 First Amendment to Operating and Maintenance Agreement dated as of
April 14, 1989 between Red Hill Geothermal, Inc. and Del Ranch L.P. and the
Second Amendment to the Operating and Maintenance Agreement dated April 18,
1990.*
10.61 Operating and Maintenance Agreement dated August 15, 1988 by and
between Red Hill Geothermal, Inc. and Leathers, L.P. (incorporated by reference
to Exhibit 10.84 to the 1988 Magma Form 10-K).
10.62 First Amendment to Operating and Maintenance Agreement dated as of
April 14, 1989 between Red Hill Geothermal, Inc. and Leathers, L.P. and the
Second Amendment to the Operating and Maintenance Agreement dated April 18,
1990.*
10.63 Operating and Maintenance Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Elmore, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.57 to the 1987 Magma Form
10-K).
<PAGE>
10.64 First Amendment to the Operating and Maintenance Agreement dated as
of April 14, 1988 between Red Hill Geothermal, Inc. and Elmore, Ltd., a
California Limited Partnership and the Second Amendment to the Operating and
Maintenance Agreement dated April 18, 1990.*
10.65 Brine Sales Agreement dated August 30, 1985 between Vulcan Power
Company and Vulcan/BN Geothermal Power Company (incorporated by reference to
Exhibit 10.90 to the Magma Power Company Form 8 Amendment (dated December 18,
1990) to the Magma Power Company Form 10-K for the year ended December 31,
1989).
10.66 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated March 14, 1988 by and between Magma Power Company and Del
Ranch, Ltd., a California Limited Partnership (incorporated by reference to
Exhibit 10.58 to the 1987 Magma Form 10-K).
10.67 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated August 15, 1988 by and between Magma Power Company and
Leathers, L.P. (incorporated by reference to the 1988 Magma Form 10-K).
10.68 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated March 14, 1988 by and between Magma Power Company and Elmore,
Ltd., a California Limited Partnership (incorporated by reference to Exhibit
10.59 to the 1987 Magma Form 10-K).
10.69 Administrative Services Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Del Ranch, Ltd., a California Limited
Partnership (incorporated by reference to the 1987 Magma Form 10-K).
10.70 Administrative Services Agreement dated August 15, 1988 by and
between Red Hill Geothermal, Inc. and Leathers, L.P. (incorporated by reference
to Exhibit 10.82 to the 1988 Magma Form 10-K).
10.71 Administrative Services Agreement dated March 14, 1988 by and
between Red Hill Geothermal Inc. and Elmore, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.63 to the 1987 Magma Form
10-K).
10.72 Amended and Restated Credit Agreement dated as of April 18, 1990
among Del Ranch, Ltd. a California Limited Partnership, the Banks Listed
therein, and Morgan Guaranty Trust Company of New York, as Agent.*
10.73 LOC Debt Facility Agreement dated as of April 18, 1990 among Del
Ranch, Ltd., a California Limited Partnership, the Banks listed therein, Morgan
Guaranty Trust Company of New York as the Agent and Fuji Bank, Limited, Los
Angeles Agency, as Fronting Bank.*
10.74 Security Agreement dated March 14, 1988 among Del Ranch, Ltd., a
California Limited Partnership, Morgan Guaranty Trust Company of New York, as
Agent for and on behalf of the Banks, Morgan Guaranty Trust Company of New
York, and Morgan Guaranty Trust Company of New York, as Security Agent
(incorporated by reference to the 1987 Magma Form 10-K).
<PAGE>
<PAGE>
10.75 Amendment Number One to Security Agreement dated as of April 14, 1989,
and Amendment Number Two to the Security Agreement dated April 18,
1990 among Del Ranch, Ltd., a California Limited Partnership, Morgan
Guaranty Trust Company of New York, as Agent for and on behalf of the
Banks, Morgan Guaranty Trust Company of New York and Morgan Guaranty
Trust Company of New York as Security Agent.*
10.76 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among Del
Ranch, Ltd., a California Limited Partnership, Ticor Title Insurance
Company of California, and Morgan Guaranty Trust Company of New York
as Security Agent (incorporated by reference to the 1987 Magma Form
10-K).
10.77 First Amendment to the Deed of Trust, dated April 18, 1990 between
Del Ranch, Ltd. and Morgan Guaranty Trust Company of New York.*
10.78 Amended and Restated Credit Agreement dated as of April 18, 1990
among Elmore, Ltd., a California Limited Partnership, the Banks Listed
therein,
and Morgan Guaranty Trust Company of New York, as Agent.*
10.79 LOC Debt Facility Agreement dated as of April 18, 1990 among Elmore,
Ltd., a California Limited Partnership, the Banks listed therein,
Morgan Guaranty Trust Company of New York as Agent and Fuji Bank,
Limited, Los Angeles Agency, as Fronting Bank.*
10.80 Security Agreement dated March 14, 1988 among Elmore, Ltd., a
California Limited Partnership, Morgan Guaranty Trust Company of New
York, as Agent for and on behalf of the Banks, Morgan Guaranty Trust
Company of New York, and Morgan Guaranty Trust Company of New York, as
Security Agent (incorporated by reference to Exhibit 10.71 to the 1987
Magma Form 10-K).
10.81 Amendment Number One to Security Agreement dated as of April 14, 1989
among Elmore Ltd and Morgan Guaranty Trust Company of New York and
Amendment Number Two to Security Agreement dated April 18, 1990 among
Elmore, L.P., Morgan Guaranty Trust Company of New York, as Agent, on
behalf of the Banks.*
10.82 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among
Elmore, Ltd., a California Limited Partnership, Ticor Title Insurance
Company of California, and Morgan Guaranty Trust Company of New York
as Security Agent (incorporated by reference to Exhibit 10.73 to the
1987 Magma Form 10-K).
10.83 First Amendment to Deed of Trust dated April 18, 1990 between
Elmore, Ltd. and Morgan Guaranty Trust Company of New York, as
Security Agent.*
10.84 Amended and Restated Credit Agreement dated April 18, 1990 among
Leathers L.P. and the Banks listed therein and Morgan Guaranty Trust
Company of New York as Agent.*
10.85 Security Agreement dated March 14, 1988 among Leathers L.P., a
California Limited Partnership, Morgan Guaranty Trust Company of New
York, as Agent for and on behalf of the Banks, Morgan Guaranty Trust
Company of New York, and Morgan Guaranty Trust Company of New York, as
Security Agent, Amendment Number One to Security Agreement dated as of
April 14, 1989 and Amendment Number Two to Security Agreement dated as
of April 18, 1990.*
10.86 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among
Leathers, L.P., a California Limited Partnership, Ticor Title
Insurance Company of California, and Morgan Guaranty Trust Company of
New York as Security Agent and First Amendment to Deed of Trust dated
April 18, 1990.*
10.87 LOC Debt Facility Agreement dated as of April 18, 1990 among Leathers,
L.P., a California Limited Partnership, the Banks listed therein,
Morgan Guaranty Trust Company of New York as Agent and Fuji Bank,
Limited, Los Angeles Agency, as Fronting Bank.*
<PAGE>
10.88 Loan Agreement dated as of October 1, 1990 between California
Pollution Control Financing Authority and Desert Valley Company,
relating to the California Pollution Control Financing Authority
Pollution Control Revenue Bonds Small Business Series 1990-A (the
"$4,000,000 Monofill Bond Financing") (incorporated by reference to
Exhibit 10.92 to the Magma Power Company Form 10-K for the year ended
December 31, 1990, File No. 0-10533 (the "1990 Magma Form 10-K")).
10.89 Master Reimbursement Agreement dated as of October 1, 1990, by and
among the California Pollution Control Financing Authority, Desert
Valley Company and the Sanwa Bank, Limited, Los Angeles Branch,
relating to the $4,000,000 Monofill Bond Financing (incorporated by
reference to Exhibit 10.93 to the 1990 Magma Form 10-K).
10.90 Sale and Purchase Agreement between Union Oil Company of California
and Magma Power Company effective as of December 31, 1992
(incorporated by reference to Exhibit 10.97 to the Magma Power
Company Form 8 dated June 2, 1993).
10.91 Contract for the Purchase and Sale of Electric Power (Unit 1) from the
Salton Sea Geothermal Generating Facility between Southern California
Edison Company and Earth Energy, Inc., dated May 8, 1987, including
Amendment No. 1 to such contract, dated March 30, 1993 (incorporated
by reference to Exhibit 10.101 to the Magma Power Company Form 10-K
for the year ended December 31, 1993, File No. 0-10533, (the "1993
Magma Form 10-K")).
10.92 Power Purchase Contract (Unit 2) by and between Southern California
Edison Company and Westmoreland Geothermal Associates, dated April
16, 1985, including Amendment No. 1 to such contract, dated
December 18, 1987 (incorporated by reference to Exhibit 10.102 to
the 1993 Magma Form 10-K).
10.93 Power Purchase Contract (Unit 3) between Southern California Edison
Company and Union Oil Company Salton Sea III, dated April 16, 1985
(incorporated by reference to the 1993 Magma Form 10-K).
10.94 Reserved
10.95 125 MW Power Plant - Upper Mahiao Agreement (the "Upper Mahiao ECA")
dated September 6, 1993 between PNOC-Energy Development Corporation
("PNOC-EDC") and Ormat, Inc. as amended by the First Amendment to 125
MW Power Plant Upper Mahiao Agreement dated as of January 28, 1994,
the Letter Agreement dated February 10, 1994, the Letter Agreement
dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant
- Upper Mahiao Agreement dated as of March 7, 1994.*
10.96 Credit Agreement dated April 8, 1994 among CE Cebu Geothermal Power
Company, Inc., the Banks thereto, Credit Suisse as Agent.*
10.97 Credit Agreement dated as of April 8, 1994 between CE Cebu
Geothermal Power Company, Inc., Export-Import Bank of the United
States.*
10.98 Pledge Agreement among CE Philippines Ltd, Ormat-Cebu Ltd., Credit
Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc.
dated as of April 8, 1994.*
10.99 Overseas Private Investment Corporation Contract of Insurance dated
April 8, 1994 between the Overseas Private Investment Corporation
("OPIC") and the Company through its subsidiaries CE International
Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd.*
10.100 180 MW Power Plant - Mahanagdong Agreement ("Mahanagdong ECA") dated
September 18, 1993 between PNOC-EDC and CE Philippines Ltd. and the
Company, as amended by the First Amendment to Mahanagdong ECA dated
June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter
Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong
ECA dated March 3, 1995.*
10.101 Credit Agreement dated as of June 30, 1994 among CE Luzon Geothermal
Power Company, Inc., American Pacific Finance Company, the Lenders
party thereto, and Bank of America National Trust and Savings
Association as Administrative Agent.*
<PAGE>
10.102 Credit Agreement dated as of June 30, 1994 between CE Luzon
Geothermal Power Company, Inc. and Export-Import Bank of the United States.*
10.103 Finance Agreement dated as of June 30, 1994 between CE Luzon
Geothermal Power Company, Inc. and Overseas Private Investment Corporation.*
10.104 Pledge Agreement dated as of June 30, 1994 among CE Mahanagdong
Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National
Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power
Company, Inc.*
10.105 Overseas Private Investment Corporation Contract of Insurance dated
July 29, 1994 between OPIC and the Company, CE International Ltd., CE
Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1 dated
August 3, 1994.*
10.106 231 MW Power Plant - Malitbog Agreement ("Malitbog ECA") dated
September 10, 1993 between PNOC-EDC and Magma Power Company and the First and
Second Amendments thereto dated December 8, 1993 and March 10, 1994,
respectively.*
10.107 Credit Agreement dated as of November 10, 1994 among Visayas Power
Capital Corporation, the Banks parties thereto and Credit Suisse as Bank
Agent.*
10.108 Finance Agreement dated as of November 10, 1994 between Visayas
Geothermal Power Company and Overseas Private Investment Corporation.*
10.109 Pledge and Security Agreement dated as of November 10, 1994 among
Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands
B.V. and Credit Suisse as Bank Agent.*
10.110 Overseas Private Investment Corporation Contract of Insurance dated
December 21, 1994 between OPIC and Magma Netherlands, B.V.*
<PAGE>
<PAGE>
10.111 Agreement as to Certain Common Representations, Warranties, Covenants
and Other Terms, dated November 10, 1994 between Visayas Geothermal
Power Company, Visayas Power Capital Corporation, Credit Suisse, as
Bank Agent, OPIC and the Banks named therein.*
10.112 Credit and Reimbursement Agreement (Term Loan Facility and Working
Capital Facility) dated as of February 28, 1994 among Salton Sea Power
Generation, L.P., Salton Sea Brine Processing, L.P., the Lenders
listed therein, and Credit Suisse as the Lead Agent.*
10.113 Assignment and Security Agreement dated as of February 28, 1994 among
Salton Sea Power Generation, L.P., a California limited partnership,
Salton Sea Brine Processing, L.P., a California limited partnership,
and Credit Suisse as Lead Agent.*
10.114 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated as of February 28, 1994 among Salton Sea Power
Generation, L.P., a California limited partnership, Salton Sea Brine
Processing, L.P., a California limited partnership, Chicago Title
Company as Trustee and Credit Suisse as Lead Agent for the Secured
Parties.*
11.0 Calculation of Earnings Per Share in accordance with Interpretive
Release No. 34-9083.
13.0 The Company's 1994 Annual Report (only the portions thereof
specifically incorporated herein by reference are deemed filed
herewith).
21.0 Subsidiaries of Registrant.
23.0 Consent of Independent Auditors.
24.0 Power of Attorney.
27.0 Financial Data Schedule.
* Denotes documents to be filed with an Amendment to Form 10-K on Form 8.
<PAGE>
<PAGE>
<TABLE>
California Energy Company, Inc. Schedule I
Parent Company Only
Balance Sheets
as of December 31, 1994 and 1993
(dollars and shares in thousands, except per share amounts)
<CAPTION>
ASSETS 1994 1993
-------- ------
<S> <C> <C>
Cash and investments $252,185 $126,824
Restricted cash 90,905 13,535
Short-term investment 50,000 ---
Development projects in progress 74,324 44,272
Investment in and advances to subsidiaries
and joint ventures 296,376 215,660
Equipment, net of accumulated depreciation 2,517 2,587
Notes receivable - joint ventures 24,337 21,558
Deferred charges and other assets 20,519 16,458
-------- -------
Total assets $811,163 $440,894
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 194 $ 86
Other accrued liabilities 6,659 10,550
Income taxes payable --- 4,000
Senior notes --- 35,730
Senior Discount Notes 431,946 ---
Convertible subordinated debenture 100,000 100,000
Deferred income taxes 26,568 18,310
-------- -------
Total liabilities 565,367 168,676
-------- -------
Deferred income relating to joint ventures 2,205 1,915
-------- -------
Redeemable preferred stock 63,600 58,800
-------- -------
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 31,849 and
35,446 shares 2,407 2,404
Additional paid-in capital 100,421 100,965
Retained earnings 142,937 111,031
Treasury stock, 3,800 and 157 common shares
at cost (65,774) (2,897)
-------- --------
Total stockholders' equity 179,991 211,503
-------- -------
Total liabilities and stockholders' equity $811,163 $440,894
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Statements of Operations
for the three years ended December 31, 1994
(dollars in thousands)
<CAPTION>
Revenues: 1994 1993 1992
------- ------- -----
<S> <C> <C> <C>
Equity in earnings of subsidiary
companies and joint ventures before
extraordinary items $75,448 $61,412 $53,685
Interest and other income 20,598 8,756 4,557
------- ------- ------
Total revenues 96,046 70,168 58,242
------- ------- ------
Expenses:
General and administration 7,926 6,564 6,796
Interest, net of capitalized interest 32,284 2,346 714
------- ------- ------
Total expenses 40,210 8,910 7,510
------- ------- ------
Income before provision for income taxes 55,836 61,258 50,732
Provision for income taxes 17,002 18,184 11,922
------- ------- ------
Income before change in accounting
principle and extraordinary item 38,834 43,074 38,810
------- ------- ------
Cumulative effect of change in
account principle --- 4,100 ---
Extraordinary item in 1994 and equity in extraordinary item of joint ventures
in 1992 (Less applicable income taxes of $945 in
1994, $1,533 in 1992) (2,007) --- (4,991)
------- ------- -------
Net income 36,827 47,174 33,819
Preferred dividends 5,010 4,630 4,275
------- ------- ------
Net income available to
common stockholders $31,817 $42,544 $29,544
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
<TABLE>
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Condensed Statements of Cash Flows
for the three years ended December 31, 1994
(dollars in thousands)
<CAPTION>
1994 1993 1992
-------- -------- ------
<S> <C> <C> <C>
Cash flows from operating activities $ 15,139 $ 45,671 $ 22,597
Cash flows from investing activities:
Increase in development projects in progress (30,052) (22,844) (4,218)
Decrease (Increase) in advances to and investments
in subsidiaries and joint ventures (24,959) (36,812) 12,155
Restricted cash (77,370) (12,901) (535)
Short-term investment (50,000) --- ---
Other 767 2,956 (15,176)
--------- -------- --------
Cash flows from investing activities (181,614) (69,601) (7,774)
--------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common, treasury and
preferred stocks, and exercise of warrants
and stock options 1,580 2,912 8,065
Proceed from issue of Senior Discount Notes 400,000 --- ---
Purchase of treasury stock (65,119) (2,897) (4,887)
Defeasance of Senior Notes (35,730) --- ---
Proceeds from issue of convertible
subordinated debentures --- 100,000 ---
Purchase of warrants --- --- (11,716)
Deferred charges relating to debt
financing (8,895) (2,582) ---
-------- -------- -------
Cash flows from financing activities 291,836 97,433 (8,538)
-------- -------- --------
Net increase in cash and investments 125,361 73,503 6,285
Cash and investments at beginning of period 126,824 53,321 47,036
-------- -------- -------
Cash and investments at end of period $252,185 $126,824 $ 53,321
======== ======== =======
Interest paid (net of amount capitalized) $ 1,477 $ (897) $ 464
======== ======== =======
Income taxes paid $ 4,926 $ 6,819 $ 4,129
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Supplemental Notes to Financial Statements
For the three years ended December 31, 1994
(dollars in thousands)
RELATED PARTY TRANSACTIONS
The Company bills the Coso Project partnerships and joint ventures for
management, professional and operational services. Billings for the years ended
December 31, 1994, 1993 and 1992 were $18,054, $18,285 and $19,629,
respectively. Dividends received from subsidiaries for the years ended December
31, 1994, 1993 and 1992 were $19,691, $49,053 and $33,524 respectively.
RECLASSIFICATION
Certain amounts in the fiscal 1993 and 1992 financial statements have been
reclassified to conform to the fiscal 1994 presentation. Such reclassifications
do not impact previously reported net income or retained earnings.
<PAGE>
CERTIFICATE OF AMENDMENT Exhibit 3.3
TO THE
CERTIFICATE OF INCORPORATION
OF
CALIFORNIA ENERGY COMPANY, INC.
CALIFORNIA ENERGY COMPANY, INC., a Delaware corporation (the "Company"), HEREBY
CERTIFIES AS FOLLOWS:
<TABLE>
<S> <C>
FIRST: The name of the Company is California Energy Company, Inc. The date of the filing of the Company's most recent
Certificate of Amendment to the Restated Certificate of Incorporation with the Secretary of State of the
State of Delaware was June 23, 1993.
SECOND: That the following resolution was submitted to, approved, adopted and declared advisable by the Board of
Directors of the Company.
THIRD: That the following resolution was approved and adopted by the
stockholders of the Company at a special meeting of the
Company's stockholders duly called and held on February 10,
1995:
RESOLVED: That paragraph A of Article Fourth of the Company's Amended and Restated Certificate of Incorporation be
deleted in its entirety and the following be and hereby is inserted in lieu thereof:
FOURTH: A. The Corporation is authorized to issue two classes of shares of stock, to be designated respectively as
Preferred Stock shares and as Common Stock shares. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is Eighty-Two Million (82,000,000) shares, and the
aggregate par value of all shares that are to have a par value is Five Million Four Hundred Thousand
Dollars ($5,400,000). The number of Preferred Stock shares is Two Million (2,000,000) shares, each
without par value. The number of Common Stock shares that are to have a par value is Eighty Million
(80,000,000), and each such Common Stock share is to have a par value of Six and Seventy-Five One
Hundredths Cents ($0.0675) per share.
FOURTH: That said amendment herein certified was duly adopted in accordance with Section 242 of the General Corporation
Law of the State of Delaware.
</TABLE>
The effective time of the amendment herein certified shall be February 23,
1995.
IN WITNESS WHEREOF, CALIFORNIA ENERGY COMPANY, INC. has caused this
Certificate to be executed and attested by the undersigned, this 23rd day of
February, 1995.
CALIFORNIA ENERGY COMPANY, INC.
By:/S/ DAVID W. COX
Name: David W. Cox
Title: Vice President
ATTEST:
By:/S/ DOUGLAS L. ANDERSON
Name: Douglas L. Anderson
Title: Assistant Secretary
<PAGE>
Exhibit 3.5
BY-LAWS AS AMENDED THROUGH FEBRUARY 24, 1995
B Y - L A W S
OF
CALIFORNIA ENERGY COMPANY, INC.
(Formerly Phydeaux Corporation)
a Delaware corporation
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
California Energy Company, Inc. (hereinafter called the "Corporation") shall be
held at 10:00 a.m. on such day in the month of May in each year as shall be
selected by the Chairman of the Board, or, failing such selection, by the Board
of Directors. At the annual meeting, the stockholders shall elect by a
plurality vote a board of directors (hereinafter referred to as "Board"), and
transact such other business as may properly be brought before the meeting. If
the annual meeting shall not be held on the day hereinabove provided for, the
Board shall cause the meeting to be held as soon thereafter as convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called for any purpose or purposes at any time only by the Board, or the
President, upon not less than ten nor more than fifty days written notice.
Special meetings may not be called by the stockholders.
SECTION 3. NOTICE OF MEETINGS. Notice of the place, date and time of
the holding of each annual and special meeting of the stockholders and, in the
case of a special meeting, the purpose or purposes thereof, shall be given
personally or by mail in a postage prepaid envelope to each stockholder
entitled to vote at such meeting, not less than ten nor more than fifty days
before the date of such meeting, and, if mailed, it shall be directed to such
stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, sign a waiver. Notice of an adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders may be held
at such place, within or without the State of Delaware, as the Board or the
officer calling the same shall specify in the notice of such meeting, or in a
duly executed waiver of notice thereof.
SECTION 5. QUORUM. (a) At all meetings of the stockholders, the
holders of a majority of the shares of stock of the Corporation issued and
outstanding and entitled to vote shall be present in person or by proxy to
constitute a quorum for the transaction of any business (except business
referred to in subsection (b) below), except when stockholders are required to
vote by class, in which event a majority of the issued and outstanding shares
of the appropriate class shall be present in person or by proxy, or except as
otherwise provided by statute. (b) At all meetings of the stockholders in which
the action to be taken requires the approval of sixty-six and two-thirds
percent (66 2/3%) of the issued and outstanding shares of stock entitled to
vote, the holders of sixty- six and two-thirds percent (66 2/3%) of the shares
of stock of the Corporation issued and outstanding and entitled to vote shall
be present in person or by proxy in order to constitute a quorum for the
transaction of any such business, except when stockholders are required to vote
by class, in which event, sixty-six and two-thirds percent (66 2/3%) of the
issued and outstanding shares of the appropriate class shall be present in
person or by proxy, or except as otherwise provided by statute. (c) In the
absence of a quorum, the holders of a majority of the shares of stock present
in person or by proxy and entitled to vote, or if no stockholder entitled to
vote is present, then any officer of the Corporation, may adjourn the meeting
from time to time. At any such adjourned meeting at which a quorum may be
present any business may be transacted which might have been transacted at the
meeting as originally called.
SECTION 6. ORGANIZATION. At each meeting of the stockholders the
Chairman of the Board, or in his absence or inability to act, the President, or
in the absence or inability to act of the Chairman of the Board or President, a
Vice President, or in the absence of all of the foregoing, any person chosen by
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a majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise required by statute or by the
Certificate of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of such stock standing in his name on
the record of stockholders of the Corporation on the date fixed by the Board as
the record date for the determination of the stockholders who shall be entitled
to notice of and to vote at such meeting; or at the close of business on the
day next preceding the day on which notice thereof shall be given, or if notice
is waived, at the close of business on the day next preceding the day on which
the meeting is held; or each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated
in the order of business for so delivering such proxies. No proxy shall be
valid after the expiration of three years from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the stockholder executing it, except in those cases where an irrevocable
proxy is permitted by law. Except as otherwise provided by statute, these
By-Laws, or the Certificate of Incorporation, any corporate action to be taken
by vote of the stockholders shall be authorized by a majority of the total
votes, or when stockholders are required to vote by class by a majority of the
votes of the appropriate class, cast at a meeting of stockholders by the
holders of shares present in person or represented by proxy and entitled to
vote on such action. Unless required to be advisable, the vote on any question
need not be by written ballot. On a vote by written ballot, each ballot shall
be signed by the stockholder voting, or by his proxy, if there be such proxy,
and shall state the number of shares voted.
SECTION 9. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at that meeting, arranged in alphabetical order, and showing
the addresses of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Whenever the
vote of stockholders at a meeting thereof is required or permitted to be taken
for or in connection with any corporate action, the meeting and vote of
stockholders can be dispensed with: (1) if all of the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken; or (2) unless the
Certificate of Incorporation provides otherwise, with the written consent of
the holders of not less than the minimum percentage of the total vote required
by statue for the proposed corporate action, and provided that prompt notice
must be given to all stockholders of the taking of corporate action without a
meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
statute or the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
SECTION 2. (A) NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE.
The business and affairs of the Corporation shall be managed and controlled by
a Board of Directors consisting of twelve persons. At the 1989 Annual Meeting
of Stockholders, the directors were divided into three classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 1990 Annual Meeting of Stockholders, the term of office of the second class
to expire at the 1991 Annual Meeting of Stockholders and the term of office of
the third class to expire at the 1992 Annual Meeting of Stockholders. At each
Annual Meeting of Stockholders following such initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding Annual
Meeting of Stockholders after their election. All directors shall be the age of
majority and need not be stockholders. Each director shall hold office until
the end of his term and until his successor shall have been duly elected and
qualified, or until his death, or until he shall have resigned, or have been
removed for cause, as hereinafter provided in these By-Laws or as otherwise
provided by statute or the Certificate of Incorporation.
(B) FILLING OF VACANCIES. Except as otherwise provided in Article II,
Section 11, any vacancies on the Board resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be
filled by a majority vote of the directors then in office, and directors so
chosen shall hold office for a term expiring at the Annual Meeting of
Stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of directors constituting the Board shall
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shorten the term of any incumbent director.
(C) REMOVAL. Any director, or the entire Board, may be removed from
office at any time, but only for cause and only by the affirmative vote of a
majority of the Board or the holders of at least sixty six and two thirds
percent (66 2/3%) of the voting power of all of the shares of the Corporation
entitled to vote for the election of directors. For the purposes of this
Paragraph (c), "cause" shall mean the willful and continuous failure of a
director substantially to perform such director's duties to the Corporation
(other than such failure resulting from incapacity due to physical or mental
illness) or the willful engaging by a director in gross misconduct materially
and demonstrably injurious to the Corporation.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board may be held at
such place, within or without the State of Delaware, as the Board may from time
to time determine or as shall be specified in the notice or waiver of notice of
such meeting.
SECTION 4. FIRST MEETING. The Board shall meet for the purpose of
organization, the election of officers, and the transaction of other business,
as soon as practicable after each Annual Meeting of Stockholders, on the same
day and at the same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any other time or
place (within or without the State of Delaware) which shall be specified in a
notice thereof given as hereinafter provided in Article II, Section 7.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board shall be
held at such time and place as the Board may from time to time determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting which would otherwise be held on
that day shall be held at the same hour on the next succeeding business day.
Notice of regular meetings of the Board need not be given except as otherwise
required by statute or these By-Laws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board may be called
by two or more directors of the Corporation or by the Chairman of the Board or
the President.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required) shall be
given by the Secretary as hereinafter provided in this Section 7, in which
notice shall be stated the time and place (within or without the State of
Delaware) of the meeting. Notice of each such meeting shall be delivered to
each director either personally or by telephone, facsimile, telegraph, cable or
wireless, at least twenty-four hours before the time at which such meeting is
to be held or by first-class mail, postage pre-paid, addressed to him at his
residence, or usual place of business, at least three days before the day on
which such meeting is to be held. Notice of any such meeting need not be given
to any director who shall, either before or after the meeting, submit a signed
waiver of notice or who shall attend such meeting without protesting, prior to
or at its commencement, the lack of notice to him. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
regular or special meeting need not state the purposes of such meeting.
SECTION 8. QUORUM AND MANNER OF ACTING. Three directors or one-third
of the entire Board, whichever is greater, shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and, except as otherwise expressly required by
statute or the Certificate of Incorporation, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present thereat, or if no director be present, the
Secretary may adjourn such meeting to another time and place, or such meeting,
unless it be the first meeting of the Board, need not be held. At any adjourned
meeting at which a quorum is present, any business may be transacted which
might have been transacted at the meeting as originally called. Except as
provided in Article III of these By-Laws, the directors shall act only as a
Board and the individual directors shall have no power as such.
SECTION 9. ORGANIZATION. At each meeting of the Board, the Chairman of
the Board (or, in his absence or inability to act, the President, or in his
absence or inability to act, another director chosen by a majority of the
directors present) shall act as chairman of the meeting and preside thereat.
The Secretary (or, in his absence or inability to act, any person appointed by
the chairman) shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 10. RESIGNATION. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board or Chairman
of the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its acceptance.
Unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 11. CERTAIN VACANCIES. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, unless sooner displaced. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
<PAGE>
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office. When one or more directors shall resign from the Board, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
action in the filling of other vacancies.
SECTION 12. COMPENSATION. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 14. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or by these By-Laws, members of the Board of
Directors may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
and such participation in a meeting shall constitute presence in person at the
meeting.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Board may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation. The Executive Committee shall consist of the Chairman of the Board
and such of the other members of the Board as shall be appointed pursuant to
the immediately preceding sentence. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution creating the committee, shall have and may
exercise the powers of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; provided, however, that in the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he, she or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such minutes to the Board when required. All such
proceedings shall be subject to revision or alteration by the Board; provided,
however, that third parties shall not be prejudiced by such revision or
alteration.
SECTION 2. GENERAL. A majority of any committee may determine its
action and fix the time and place of its meetings, unless the Board shall
otherwise provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Article II, Section 7. The Board shall
have any power at any time to fill vacancies in, to change the membership of,
or to dissolve any such committee. Nothing herein shall be deemed to prevent
the Board from appointing one or more committees consisting in whole or in part
of persons who are not directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority of the Board.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall include the Chairman of the Board, the Vice- Chairman of the Board, the
President, one or more Vice-Presidents (any of whom may be designated as
Executive Vice-President), the Chief Financial Officer, the Treasurer, the
Controller and the Secretary. Any two or more offices may be held by the same
person. Such officers shall be elected from time to time by the Board or by the
Chairman of the Board, each to hold office until his successor shall have been
duly elected or appointed and shall have qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws. The Board may from time to time elect, or the Chairman of the
Board may appoint, such other officers (including one or more Assistant
Vice-Presidents, Assistant Secretaries and Assistant Treasurers), and such
agents as may be necessary or desirable for the business of the Corporation.
Such other officers and agents shall have duties and shall hold their offices
for such terms as may be prescribed by the Board or by the appointing
authority.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
<PAGE>
SECTION 3. REMOVAL. Any officer or agent of the Corporation may be
removed, either with or without cause, at any time, by the Chairman of the
Board or by the vote of the majority of the entire Board at any meeting of the
Board . Such removal shall be without prejudice to the contractual rights, if
any, of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular elections or appointment to such
office.
SECTION 5. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
be the Chief Executive Officer and shall have general and active supervision
and direction over the management of the Corporation's business and over the
President and Chief Operating Officer and all of the Corporation's other
officers, agents and employees. The Chairman of the Board shall, if present,
preside at each meeting of the stockholders and of the Board and shall be an ex
officio member of all committees of the Board. The Chairman of the Board shall
perform all duties incident to the office of Chairman of the Board and such
other duties as may from time to time be assigned to him by the Board.
SECTION 6. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the Board
shall be responsible for assisting the Chairman of the Board and shall perform
all such duties as may from time to time be assigned to him by the Board.
<PAGE>
<PAGE>
SECTION 7. THE PRESIDENT. Unless the President's duties are otherwise
modified by the Chairman of the Board, the President shall, in consultation
with and subject to the direction of the Chairman of the Board, have general
and active management of the operations and business of the Corporation and
general and active supervision and direction over the affairs of the
Corporation and over all of its other officers, agents and employees (except
the Chairman of the Board and Chief Executive Officer). The President shall be
the Corporation's Chief Operating Officer and shall see that all duties of
subordinate officers are properly performed and that their responsibilities are
properly discharged. In performing such duties, the President shall report
directly to the Chairman of the Board and shall consult with the Chairman of
the Board and be subject to the direction of the Chairman of the Board
regarding significant decisions and strategic options for the Company. At the
request of the Chairman of the Board, or in the case of his absence or
inability to act, the President shall perform the duties of the Chairman of the
Board and when so acting shall have all the powers of, and be subject to, all
the restrictions upon, the Chairman of the Board. He shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Chairman of the Board and by these By-Laws.
SECTION 8. VICE PRESIDENTS. The Executive Vice-President and each
Vice-President shall have such powers and perform all such duties as from time
to time may be assigned to him by the Board or by the Chairman of the Board.
SECTION 9. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and have control of all books of account of the
Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation in such depositaries as may be designated by the Board;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever; (e) disburse the funds of the
Corporation and supervise the investment of its funds as ordered or authorized
by the Board, taking proper vouchers therefor;
(f) render the Chairman of the Board, the President and the Board,
whenever the Board or the Chairman of the Board may require, an account of the
financial condition of the Corporation; and
(g) in general, perform all the duties incident to the office of treasurer
and such other duties as from time to time may be assigned to him by the Board
or by the Chairman of the Board.
SECTION 10. THE SECRETARY. The secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to
be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept
and filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
or by the Chairman of the Board.
SECTION 11. OFFICERS' BONDS OR OTHER SECURITY. If required by the
Board, any officer of the Corporation shall give a bond or other security for
the faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
SECTION 12. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board; provided, however, that the Board may delegate to the
Chairman of the Board the power to fix the compensation of officers and agents
appointed by the Chairman of the Board. An officer of the Corporation shall not
be prevented from receiving compensation by reason of the fact that he is also
a director of the Corporation, but any such officer who shall also be a
director shall not have any vote in the determination of the amount of
compensation paid to him.
ARTICLE V
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
<PAGE>
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee, fiduciary or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding
was authorized by the Board.
SECTION 2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
director or officer in his capacity as a director or officer in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced if it
should be determined to be indemnified under this Article V or otherwise.
SECTION 3. CLAIMS. If a claim for indemnification or payment of
expenses under this Article V is not paid in full within ninety days after a
written claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action, the Corporation shall have the burden of proving
that the claimant was not entitled to the requested indemnification or payment
of expenses under applicable law.
SECTION 4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Article V shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 5. CONTRACTS AND ARRANGEMENTS. The Corporation may enter into
contracts providing indemnification to the full extent authorized or permitted
by the Delaware General Corporation Law and may create a trust fund, grant a
security interest and/or use other means (including, without limitation,
letters of credit, surety bonds and other similar arrangements) to ensure the
payment of such amounts as may become necessary to effect indemnification
pursuant to such contracts or otherwise.
SECTION 6. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article V shall not adversely affect any right or
protection of any person in respect of any act or omission occurring prior to
the time of such repeal or modification.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. EXECUTION OF CONTRACTS. Except as otherwise required by
statute, the Certificate of Incorporation or these By-Laws, any contracts or
other instruments may be executed and delivered in the name and on behalf of
the Corporation by such officer or officers (including any assistant officer)
of the Corporation as the Board may from time to time direct. Such authority
may be general or confined to specific instances as the Board may determine.
Unless authorized by the Board or expressly permitted by these By-Laws, an
officer or agent or employee shall not have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it pecuniarily liable for any purpose or to any amount.
SECTION 2. LOANS. Unless the Board shall otherwise determine, either
(a) the President or the Chairman of the Board, or (b) any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary, together with the
President or the Chairman of the Board, may effect loans and advances at any
time for the Corporation from any bank, trust company or other institution, or
from any firm, corporation or individual, and for such loans and advances may
make, execute and deliver promissory notes, bonds or other certificates or
evidence of indebtedness of the Corporation, but no officer or officers shall
mortgage, pledge, hypothecate or transfer any securities or other property of
the Corporation, except when authorized by the Board.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, bills of exchange
or other orders for the payment of money out of the funds of the Corporation,
and all notes or other evidences of indebtedness of the Corporation, shall be
signed in the name and on behalf of the Corporation by such persons and in such
manner as shall from time to time be authorized by the Board.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may from time
to time designate or as may be designated by any officer or officers of the
Corporation to whom such power of designation may from time to time be
delegated by the Board. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts and other orders
for the payment of money which are payable to the order of the Corporation may
be endorsed, assigned and delivered by any officer or agent of the Corporation,
or in such manner as the Board may determine by resolution.
SECTION 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from time
to time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may
designate or as may be designated by any officer or officers of the Corporation
<PAGE>
to whom such power of designation may from time to time be delegated by the
Board. The Board may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these By-Laws, as
it may deem expedient.
SECTION 6. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS.
Unless otherwise provided by resolution adopted by the Board, Chairman of the
Board, the President or a Vice President may from time to time appoint an
attorney or attorneys or agent or agents, of the Corporation, in the name and
on behalf of the Corporation to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation, any of the stock or other securities of which may be held by the
Corporation, at meetings of the holders of the stock or other securities of
such other corporation, or to consent in writing, in the name of the
Corporation as such holder, to any action by such other corporation, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the Corporation and under its corporate seal, or
otherwise, all such written proxies or other instruments as he may deem
necessary or proper.
ARTICLE VII
SHARES, ETC.
SECTION 1. STOCK CERTIFICATES. Each holder of stock of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board, certifying the number of shares of stock of the Corporation owned by
him. The certificates representing shares of stock shall be signed in the name
of the Corporation by the Chairman of the Board or the President or a
Vice-President and by the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer and sealed with the seal of the Corporation (which
seal may be a facsimile, engraved or printed); provided, however, that where
any such certificate is countersigned by a transfer agent other than the
Corporation or its employee, or is registered by a registrar other than the
Corporation or one of its employees, the signature of the officers of the
Corporation upon such certificates may be facsimiles, engraved or printed. In
case any officer who shall have signed or whose facsimile signature has been
placed upon such certificates shall have ceased to be such officer before such
certificates shall be issued, they may nevertheless be issued by the
Corporation with the same effect as if such officer were still in office at the
date of their issue.
SECTION 2. BOOKS OF ACCOUNT AND RECORD OF STOCKHOLDERS. The books and
records of the Corporation may be kept at such places within or without the
State of Delaware, as the Board may from time to time determine. The stock
record books and the blank stock certificate books shall be kept by the
Secretary or by any other officer or agent designated by the Board.
SECTION 3. TRANSFERS OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only upon
authorization by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary or
with a transfer agent or transfer clerk, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly
executed stock transfer power and the payment of all taxes thereon. Except as
otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or other
distributions, and to vote as such owner, and the Corporation may hold any such
stockholder of record liable for calls and assessments and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it
shall have express or other notice thereof. Whenever any transfers of shares
shall be made for collateral security and not absolutely, and both the
transferor and transferee request the Corporation to do so, such fact shall be
stated in the entry of the transfer.
SECTION 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation of
such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed, or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his
legal representative to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate, or the issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Delaware.
SECTION 6. STOCKHOLDER'S RIGHT OF INSPECTION. Any person who shall
have been a stockholder of record of the Corporation for at least six months
immediately preceding his demand, or any person holding, or thereunto
<PAGE>
authorized by the holders of, at least five percent of the outstanding shares
of stock of the Corporation, shall, in person or by attorney or other agent,
upon written demand under oath stating the purpose thereof, have the right
during the ordinary business hours to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the Corporation at its registered office in this State or at its principal
place of business.
SECTION 7. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at the meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
ARTICLE VIII
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be at 1209 Orange Street, Wilmington, County of
New Castle, Delaware. The name of the resident agent in charge thereof shall be
the Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices other than said principal office at such place or places, either within
or without the Sate of Delaware, as the Board shall from time to time determine
or the business of the Corporation may require.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be January 1 to December 31
of each year.
ARTICLE X
SEAL
The Board shall provide a corporate seal, which shall be in the form
of two concentric circles and bear the name of the Corporation and the words
and figures "Corporate Seal 1971 Delaware."
ARTICLE XI
AMENDMENTS
The Board shall have the power to amend these By-Laws by a majority
vote. Notwithstanding anything contained in these By-Laws to the contrary, the
stockholders may amend these By-Laws, but only by an affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the voting power of all shares of
the Corporation entitled to vote, except when stockholders are required to vote
by class, in which event sixty-six and two-thirds percent (66 2/3%) of the
voting power of that class shall be required.
<PAGE>
California Energy Company, Inc. Exhibit 11.0
Calculation of Earnings per share in Accordance
with Interpretive Release No. 34-9083
for the three years ended December 31, 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- -------
<S> <C> <C> <C>
Actual weighted average shares outstanding
for the period 33,187,971 35,454,539 33,414,139
Dilutive stock options and warrants using
average market prices 2,533,301 3,030,431 3,330,618
Preferred stock --- --- 786,712
----------- ----------- ----------
Total number of shares based on shares outstanding
and the assumption that
dilutive stock options and warrants will
be exercised at average market price 35,721,272 38,484,970 37,531,469
Additional dilutive stock options and
warrants using ending market price
and assuming conversion of convertible
debt* 4,444,444 --- 1,282,223
----------- ----------- ----------
Total shares based on shares outstanding
and the assumption that dilutive
stock options and warrants will be
exercised at the most dilutive of
ending or average market price 40,165,716 38,484,970 38,813,692
=========== =========== ==========
Income before change in accounting
principle and extraordinary item $ 38,834 $ 43,074 $ 38,810
Cumulative effect of change in
accounting principle --- 4,100 ---
Extraordinary item (2,007) --- (4,991)
----------- ----------- -----------
Net income 36,827 47,174 33,819
Less: Series C preferred stock dividends (5,010) (4,630) (4,275)
----------- ----------- -----------
Net income available for common shares $ 31,817 $ 42,544 $ 29,544
=========== =========== ==========
Primary earnings per share before
change in accounting principle
and extraordinary item $ .95 $ 1.00 $ .92
Change in accounting principle per share --- .11 ---
Extraordinary items per share (.06) --- (.13)
Primary earnings per share $ .89 $ 1.11 $ .79
=========== =========== ==========
Fully diluted earnings per share before change in accounting principle and
extraordinary item based on SEC
Interpretive Release No. 34-9083** $ .93 $ 1.00 $ .89
Change in accounting principle per share --- .11 ---
Extraordinary items per share (.05) --- (.13)
Fully diluted earnings per share based
on SEC interpretive release
No. 34-9083** $ .88 $ 1.11 $ .76
=========== =========== ==========
</TABLE>
*The ending market price on December 31, 1994 and 1993 was lower than the
average market price for the twelve month period ended December 31, 1994 and
1993. Accordingly, inclusion of an adjustment for stock options would be
antidilutive and, therefore, contrary to paragraph 40 of APB Opinion 15. The
repurchase of Company common stock had reduced the number of shares outstanding
and has necessitated the inclusion of the Debentures in the fully diluted
earnings per share calculation for the year ended December 31, 1994.
**The net income available for common shares for the year ended December 31,
1994 was increased by the interest expense, net of tax effect, associated with
the convertible debt of $3,475.
<PAGE>
Exhibit 13.0
FINANCIAL SUMMARY
In 1994, California Energy Company, Inc. produced record revenue, received
proceeds of $400 million from its issuance of Senior Discount Notes,
successfully closed financing and began construction of two geothermal
facilities in the Philippines, executed power purchase agreements for a 30 MW
geothermal pilot project to be constructed at Newberry, Oregon, secured three
additional power sales contracts in the Philippines and Indonesia, and
commenced the acquisition of Magma Power Company.
Revenues during 1994 increased to $185,854,000, a 25% increase from 1993
revenues of $149,253,000. The increase was due primarily to the contracted
annual energy price increase pursuant to the Coso Projects' power sales
contracts with Southern California Edison, and the commencement of commercial
operations of the 50 MW Yuma Cogeneration Project in late May 1994. During the
year, the plants comprising the Coso Project operated at an average 106.5%
capacity factor and received the maximum capacity and bonus payments available.
Income before the provision for taxes in 1994 was $55,836,000 as compared to
$61,258,000 in 1993. 1994 income reflects the effect of interest expense
resulting from the Company's issuance in March 1994 of 10 1/4% Senior Discount
Notes. Excluding the effects of the Notes issuance, income before provision for
taxes increased to $71,553,000 in 1994. Net income available to common
shareholders was $31,817,000 in 1994 compared to $42,544,000 in 1993. In March
1994, the Company recorded a one-time after tax charge to earnings of
$2,007,000 in connection with the defeasance of its 12% Senior Notes. In
January 1993, the Company adopted FAS 109, Accounting for Income Taxes, and
recorded a one-time noncash gain of $4,100,000. Excluding the effects of these
nonrecurring items, net income available to common shareholders was $33,824,000
in 1994 as compared to $38,444,000 in 1993.
In March 1994, the Company received proceeds of $400,000,000 from its issuance
of $529,640,000 aggregate principal amount Senior Discount Notes. The original
issue discount (the difference between $400,000,000 and $529,640,000) 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 paid semiannually on January
15 and July 15 of each year. The Senior Discount Notes, which are redeemable
after January 15, 1999 at the option of the Company, mature on January 15, 2004
and bear an interest rate of 10 1/4%.
In April 1994, the Company closed financing and shortly thereafter commenced
construction of the 128 GMW Upper Mahiao geothermal power project in the
Philippines. In August 1994, the Company closed financing and immediately
commenced construction of the 180 GMW Mahanagdong geothermal project, also in
the Philippines. In addition, the Company during 1994 secured power sales
contracts aggregating up to 970 GMW of geothermal and hydroelectric power in
the Philippines, Indonesia and Oregon. These achievements underscore the
Company's ability to identify, target, and successfully develop power
generation projects internationally and in the U.S.
In September 1994, the Company initiated the purchase of 51% of outstanding
shares of Magma Power Company ("Magma") as the first step in the acquisition of
the entire equity interest in Magma. Purchase of majority control was completed
in January 1995, and the remaining 49% of the outstanding equity was acquired
in late February 1995. Concurrently with purchase of the remaining 49% of
Magma, the Company closed an offering of 16,670,000 shares of common stock at a
price of $17.00 per share providing net proceeds to the Company of
$275,653,300. In addition, the Company received proceeds of $24,735,000 on the
sale of 1,500,000 shares pursuant to the exercise by the underwriters of the
over-allotment option in connection with the public offering.
Upon completion of the Magma acquisition, the Company has become the largest
independent geothermal power producer in the world. The Company has an
aggregate net ownership of 347 MW of electric generating capacity in power
production facilities in the United States having an aggregate net capacity of
553 MW. The Company also has an aggregate net ownership of 409 MW of electric
generating capacity in three geothermal power projects in the Philippines
having an aggregate net capacity of 500 MW, which projects are financed and
under construction. Furthermore, the Company has a net ownership interest of
935 MW in eight additional development projects with executed or awarded power
sales contracts representing an aggregate net 1,589 MW of electric generating
capacity in the Philippines, Indonesia, and the United States.
The achievements of 1994 demonstrate our commitment to the goal of becoming the
most cost effective developer and operator of environmentally responsible power
generation facilities in the world.
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
amounts in thousands except per share data
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Sales of electricity $152,047 $129,861 $115,087 $104,155 $89,026
Sales of steam 2,515 2,198 2,255 2,029 -----
Other income 31,292 17,194 10,187 9,379 7,787
Expense 130,018 87,995 76,797 80,697 81,248
Income before provision for income taxes 55,836 61,258 50,732 34,866
Income before change in accounting principle
and extraordinary item 38,834 43.074 38,810 26,582 12,043
Cumulative effect of change in accounting
principle ----- 4,100 ----- ----- -----
Extraordinary item (2,007) ----- (4,991) -----
Net income 36,827 47,174 33,819 26,582 12,043
Preferred dividends 5,010 4,630 4,275 ----- -----
Income per share before change in accounting
principle and extraordinary item .95 1.00 .92 .75 .44
Cumulative effect of change in accounting
principle ----- ----- ----- ----- -----
Extraordinary item per share (.06) ----- (.13) ----- -----
Net income per share .89 1.11 .79 .75 .44
Total assets 1,131,145 715,984 580,550 517,994 331,134
Total liabilities 867,703 425,393 336,272 298,146 331,134
Deferred income 19,851 20,228 21,164 22,015 2,926
Redeemable preferred stock 3,600 58,800 54,350 54,705 4,705
Stockholders' equity 179,991 211,503 168,764 143,128 55,088
Common stock cash dividends ----- ----- ----- ----- -----
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
dollars and shares in thousands except per share data
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 statements of
operations.
GENERAL
For purposes of consistency in financial presentation, the Plants comprising
the Coso Project (including the Navy I, Navy II, and BLM Plants) capacity
factors are based upon a nameplate rating of 88 gross MW ("GMW")/80 net MW
("NMW") for each plant. The Navy I and Navy II Plants each consist of a set of
three turbines located at a plant site. The BLM Plant consists of two turbines
at one site ("BLM East") and one turbine at another site ("BLM West"). Each
Plant possesses an operating margin which periodically allows for production in
excess of the nameplate rating listed above which produces plant capacity
factors in excess of 100%. Utilization of this operating margin is based upon a
variety of factors and can be expected to vary throughout the year under normal
operating conditions.
RESULTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Sales of electricity and steam increased to $154,562 in the year ended December
31, 1994 from $132,059 in the year ended December 31, 1993, a 17.0% increase.
This improvement was primarily due to a 2.4% increase in the Coso Project's
electric kWh sales to 2,238.6 million kWh from 2,186.7 million kWh, an
increased price per kWh in accordance with the SO4 agreements, and revenue
received from the Yuma Project, which commenced commercial operation in late
May, 1994. The increase in Coso Project kWh sales was primarily due to the
completion of new production wells. The increase in sales of electricity and
steam in 1993 to $132,059 from $117,342 in 1992 was primarily due to increasing
the Coso Project's electric kWh sales by 9.1% to 2,186.7 million kWh from
2,004.0 million kWh largely as a result of the drilling of additional
production wells, and the aforementioned increase in price per kWh pursuant to
the SO4 agreements.
<PAGE>
The following operating data includes the full capacity and electricity
production of the Coso Project only:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Overall Capacity Factor 106.5% 104.0% 95.1%
kWh Produced 2,238,600,000 2,186,700,000 2,004,000,000
Installed Capacity NMW (Average) 240 240 240
</TABLE>
The overall Coso Plant capacity factor was 109.3% in the fourth quarter of 1994
compared to 109.5%, 104.9% and 102.1% for the third, second and first quarters
of 1994, respectively. The Navy I Plant capacity factor was 114.0% in 1994,
compared to 111.2% and 99.8% in 1993 and 1992, respectively. The Navy II Plant
capacity factor was 105.9% in 1994 compared to 102.6% and 98.1% in 1993 and
1992, respectively. The BLM Plant capacity factor was 99.5% in 1994 compared to
98.1% and 87.2% in 1993 and 1992, respectively. The Navy II Plant, BLM Plant
and the Navy I Plant were overhauled in conjunction with scheduled maintenance
inspections in 1994, 1993 and 1992 respectively, resulting in a temporary
reduction of the plant capacity factor of approximately 3% in the specified
year. Electric sale price per kWh for the Coso Project varies seasonally in
accordance with the rate schedule included in the SO4 agreements. The price
consists of an energy payment based on the annualized contracted rate of 10.91
cents per kWh in 1994, 10.11 cents per kWh in 1993, and 9.23 cents per kWh in
1992, and constant annual capacity payments of which the Company's share was
approximately $5,600 to $5,900 per annum for each of the three power plants.
Capacity payments are significantly higher in the months of June through
September. Bonus payments are received monthly, of which the Company's share
was approximately $1,000 per annum for each of the three power plants.
The Coso Project's average electricity prices per kWh in 1994, 1993 and 1992
were comprised of (in cents):
<TABLE>
<CAPTION>
CAPACITY
ENERGY & BONUS TOTAL
<S> <C> <C> <C> <C>
Average fiscal 1994 10.91 1.90 12.81
Average fiscal 1993 10.11 1.93 12.04
Average fiscal 1992 9.23 2.10 11.33
</TABLE>
The Desert Peak and Roosevelt Hot Springs facilities ran at or near capacity
levels for each of the past three years. Steam sales from the Roosevelt Hot
Springs field were $2,185, $2,198, and $2,255 in 1994, 1993, and 1992,
respectively. Electric sales from Desert Peak were $5,281, $5,177 and $5,347
for the years 1994, 1993, and 1992, respectively. Electric and steam sales from
Yuma were $10,082 for approximately seven months in 1994.
Interest and other income increased in 1994 to $31,292 from $17,194 in 1993 and
from $10,187 in 1992. The increase reflects higher average cash balances
resulting from the issuance of the Senior Discount Notes, interest income on
notes receivable from the Coso Joint Ventures and interest income on the
Company's share of the cash reserves established in the refinancing of the Coso
Project debt in December, 1992.
<PAGE>
<PAGE>
The Company's cost per kWh* was as follows (in cents):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Plant operations (net of
Company's operator fees
and Yuma fuel cost) 1.54 1.64 1.65
General and administration .82 1.03 1.04
Royalties .62 .65 .61
Depreciation and amortization 1.34 1.39 1.33
Interest, less amounts
capitalized 3.33 1.82 1.17
Total 7.65 6.53 5.80
</TABLE>
*Cost per kWh includes electrical production from the Desert Peak and Yuma
facilities and the electrical production equivalent of the company's share of
geothermal steam produced at the Roosevelt Hot Springs Field.
The Company's expenses* as a percentage of sales of electricity and steam were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Plant operations (net of
Company's operator fees
and Yuma fuel cost) 15.8% 15.8% 17.7%
General and administration 8.4 10.0 11.1
Royalties 6.4 6.3 6.6
Depreciation and amortization 13.7 13.5 14.3
Interest, less amounts capitalized 34.2 17.7 12.7
Total 78.5% 63.3% 62.4%
</TABLE>
*Expenses as a percentage of electricity sales and steam sales include
electricity sales from the Desert peak and Yuma facilities and steam sales from
the Roosevelt Hot Springs field.
The Company's expenses, excluding interest, increased as a general result of
the greater electricity production of the Coso Project and the inclusion of the
costs from the Yuma plant which operated for seven months in 1994. However, in
1994, excluding Yuma fuel cost of $4,107, plant operations and general and
administration costs per kWh decreased from 1993. In addition, in 1993, plant
operations and general and administration costs per kWh also decreased from
1992.
The cost of plant operations increased to $33,015 in 1994 from $25,362 in 1993,
an increase of 30.2%. The increase is a result of the cost of plant operations
at Yuma. The cost of plant operations increased to $25,362 in 1993 from $24,440
in 1992, an increase of 3.8%. General and administration costs decreased to
$13,012 in 1994 compared to $13,158 in 1993 a 1.1% decrease. General and
administration costs increased to $13,158 in 1993 from $13,033 in 1992, a 1.0%
increase. However, for 1994, 1993, and 1992, excluding Yuma fuel cost, both
plant operations and general and administration costs per kWh continued to
decrease due to a proportionally greater increase in electrical production than
plant operations and general administration costs. Plant cost per kWh decreased
to 1.54 cents in 1994 from 1.64 cents in 1993 and 1.65 cents in 1992. General
and administration cost per kWh decreased to .82 cents in 1994 from 1.03 cents
in 1993 and 1.04 cents in 1992.
Royalty costs increased to $9,888 in 1994 from $8,274 in 1993, an increase of
19.5% due to higher electrical sales and effective royalty rate. Royalty costs
increased to $8,274 in 1993 from $7,710 in 1992, an increase of 7.3%. This
increase was due to higher electrical sales and effective royalty rate.
Overall, the royalty cost per kWh was 0.62 cents in 1994 compared to 0.65 cents
in 1993 and 0.61 cents in 1992. The 1994 royalty cost per kWh decreased as a
result of the production at Yuma which is not burdened by royalty payments.
Excluding Yuma electricity production, the Company's royalty cost per kWh was
0.73 cents in 1994.
Depreciation and amortization expense increased to $21,197 in 1994 from $17,812
<PAGE>
and $16,754 in 1993 and 1992, respectively, a 19.0% increase from 1994 to 1993,
and a 6.3% increase from 1993 to 1992. Depreciation and amortization expense
for 1994 was 1.34 cents per kWh compared to 1.39 cents per kWh in 1993 and 1.33
cents per kWh in 1992. The dollar increase in 1994 was due to the completion of
H2S abatement systems, vacuum pumps at the Coso plants, increased number of
wells, and the commencement of Yuma operations. The increase in 1993 was due to
additional capitalized costs associated with the settlement of litigation as
well as additional wells and gathering systems.
Interest expense, less amounts capitalized, increased to $52,906 in 1994 from
$23,389 in 1993, an increase of 126.2%, or 3.33 cents per kWh in 1994, compared
to 1.82 cents per kWh in 1993. Net interest expense increased to $23,389 in
1993 from $14,860, or 1.17 cents per kWh in 1992. Net interest expense in 1994
increased due primarily to the Company's issuance of Senior Discount Notes in
March 1994. The increase in 1993 was due to a higher weighted average interest
rate, higher levels of indebtedness associated with the Coso Project, and the
issuance of Convertible Subordinated Debentures in June 1993. The short-term
variable rate debt on the Coso Project was refinanced in 1992 with longer-term
fixed rate debt. The weighted average interest rate on the Coso Project debt
was 8.1%, 7.9%, and 5.4% in 1994, 1993, and 1992 respectively.
The provision for income taxes decreased to $17,002 in 1994 from $18,184 in
1993, and increased to $18,184 in 1993 from $11,922 in 1992. The effective tax
rate was 30.5%, 29.7% and 23.5% in 1994, 1993, and 1992. The increase in the
1993 effective tax rate was a result of adopting Financial Accounting Standard
109 ("FAS 109").
Income before the provision for income taxes decreased 8.9% to $55,836 in 1994
from $61,258 in 1993. Net income after an extraordinary item was $36,827 and
net income available to common shareholders was $31,817 or $.89 per common
share for the year ended December 31, 1994. This compares to net income of
$47,174 after the cumulative effect of a change in accounting principle and net
income available to common shareholders of $42,544 or $1.11 per common share
for the year ended December 31, 1993. Net income before an extraordinary item
for the year ended December 31, 1994 was $38,834 or $.95 per common share
versus net income before the cumulative effect of a change in accounting
principle of $43,074 or $1.00 per common share in 1993. This compares to net
income of $33,819 after an extraordinary item and net income available to
common shareholders of $29,544 or $.79 per common share for 1992.
Earnings per share in 1994, 1993, and 1992 were favorably impacted by the
Company's stock repurchase plan.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $304,004 at December 31, 1994 as compared
to $127,756 at December 31, 1993. In addition, the Coso Project retained cash
and investments in project control accounts of which the Company's share was
$54,087 and $14,943 at December 31, 1994 and 1993, respectively. Distributions
out of the project control accounts 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 to these liquid instruments, the
Company recorded separately restricted cash of $131,775 and $48,105 at December
31, 1994 and 1993, respectively. The restricted cash balance in 1994 was
comprised primarily of amounts deposited in restricted accounts from which the
Company will provide all of its equity contribution requirements relating to
the Upper Mahiao and Mahanagdong projects and also comprise and the Company's
proportionate share of Coso Project cash reserves for the fully-funded debt
reserve funds.
Accounts receivable normally represents two months of revenues, and fluctuates
with both production and price per kWh.
The balance due from/to the Joint Ventures relates to operations, maintenance,
and management fees for managing the Coso Project as well as advances on the
international projects. This amount fluctuates based on the timing of billings
and incurrence of costs.
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.
Simultaneous with the closing of the Senior Discount Notes (see Note 7 of the
Notes to the Consolidated Financial Statements), the Company used approximately
$39,000 to defease and provide for the repayment of the entire aggregate
principal amount of Senior Notes outstanding. The Senior Notes, in the
aggregate principal amount of $35,730, mature in March 1995 and bear interest
at the rate of 12% per annum, plus contingent interest, calculated by reference
to the Company's share of the cash flow from the Coso Project through December
31, 1994.
In June of 1993, the Company issued $100,000 principal amount of 5% convertible
subordinated debentures (the "Convertible Subordinated Debentures") due July
31, 2000. The Convertible Subordinated Debentures are convertible into shares
<PAGE>
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 Convertible Subordinated Debentures is payable
semi-annually in arrears on July 31 and January 31 each year, commencing on
July 31, 1993. The Convertible Subordinated Debentures are redeemable for cash
at any time on or after July 31, 1996 at a redemption price of (expressed in
percentages of the principal amount) 102%, 101%, 100% and 100% in 1996, 1997,
1998 and 1999, respectively. The Convertible Subordinated Debentures are an
unsecured general obligation of the Company and subordinated to all existing
and future senior indebtedness of the Company.
In December 1992, the Company refinanced the existing bank debt of the Coso
Project utilizing a single purpose corporation, Coso Funding Corp., to issue
the notes (see Note 5 of the Notes to the Consolidated Financial Statements).
As of December 31, 1994 and 1993 the Company's proportionate share of the Coso
Project loan was $233,080 and $246,880, respectively. The Coso Funding Corp.
notes have remaining terms of up to seven years and different fixed interest
rates for each tranche. The underlying project loans have identical terms as
the Coso Project loans and are also non-recourse to the Company.
On June 9, 1993, MPE and the Mission Power Group, subsidiaries of SCECorp., and
the Coso Joint Ventures reached a final settlement of all of their outstanding
disputes and claims relating to the construction of the Coso Project. As a
result of the various payments and releases involved in such settlement, the
Coso Joint Ventures agreed to make a net payment of $20,000 to MPE from the
cash reserves of the Coso Project contingency fund and MPE agreed to release
its mechanics' liens on the Coso Projects. After making the $20,000 payment,
the remaining balance of the Coso Project contingency fund (approximately
$49,300) was used to increase the Coso Project debt reserve fund from
approximately $43,000 to its maximum fully-funded requirement of $67,900. The
remaining $24,400 balance of the contingency fund was retained within the Coso
Project for future capital expenditures and for Coso Project debt service
payments. Since the Coso Project debt service reserve is fully funded in
advance, Coso Project cash flows otherwise intended to fund the Coso Project
debt service reserve funds, subject to satisfaction of certain covenants and
conditions contained in the Coso Joint Ventures' refinancing documents, are
available for distribution to the Company in its proportionate share.
The Company repurchased 3,765 common shares during 1994 for the aggregate
amount of $65,119. The Company repurchased 157 shares of common stock in 1993
at an aggregate amount of $2,897. As of December 31, 1994 the Company holds
3,800 shares of treasury stock at a cost of $65,774 to provide shares for
issuance under the Company's employee stock option and share purchase plans and
other outstanding convertible securities. The repurchase plan attempts to
minimize the dilutive effect of the additional shares issued under these plans.
Subsequent to year end these shares were issued in a public offering associated
with the Magma transaction.
The Company is actively engaged in the acquisition of, and is seeking to
develop, construct, own and operate power projects utilizing geothermal and
other technologies, both domestically and internationally, the completion of
any of which is subject to substantial risk. The Company is currently pursuing
a number of international power project opportunities in countries where
private power generation programs have been initiated, including the
Philippines and Indonesia. Development can require the Company to expend
significant sums for preliminary engineering, 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 financeable. 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 for the acquisition or development and construction of
electric power projects. To the extent the Company engages in international
development efforts, the financing and development of projects 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 that
the Company may not be fully capable of insuring against. There can be no
assurance that development efforts on any particular project, or the Company's
acquisition or development efforts generally, will be successful.
In particular, the Company is developing a number of international projects,
for which it may have significant capital requirements. In 1995, the Company
intends to incur approximately $41,000 for international development efforts.
In addition to its international projects, the Company intends to incur its
share of domestic geothermal capital expenditures in the approximate aggregate
amount of $31,000. The Company's planned capital spending includes, among other
things, its share of recurring Coso Project capital expenditures, as well as
development of the Newberry Project in the Pacific Northwest.
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 December 31, 1994, draws on the construction loan totalled $24,508,
equity investments made by a subsidiary of the Company totalled $14,048, and
<PAGE>
the Company has invested $9,998. 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-Operate-Transfer ("BOOT"), in which the Company's subsidiary
CE Cebu Geothermal Power Company, Inc. ("CE Cebu"), the project company, will
be responsible for implementing construction of the geothermal power plant and,
as owner, for providing operations and maintenance during the ten year BOOT
period. 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.
The electricity generated by the Upper Mahiao geothermal power plant will be
sold to the Philippine National Oil Company - Energy Development Corporation
("PNOC-EDC"), on a "take or pay" basis, which is also responsible for supplying
the facility with the geothermal steam. PNOC-EDC will be obligated to pay for
the electric capacity that is nominated each year by CE Cebu, irrespective of
whether PNOC-EDC is willing or able to accept delivery of such capacity.
PNOC-EDC will pay to CE Cebu a fee (the "Capacity Fee") based on the plant
capacity nominated to PNOC-EDC in any year (which, at the plant's design
capacity, is approximately 95% of total contract revenues) and a fee (the
"Energy Fee") based on the electricity actually delivered to PNOC-EDC
(approximately 5% of total contract revenues). The Capacity Fee serves to
recover the capital costs of the project, to recover fixed operating costs and
to cover return on investment. The Energy Fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under the Upper
Mahiao Energy Conversion Agreement ("ECA") will be denominated in U.S. dollars,
or computed in U.S. dollars and paid in Philippine pesos at the then-current
exchange rate, except for the Energy Fee, which will be used to pay Philippine
peso-denominated expenses. The convertibility of Philippine peso receipts into
U.S. dollars is insured by OPIC. Significant portions of the Capacity Fee and
Energy Fee will be indexed to U.S. and Philippine inflation rates,
respectively. PNOC-EDC's payment requirements, and its other obligations under
the Upper Mahiao ECA are supported by the Government of the Philippines through
a performance undertaking.
In August 1994, the Company closed the financing for the 180 GMW Mahanagdong
project located in the Philippines. The total project cost for the facility is
approximately $320 million. The capital structure consists of a term loan of
$240 million and approximately $80 million in equity contributions. OPIC and a
consortium of commercial lenders led by Bank of America NT&SA is providing the
construction debt financing facility. The debt provided by the commercial
lenders is insured against political risk by the Ex-Im Bank. Ten-year term debt
financing (which will replace the construction debt) will be provided by Ex-Im
Bank and by OPIC. The Mahanagdong project has commenced construction and as of
December 31, 1994, the Company's proportionate share of draws on the
construction loan totalled $6,995, equity investments made by a subsidiary of
the Company totaled $3,899, and the Company has invested $10,549. OPIC is
providing political risk insurance on the equity. The Mahanagdong project has
begun construction and is targeted for service in July, 1997. As with the Upper
Mahiao project, the Mahanagdong project is structured as a ten-year
Build-Own-Operate-Transfer ("BOOT"), in which the Company will be responsible
for implementing construction of the geothermal power plant and, as owner, for
providing operations and maintenance for the ten- year BOOT period. 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. 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. The turnkey contractor consortium
consists of Kiewit Construction Group, Inc. (with an 80% interest) and The Ben
Holt Co., a wholly owned subsidiary of the Company (with a 20% interest).
The electricity generated by the Mahanagdong project will be sold to PNOC-EDC,
on a "take or pay" basis, which is also responsible for supplying the facility
with the geothermal steam. The terms of the Mahanagdong ECA are substantially
similar to those of the Upper Mahiao ECA. All of PNOC-EDC's obligations under
the Mahanagdong ECA are supported by the Government of the Philippines through
a performance undertaking. The Capacity Fees are expected to be approximately
97% of total revenues at the design capacity levels and the Energy Fees are
expected to be approximately 3% of such total revenues.
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. YCA, a wholly owned
subsidiary of the Company, received all outstanding amounts due from SDG&E.
The Company has acquired all of the outstanding equity interest in Magma Power
Company ("Magma") in a two-step transaction according to the terms of a merger
agreement whereby on January 10, 1995, the Company acquired approximately 51%
of the outstanding shares of Magma common stock (the "Magma Common Stock")
through a cash tender offer (the "Magma Tender Offer") and on February 24, 1995
the Company acquired the remaining 49% of Magma Common Stock not owned by the
Company through a merger (the "Merger"). Each outstanding share of Magma Common
Stock (other than shares of Magma Common Stock held by the Company, CE
Acquisition Company, Inc., a wholly owned subsidiary of the Company, or any
other direct or indirect subsidiary of the Company and shares of Magma Common
Stock held in the treasury of Magma) was converted into the right to receive an
average of approximately $38.75 per share of Magma Common Stock. The Company
paid the Merger consideration solely in cash, funded with the net proceeds of a
public common stock offering of 15,170 shares (the "Offering"), and the
proceeds of a direct sale of 1,500 shares to Peter Kiewit Sons', Inc. (the
"Direct Sale") at $17.00 per share which together netted $275,653, borrowings
of $500,000 under bank credit facilities, and general corporate funds of the
Company. In addition, the Company received over-allotment proceeds of $24,735
<PAGE>
on the sale of 1,500 shares. Magma is engaged in independent geothermal power
operations and development activities similar to those of the Company.
The Magma Tender Offer was financed with a $245,600 facility from Credit Suisse
(the "Tender Facility"). Loans under the Tender Facility were made to the
Company on a non-recourse basis, secured by the magma Stock acquired, and the
Company lent the proceeds of such loans to Magma in exchange for a secured term
note of Magma (the "Tender Note"). The loans under the Tender Facility were
repaid from funds received from the Merger Facilities.
A total of approximately $957,000 was required to refinance the Tender Facility
and to complete the Magma acquisition (the "Magma Acquisition"). Up to $500,000
in secured bank financing was provided by Credit Suisse (the "Merger
Facilities") on specified terms and subject to customary conditions. Such funds,
together with the net proceeds of the Offering and over-allotment, the proceeds
of the Direct Sale and general corporate funds of the Company, were used to
complete the Magma Acquisition.
The Merger Facilities are comprised of (i) a six-year term loan ("Term Loan A")
in a principal amount of up to the difference between $500,000 and the
principal amount of Term Loan B (as defined below), to be amortized in
semi-annual payments, and (ii) an eight-year term loan ("Term Loan B") in a
principal amount of $150,000, to be amortized in semi-annual payments in the
seventh and eighth years of such Term Loan. Loans under the Merger Facilities
were made to the Company on a non-recourse basis, and the Company lent the
proceeds of such loans to Magma in exchange for a secured term note of Magma
(the "Magma Note"). The loans under the Merger Facilities will be amortized
from payments received by the Company from Magma on the Magma Note which is
expected to be amortized from internally generated funds of Magma. Loans under
the Merger Facilities are secured by an assignment and pledge by the Company of
the Magma Note and 100% of the capital stock of Magma. The Magma Note is
secured by an assignment of certain unencumbered assets of Magma.
Interest on loans under the Merger Facilities are payable at spreads of 2.50%
above LIBOR (adjusted for reserves) or 1.50% above the Base Rate for Term Loan
A, and 3.00% above LIBOR (adjusted for reserves) or 2.00% above the Base Rate
for Term Loan B. The LIBOR spreads are subject to upward adjustment in certain
instances. The Company may elect to have loans bear interest based on either
LIBOR or the Base Rate (as defined in the Merger Facilities).
The Merger Facilities contain affirmative and negative covenants customary for
similar non-recourse credit facilities. Such covenants include a negative
pledge of all stock and unencumbered assets of Magma; a limitation on
guaranties by Magma; a limitation on mergers and sales of assets by Magma; a
limitation on investments in other persons by Magma; a prohibition on dividends
and other payments by Magma to the Company unless the proceeds are used to pay
down the Merger Facilities; a prohibition on the sale of ownership interests in
Magma; a limitation on the incurrence of additional debt by Magma; a
requirement that the Company deliver each fiscal quarter a certificate as to
the absence of material adverse changes in the Company or Magma which could
reasonably be expected to materially affect the ability of the Company to repay
the Merger Facilities or the ability of the lenders to realize on the
collateral for the Merger Facilities; and a restriction on a change in the
nature of the business of the Company and Magma.
The Merger Facilities also contain financial covenants and customary events of
default, including events of default based on breaches of certain
representations, warranties and covenants; cross defaults with respect to
certain debt of the Company and Magma; bankruptcy and similar events; the
failure to pay certain final judgments; the failure to make a payment with
respect to the Merger Facilities when due; and the failure of the pledge
agreement with respect to the capital stock of Magma and the Magma Note to be
in full force and effect.
Inflation has not had a substantial impact on the Company's operating revenues
and costs. The Coso Project's energy payments for electricity will continue to
be based upon scheduled rate increases through the initial ten-year period of
each SO4 Agreement. Prior to the Coso Project refinancing, the Project Loans
relating to the Coso Project were generally for periods up to twelve months at
LIBOR plus a specified margin. Accordingly, the interest rates on the loans
varied and over the operating period resulted in fluctuating interest payments.
The refinanced Coso Project debt has fixed interest rates.
ADOPTION OF FINANCIAL ACCOUNTING STANDARD NO. 109
On January 1, 1993, the Company adopted FAS 109. 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 represents the recognition of the Company's tax credit carryforwards
as a deferred tax asset. There was no cash impact to the Company upon the
required adoption of FAS 109. Under FAS 109, the effective tax rate increased
at the time of adoption as a result of the tax credit carryforwards being
recognized as an asset and unavailable to reduce the current period's effective
tax rate for computing the Company's provision for income taxes. The effective
tax rate continues to be less than the statutory rate primarily due to the
depletion deduction and the generation of energy credits in 1994. The
significant components of the deferred tax liability are the temporary
differences between the financial reporting bases and income tax bases 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 and alternative minimum tax carryforwards.
<PAGE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and December 31, 1993
dollars and shares in thousands, except per share amounts
<TABLE>
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and investments $254,004 $127,756
Joint venture cash and investments (Note 5) 54,087 14,943
Restricted cash (Notes 4, 5 and 6) 131,775 48,105
Short-term investments 50,000 ---
Accounts receivable 28,272 21,658
Due from Joint Ventures --- 1,394
Properties and plants, net (Notes 4, 5, and 6) 556,992 458,974
Equipment, net of accumulated depreciation of
$5,023 and $4,773 4,651 4,540
Notes receivable - Joint Ventures (Note 15) 12,627 11,280
Deferred charges and other assets 38,737 27,334
Total assets $1,131,145 $ 715,984
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 1,679 $ 607
Other accrued liabilities 42,658 19,866
Income taxes payable (Note 10) --- 4,000
Project finance loans (Note 5) 233,080 246,880
Construction loans (Note 6) 31,503 ---
Due to Joint Ventures 269 ---
Senior notes (Note 8) --- 35,730
Senior discount notes (Note 7) 431,946 ---
Convertible subordinated debentures (Note 9) 100,000 100,000
Deferred income taxes (Note 10) 26,568 18,310
Total liabilities 867,703 425,393
Deferred income (Note 4) 19,851 20,288
Commitments and contingencies (Notes 3, 14 and 17)
Redeemable preferred stock (Note 11) 63,600 58,800
Stockholders' equity (Notes 12, 13, and 17):
Preferred stock - authorized 2,000 shares,
no par value (Note 11) --- ---
Common stock - authorized 60,000 shares,
par value $0.0675 per share
issued and outstanding 31,849 and 35,446 shares 2,407 2,404
Additional paid in capital 100,421 100,965
Retained earnings 142,937 111,031
Treasury stock - 3,800 and 157 common shares at cost (65,774) (2,897)
Total stockholders' equity 179,991 211,503
Total liabilities and
stockholders' equity $1,131,145 $ 715,984
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three years ended December 31, 1994
dollars and shares in thousands, except per share amounts
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenue:
Sales of electricity and steam $154,562 $132,059 $117,342
Interest and other income 31,292 17,194 10,187
Total revenues 185,854 149,253 127,529
Cost and expenses:
Plant operations 33,015 25,362 24,440
General and administration 13,012 13,158 13,033
Royalties 9,888 8,274 7,710
Depreciation and amortization 21,197 17,812 16,754
Interest 62,837 30,205 20,459
Less interest capitalized (9,931) (6,816) (5,599)
Total expenses 130,018 87,995 76,797
Income before provision for income taxes 55,836 61,258 50,732
Provision for income taxes (Note 10) 17,002 18,184 11,922
Income before change in accounting principle
and extraordinary item 38,834 43,074 38,810
Cumulative effect of change in accounting
principle (Note 10) --- 4,100 ---
Extraordinary item (Note 16) (2,007) --- (4,991)
Net income 36,827 47,174 33,819
Preferred dividends 5,010 4,630 4,275
Net income available to common stockholders $31,817 $42,544 $29,544
Income per share before change in accounting
principle and extraordinary item $.95 $ 1.00 $ .92
Cumulative effect of change in accounting
principle (Note 10) --- .11 ---
Extraordinary item (Note 16) (.06) --- (.13)
Net income per share assuming no dilution $ .89 $ 1.11 $ .79
Average number of shares outstanding 35,721 38,485 37,495
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years ended
December 31, 1994 dollars and shares in thousands
<TABLE>
<CAPTION>
Outstanding Additional
Common Common Paid-In Retained Treasury
Shares Stock Capital Earnings Stock
Total
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 32,712 $2,208 $100,170 $40,750 --- $143,128
Exercise of stock options 1,544 67 2,764 --- --- 2,831
Exercise of warrants 612 41 1,206 --- --- 1,247
Issue costs on stock --- --- (96) --- --- (96)
Purchases/issuances of treasury stock
for exercise of options and warrants,
net of proceeds of $797 (565) --- (4,090) --- --- (4,090)
Preferred stock dividends, Series B & C,
including cash distributions of $134 --- --- --- (6,162) --- (6,162)
Retirement of warrants --- --- (11,716) --- --- (11,716)
Tax benefit from stock plan --- --- 3,420 --- --- 3,420
Net income before preferred dividends --- --- --- 33,819 --- 33,819
Conversion of preferred stock
to common stock 955 64 6,319 --- --- 6,383
Balance December 31, 1992 35,258 2,380 97,977 68,407 --- 168,764
Exercise of stock options 258 18 937 --- --- 955
Issuance of stock for purchase of
The Ben Holt Co. 87 6 1,551 --- --- 1,557
Purchase of treasury stock (157) --- --- --- (2,897) (2,897)
Preferred stock dividends, Series C,
including cash distributions of $100 --- --- --- (4,550) --- (4,550)
Tax benefit from stock plan --- --- 500 --- --- 500
Net income before preferred dividends --- --- --- 47,174 --- 47,174
Balance December 31, 1993 35,446 2,404 100,965 111,031 (2,897) 211,503
Exercise of stock options 46 3 379 --- --- 382
Purchase of treasury stock (3,765) --- --- --- (65,119) (65,119)
Exercise of stock options from treasury
stock 96 --- (1,473) --- 1,772 299
Employee stock purchase plan issues
from treasury stock 26 --- (122) --- 470 348
Preferred stock dividends, Series C,
including cash distribution of $121 --- --- --- (4,921) --- (4,921)
Tax benefit from stock plan --- --- 672 --- --- 672
Net income before preferred dividends --- --- --- 36,827 --- 36,827
Balance December 31, 1994 31,849 $ 2,407 $100,421 $142,937 $(65,774) $179,991
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three years ended December 31,
1994 dollars in thousands
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 36,827 $ 47,174 $33,819
Adjustments to reconcile net cash flow from operating activities:
Depreciation and amortization 21,197 17,812 16,754
Amortization of original issue discount 31,946 --- ---
Amortization of deferred financing costs 1,687 1,013 967
Expense of previously deferred financing costs 198 --- 3,895
Provision for deferred income taxes 8,258 3,098 3,645
Changes in other items:
Accounts receivable (6,614) (5,486) 1,279
Accounts payable and other accrued liabilities 23,864 (784) (7,082)
Deferred income (437) (876) (851)
Income tax payable (4,500) 4,000 (1,202)
Other assets --- (177) 814
Net cash flows from operating activities 112,426 65,774 52,038
Cash flows from investing activities:
Capital expenditures relating to power plants (26,347) (10,295) (6,711)
Well and resource development expenditures for existing projects (11,370) (16,565) (19,203)
Acquisition of equipment (361) (1,104) (1,093)
Magma acquisition costs (3,043) --- ---
Upper Mahiao - construction in progress (48,554) --- ---
Mahanagdong - construction in progress (21,443) --- ---
Other international development (2,445) --- ---
Pacific Northwest, Nevada, and Utah exploration costs (8,493) (19,060) (4,145)
Yuma - construction in progress --- (40,167) (1,294)
Transmission line deposit --- 7,684 (118)
Increase in short-term investment (50,000) --- ---
Decrease (increase) in restricted cash (83,670) 14,409 9,882
Decrease (increase) in other investments 1,847 941 (14,503)
Net cash flows from investing activities (253,879) (64,157) (37,185)
Cash flows from financing activities:
Proceeds from sale of common, treasury and preferred
stocks and exercise of warrants and options 1,580 2,912 8,065
Repayment of project finance loans --- --- (17,098)
Repayment of project loans (13,800) (16,724) (6,277)
Retirement of project finance loans --- --- (204,210)
Defeasance of senior notes (35,730) --- ---
Proceeds from issue of Senior Discount Notes 400,000 --- ---
Proceeds from refinancing --- --- 269,881
Proceeds from issue of convertible subordinated debentures --- 100,000 ---
Increase in restricted cash related to the refinancing --- --- (65,670)
Deferred charges relating to senior discount note (11,477) --- ---
Construction loans 31,503 --- ---
Deferred charges relating to debt financing (428) (2,582) (2,937)
Decrease (increase) in amounts due from Joint Ventures 316 (3,146) 6,198
Purchase of warrants --- --- (11,716)
Purchase of treasury stock (65,119) (2,897) (4,887)
Net cash flows from financing activities 306,845 77,563 (28,651)
Net increase (decrease) in cash and investments 165,392 79,180 (13,798)
Cash and investments at beginning of period 142,699 63,519 77,317
Cash and investments at end of period $308,091 $142,699 $63,519
Interest paid (net of amounts capitalized) $ 12,624 $20,136 $19,237
Income taxes paid $ 4,926 $6,819 $4,129
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the three years ended December 31, 1994
dollars and shares in thousands, except per share amounts
1. BUSINESS
California Energy Company, Inc. (the "Company") was formed in 1971. It
is primarily engaged in the exploration for and development of
geothermal resources and conversion of such resources into electrical
power and steam for sale to electric utilities, and the development of
other environmentally responsible forms of power generation.
The Company has organized several partnerships and Joint Ventures
(herein referred to as Coso Joint Ventures) in order to develop
geothermal energy at the China Lake Naval Air Weapons Station, Coso
Hot Springs, China Lake, California. Collectively, the projects
undertaken by these Coso Joint Ventures are referred to as the Coso
Project. The Company is the operator and holds interests between 46.4%
and 50% in the Coso Joint Ventures after payout. Payout is achieved
when a Coso Joint Venture has returned the initial capital to the Coso
Joint Venturers. In addition, the Company is exploring geothermal
resources in Northern California, Washington and Oregon (collectively
the Pacific Northwest). In January 1991, the Company acquired a power
plant and an interest in steam fields in Nevada and Utah (See Note 4
Nevada and Utah Properties). In 1992, the Company entered into the
natural gas-fired electrical generation market through the purchase of
a development opportunity in Yuma, Arizona. Commercial operation of
the Yuma project commenced in late May 1994. In 1993, the Company
started developing a number of international power project
opportunities where private power generating programs have been
initiated, including the Philippines and Indonesia. In addition, in
January 1995, the Company acquired approximately 51% of Magma Power
Company ("Magma") and completed the acquisition in February 1995 by
acquiring the remaining percentage of approximately 49% of Magma
Common Stock. (See Note 17).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, and its proportionate share of
the Coso Joint Ventures in which it has invested. All significant
inter-enterprise transactions and accounts have been eliminated.
INVESTMENTS AND RESTRICTED CASH
Investments other than restricted cash are primarily commercial paper
and money market securities. The restricted cash balance includes such
securities and mortgage backed securities, and is mainly composed of
amounts deposited in restricted accounts from which the Company will
source its equity contribution requirements relating to the Upper
Mahiao and Mahanagdong projects and of the Coso Joint Ventures' debt
service reserve funds. The debt service reserve funds are legally
restricted to their use and require the maintenance of specific
minimum balances.
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 ("FAS 115")
"Accounting for Certain Investments in Debt and Equity Securities".
Adoption of FAS 115 had no material effect on the Company's individual
or combined financial position or results or operations. FAS 115
requires the classification of the Company's investments and the
accounting for changes in fair value, as follows:
Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported at
amortized cost.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings.
Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholders'
equity.
At December 31, 1994, all of the Company's investments are classified
as held-to-maturity and are accounted for at their amortized cost
basis. The carrying amount of the investments approximates the fair
value based on quoted market prices as provided by the financial
institutions which hold the investments.
<PAGE>
WELL, RESOURCE DEVELOPMENT AND EXPLORATION COSTS
The Company follows the full cost method of accounting for costs
incurred in connection with the exploration and development of
geothermal resources. All such costs, which include dry hole costs and
the cost of drilling and equipping production wells, as well as
directly attributable administrative and interest costs, are
capitalized and amortized over their estimated useful lives when
production commences. The estimated useful lives of production wells
are ten years each; exploration costs and development costs, other
than production wells, are generally amortized over the weighted
average remaining term of the Company's power and steam purchase
contracts. For purposes of current period visibility and disclosure,
all such costs are identified in the Consolidated Statements of Cash
Flows as they are incurred.
DEFERRED WELL AND REWORK COSTS
Well rework costs are deferred and amortized over the estimated period
between reworks. These deferred costs of $733 and $1,305 at December
31, 1994 and 1993, respectively, are included in other assets.
Currently, both production and injection well reworks are amortized
over twelve months.
FIXED ASSETS AND DEPRECIATION
The cost of major additions and betterments are capitalized, while
replacements, maintenance, and repairs that do not improve or extend
the lives of the respective assets are expensed.
Depreciation of the operating power plants is computed on the
straight-line method over the estimated useful lives resulting in a
composite rate of depreciation of approximately 2.67% per annum.
Depreciation of equipment, which is recorded at cost, is computed on
the straight-line method over the estimated useful lives of the
related assets, which range from three to ten years.
CAPITALIZATION OF INTEREST AND DEFERRED FINANCING COSTS
Prior to the commencement of operations, interest is capitalized on
the costs of the plants and geothermal resource development to the
extent incurred. Capitalized interest and other deferred charges are
amortized over the lives of the related assets.
Deferred financing costs are amortized over the term of the related
financing. Loan fees are amortized using the implicit interest method;
other deferred financing costs are amortized using the straight-line
method. Accumulated amortization at December 31, 1994 and 1993 was
approximately $3,848 and $1,954, respectively.
REVENUE RECOGNITION
Revenues are recorded based upon service rendered and electricity and
steam delivered to the end of the month.
<PAGE>
<PAGE>
MANAGEMENT FEE AND INTEREST REVENUE RECOGNITION
The Company charges the Coso Joint Ventures management fees, operator
fees and interest on outstanding advances. Recognition of fees and
interest relating to power plants and resource development of the Coso
Joint Ventures in which the Company has invested was deferred until
each Coso Joint Venture commenced operations. Revenue previously
deferred is amortized over the lives of the related assets of the Coso
Joint Ventures.
DEFERRED 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 changes the Company's method of
accounting for income taxes from the deferred method as required by
Accounting Principles Board Opinion No. 11 to an asset and liability
approach.
NET INCOME PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common and dilutive common equivalent shares outstanding during the
period computed using the treasury stock method.
CASH FLOWS
The statement of cash flows classifies changes in cash according to
operating, investing, or financing activities. Investing activities
include capital expenditures incurred in connection with the power
plants, wells, resource development, and exploration costs. The
Company considers all investment instruments purchased with a maturity
of three months or less to be cash equivalents. Restricted cash is not
considered a cash equivalent.
RECLASSIFICATION
Certain amounts in the fiscal 1993 and 1992 financial statements and
supporting footnote disclosures have been reclassified to conform to
the fiscal 1994 presentation. Such reclassification did not impact
previously reported net income or retained earnings.
3. INTEREST RATE SWAP AGREEMENTS
In January 1993, the Coso Joint Ventures entered into five year
deposit interest rate swap agreements. The subject deposits represent
debt service reserves established in conjunction with refinancing the
Coso Joint Ventures loans through Coso Funding Corp. The deposit
interest rate swaps effectively convert interest earned on the debt
service reserve deposits from a variable rate to a fixed rate, in
order to match the nature of the interest rate on the borrowings used
to fund the debt service reserve deposits. The Company's proportion of
the deposit amount of $23,723 included in restricted cash and
investments accretes annually to a maximum amount of approximately
$29,300 in 1996. Under the agreements, which mature on January 11,
1998, the Coso Joint Ventures make semi-annual payments to the counter
party at variable rates based on LIBOR, reset and compounded every
three months, and in return receive payments based on a fixed rate of
6.34%. The effective LIBOR rate ranged from 3.375% to 4.4375% during
1994 and was 4.4375% at December 31, 1994. The counter party to these
agreements is a large multi-national financial institution. The
Company's proportionate share of the carrying amount, representing
accrued interest receivable, and the fair value of the swap
agreements, which, hypothetically assumes the Company closes out the
swap agreements prior to the stated maturity, are $110 and a negative
amount of $1,279, respectively. The fair value at December 31, 1993
was $1,281. The fair value is based on quoted market prices provided
by the counter party to the swap. It is the Company's intention to
hold the swap agreements to their stated maturity.
In September 1993, the Company entered into a three year deposit
interest rate swap agreement, which effectively converts a notional
deposit balance of $75,000 from a variable rate to a fixed rate. The
Company makes semi-annual payments to the counter party at effectively
the LIBOR rate, reset every six months, and in return receives
payments based on a fixed rate of 4.87%. The counter party to this
agreement is the same counter party to the Coso Joint Ventures. The
carrying amount is a negative $453, representing accrued interest. The
fair value of the interest rate swap is currently negative in the
amount of $5,347 which is based on quoted market prices provided by
the counter party to the swap and hypothetically assumes the Company
closes out the swap agreement prior to the stated maturity. The fair
value at December 31, 1993 was negative in the amount of $642 It is
the Company's intention to hold the swap agreement to its stated
maturity.
<PAGE>
4. PROPERTIES AND PLANTS
<TABLE>
<CAPTION>
Properties and plants comprise the following at December 31:
1994 1993
<S> <C> <C>
Operating project costs:
Power plants $314,027 $246,219
Wells and resource development 174,651 162,776
Total operating facilities 488,678 408,995
Less accumulated depreciation and amortization (90,457) (69,823)
Net operating facilities 398,221 339,172
Wells and resource development in progress 434 939
Total project costs 398,655 340,111
Upper Mahiao construction in progress 48,554 ---
Mahanagdong construction in progress 21,443 ---
Other international development 2,445 ---
Pacific Northwest geothermal exploration costs 46,620 41,910
Nevada and Utah properties 39,275 35,492
Yuma - construction in progress --- 41,461
Total $556,992 $458,974
</TABLE>
OPERATING FACILITIES
The Coso operating facilities comprise the Company's proportionate
share of the assets of three of its Joint Ventures; Coso Finance
Partners (Navy I Joint Venture), Coso Energy Developers (BLM Joint
Venture), and Coso Power Developers (Navy II Joint Venture). With
respect to the Coso Project, distributions from its project control
accounts are made semi-annually to each Coso Joint Venture partner for
profit sharing under a prescribed calculation subject to mutual
agreement by the partners and compliance with the Coso Joint Ventures'
financing documents. As a result of the December 31, 1994 distribution
date falling on a non-banking day, the year end 1994 distributions
occurred on January 3, 1995.
NAVY I PLANT
The Navy I Plant consists of three turbines, of which one unit
commenced delivery of firm power in August 1987, and the second and
third units in December 1988. The 80 NMW Plant is located on land
owned by and leased from the U.S. Navy to December 2009, with a 10
year extension at the option of the Navy. Under terms of the Navy I
Joint Venture, profits and losses are allocated approximately 49%
before payout of Units 2 and 3 and approximately 46.4% thereafter to
the Company. Profits and losses before and after payout of Unit 1 are
allocated 46.19% and 46.49%, respectively. As of December 31, 1994,
payout had been reached on Units 2 and 3 of the Navy I Plant.
BLM PLANT
The BLM Plant consists of two turbines at one site (BLM East), which
commenced delivery of firm power in March and May, 1989, respectively,
and one turbine at another site (BLM West) which commenced delivery of
firm power in August, 1989. The BLM Plant is situated on lands leased
from the U.S. Bureau of Land Management under a geothermal lease
agreement that extends until October 31, 2035. The lease may be
extended to 2075 at the option of the BLM. Under the terms of the BLM
Joint Venture agreement, the Company's share of profits and losses
before and after payout is approximately 45% and 48%, respectively.
The BLM Plant reached payout in June 1994.
NAVY II PLANT
The Navy II Plant consists of three turbines, of which two units
commenced delivery of firm power in January 1990, and the third in
February 1990, respectively. The 80 NMW Plant is located on the
southern portion of the Navy lands. Under terms of the Joint Venture,
all profits, losses and capital contributions for Navy II are divided
equally by the two partners.
SIGNIFICANT CUSTOMER
All of the Company's sales of electricity from the Coso Project, which
<PAGE>
comprise approximately 89% of 1994 electricity and steam revenues, are
to Southern California Edison ("SCE") and are under long-term power
purchase contracts. Under the terms of these contracts, SCE pays firm
prices for the energy portion of the contract. The energy payment
escalates pursuant to the contracts at an average rate of
approximately 7.0% per year for the delivery of electricity for ten
years, commencing with the initial delivery of electricity at firm
power; thereafter, the energy payment adjusts to the actual avoided
energy cost experienced by SCE at that time. While SCE's future
avoided energy cost is not presently determinable, it is currently
substantially below the current contract energy prices. The capacity
payment remains fixed during the entire period of the contract. In
addition, the Company is eligible for bonus payments based on the
amount by which the actual output exceeds the contract capacity of
each power plant. Bonus payments aggregated $3,078, $3,050 and $3,257
in the years ended December 31, 1994, 1993 and 1992.
The Company has three contracts for terms of 24, 30 and 20 years,
expiring in 2011, 2019 and 2010, respectively. Delivery of electricity
by the Navy I Joint Venture, the BLM Joint Venture, and Navy II Joint
Venture commenced under those contracts in 1987, 1989 and 1990,
respectively.
ROYALTIES
Royalties comprise the following for the years ended:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Navy I, Unit I $1,641 $1,556 $2,014
Navy I, Units 2 and 3 3,174 2,924 2,628
BLM 2,842 1,868 1,268
Navy II 1,963 1,717 1,509
Other 268 209 291
Total $9,888 $8,274 $7,710
</TABLE>
The amount of royalties paid by the Company to the U.S. Navy to
develop geothermal energy for Navy I, Unit 1 on the lands owned by the
Navy comprises (i) a fee payable during the term of the contract based
on the difference between the amounts paid by the Navy to SCE for
specified quantities of electricity and the price as determined under
the contract (which currently approximates 71% of that paid by the
Navy to SCE), and (ii) $11,600 payable in December 2009. The $11,600
payment is secured by funds placed on deposit monthly, which funds,
plus accrued interest, will aggregate $11,600. The monthly deposit is
currently $23. As of December 31, 1994, the balance of funds deposited
approximated $1,613, which amount is included in restricted cash and
accrued liabilities.
Units 2 and 3 of Navy I and the Navy II power plants are on Navy
lands, for which the Navy receives a royalty based on electric sales
revenue at the initial rate of 4% escalating to 22% by the end of the
contract in December 2019. The BLM is paid a royalty of 10% of the
value of steam produced by the geothermal resource supplying the BLM
Plant.
YUMA PROJECT
During 1992, the Company acquired a development stage 50 MW natural
gas-fired cogeneration project in Yuma, Arizona (the "Yuma Project").
The Yuma Project is designed to be a Qualifying Facility ("QF") under
PURPA and to provide 50 MW of electricity to San Diego Gas & Electric
Company ("SDG&E") under an existing 30-year power purchase contract.
The electricity is sold at SDG&E's avoided cost of energy. The power
is wheeled to SDG&E over transmission lines constructed and owned by
Arizona Public Service Company ("APS"). An agreement for
interconnection and a firm transmission service agreement have been
executed between APS and the Yuma Project entity and have been
accepted for filing by the Federal Energy Regulatory Commission.
The Yuma Project commenced commercial operation in May 1994. The
project entity has executed steam sales contracts with an adjacent
industrial entity to act as its thermal host in order to maintain its
status as a QF, which is a requirement of its SDG&E contract. Since
the industrial entity has the right under its contract to terminate
the agreement upon one year's notice if a change in its technology
eliminates its need for steam, and in any case to terminate the
agreement at any time upon three years' notice, there can be no
assurance that the Yuma Project will maintain its status as a QF.
However, if the industrial entity terminates the agreement, the
Company anticipates that it will be able to locate an alternative
thermal host in order to maintain its status as a QF or build a
greenhouse at the site for which the Company believes it would obtain
QF status. A natural gas supply and transportation agreement has been
executed with Southwest Gas Corporation, terminable under certain
<PAGE>
circumstances by the Company and Southwest Gas Corporation.
PACIFIC NORTHWEST GEOTHERMAL EXPLORATION COSTS
In the Pacific Northwest, the Company has acquired leasehold rights
and has performed certain geological evaluations to determine the
resource potential of the underlying properties. Recovery of those
costs is ultimately dependent upon the Company's ability to prove
geothermal reserves and sell geothermal steam, or to obtain financing,
build power plants, gain access to high voltage transmission lines,
and sell the resultant electricity at favorable prices or, sell its
leaseholds. In the opinion of management, the Company will be able to
recover its exploration costs through the generation of electricity
for sale. In September 1994, the Company executed the Final Power
Purchase Agreements with Bonneville Power Administration and Eugene
Water and Electric Board for a 30 MW geothermal pilot project planned
to be constructed at the Newberry site near Bend, Oregon. The purchase
contracts are for 50 years and the project is currently scheduled to
be operational in 1997.
NEVADA AND UTAH PROPERTIES
On May 3, 1990, the Company entered into a definitive purchase
agreement with a subsidiary of Chevron Corporation ("Chevron") for the
acquisition of certain geothermal operations, including interests in
approximately 83,750 acres of geothermal properties in Nevada and
Utah, for an aggregate purchase price of approximately $51,100. These
property interests consist largely of leasehold interests, including
properties leased from the BLM and from private landowners.
The property acquired from Chevron includes a 10 MW power plant at
Desert Peak, Nevada ("Desert Peak"), and a 70% interest in a steam
field at Roosevelt Hot Springs, Utah ("Roosevelt Hot Springs"). The
facility at Desert Peak is currently selling electricity to Sierra
Pacific Power Company under a contract that runs through 1995 and then
may be extended on a year-to-year basis if agreed to by both parties.
The price for electricity under this contract is 6.5 cents per kWh,
comprising an energy payment of 2.0 cents per kWh (which is adjustable
pursuant to an inflation based index) and a capacity payment of 4.5
cents per kWh. The Roosevelt Hot Springs site has a contract to sell
steam to a 25 MW power plant owned by Utah Power and Light Company
("UP&L") and to dispose of the brine that is a by-product of the
electricity production process. The Company financed a portion of the
acquisition of Roosevelt Hot Springs through a $20,317 pre-sale of
steam from the Roosevelt Hot Springs field to the utility-owned power
plant located at the site, and seller financing.
As part of the Nevada and Utah properties acquisition, the Company
acquired leasehold interests in an aggregate of approximately 20,000
acres at the Roosevelt Hot Springs site in Utah and approximately
63,750 acres at four sites in Nevada. The Roosevelt Hot Springs and
Desert Peak properties have been the subject of exploration and
testing by Chevron and its predecessors. Based on these tests and
reports of independent engineering companies, the Company believes
that there are significant geothermal resources available for
commercial development at these sites. Other tests conducted by
Chevron and its predecessors indicate that commercially viable amounts
of geothermal resources may underlie the other Chevron properties.
5. PROJECT LOANS
Project loans, which are non-recourse to the Company, comprise the
following at December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
PROJECT LOANS with fixed interest rates (weighted average interest
rates of 8.13% and 8.04% at December 31, 1994 and 1993,
respectively) with scheduled
repayments through December 2001 $233,080 $ 246,880
</TABLE>
The project loans are from Coso Funding Corp. ("Funding Corp.").
Funding Corp. is a single-purpose corporation formed to issue notes
for its own account and as an agent acting on behalf of Navy I, BLM,
and Navy II Joint Ventures, collectively the "Coso Joint Ventures".
Pursuant to separate credit agreements executed between Funding Corp.
and each Coso Joint Venture on December 16, 1992, the proceeds from
Funding Corp.'s note offering were loaned to the Coso Joint Ventures.
The proceeds of $560,245 were used by the Coso Joint Ventures to (i)
purchase and retire project finance debt comprised of the term loans
and construction loans in the amount of $424,500, (ii) fund
contingency funds in the amount of $68,400, (iii) fund debt service
reserve funds in the amount of $40,000, and (iv) finance $27,345 of
capital expenditures and transaction costs. The contingency fund and
debt service reserve fund were required by the project loan
agreements.
The contingency fund represented the approximate maximum amount, if
<PAGE>
any, which could theoretically have been payable by the Coso Joint
Ventures to third parties to discharge all liens of record and other
contract claims encumbering the Coso Joint Ventures' plants at the
time of the project loans. The contingency fund was established in
order to obtain investment-grade ratings to facilitate the offer and
sale of the notes by Funding Corp., and such establishment did not
reflect the Coso Joint Ventures' view as to the merits or likely
disposition of such litigation or other contingencies. On June 9,
1993, MPE and the Mission Power Group, subsidiaries of SCECorp., and
the Coso Joint Ventures reached a final settlement of all of their
outstanding disputes and claims relating to the construction of the
Coso Project. As a result of the various payments and releases
involved in such settlement, the Coso Joint Ventures agreed to make a
net payment of $20,000 to MPE from the cash reserves of the Coso
Project contingency fund and MPE agreed to release its mechanics'
liens on the Coso Project. After making the $20,000 payment, the
remaining balance of the Coso Project contingency fund (approximately
$49,300) was used to increase the Coso Project debt reserve fund from
approximately $43,000 to its maximum fully-funded requirement of
$67,900. The remaining $24,400 balance of contingency fund was
retained within the Coso Project for future capital expenditures and
for Coso Project debt service payments. Since the Coso Project debt
service reserve is fully funded in advance, Coso Project cash flows
otherwise intended to fund the Coso Project debt service reserve fund,
subject to satisfaction of certain covenants and conditions contained
in the Coso Joint Ventures' refinancing documents, may be available
for distribution to the Company in its proportionate share.
The loans are collateralized by, among other things, the power plants,
geothermal resource, debt service reserve funds, contingency funds,
pledge of contracts, and an assignment of all such Coso Joint
Ventures' revenues which will be applied against the payment of
obligations of each Coso Joint Venture, including the project loans.
Each Coso Joint Venture's assets will secure only its own project
loan, and will not be cross-collateralized with assets pledged under
other Coso Joint Venture's credit agreements. The project loans are
non-recourse to any partner in the Coso Joint Ventures and Funding
Corp. shall solely look to such Coso Joint Venture's pledged assets
for satisfaction of such project loans. However, the loans are
cross-collateralized by the available cash flow of each Coso Joint
Venture. Each Coso Joint Venture after satisfying a series of its own
obligations has agreed to advance support loans (to the extent of
available cash flow and, under certain conditions, its debt service
reserve funds) in the event revenues from the supporting Coso Joint
Ventures are insufficient to meet scheduled principal and interest on
their separate project loans.
The Company's share of annual repayments of the project loans for the
years beginning January 1, 1995 and thereafter are as follows:
1995 $ 45,908
1996 38,826
1997 41,729
1998 38,912
1999 31,717
Thereafter 35,988
$233,080
Based on quoted market rates of the Funding Corp. notes, the fair
value of the Company's share of the project loan was approximately
$227,144 and $260,276 at December 31, 1994 and 1993, respectively.
6. CONSTRUCTION LOANS
The construction loans which are non-recourse to the Company, comprise
the following at December 31, 1994:
<TABLE>
<CAPTION>
1994
<S> <C>
UPPER MAHIAO CONSTRUCTION LOAN with variable interest rates (weighted
average interest rate of 8.6%) with scheduled repayments through 2006 $24,508
MAHANAGDONG CONSTRUCTION LOAN with variable interest rates (weighted average
interest rate of 8.4%) with scheduled repayments through 2007 6,995
$ 31,503
</TABLE>
Draws on the construction loan and accrued liabilities for the Upper
Mahiao geothermal power project at December 31, 1994 totalled $24,508
and $10,278, respectively. The Project will have a total project cost
of approximately $218,000, including capitalized interest during
construction, project contingency costs and a debt service reserve
fund. The Company's equity contribution to the project is $56,000. A
syndicate of international commercial banks is providing the
construction financing with interest rates at LIBOR or "Prime" with
interest payments due the earlier of every quarter and LIBOR maturity.
The Export-Import Bank of the U.S. ("Ex-Im Bank") is providing
<PAGE>
political risk insurance to commercial banks on the construction loan
and will provide the majority of the project term financing of
approximately $162,000 upon satisfaction of the conditions associated
with commercial operation. The term financing from the Ex-Im Bank will
be for a ten-year term at a fixed interest rate of 5.95%. The term
loan will be amortized in approximately equal quarterly principal
payments over the term of the loan. The fair value of the construction
loan approximates the current loan balance. The covenants on the
construction loan are standard for loans of this type. The accrued
liabilities represent invoices which were received, but not paid, by
December 31, 1994 and retention on the construction and supply
contracts.
The Company's share of draws on the construction loan and accrued
liabilities for the Mahanagdong geothermal power project at December
31, 1994 totalled $6,995 and $5,603 respectively. The project will
have a total project cost of approximately $320,000, including
interest during construction, project contingency costs and a debt
service reserve fund. The capital structure consists of a term loan of
$240,000 and approximately $80,000 in equity contributions. The
Company's equity contribution to the project is $40,000. The
construction debt financing is provided by the Overseas Private
Investment Corporation ("OPIC") and a consortium of commercial lenders
led by Bank of America NT&SA. The construction loan interest rates are
at LIBOR or "Prime" with interest payments due the earlier of
quarterly and LIBOR maturity. The debt provided by the commercial
lenders will be insured by the Export-Import Bank of the U.S. ("Ex-Im
Bank") against political risks. Ten-year term debt financing, of which
the Company's share is approximately $120,000, will be provided by
Ex-Im Bank (which will replace the bank construction debt) and by
OPIC. The majority of the term financing is expected to be provided by
the Ex-Im Bank at a fixed interest rate of 6.92%. The term loan will
be amortized in approximately equal quarterly principal payments over
the term of the loan. The fair value of the construction loan
approximates the current loan balance. The covenants on the
construction loan are standard for loans of this type. The accrued
liabilities represent invoices which were received, but not paid, by
December 31, 1994 and retention on the construction and supply
contracts.
7. 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 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 fair value of the Senior Discount Notes as of
December 31, 1994 was approximately $413,013, which is based on quoted
market rates.
8. SENIOR NOTES
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,
remained undefeased and outstanding through the end of the calculation
period, December 31, 1994.
9. CONVERTIBLE SUBORDINATED DEBENTURES
In June of 1993, the Company issued $100,000 principal amount of 5%
Convertible Subordinated Debentures due July 31, 2000. The Convertible
Subordinated 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 Convertible Subordinated Debentures is
payable semi-annually in arrears on July 31 and January 31 of each
year, commencing on July 31, 1993. The Convertible Subordinated
Debentures are redeemable 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% in
1996, 1997, 1998 and 1999, respectively. The Convertible Subordinated
Debentures are unsecured general obligations of the Company and
subordinated to all existing and future senior indebtedness of the
Company. The fair value of the Convertible Subordinated Debentures as
of December 31, 1994 and 1993 was approximately $82,300 and $103,250,
respectively, which is based on quoted market rates.
<PAGE>
10. 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 Opinion 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 represents the recognition of the Company's
tax credit carryforwards as a deferred tax asset. There was no cash
impact to the Company upon the required adoption of FAS 109. Under FAS
109, the effective tax rate increased to approximately 30% in 1993
from 23.5% in 1992. This increase was due to the Company's tax credit
carryforward being recognized as an asset and unavailable to reduce
the effective tax rate for computing the Company's provision for
income taxes after 1992.
Provision for income tax is comprised of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Currently payable:
State $ 1,970 $ 3,300 $ 2,300
Federal 5,829 7,686 4,444
7,799 10,986 6,744
Deferred:
State 1,017 385 1,607
Federal 7,241 6,813 2,038
8,258 7,198 3,645
Total after benefit of
extraordinary item 16,057 18,184 10,389
Tax benefit attribute to
extraordinary item 945 --- 1,533
Total before benefit of
extraordinary item $17,002 $18,184 $11,922
</TABLE>
<PAGE>
<PAGE>
The deferred expense is primarily temporary differences associated
with depreciation and amortization of certain assets.
A reconciliation of the federal statutory tax rate to the effective
tax rate applicable to income before provision for income taxes
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Federal statutory rate 35.00% 35.00% 34.00%
Percentage depletion in excess of
cost depletion (6.85) (6.70) (6.81)
Investment and energy tax credits (3.04) (4.62) (10.52)
State taxes, net of federal tax
effect 4.48 3.90 5.83
Cumulative effect of change in
federal tax rate --- 1.90 ---
Other .86 .20 1.00
30.45% 29.68% 23.50%
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Depreciation and amortization, net $119,947 $111,117
Other 3,590 1,733
123,537 112,850
Deferred income (2,190) (2,415)
Loss carryforwards (31,592) (39,529)
Energy and investment tax credits (40,748) (40,106)
Alternative minimum tax credits (22,379) (12,018)
Other (60) (472)
(96,969) (94,540)
Net deferred taxes $ 26,568 $ 18,310
</TABLE>
As of December 31, 1994, the Company has an unused net operating loss
(NOL) carryover of approximately $90,262 for regular federal tax
return purposes which expires primarily between 2003 and 2007. In
addition, the Company has unused investment and geothermal energy tax
credit carryforwards of approximately $40,748 expiring between 2002
and 2009. The Company also has approximately $22,379 of alternative
minimum tax credit carryforwards which have no expiration date.
11. PREFERRED STOCK
Series A:
On December 1, 1988, the Company distributed a dividend of one
preferred share purchase right ("right") for each outstanding share of
common stock. The rights are not exercisable until ten days after a
person or group acquires or has the right to acquire, beneficial
ownership of 20% or more of the Company's common stock or announces a
tender or exchange offer for 30% or more of the Company's common
stock. Each right entitles the holder to purchase one-hundredth of a
share of Series A junior preferred stock for $52. The rights may be
redeemed by the Board of Directors up to ten days after an event
triggering the distribution of certificates for the rights. The rights
plan was amended in February 1991 so that the agreement with Kiewit
Energy (see Note 13) would not trigger the exercise of the rights. The
rights will expire, unless previously redeemed or exercised, on
November 30, 1998. The rights are automatically attached to, and trade
with, each share of common stock.
<PAGE>
<PAGE>
Series B:
On November 15, 1990, the Company sold 357.5 shares of convertible
preferred stock, Series B at $14 per share. Each share of the
convertible preferred stock was convertible into two shares of common
stock, and had a dividend rate of 15% through November 15, 1992, 10%
from November 16, 1992 to November 15, 1994 and 5% from November 16,
1994 to November 15, 1996. The dividends were payable semi-annually in
convertible preferred stock, Series B.
On November 15, 1992, the Company called the preferred stock for
conversion into common stock. Each Series B preferred stock was
converted into two shares of common stock; accordingly, the Company
issued 954.9 shares of common stock.
Series C:
On November 19, 1991, the Company sold one thousand shares of
convertible preferred stock, Series C at $50,000 per share to Kiewit
Energy, in a private placement. Each share of the Series C preferred
stock is convertible at any time at $18.375 per common share into two
thousand seven hundred and twenty-one shares of common stock subject
to customary adjustments. The Series C preferred stock has a dividend
rate of 8.125%, commencing March 15, 1992 through conversion date or
December 15, 2003. The dividends, which are cumulative, are payable
quarterly in convertible preferred stock, Series C, through March 15,
1995 and in cash on subsequent dividend dates.
The Company is obligated to redeem 20% of the outstanding preferred
stock, Series C each December 15, commencing 1999 through 2003 at a
price per share equal to $50,000, plus accrued and unpaid dividends.
At any time after December 15, 1994, upon 20 days written notice, the
Company may redeem all, or any portion consisting of at least $5,000,
of the preferred stock, Series C, then outstanding, provided that the
Company's common stock has traded at or above 150% of the then
effective conversion price, for any 20 trading days out of 30
consecutive trading days ending not more than five trading days prior
to notice of redemption.
The Company may also exchange the preferred stock, Series C, in whole
or part on any dividend date commencing December 15, 1994, for 9.5%
convertible subordinated debentures of the Company due 2003. On March
15, 1995, the Company intends to exchange the Series C preferred stock
for the convertible subordinated debentures.
Each share of preferred stock, Series C shall be entitled to the
number of votes equal to $50,000 per share divided by the then
effective conversion price. If cash dividends are in arrears six
consecutive quarters, Kiewit Energy shall have the exclusive right,
voting separately as a class, to elect two directors of the Company.
No cash dividends shall be paid or declared on the Company's common
stock unless all accumulated dividends on the Series C preferred stock
have been paid.
12. STOCK OPTIONS AND WARRANTS
The Company has issued various stock options and warrants. As of
December 31, 1994, a total of 9,687 shares are reserved for stock
options, of which 9,601 shares have been granted and remain
outstanding at prices of $3.00 to $19.00 per share.
STOCK OPTIONS
The Company has stock option plans under which shares were reserved
for grant as incentive or non-qualified stock options, as determined
by the Board of Directors. As of December 31, 1994, the total options
granted for the non-1986 plan and the 1986 plan are 6,067 and 7,308,
respectively. The plans allow options to be granted at 85% of their
fair market value at the date of grant. Generally, options are issued
at 100% of fair market value at the date of grant. Options granted
under the 1986 Plan become exercisable over a period of three to five
years and expire if not exercised within ten years from the date of
grant or, in some instances a lesser term. Prior to the 1986 Plan, the
Company granted 256 options at fair market value at date of grant
which had terms of ten years and were exercisable at date of grant. In
addition, the Company had issued approximately 138 options to
consultants on terms similar to those issued under the 1986 Plan. The
non-1986 plan options are primarily options granted to Kiewit Energy;
see Note 13.
<PAGE>
<PAGE>
<TABLE>
TRANSACTIONS IN STOCK OPTIONS
<CAPTION>
OPTIONS OUTSTANDING
SHARES
AVAILABLE
FOR GRANT
UNDER 1986
OPTION OPTION PRICE
PLAN SHARES PER SHARE TOTAL
<S> <C> <C> <C> <C>
Balance, January 1, 1992 1,238 8,970* $3.00 - $14.875 $83,670
Options granted (551) 751 $11.90 - $15.938 11,262
Options terminated 129 (780) $3.00 - $11.625 (7,839)
Options exercised --- (1,544) $3.00 - $11.625 (7,072)
Balance December 31, 1992 816 7,397* $3.00 - $15.938 80,021
Options granted (1,396) 1,396 $17,75 - $19,00 26,209
Options terminated 19 (20) $2.00 - $14.875 (114)
Options exercised --- (259) $3.00 - $14.875 (1,185)
Additional shares reserved
under 1986 Options Plan 1,000 --- --- ---
Balance December 31, 1993 439 8,514* $3.00 - $19.00 $104,931
Options granted (954) 1,243 $16.00 - $17.25 19,260
Options terminated 15 (15) $3.00 - $15.938 (205)
Options exercised --- (141) $3.00 - $15.938 (709)
Additional shares reserved
under 1986 Options Plan 586 --- --- ---
Balance December 31, 1994 86 9,601* $3.00 - $19.00 $123,277
Options which became exercisable during:
Year ended December 31, 1994 1,015 $11.625 - $19.00 $15,776
Year ended December 31, 1993 592 $3.00 - $19.00 $10,180
Year ended December 31, 1992 333 $3.00 - $15.938 $ 3,693
Options exercisable at:
December 31, 1994 7,897* $3.00 - $19.00 $93,705
December 31, 1993 7,026* $3.00 - $19.00 $78,644
December 31, 1992 6,708* $3.00 - $15.938 $69,739
</TABLE>
*Includes Kiewit Energy options. See Note 13.
<PAGE>
<PAGE>
WARRANTS
The Company has granted warrants in connection with various financing
activities to purchase shares of common stock as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
PRICE
WARRANT PER
SHARES SHARE TOTAL
<S> <C> <C> <C>
Balance, January 1, 1992 1,889 $2.04 $ 3,853
Warrants exercised (612) $2.04 (1,247)
Warrants repurchased (1,277) $2.04 (2,606)
Balance December 31, 1992 --- $ ---
</TABLE>
On October 13, 1992, the Company repurchased, and cancelled, certain
warrants exercisable for 1,025 shares of unregistered common stock at
$2.04 per share, for a purchase price of $9.16 per share or $9,389 in
aggregate. Separately, Kiewit Energy simultaneously purchased and
exercised other warrants to purchase 600 shares of unregistered common
stock at $2.04 per share, providing the Company with proceeds of $1,224.
On October 27, 1992, the Company repurchased, and cancelled, certain
warrants exercisable for 250 shares of unregistered common stock at $2.04
per share, for a purchase price of $9.316 per share or $2,329 in
aggregate.
13. COMMON STOCK SALES & RELATED OPTIONS
The Company and Kiewit Energy signed a Stock Purchase Agreement and
related agreements, dated as of February 18, 1991. Kiewit Energy is a
subsidiary of Peter Kiewit Sons', Inc. of Omaha, Nebraska, a large
construction, mining, and telecommunications company with diversified
operations. Under the terms of the agreements, Kiewit Energy purchased
4,000 shares of common stock at $7.25 per share and received options to
buy 3,000 shares at a price of $9 per share exercisable over three years
and an additional 3,000 shares at a price of $12 per share exercisable
over five years (subject to customary adjustments).
In May 1994, pursuant to a special antidilution provision of the 1991
Stock Purchase Agreement between the Company and Kiewit Energy, the
Company increased Kiewit Energy's existing option (granted in 1991) to
purchase 3,000 shares at $12 per share by an additional 289 shares as a
final adjustment under such provisions.
In connection with this initial stock purchase, the Company and Kiewit
Energy also entered into certain other agreements pursuant to which (i)
Kiewit Energy and its affiliates agreed not to acquire more than 34% of
the outstanding common stock (the "Standstill Percentage") for a five-year
period, (ii) Kiewit Energy became entitled to nominate at least three of
the Company's directors, and (iii) the Company and Kiewit Energy agreed to
use their best efforts to negotiate and execute a joint venture agreement
relating to the development of certain geothermal properties in Nevada and
Utah.
On June 19, 1991, the board approved a number of amendments to the Stock
Purchase Agreement and the related agreements. Pursuant to those
amendments, the Company reacquired from Kiewit Energy the rights to
develop the Nevada and Utah properties, and Kiewit Energy agreed to
exercise options to acquire 1,500 shares of common stock at $9.00 per
share, providing the Company with $13,500 in cash. The Company also
extended the term of the $9.00 and $12.00 options to seven years; modified
certain of the other terms of these options; granted to Kiewit Energy an
option to acquire an additional 1,000 shares of the outstanding common
stock at $11.625 per share (closing price for the shares on the American
Stock Exchange on June 18, 1991) for a ten year term; and increased the
Standstill Percentage from 34% to 49%.
<PAGE>
<PAGE>
On November 19, 1991, the Board approved the issuance by the Company to
Kiewit Energy of one thousand shares of Series C preferred stock for
$50,000, as described in Note 11 above. In connection with the sale of the
Series C preferred stock to Kiewit Energy, the Standstill Agreement was
amended so that the 49% Standstill Percentage restriction would apply to
voting stock rather than just common stock.
14. LITIGATION
As of December 31, 1994 there were no material outstanding lawsuits.
15. RELATED PARTY TRANSACTIONS
The Company charged and recognized a management fee and interest on
advances to its Coso Joint Ventures, which aggregated approximately
$5,569, $5,354 and $4,246 in the years ended December 31, 1994, 1993 and
1992. The Company's note receivable from the Coso Joint Ventures bears a
fixed interest rate of 12.5% and is payable on or before March 19, 2002.
This note is subordinated to the senior project loan on the project. The
fair value of the note approximates its carrying value.
The Mahanagdong Project is being constructed by a consortium (the "EPC
Consortium") of Kiewit Construction Group, Inc. ("KCG") and the Ben Holt
Company ("BHCO"), a wholly owned subsidiary of the Company, pursuant to
fixed-price, date-certain, turnkey supply and construction contracts
(collectively, the "Mahanagdong EPC"). The obligations of the EPC
Consortium under the Mahanagdong EPC are supported by a guaranty of KCG at
an aggregate amount equal to approximately 50% of the Mahanagdong EPC
price. The Mahanagdong EPC provides for maximum liability for liquidated
damages of up to $100,500 and total liability of up to $201,000. KCG, a
wholly owned subsidiary of Peter Kiewit Sons', Inc. ("PKS"), is the lead
member of the EPC Consortium, with an 80% interest, KCG performs
construction services for a wide range of public and private customers in
the U.S. and internationally. BHCO will provide design and engineering
services for the EPC Consortium, and holds a 20% interest. The Company has
provided a guaranty of BHCO's obligations under the Mahanagdong EPC
Contract.
The Company participates in an international joint venture agreement with
PKS which the Company believes enhances its capabilities in foreign power
markets. The joint venture agreement is limited to international
activities and provides that if both the Company and PKS agree to
participate in a project, they will share all development costs equally.
Each of the Company and PKS will provide 50% of the equity required for
financing a project developed by the joint venture and the Company will
operate and manage such project. The agreement creates a joint development
structure under which, on a project by project basis, the Company will be
the development manager, managing partner and/or project operator, and
equal equity participant and PKS will be the preferred turnkey
construction contractor. The joint venture agreement may be terminated by
either party on 15 days written notice, provided that such termination
cannot affect the pre-existing contractual obligations of either party.
16. EXTRAORDINARY ITEM
The refinancing of the Coso Joint Ventures' project financing debt in
1992 resulted in an extraordinary item in the amount of $4,991, after the
tax effect of $1,533. The extraordinary item represents the unamortized
portion of the deferred financing costs and related repayment costs
associated with the original Coso Joint Ventures' project financing debt.
<PAGE>
<PAGE>
In conjunction with the Company's Senior Discount Note offering (See Note
7), the 12% Senior Notes were defeased, resulting 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.
17. SUBSEQUENT EVENT (UNAUDITED)
The Company has acquired all of the outstanding equity interest in Magma
Power Company ("Magma") in a two-step transaction to be accounted for as a
purchase according to the terms of a merger agreement whereby on January
10, 1995, the Company acquired approximately 51% of the outstanding shares
of Magma common stock (the "Magma Common Stock") through a cash tender
offer (the "Magma Tender Offer") and on February 24, 1995 the Company
acquired the remaining 49% of Magma Common Stock not owned by the Company
through a merger (the "Merger"). Each outstanding share of Magma Common
Stock (other than shares of Magma Common Stock held by the Company, CE
Acquisition Company, Inc., a wholly owned subsidiary of the Company, or
any other direct or indirect subsidiary of the Company and shares of Magma
Common Stock held in the treasury of Magma) was converted into the right
to receive an average of approximately $38.75 per share of Magma Common
Stock. The Company paid the Merger consideration solely in cash, funded
with the net proceeds of a public common stock offering of 15,170 shares
(the "Offering") and the proceeds of a direct sale of 1,500 shares to
Peter Kiewit Sons', Inc. (the "Direct Sale") at $17.00 per share which
together netted $275,653, over-allotment proceeds of a $24,735 on the sale
of 1,500 shares, borrowings of $500,000 under bank credit facilities, and
general corporate funds of the Company. On February 10, 1995, the
Company's stockholders approved an increase in its authorized Common Stock
to 80,000 shares.Magma is engaged in independent geothermal power
operations and development activities similar to those of the Company.
The Magma Tender Offer was financed with a $245,600 facility from Credit
Suisse (the "Tender Facility"). Loans under the Tender Facility were made
to the Company on a non-recourse basis, secured by the Magma stock
acquired, and the Company lent the proceeds of such loans to Magma in
exchange for a secured term note of Magma (the "Tender Note"). The loans
under the Tender Facility were repaid from funds received from the Merger
Facilities.
A total of approximately $957,000 was required to refinance the Tender
Facilities and to complete the Magma Acquisition. Up to $500,000 in
secured bank financing was provided by Credit Suisse (the "Merger
Facilities") on specified terms and subject to customary conditions. Such
funds, together with the net proceeds of the Offering and over-allotment,
the proceeds of the Direct Sale and general corporate funds of the
Company, were used to complete the Magma Acquisition.
The Merger Facilities are comprised of (i) a six-year term loan ("Term
Loan A") in a principal amount of up to the difference between $500,000
and the principal amount of Term Loan B (as defined below), to be
amortized in semi-annual payments, and (ii) an eight-year term loan ("Term
Loan B") in a principal amount of $150,000, to be amortized in semi-annual
payments in the seventh and eighth years of such Term Loan. Loans under
the Merger Facilities were made to the Company on a non-recourse basis,
and the Company lent the proceeds of such loans to Magma in exchange for a
secured term note of Magma (the "Magma Note"). The loans under the Merger
Facilities will be amortized from payments received by the Company from
Magma on the Magma Note which is expected to be amortized from internally
generated funds of Magma. Loans under the Merger Facilities are secured by
an assignment and pledge by the Company of the Magma Note and 100% of the
capital stock of Magma. The Magma Note is secured by an assignment of
certain unencumbered assets of Magma.
Interest on loans under the Merger Facilities are payable at spreads of
2.50% above LIBOR (adjusted for reserves) or 1.50% above the Base Rate for
Term Loan A, and 3.00% above LIBOR (adjusted for reserves) or 2.00% above
the Base Rate for Term Loan B. The LIBOR spreads are subject to upward
adjustment in certain instances. The Company may elect to have loans bear
interest based on either LIBOR or the Base Rate (as defined in the Merger
Facilities).
The Merger Facilities contain affirmative and negative covenants
customary for similar non-recourse credit facilities. Such covenants
include a negative pledge of all stock and unencumbered assets of Magma; a
limitation on guaranties by Magma; a limitation on mergers and sales of
assets by Magma; a limitation on investments in other persons by Magma; a
prohibition on dividends and other payments by Magma to the Company unless
the proceeds are used to pay down the Merger Facilities; a prohibition on
the sale of ownership interests in Magma; a limitation on the incurrence
of additional debt by Magma; a requirement that the Company deliver each
fiscal quarter a certificate as to the absence of material adverse changes
in the Company or Magma which could reasonably be expected to materially
affect the ability of the Company to repay the Merger Facilities or the
ability of the lenders to realize on the collateral for the Merger
Facilities; and a restriction on a change in the nature of the business of
<PAGE>
the Company and Magma.
The Merger Facilities also contain financial covenants and customary
events of default, including events of default based on breaches of
certain representations, warranties and covenants; cross defaults with
respect to certain debt of the Company and Magma; bankruptcy and similar
events; the failure to pay certain final judgments; the failure to make a
payment with respect to the Merger Facilities when due; and the failure of
the pledge agreement with respect to the capital stock of Magma and the
Magma Note to be in full force and effect.
The preliminary unaudited proforma combined condensed balance sheet of
the Company and Magma as if the acquisition had occurred on December 31,
1994 after giving effect to certain proforma adjustments is as follows:
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash, restricted cash, short-term investments,
and marketable securities $ 408,622
Accounts receivable 58,122
Property and equipment, net 1,319,482
Notes receivable, deferred charges, and other assets 207,540
Excess of cost over fair value of net assets acquired 326,424
$2,320,190
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $1,758,860
Deferred income 19,851
Redeemable preferred stock 63,600
Shareholders' equity 477,879
$2,320,190
</TABLE>
The preliminary unaudited proforma combined results of operations of the
Company and Magma for the year ended December 31, 1994 as if the
acquisition had occurred at the beginning of the year, after giving effect
to certain proforma adjustments related to the acquisition and excluding
non-recurring costs incurred by Magma is as follows:
Revenue $ 368,887
Net income available to common stockholders $ 38,777
Net income per common share available to
common stockholders $ 0.72
During the fourth quarter of 1994, Magma provided reserves for certain
accounts receivable related to royalties. Excluding the effect of these
reserves, proforma net income available to common stockholders and
proforma net income per common share would have been $47,552 and $0.88,
respectively.
<PAGE>
<PAGE>
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Following is a summary of the Company's quarterly results of operations
for the years ended December 31, 1994 and December 31, 1993.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED *
March 31, June 30, Sept. 30, Dec. 31,
1994 1994 1994 1994
<S> <C> <C> <C> <C>
Revenue:
Sales of electricity and steam $30,819 $36,850 $49,498 $37,395
Other income 4,591 8,404 9,026 9,271
Total revenue 35,410 45,254 58,524 46,666
Total costs and expenses 22,753 33,198 37,771 36,296
Income before provision for income
taxes 12,657 12,056 20,753 10,370
Provision for income taxes 4,050 3,677 6,340 2,935
Net income before extraordinary item 8,607 8,379 14,413 7,435
Extraordinary item (2,007) ----- ----- -----
Net income 6,600 8,379 14,413 7,435
Preferred dividends 1,200 1,236 1,275 1,299
Net income attributable to common
shares $ 5,400 $ 7,143 $13,138 $ 6,136
Net income per share before
extraordinary item $ 0.20 $ 0.20 $ 0.38 $ 0.18
Net income per share -
extraordinary item (0.06) ----- ----- -----
Net income per share $ 0.14 $ 0.20 $ 0.38 $ 0.18
<CAPTION>
THREE MONTHS ENDED *
March 31, June 30, Sept. 30, Dec. 31,
1993 1993 1993 1993
<S> <C> <C> <C> <C>
Revenue:
Sales of electricity and steam $ 27,617 $ 31,996 $ 41,433 $ 31,013
Other income 3,544 3,926 4,824 4,900
Total revenue 31,161 35,922 46,257 35,913
Total costs and expenses 20,314 21,833 22,087 23,761
Income before provision for income taxes
and change in accounting principle 10,847 14,089 24,170 12,152
Provision for income taxes 3,363 3,439 7,493 3,889
Net income before change in
accounting principle 7,484 10,650 16,677 8,263
Cumulative effect of change in
accounting principle 4,100 ----- ----- -----
Net income 11,584 10,650 16,677 8,263
Preferred dividends 1,107 1,143 1,179 1,201
Net income attributable to common shares $ 10,477 $ 9,507 $ 15,498 $ 7,062
Net income per share before change in
accounting principle $ .16 $ .25 $ .41 $ .18
Cumulative effect of change in
accounting principle per share .11 ----- ----- -----
Net income per share $ .27 $ .25 $ .41 $ .18
</TABLE>
* The Company's operations are seasonal in nature with a disproportionate
percentage of income earned in the second and third quarters.
<PAGE>
<PAGE>
Independent Auditors' Report
Board of Directors and Shareholders
California Energy Company, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of California
Energy Company, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of California Energy Company, Inc.
and subsidiaries at December 31, 1994 and 1993 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 10, the consolidated financial statements give effect to
the Company's adoption, effective January 1, 1993, of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Deloitte & Touche LLP
Omaha, Nebraska
February 3, 1995
<PAGE>
CALIFORNIA ENERGY COMPANY, INC. Exhibit 21.0
SUBSIDIARIES
1. Coso Hotsprings Intermountain Power, Inc.
2. China Lake Operating Co.
3. Coso Technology Corporation
4. China Lake Geothermal Management Company
5. China Lake Plant Services, Inc.
6. Coso Hotsprings Overland Power, Inc.
7. CE Geothermal, Inc.
8. Western States Geothermal Company
9. Intermountain Geothermal Company
10. California Energy Development Corporation
11. California Energy Yuma Corporation
12. Yuma Cogeneration Associates
13. Rose Valley Properties, Inc.
14. The Ben Holt Co.
15. CBE Engineering Co.
16. CE Exploration Company
17. CE Newberry, Inc.
18. California Energy International Services, Inc.
19. CE International Investments Ltd.
20. CE Philippines Ltd.
21. Ormat Cebu Ltd.
22. CE Cebu Geothermal Power Company, Inc.
23. CE Indonesia Ltd.
24. CE Mahanagdong Ltd.
25. CE Casecnan Ltd.
26. CE Singapore Ltd.
27. California Energy International Ltd.
28. CE Casecnan Water and Energy Company, Inc.
29. CE Bali Ltd.
30. Magma Power Company
31. Magma Operating Company
32. Salton Sea Power Company
33. Vulcan Power Company
34. Imperial Magma
35. Magma Land Company I
36. Desert Valley Company
37. Fish Lake Power Company
38. Magma Netherlands, B.V.
39. Visayas Geothermal Power Company
40. Salton Sea Brine Processing L.P.
41. Salton Sea Power Generation L.P.
JOINT VENTURES
1. Coso Energy Developers
2. Coso Finance Partners
3. Coso Power Developers
4. Coso Funding Corp.
5. Coso Transmission Line Partners
6. Coso Finance Partners II
7. China Lake Joint Venture
8. Coso Land Company
9. Coso Geothermal Company
10. CE Luzon Geothermal Power Company, Inc.
11. Himpurna California Energy Ltd.
12. Patuha Power, Ltd.
13. Bali Energy Ltd.
14. Vulcan/BN Geothermal Power Company
15. Del Ranch, L.P.
16. Leathers, L.P.
17. Elmore, L.P.
<PAGE>
Exhibit 23.0
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-41152 and No. 33-52147 on Form S-8 and Registration Statement No.
33-51363 on Form S-3 of California Energy Company, Inc. of our report dated
February 3, 1995, appearing in and incorporated by reference in the Annual
Report on Form 10-K of California Energy Company, Inc. for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 18, 1995
<PAGE>
Exhibit 24.0
POWER OF ATTORNEY
The undersigned, a member of the Board of Directors of California Energy
Company, Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Steven A. McArthur, as his/her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for and in his/her
stead, in any and all capacities, to sign on his/her behalf the Form 10-K
Annual Report of the Company filed for the fiscal year ending December 31, 1994
and to execute any amendments thereto, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission and applicable stock exchanges, with the full power and
authority to do and perform each and every act and thing necessary or advisable
to all intents and purposes as he/she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, his/her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<PAGE>
<PAGE>
Dated: March 15, 1995
/s/ David L. Sokol
David L. Sokol
/s/ Edgar D. Aronson
Edgar D. Aronson
/s/ Judith E. Ayres
Judith E. Ayres
/s/ James Q. Crowe
James Q. Crowe
/s/ Richard K. Davidson
Richard K. Davidson
/s/ Richard R. Jaros
Richard R. Jaros
/s/ Ben Holt
Ben Holt
/s/ Everett B. Laybourne
Everett B. Laybourne
/s/ Herbert L. Oakes, Jr.
Herbert L. Oakes, Jr.
/s/ Walter Scott, Jr.
Walter Scott, Jr.
/s/ Barton W. Shackelford
Barton W. Shackelford
/s/ David E. Wit
David E. Wit
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 439,866
<SECURITIES> 50,000
<RECEIVABLES> 28,272
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 657,123
<DEPRECIATION> 95,480
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<BONDS> 531946
<COMMON> 2,407
63,600
0
<OTHER-SE> 243,358
<TOTAL-LIABILITY-AND-EQUITY> 1,131,145
<SALES> 154,562
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