SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
September 30, 1995
Commission File No. 1-9874
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 South 36th Street, Suite 400, Omaha, NE 68131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 341-4500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Former name, former address and former fiscal year, if changed
since last report. N/A
50,050,105 shares of Common Stock, $0.0675 par value were
outstanding as of September 30, 1995.
CALIFORNIA ENERGY COMPANY, INC.
Form 10-Q
September 30, 1995
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Report of Independent Accountants 3
Consolidated Balance Sheets, September 30, 1995
and December 31, 1994 4
Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities 30
Item 3. Defaults on Senior Securities 30
Item 4. Submission of Matters to a Vote of
Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 32
Exhibit Index 33
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
California Energy Company, Inc.
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of
California Energy Company, Inc. and subsidiaries as of September
30, 1995, and the related consolidated statements of operations for
the three month and nine month periods ended September 30, 1995 and
1994 and the related consolidated statements of cash flows for the
nine month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such consolidated financial statements for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of California
Energy Company, Inc. and subsidiaries as of December 31, 1994, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 3, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1994 is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 19, 1995
CALIFORNIA ENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
(unaudited)
<S> <C> <C>
ASSETS
Cash and investments $ 157,393 $ 254,004
Joint venture cash and investments 34,097 54,087
Restricted cash and investments 184,119 131,775
Short-term investments 41,592 50,000
Accounts receivable 81,255 28,272
Due from joint ventures 7,201 -
Properties and plants, net (Note 3) 1,673,585 556,992
Equipment, net of depreciation 4,090 4,651
Notes receivable - joint ventures 13,835 12,627
Excess of cost over fair
value of net assets acquired, net 301,284 -
Deferred charges and other assets 81,353 38,737
Total assets $2,579,804 $1,131,145
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 868 $ 1,679
Other accrued liabilities 73,810 42,658
Project loans 268,362 233,080
Construction loans 154,819 31,503
Due to joint ventures - 269
Senior discount notes (Note 4) 465,673 431,946
Convertible debt (Note 5) 64,850 -
Convertible subordinated debentures 100,000 100,000
Limited recourse senior secured notes (Note 11) 200,000 -
Salton Sea notes and bonds (Note 11) 475,000 -
Deferred income taxes 229,360 26,568
Total liabilities 2,032,742 867,703
Deferred income 19,820 19,851
Redeemable preferred stock (Note 5) - 63,600
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized 2,000 shares,
none issued - -
Common stock - authorized 80,000 shares,
par value $0.0675 per share, issued and
outstanding 50,050 and 31,849 shares at
September 30, 1995 and December 31, 1994,
respectively (Note 10) 3,386 2,407
Additional paid-in capital 332,880 100,421
Retained earnings 192,510 142,937
Treasury stock - 99 and 3,800 common
shares at September 30, 1995 and
December 31, 1994, respectively, at cost (1,534) (65,774)
Total stockholders' equity 527,242 179,991
Total liabilities and
stockholders' equity $2,579,804 $1,131,145
</TABLE>
The accompanying notes are an integral part of these financial statements.
CALIFORNIA ENERGY COMPANY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Sales of electricity and steam $102,423 $49,498 $257,157 $117,208
Royalties 5,372 - 14,201 -
Interest and other income 11,922 9,026 32,140 21,980
Total revenues 119,717 58,524 303,498 139,188
Costs and expenses:
Plant operations 22,458 9,846 61,331 23,887
General and administration 4,600 3,216 15,877 9,536
Royalties 7,913 3,504 18,249 7,898
Depreciation and amortization 17,210 5,639 47,034 15,439
Interest expense 34,229 17,653 99,524 44,480
Less interest capitalized (6,512) (2,087) (16,633) (7,518)
Total costs and expenses 79,898 37,771 225,382 93,722
Income before income taxes 39,819 20,753 78,116 45,466
Provision for income taxes 12,457 6,340 24,245 14,067
Income before minority interest
and extraordinary item 27,362 14,413 53,871 31,399
Minority interest - - 3,005 -
Income before extraordinary item 27,362 14,413 50,866 31,399
Extraordinary item (less applicable
income taxes of $945) (Note 8) - - - (2,007)
Net income 27,362 14,413 50,866 29,392
Preferred dividends
(paid in kind)* (Note 5) - 1,275 1,080 3,711
Net income available for
common shareholders $ 27,362 $13,138 $ 49,786 $25,681
Income per share before extraordinary
item $ 0.52 $ 0.38 $ 1.02 $ 0.77
Extraordinary item (Note 8) - - - (0.06)
Net income per share - primary $ 0.52 $ 0.38 $ 1.02 $ 0.71
Net income per share - fully
diluted (Note 7) $ 0.48 $ 0.36 $ 0.96 $ 0.70
Average number of common and
common equivalent shares
outstanding - primary 53,080 34,831 48,861 36,174
Fully diluted shares 61,518 39,462 56,829 40,619
</TABLE>
The accompanying notes are an integral part of these financial statements.
* Reflects dividends on the Company's Series C Redeemable Convertible Preferred
Stock, which were payable in kind. The Series C Stock was exchanged in whole
into the Company's Convertible Debt on March 15, 1995 (see Note 5).
CALIFORNIA ENERGY COMPANY, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
________________________________
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 50,866 $ 29,392
Adjustments to reconcile net cash flow from
operating activities:
Depreciation and amortization 47,034 15,439
Amortization of original issue discount 33,727 21,375
Amortization of deferred financing costs 6,671 1,421
Provision for deferred income taxes 16,823 6,464
Changes in other items:
Accounts receivable (23,133) (12,243)
Accounts payable and accrued liabilities 383 3,905
Deferred income (31) (507)
Income tax payable - (3,413)
Net cash flows from operating activities 132,340 61,833
Cash flows from investing activities:
Capital expenditures relating to power plants
and development for existing projects (13,897) (19,247)
Acquisition of equipment (982) (411)
Purchase of Magma, net of cash acquired (906,226) -
Upper Mahiao construction (118,737) (34,584)
Mahanagdong construction (33,961) (11,053)
Malitbog construction (56,110) -
Other international development (6,189) (1,204)
Salton Sea expansion construction (38,894) -
Pacific Northwest, Nevada and Utah (3,703) (6,782)
Yuma construction - (5,611)
Decrease in short-term investment 73,163 -
Increase in restricted cash (52,344) (79,275)
Decrease (increase) in other investments and assets 10,118 (4,371)
Net cash flows from investing activities (1,147,762) (162,538)
Cash flows from financing activities:
Proceeds and net benefits from sale of common
and treasury stock and exercise of options 299,269 677
Repayment of project loans (153,763) (13,800)
Construction loan 123,316 21,079
Proceeds from limited recourse senior secured notes 200,000 -
Proceeds from Salton Sea notes and bonds 475,000 -
Proceeds from merger loan 500,000 -
Repayments of merger loan (500,000) -
Deferred financing costs (34,733) (11,201)
Increase in amounts due from joint ventures (8,678) (1,220)
Purchase of treasury stock (1,590) (58,362)
Proceeds from issue of senior discount notes - 400,000
Defeasance of senior notes - (35,730)
Net cash flows from financing activities 898,821 301,443
Net increase (decrease) in cash and
cash equivalents (116,601) 200,738
Cash and cash equivalents at beginning of period 308,091 142,699
Cash and cash equivalents at end of period $ 191,490 $343,437
Supplemental disclosures:
Interest paid, net of amount capitalized $ 53,025 $ 14,494
Income taxes paid $ 6,359 $ 5,070
</TABLE>
The accompanying notes are an integral part of these financial statements.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and per kWh amounts)
________________________________
1. General:
In the opinion of management of California Energy Company, Inc.
(the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of September 30, 1995 and the results of operations for
the three and nine months ended September 30, 1995 and 1994, and
cash flows for the nine months ended September 30, 1995 and 1994.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, and its proportionate
share of the accounts of the partnerships and joint ventures in
which it has invested. The September 30, 1995 financial statements
reflect the acquisition of Magma Power Company (See Note 9).
The results of operations for the three and nine months ended
September 30, 1995 and 1994 are not necessarily indicative of the
results to be expected for the full year.
Certain amounts in the 1994 financial statements and supporting
footnote disclosures have been reclassified to conform to the 1995
presentation. Such reclassification did not impact previously
reported net income or retained earnings.
2. Other Footnote Information:
Reference is made to the Company's most recently issued annual
report that included information necessary or useful to the
understanding of the Company's business and financial statement
presentations. In particular, the Company's significant accounting
policies and practices were presented as Note 2 to the consolidated
financial statements included in that report.
On January 1, 1996, the Company intends to adopt Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". Management anticipates that the adoption of SFAS No.
121 will not have a material effect on the Company's financial
statements.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts and per kWh amounts)
3. Properties and Plants:
Properties and plants comprise the following:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
(unaudited)
<S> <C> <C>
Project costs:
Power plants and gathering systems* $ 955,262 $ 314,027
Wells and resource development* 273,374 174,651
1,228,636 488,678
Less accumulated depreciation
and amortization (130,316) (90,457)
Net facilities 1,098,320 398,221
Wells and resource construction
in progress 439 434
Total project costs 1,098,759 398,655
Upper Mahiao construction 167,291 48,554
Mahanagdong construction 55,404 21,443
Malitbog* 129,899 -
Other international development 8,634 2,445
Salton Sea expansion* 124,000 -
Pacific Northwest 50,090 46,620
Nevada and Utah properties costs 39,508 39,275
Total $1,673,585 $ 556,992
</TABLE>
* Values reflect utilization of purchase accounting treatment with respect
to the allocated purchase price for the Magma Power Company acquisition.
4. Senior Discount Notes:
In March 1994, the Company issued $400,000 of 10 1/4% Senior Discount
Notes which accrete to an aggregate principal amount of $529,640 at
maturity in 2004. The original issue discount (the difference
between $400,000 and $529,640) is being 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.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
5. Exchange of Preferred Stock:
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 was 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 had a dividend rate of 8.125%, commencing March 15,
1992 through conversion date or December 15, 2003. The dividends,
which were cumulative, were payable quarterly in convertible
preferred stock, Series C, through March 15, 1995 and in cash on
subsequent dividend dates.
Pursuant to the terms of the Securities Purchase Agreement, the
Company exercised its rights to exchange the preferred stock,
Series C, on March 15, 1995 for $64,850 principal amount 9.5%
convertible subordinated debenture of the Company due 2003.
6. Income Taxes:
The Company's effective tax rate continues to be less than the
statutory rate primarily due to the depletion deduction and the
generation of energy tax credits in 1995. The significant
components of the deferred tax liability are the temporary
differences between the financial reporting basis and income tax
basis of the power plant and the well and resource development
costs, and in addition, the offsetting benefits of operating loss
carryforwards and investment and geothermal energy tax credits.
The income tax provision for the nine months ended September 30,
1995, is approximately one third current tax expense and two thirds
deferred tax expense.
7. Earnings Per Share:
Fully diluted earnings per share assumes the conversion of the
convertible debt into 3,529,137 common shares at a conversion price
of $18.375 per share, the conversion of the Convertible
Subordinated Debentures into 4,444,444 common shares at a
conversion price of $22.50 per share and the exercise of all stock
options outstanding at their option prices, with the option
exercise proceeds used to repurchase shares of common stock at the
ending market price for fully diluted earnings per share. For
primary earnings per share, shares of common stock are assumed to
be repurchased at the average price for the period.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
8. Extraordinary Item:
In conjunction with the Company's Senior Discount Note offering
(See Note 4), the 12% Senior Notes were defeased. This resulted in
an extraordinary item in the amount of $2,007, after the income tax
effect of $945. The extraordinary item represents the amount
necessary to defease the interest payments on the $35,730 Senior
Notes and the unamortized portion of the deferred financing costs.
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. Purchase of Magma Power Company:
On January 10, 1995, the Company acquired approximately 51% of the
outstanding shares of common stock of Magma Power Company (the
"Magma Common Stock") through a cash tender offer (the "Magma
Tender Offer") and completed the Magma Acquisition on February 24,
1995 by acquiring the approximately 49% of the outstanding shares
of Magma common stock not owned by the Company through a merger.
Magma Power Company ("Magma") is engaged in independent power
operations similar to those of the Company. The transaction was
accounted for as a purchase. The results of operations of the
Company include the results of operations of Magma from January 10,
1995, to September 30, 1995 adjusted for the Company's percentage
ownership during that time period. The excess of cost over fair
value of net assets acquired in connection with the Magma
Acquisition is being amortized using the straight line method over
40 years. 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 from Magma (the "Tender Note"). The loans under the Tender
Facility were repaid from funds received from the Merger
Facilities, described below.
A total of approximately $957,000 was required to refinance the
Tender Facilities and to complete the Magma Acquisition.
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
___________________
9. Purchase of Magma Power Company: (continued)
Secured bank financing in the amount of $500,000 was provided by
Credit Suisse (the "Merger Facilities") on specified terms and
subject to customary conditions. Such funds, together with the net
proceeds of a public equity offering (see Note 10) and general
corporate funds of the Company, were used to complete the Magma
Acquisition.
In July 1995, the Company retired the entire outstanding balance of
the Merger facilities from proceeds received through the issuance
of notes and bonds as described in Note 11.
Unaudited proforma combined revenue, net income and primary
earnings per share of the Company and Magma for the nine months
ended September 30, 1995 as if the acquisition had occurred at the
beginning of the year after giving effect to certain proforma
adjustments related to the acquisition were $305,423, $49,798 and
$0.95, respectively, compared to $278,947, $46,638 and $0.86 for
the same period last year.
10. Equity Offering:
Simultaneous with the acquisition of the remaining equity interest
of Magma on February 24, 1995, the Company completed a public
offering (the "Offering") of 18,170 shares of common stock, which
amount included a direct sale by the Company to Peter Kiewit Sons,
Inc. of 1,500 shares and the exercise of underwriter over-allotment
options for 1,500 shares, at a price of $17.00 per share. The
Company received net proceeds of $300,388 from the Offering.
11. Debt Offerings:
On July 21, 1995 the Company issued $200,000 of 9 7/8% Limited
Recourse Senior Secured Notes Due 2003 (the "Notes"). Interest on
the Notes is payable on June 30 and December 30 of each year,
commencing December 1995. The Notes are secured by an assignment
and pledge of 100% of the outstanding capital stock of Magma and
are recourse only to such Magma capital stock, the Company's
interest in a secured Magma note and general assets of the Company
equal to the Restricted Payment Recourse Amount (as defined in the
Note Indenture).
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
__________________
Debt Offerings: (continued)
At any time or from time to time on or prior to June 30, 1998, the
Company may, at its option, use all or a portion of the net cash
proceeds of a Company equity offering (as defined in the Note
Indenture) and shall at any time use all of the net cash proceeds
of any Magma equity offering (as defined in the Note Indenture) to
redeem up to an aggregate of 35% of the principal amount of the
Notes originally issued at a redemption price equal to 109.875% of
the principal amount thereof plus accrued interest to the
redemption date. On or after June 30, 2000, the Notes are
redeemable at the option of the Company, in whole or in part,
initially at a redemption price of 104.9375% declining to 100% on
June 30, 2002 and thereafter, plus accrued interest to the date of
redemption.
Concurrent with the issuance of the Notes, the Company through its
wholly owned subsidiary, Salton Sea Funding Corporation ("Funding
Corporation"), completed a sale to institutional buyers of $475,000
principal amount of Salton Sea Notes and Bonds, which are
nonrecourse to the Company. These debt securities were rated Baa3
by Moody's and BBB by Standard & Poor's. The Funding Corporation
debt securities were offered in three tranches as follows:
$232,750 6.69% Senior Secured Series A Notes Due May 30, 2000
$133,000 7.37% Senior Secured Series B Bonds Due May 30, 2005
$109,250 7.84% Senior Secured Series C Bonds Due May 30, 2010
The Salton Sea Notes and Bonds are secured by the Company's three
existing Salton Sea plants, the 40 MW Salton Sea expansion plant as
well as an assignment of the right to receive various royalties
payable to Magma in connection with its Imperial Valley properties
and distributions from the Partnership Projects. In connection
with the Salton Sea debt issuance, the Company has, subject to
certain conditions, committed to fund any costs of construction in
connection with the construction of the Salton Sea Expansion
project over and above the initial budgeted amount of $135,000 in
the event such budgeted amount is insufficient to cause substantial
completion of the expansion project prior to January 1, 1998.
Each of the Company's direct or indirect subsidiaries is organized
as a legal entity separate and apart from the Company and its other
subsidiaries. It should not be assumed that any asset of any such
subsidiary will be available to satisfy the obligations of the
CALIFORNIA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh data)
___________________
Debt Offerings: (continued)
Company or any of its other such subsidiaries; provided, however,
that unrestricted cash or other assets which are available for
distribution may, subject to applicable law and the terms of
financing arrangements of such parties, be advanced, loaned, paid
as dividends or otherwise distributed or contributed to the Company
or affiliates thereof. Substantially all of the assets of each
subsidiary listed below (except Vulcan/BN Geothermal Power Company
and certain other subsidiaries involved in project financing
activities) have been encumbered to secure obligations owed to the
creditors of such subsidiary:
Fish Lake Power Company
Salton Sea Brine Processing L.P.
Salton Sea Power Generation L.P.
Vulcan Power Company
California Energy Operating Company
Salton Sea Funding Corporation
Salton Sea Power Company
Salton Sea Royalty Company
Vulcan/BN Geothermal Power Company
Del Ranch, L.P.
Elmore, L.P.
Leathers, L.P.
The net proceeds of the Notes and the Salton Sea Notes and Bonds
were used to (a) repay the outstanding balance of the Merger
Facilities (b) refinance approximately $102,000 of existing
indebtedness of the Salton Sea Projects, and (c) provide funding
for the Salton Sea Expansion in the amount of $115,000. Pursuant
to the Depositary Agreement, Funding Corporation established a debt
service reserve fund in the form of a letter of credit in the
initial amount of $50,000 from which scheduled interest and
principal payments can be made.
Annual repayment of the Notes and the Salton Sea Notes and Bonds
for the years beginning January 1, 1995 are as follows:
1995 22,912
1996 48,106
1997 64,378
1998 74,938
1999 35,108
Thereafter 429,558
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included in
the accompanying statements of operations.
For purposes of consistent financial presentation, plant capacity
factors for Navy I, Navy II, and BLM (collectively the Coso
Project), are based upon a capacity amount of 88 gross MW/80 net MW
for each plant. Plant capacity factors for Vulcan, Del Ranch,
Elmore, Leathers, (collectively the Partnership Project) are based
on contract nameplate amounts of 34, 38, 38, and 38 net MW
respectively, and for Salton Sea I and II, and Salton Sea III
plants (collectively the Salton Sea Project), are also based on
contract nameplate amounts of 30, and 49.8 net MW respectively.
Each plant possesses an operating margin which periodically allows
for production in excess of the amount listed above. Utilization
of this operating margin is based upon a variety of factors and can
be expected to vary between calendar quarters, under normal
operating conditions.
The Coso Project and the Partnership Project sell all electricity
generated by the respective plants pursuant to seven long-term SO4
Agreements between the project and SCE. These SO4 Agreements
provide for capacity payments, capacity bonus payments and energy
payments. SCE makes fixed annual capacity payments to the
projects, and to the extent that capacity factors exceed certain
benchmarks is required to make capacity bonus payments. The price
for capacity and capacity bonus payments is fixed for the life of
the SO4 Agreements. 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 Coso Project 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 in 2000.
The fixed price periods of the Partnership Project SO4 Agreements
extend until February 1996, December 1998, December 1998, and
December 1999 for each of the Vulcan, Del Ranch, Elmore and
Leathers Partnerships, respectively, at rates ranging from 10.9 cents
per kWh in 1994 to 15.6 cents per kWh in 1999.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Result of Operations (continued)
The Salton Sea I Project sells electricity to SCE pursuant to a 30-
year negotiated power purchase agreement, as amended (the "Salton
Sea I PPA"), which provides for capacity and energy payments. The
initial contract capacity and contract nameplate are each 10 MW.
The contract capacity payment adjusts quarterly based on a basket
of energy indices for the term of the Salton Sea I PPA. The energy
payment is calculated using a Base Price (defined as the initial
value of the energy payment of 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 5.1 cents per kWh during 1994. As the Salton Sea
I PPA is not an SO4 Agreement, the energy payments do not revert to
SCE's Avoided Cost of Energy.
The Salton Sea II 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 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.
The Salton Sea III Project sells electricity to SCE pursuant to a
30 year modified SO4 Agreement that commenced on April 15, 1990.
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 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.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Result of Operations (continued)
For the year ended December 31, 1994, SCE's average Avoided Cost of
Energy was 2.5 cents per kWh which is substantially below the
contract energy prices earned for the nine months ended September
30, 1995. Estimates of SCE's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the
likely level of Avoided Cost of Energy prices under the SO4
Agreements and the modified SO4 Agreements at the expiration of the
scheduled payment periods. The revenues generated by each of the
projects operating under SO4 Agreements could decline significantly
after the expiration of the respective scheduled payment periods.
Sales of electricity and steam increased to $102,423 in the third
quarter of 1995 from $49,498 in the third quarter of 1994, a 106.9%
increase. This improvement was primarily due to the addition of
production from the Partnership and Salton Sea Projects as a result
of the acquisition of Magma Power Company in the first quarter of
1995, an increase in the Coso Project's electric kilowatt hour
sales to 594.7 million kWh from 580.4 million kWh, and an increased
price per kWh in accordance with the SO4 Agreements.
The following operating data represent the aggregate capacity and
electricity production of the Coso Project:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Overall capacity
factor 112.2% 109.5% 109.5% 105.5%
kWh produced
(in thousands) 594,700 580,400 1,721,600 1,659,400
Installed capacity
NMW (average) 240 240 240 240
</TABLE>
The Navy I plant capacity factor was 115.2% in the third quarter of
1995 compared to 115.5% in the third quarter of 1994. For the nine
months ended September 30, the Navy I plant capacity factor was
111.3% in 1995 compared to 114.6% for the same period in 1994.
Navy I output was reduced in the second quarter of 1995 due to a
scheduled overhaul of one of its turbines. The Navy II plant
capacity factor was 112.8% in the third quarter of 1995 compared to
113.2% in the third quarter of 1994. For the nine months ended
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Result of Operations (continued)
September 30, the Navy II plant capacity factor was 110.9% in 1995
compared to 103.5% for the same period in 1994. Navy II output in
the first quarter 1994 was reduced due to the scheduled overhaul of
its three turbines. The BLM plant capacity factor was 108.7% in
the third quarter of 1995 compared to 99.8% for the same period in
1994. For the nine months ended September 30, 1995, the BLM plant
capacity factor was 106.3% compared to 98.5% for the same period in
1994. Technology enhancements to the BLM plant in the third
quarter 1994 have allowed it to process its existing steam more
efficiently. Also, a steam transfer system began operating in the
third quarter of 1995 resulting in increased production at the BLM
plant. The steam transfer system will allow increased operational
flexibility for the three facilities at the Coso project.
The following operating data represent the aggregate capacity and
electricity production of the Partnership Project:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Overall capacity
factor 108.0% 107.9% 106.0% 105.0%
kWh produced
(in thousands) 352,970 352,564 1,027,620 1,017,707
Installed capacity
NMW (average) 148 148 148 148
</TABLE>
The overall capacity factor for the Partnership Project has
marginally increased for the three and nine months ended September
30, 1995 compared to the same periods in 1994 as a result of
increased production at the projects.
The following operating data represent the aggregate capacity and
electricity production of the Salton Sea Project:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Overall capacity
factor 93.9% 92.0% 86.3% 90.8%
kWh produced
(in thousands) 165,400 162,059 451,400 474,704
Installed capacity
NMW (average) 79.8 79.8 79.8 79.8
</TABLE>
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
The overall capacity factor for the Salton Sea Project has
increased for the three months ended September 30, 1995 compared to
the same period in 1994 as a result of increased production at the
Salton Sea Project. The overall capacity factor for the nine
months ended September 30, 1995 decreased compared to the same
period in 1994 as a result of the scheduled turbine overhauls at
the Salton Sea III facility.
Roosevelt Hot Springs steam field supplied 100% of customer power
plant steam requirements in the third quarter of 1995. The Company
has approximately 70% interest in the Roosevelt Hot Springs field.
The Desert Peak power plant operated above its nine net megawatt
capacity in the third quarter of 1995. The Yuma power plant
availability was effectively 100% during the third quarter 1995 and
delivered an average of 95.2% of its 50 net MW plant capacity.
The Company received royalty income of $5,372 and $14,201 in the
third quarter of 1995 and for the nine months ended September 30,
1995, respectively. The increase is a result of the acquisition of
Magma Power Company which receives royalty income from the
Partnership Project, East Mesa Project and the Mammoth Project.
Interest and other income increased in the third quarter of 1995 to
$11,922 from $9,026 for the same period in 1994. For the nine
months ended September 30, interest and other income increased to
$32,140 in 1995 from $21,980 for the same period in 1994. The
increase reflects management fee income received from the
Partnership Project partially offset by lower interest income due
to lower cash and investment balances.
Plant operations, general and administration, royalties,
depreciation and net interest expense all increased due primarily
to the addition of Magma's results of operations in 1995. In
addition, Yuma commenced operations in June of 1994 and its
operating results are fully included for the nine months ended
September 30, 1995.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
The Company's expenses as a percentage of sales of electricity and
steam were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Plant operations (net of
Yuma fuel cost) 20.5% 15.9% 22.3% 18.2%
General and administration 4.5% 6.5% 6.2% 8.1%
Royalties 7.7% 7.1% 7.1% 6.7%
Depreciation and
amortization* 16.8% 11.4% 18.3% 13.2%
Interest (less amounts
capitalized) 27.1% 31.4% 32.2% 31.5%
76.6% 72.3% 86.1% 77.7%
</TABLE>
* Depreciation and amortization in 1995 includes amortization of
allocated purchase price.
Plant operations costs increased in the third quarter of 1995 to
$22,458 from $9,846 for the same period in 1994, a 128.1% increase.
For the nine months ended September 30, plant operations costs
increased to $61,331 in 1995 from $23,887 for the same period in
1994, a 156.8% increase. Plant operations costs for the plants the
Company owned in 1994 decreased 11.1% and 6.6% for the quarter and
nine month period ended September 30, 1995, respectively. The
addition of Partnership and Salton Sea projects operations and the
commencement of the Yuma Project (including fuel purchases)
resulted in the additional plant operations costs.
General and administration costs increased to $4,600 in the third
quarter of 1995 from $3,216 in the third quarter of 1994, a 43.0%
increase. For the nine months ended September 30, general and
administration costs increased to $15,877 in 1995 from $9,536 in
1994, a 66.5% increase. These increases are a result of the
Company's acquisition of Magma Power Company.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
Royalty costs increased to $7,913 in the third quarter of 1995 from
$3,504 in the third quarter of 1994, a 125.8% increase. For the
nine months ended September 30, royalties increased to $18,249 in
1995 from $7,898 in 1994, a 131.1% increase. The increases were
due to the addition of the Imperial Valley projects, increased
revenue from the plants the Company owned in 1994 and scheduled
royalty increases associated with such plants.
Depreciation and amortization increased to $17,210 in the third
quarter of 1995 from $5,639 in the third quarter of 1994, a 205.2%
increase. For the nine months ended September 30, depreciation and
amortization increased to $47,034 in 1995 from $15,439 in 1994, a
204.6% increase. The increases were due to depreciation and
amortization from the Imperial Valley projects and amortization of
excess of cost over fair value of net assets acquired in connection
with the purchase of Magma Power Company.
Interest expense, less amounts capitalized, increased to $27,717 in
the third quarter of 1995 from $15,566 in the third quarter of
1994, a 78.1% increase. For the nine months ended September 30,
interest expense, less amounts capitalized, increased to $82,891 in
1995 from $36,962 in 1994, a 124.3% increase. The increase was
primarily due to the interest expense on the debt used to finance
the Magma Acquisition, the increase in the original issue discount
amortization on the Senior Discount Notes issued in March 1994 and
interest expense on the convertible debt, partially offset by the
defeasance of the Senior Notes in March 1994.
The provision for income taxes increased to $12,457 in the third
quarter of 1995 from $6,340 in the third quarter of 1994, a 96.5%
increase. For the nine months ended September 30, the provision
for income taxes increased to $24,245 in 1995 from $14,067 in 1994,
a 72.4% increase. The increases are due to higher income before
taxes. The Company's effective rate continues to be less than the
expected statutory rate primarily due to the percentage depletion
deduction and energy tax credits generated in the current year.
Income before minority interest and extraordinary item increased to
$27,362 in the third quarter of 1995, compared to $14,413 for the
same period last year, an 89.8% increase. For the nine months
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Results of Operations: (continued)
ended September 30, income before minority interest and
extraordinary item increased to $53,871 in 1995 from $31,399 in the
same period last year a 71.6% increase. Net income available for
common shareholders in the third quarter of 1995 increased to
$27,362 or $.52 per share from $13,138 or $.38 per share in the
third quarter of 1994. Net income available for common
shareholders for the nine months ended September 30, increased to
$49,786 in 1995 or $1.02 per share from $25,681 or $.71 per share
for the same period in 1994. Without the effect of the
extraordinary item, net income available to common shareholders for
the nine months ended September 30, 1994 would have been $.77 per
common share.
Liquidity and Capital Resources:
The Company's cash and investments were $157,393 at September 30,
1995 as compared to $254,004 at December 31, 1994. In addition,
the Company's share of Coso and Magma cash and investments retained
in project control accounts at September 30, 1995 and December 31,
1994 was $34,097 and $54,087, respectively. Distributions out of
the Coso Project control account are made monthly to the Company
for operation and maintenance and capital costs and semiannually to
each Coso Joint Venture partner for profit sharing under a
prescribed calculation subject to mutual agreement by the partners.
Similarly, distributions out of the Magma Project control accounts
are made monthly for management fees, royalties and reimbursement
of operating costs and semi-annually to each Magma joint venture
partner for profit sharing. In addition, the Company recorded
separately restricted cash and investments of $184,119 and $131,775
at September 30, 1995 and December 31, 1994, respectively. The
restricted balances consist primarily of amounts deposited in
restricted accounts from which the Company will source its equity
contribution requirements relating to the Salton Sea expansion,
Upper Mahiao, Mahanagdong and Malitbog projects and of its
proportionate share of Coso Project cash reserves for a debt
service reserve fund. The Coso Project established these reserves
in conjunction with the refinancing of its previous bank debt.
Also, as of September 30, 1995 and December 31, 1994, the Company
had $41,592 and $50,000, respectively, of short term investments.
Simultaneous with the acquisition of the remaining equity interest
of Magma on February 24, 1995, the Company completed a public
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
offering (the "Offering") of 18,170 shares of common stock, which
amount includes a direct sale by the Company to Peter Kiewit Sons,
Inc. of 1,500 shares and the exercise of underwriter over-allotment
options of 1,500 shares, at a price of $17.00 per share. The
Company received proceeds of $300,388 from the Offering.
As of September 30, 1995 the Company has repurchased 99 shares of
its common stock at a cost of $1,534. This repurchase provides
shares for issuance under the Company's employee stock option and
share purchase plans and other outstanding convertible securities.
The shares may also be used for any future convertible securities
or employee benefit plans.
The Company has acquired all of the outstanding equity interest in
Magma Power Company ("Magma") in a two-step transaction 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. Magma is
engaged in independent geothermal power operations 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
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
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. 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. Secured
bank financing in the amount of $500,000 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.
In July 1995 the Company retired the outstanding balance of the
Merger facilities in the amount of $492,000 from proceeds received
through the issuance of notes and bonds as described below.
On July 21, 1995 the Company issued $200,000 of 9 7/8% Limited
Recourse Senior Secured Notes Due 2003 (the "Notes"). The Notes
are secured by an assignment and pledge of 100% of the outstanding
capital stock of Magma.
On or prior to June 30, 1998, the Company may, at its option,
redeem up to an aggregate of 35% of the principal amount of the
Notes originally issued at a redemption price equal to 109.875% of
the principal amount thereof plus accrued interest to the
redemption date. The Notes are redeemable at the option of the
Company, in whole or in part, at the redemption prices of
104.9375%, 102.46875% and 100%, on or after June 30, 2000, 2001 and
2002, respectively, plus accrued interest to the date of
redemption.
Concurrent with the issuance of the Notes, the Company through its
wholly owned subsidiary, Salton Sea Funding Corporation, completed
a sale to institutional buyers of $475,000 principal amount of
Senior Secured Notes and Bonds, which are nonrecourse to the
Company. The Funding Corporation debt securities were offered in
three tranches as follows:
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
$232,750 6.69% Senior Secured Series A Notes Due May 30, 2000
$133,000 7.37% Senior Secured Series B Bonds Due May 30, 2005
$109,250 7.84% Senior Secured Series C Bonds Due May 30, 2010
The net proceeds of the Notes and the Salton Sea Notes and Bonds
were used to (a) repay the outstanding balance of the Merger
Facilities (b) refinance approximately $102,000 of existing
indebtedness of the Salton Sea Projects, and (c) finance the Salton
Sea Expansion in the amount of $115,000. Pursuant to the
Depositary Agreement, Funding Corporation established a debt
service reserve fund in the form of a letter of credit in the
initial amount of $50,000 from which scheduled interest and
principal payments can be made.
Annual repayment of the Notes and the Salton Sea Notes and Bonds
for the years beginning January 1, 1995 are as follows:
1995 22,912
1996 48,106
1997 64,378
1998 74,938
1999 35,108
Thereafter 429,558
The Company is actively seeking to develop, construct, own and
operate new power projects utilizing geothermal and other
technologies, both domestically and internationally, the completion
of any of which is subject to substantial risk. Development can
require the Company to expend significant sums for preliminary
engineering, field development, permitting, legal and other
financing related costs. The Company's future growth is dependent,
in large part, upon the demand for significant amounts of
additional electrical generating capacity and the Company's ability
to obtain contracts to supply portions of this capacity. There can
be no assurance that development, financing or construction efforts
on any particular project, or the Company's efforts generally, will
be successful.
The Company believes that the international independent power
market holds the majority of new opportunities for financially
attractive private power development in the next several years. The
financing, construction and development of projects outside the
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
United States entail significant political and financial risks
(including, without limitation, uncertainties associated with first
time privatization efforts in the countries involved, currency
exchange rate fluctuations, currency repatriation restrictions,
political instability, civil unrest and expropriation) and other
structuring issues that have the potential to cause substantial
delays or material impairment of value to the project being
developed, which the Company may not be fully capable of insuring
against. The uncertainty of the legal environment in certain
foreign countries in which the Company may develop or acquire
projects could make it more difficult for the Company to enforce
its rights under agreements relating to such projects. In
addition, the laws and regulations of certain countries may limit
the ability of the Company to hold a majority interest in some of
the projects that it may develop or acquire. The Company's
international projects may, in certain cases, be terminated by a
government.
In April 1994, the Company closed the financing for the 128 GMW
Upper Mahiao geothermal power project located in the Philippines.
The total project cost for the facility is approximately $218,000.
The Company will supply approximately $56,000 of equity and project
debt financing will constitute the balance of approximately
$162,000. A syndicate of international commercial banks is
providing the construction financing. The Export-Import Bank of
the U.S. ("Ex-Im Bank") is providing political risk insurance to
the commercial banks on the construction loan and will provide the
preponderance of project term financing upon satisfaction of
conditions associated with commercial operation. As of September
30, 1995, draws on the construction loan totalled $116,618, and the
Company has invested $42,904. 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 commenced construction in April of 1994, 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., 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. The electricity
generated by the Upper Mahiao geothermal power plant will be sold
to the Philippine National Oil Company - Energy Development
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
Corporation ("PNOC-EDC"), which is also responsible for supplying
the facility with the geothermal steam. After a ten year
cooperation period, and the recovery by the Company of its capital
investment plus incremental return, the plant will be transferred
to PNOC-EDC at no cost. Ormat Inc. of Sparks, Nevada is the
turnkey contractor for the project.
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 September
30, 1995, the Company's proportionate share of draws on the
construction loan totalled $29,427 and equity investments made by
a subsidiary of the Company totaled $20,400. OPIC is providing
political risk insurance on the equity. The Mahanagdong project is
targeted for service in July, 1997.
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 CE Holt Co., a
wholly owned subsidiary of the Company (with a 20% interest).
In December 1994, financing was closed and construction commenced
on the Malitbog Project, a 231 gross MW geothermal project, which
will 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.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
The Malitbog Project has a total project cost of approximately $280
million, including interest during construction and project
contingency costs. Credit Suisse and OPIC have provided a total of
$210 million of construction and term loan facilities, the $135
million international commercial bank portion of which is supported
by political risk insurance from OPIC. As of September 30, 1995,
draws on the construction loan totalled $8,774, the equity
investments made by subsidiaries of the Company totalled $70,000
and advances by subsidiaries of the Company totalled $5,310. The
advances were repaid by draws on the construction loan in October
1995. The Company's equity contribution to VGPC of $70 million is
covered by political risk insurance from OPIC and the Multilateral
Investment Guarantee Agency ("MIGA"). As with the Upper Mahiao
project, the Malitbog 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 Malitbog Project is being constructed by Sumitomo Corporation
pursuant to a fixed-price, date-certain, turnkey supply and
construction contract. 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 company has commenced development of and is in the process of
obtaining financing for the Casecnan Project, a multipurpose
irrigation and hydroelectric power facility with a rated capacity
of approximately 150MW located on the island of Luzon in the
Philippines. The total project cost for the facility is
approximately $475,000. The capital structure is expected to
consist of term loans of approximately $356,000 and $119,000 in
equity contributions. The Company's portion of the equity
commitment is approximately $59,500.
The project is structured as a 20 year build-operate-transfer
(BOT), in which the Company's indirect subsidiary CE Casecnan Water
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
and Energy Company, Inc., a Philippine corporation, will be
responsible as the BOT operator. The fixed price, date-certain
turnkey contractors consist of Hanbo Corporation and You One
Engineering & Construction Co., Ltd. of South Korea.
The Company has commenced construction of an additional 39 MW
electric generating facility (the "Salton Sea Expansion") in the
Imperial Valley pursuant to an amended and restated 30-year power
purchase agreement with SCE. The Salton Sea Expansion has a target
completion date of July 1996 and an estimated capital construction
cost of $135,000. As of September 30, 1995, the Company has
invested $41,003 in the Salton Sea Expansion.
Magma is seeking new long-term final SO4 power purchase agreements
in southern California 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
(collectively, the "IOUs"). 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 (69 MW) and SDG&E (94 MW), with in-
service dates in 1997 and 1998. However, the IOUs have to date
challenged and may continue to challenge the order and there can be
no assurance that power sales contracts will be executed or that
any such projects will be completed.
In light of the regulatory uncertainty concerning the BRPU awards
resulting from such IOU challenges, in March 1995 Magma entered
into a buyout and capacity option agreement with SCE relating to
the 69 MW of capacity awarded to Magma as a winning bidder in the
BRPU solicitation. The agreement (which is subject to CPUC
approval) provides for three lump sum termination payments in lieu
of signing a power sales contract with SCE for the 69 MW of BRPU
capacity. The amount of the termination payments is subject to a
confidentiality agreement but provides SCE's ratepayers with very
significant savings when compared to payments that would otherwise
be made to Magma over the life of the proposed BRPU power sales
contract.
CALIFORNIA ENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh data)
___________________
Liquidity and Capital Resources: (continued)
The agreement also provides SCE with an option, which can be
exercised at any time prior to February 2, 2002, to negotiate a
power sales contract for 69 MW of geothermal capacity and energy on
commercially reasonable prices and terms, without giving effect to
termination payments previously paid.
CALIFORNIA ENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
See Note 14 to the 1994 Annual Consolidated Financial
Statements.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended September 30, 1995, the Company filed
the following:
(i) Form 8-K/A dated July 20, amending Form 8-K dated
June 23, 1995, in reference to an Independent
Engineer's Report prepared by Stone and Webster
Engineering Corporation and furnished to
prospective investors in connection with the
proposed issuance of $475,000,000 Senior Secured
Notes and Bonds by Salton Sea Funding Corporation.
(ii) Form 8-K dated July 25, 1995 announcing completion
of an offering of $200,000,000 of its Limited
Recourse Senior Secured Notes due 2003 as part of a
refinancing of certain indebtedness incurred in
connection with the Company's acquisition of Magma
Power Company in February 1995. Additionally, the
Registrant announced that Salton Sea Funding
Corporation, a wholly owned subsidiary of the
Registrant, had concurrently completed a sale to
institutional buyers of $475 million principal
amount of Senior Secured Notes and Bonds which are
non-recourse to the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CALIFORNIA ENERGY COMPANY, INC.
Date: November 10, 1995 /s/ John G. Sylvia
Senior Vice President and
Chief Financial Officer
/s/ Gregory E. Abel
Vice President, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 34
15 Awareness Letter of Independent Accountants 35
27 Financial Data Schedule 36
EXHIBIT 11
CALIFORNIA ENERGY COMPANY, INC.
CALCULATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
(dollars in thousands, except per share amounts)
___________________
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Actual weighted average
shares outstanding for the period 49,987,315 32,452,314 46,254,489 33,606,006
Dilutive stock options and warrants
using average market prices 3,092,465 2,378,938 2,606,762 2,568,173
Total number of shares based on
shares outstanding and the
assumption that dilutive stock
options and warrants will be
exercised at average stock market
prices 53,079,780 34,831,251 48,861,251 36,174,179
Additional dilutive stock options
using ending market price and
assuming conversion of convertible
debt and convertible subordinated
debenture* 8,438,214 4,630,631 7,968,064 4,444,444
Total shares based on shares out-
standing and the assumption that
dilutive stock options and warrants
will be exercised at ending market
price if more dilutive 61,517,994 39,461,882 56,829,315 40,618,623
Income before extraordinary item $ 27,362 $ 14,413 $ 50,866 $ 31,399
Extraordinary item - - - (2,007)
Net income 27,362 14,413 50,866 29,392
Less: Series C preferred stock
dividends - 1,275 1,080 3,711
Net income available for common
shareholders $ 27,362 $ 13,138 $ 49,786 $ 25,681
Primary earnings per share before
extraordinary item $ .52 $ .38 $ 1.02 $ .77
Extraordinary item per share - - - (.06)
Primary earnings per share $ .52 $ .38 $ 1.02 $ .71
Fully diluted earnings per share
based on SEC interpretive release
No. 34-9083** $ .48 $ .36 $ .96 $ .70
</TABLE>
* The ending market price on September 30, 1994 was lower than the average
market price for the nine months ended September 30, 1994. Accordingly,
inclusion of an adjustment for stock options would be antidilutive and,
therefore, contrary to paragraph 40 of APB Opinion 15.
**The net income available for common shareholders for the three and nine
months ended September 30, 1995 was increased by the interest expense, net
of tax, associated with the convertible debt and convertible subordinated
debenture of $1,921 and $4,866, respectively. Net income available for
common shareholders for the three and nine months ended September 30, 1994
was increased by the interest expense, net of tax, associated with the
convertible subordinated debenture of $887 and $2,620, respectively.
Exhibit 15
California Energy Company, Inc.
Omaha, Nebraska
We have made a review, in accordance with standards established by
the American Institute of Certified Public Accountants, of the
unaudited interim financial information of California Energy
Company, Inc. for the three and nine month periods ended September
30, 1995 and 1994 as indicated in our report dated October 19,
1995; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included
in your Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, is incorporated by reference in Registration
Statements No. 33-41152 and No. 33-52147 on Form S-8 and
Registration Statement No. 35-51363 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act, is not considered a part of a
Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Section 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
November 10, 1995
<PAGE>
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<NAME> CALIFORNIA ENERGY CO., INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 375609
<SECURITIES> 41592
<RECEIVABLES> 81255
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 1815409
<DEPRECIATION> 137734
<TOTAL-ASSETS> 2579804
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<BONDS> 1305523
<COMMON> 3386
0
0
<OTHER-SE> 525390
<TOTAL-LIABILITY-AND-EQUITY> 2579804
<SALES> 102423
<TOTAL-REVENUES> 119717
<CGS> 0
<TOTAL-COSTS> 22458
<OTHER-EXPENSES> 12513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27717
<INCOME-PRETAX> 39819
<INCOME-TAX> 12457
<INCOME-CONTINUING> 27362
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<EPS-PRIMARY> .52
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