Securities and Exchange Commission
Washington, DC 20549
Form 8-K/A
Current Report
(Amendment No. 1)
Pursuant to Section 13 to 15(d) of the
Securities Exchange Act 1934
Date of Report July 1, 1996
(Date of earliest event reported)
CalEnergy Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-9874 94-2213782
(State of other (Commission File (IRS Employer
jurisdiction of Number) Identification No.
incorporation)
302 South 36th Street, Suite 400, Omaha, NE 68131
(Address of principle executive offices) Zip Code
Registrant's Telephone Number, including area code: (402) 341-
4500
N/A
Item 2. Acquisition or Disposition of Assets
On April 17, 1996, the Registrant completed the acquisition
of Edison Mission Energy's 50% interest in four geothermal
facilities at Imperial Valley, California, for a cash purchase
price of $70 million, resulting in the Registrant owning an
additional 74 net MW of generating capacity. The acquisition
involved the sale to a subsidiary of the Registrant by Edison
Mission Energy of 100% of the stock in four of its subsidiaries
which own general and limited partnership interests in four
geothermal energy projects currently operated by an affiliate of
the Registrant.
The Registrant previously reported this event as Item 2 on
Form 8-K dated April 17, 1996, noting that the financial
statements would be filed at a later date as part of an
amendment. Such financial statements are included herein.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
BN Geothermal Inc.
Report of Independent Public Accountants 4
Balance Sheets as of December 31, 1995 and 1994 5
Statements of operations for the years ended
December 31, 1995, 1994 and 1993 6
Statements of shareholder's equity 7
Statements of cash flows for the years ended
December 31, 1995, 1994 and 1993 8
Notes to financial statements 9
Conejo Energy Company
Report of Independent Public Accountants 15
Balance Sheets as of December 31, 1995 and 1994 16
Statements of operations for the years ended
December 31, 1995, 1994 and 1993 17
Statements of shareholder's equity 18
Statements of cash flows for the years ended
December 31, 1995, 1994 and 1993 19
Notes to financial statements 20
Niguel Energy Company
Report of Independent Public Accountants 26
Balance Sheets as of December 31, 1995 and 1994 27
Statements of Income for the years ended
December 31, 1995, 1994 and 1993 28
Statements of shareholder's equity 29
Statements of cash flows for the years ended
December 31, 1995, 1994 and 1993 30
Notes to financial statements 31
San Felipe Company
Report of Independent Public Accountants 37
Balance Sheets as of December 31, 1995 and 1994 38
Statements of operations for the years ended
December 31, 1995, 1994 and 1993 39
Statements of shareholder's equity 40
Statements of cash flows for the years ended
December 31, 1995, 1994 and 1993 41
Notes to financial statements 42
Financial statements for the period ended March 31, 1996:
BN Geothermal Inc.
Balance sheets as of March 31, 1996 48
Statements of operations for the three
months ended March 31, 1996 49
Statements of cash flows for the three
months ended March 31, 1996 50
Notes to financial statements 51
Conejo Energy Company
Balance sheets as of March 31, 1996 53
Statements of operations for the three
months ended March 31, 1996 54
Statements of cash flows for the three
months ended March 31, 1996 55
Notes to financial statements 56
Niguel Energy Company
Balance sheets as of March 31, 1996 58
Statements of income for the three
months ended March 31, 1996 59
Statements of cash flows for the three
months ended March 31, 1996 60
Notes to financial statements 61
San Felipe Energy Company
Balance sheets as of March 31, 1996 63
Statements of operations for the three
months ended March 31, 1996 64
Statements of cash flows for the three
months ended March 31, 1996 65
Notes to financial statements 66
(b) Pro Forma financial information:
Condensed balance sheet as of March 31, 1996 69
Condensed statement of earnings for the year
ended December 31, 1995 70
Condensed statement of earnings for the three
months ended March 31, 1996 71
Note to Pro Forma Condensed Combined Unaudited
Financial Data 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of BN Geothermal Inc.:
We have audited the accompanying balance sheets of BN
Geothermal Inc. as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's equity and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our
audits. We did not audit the summary financial information of
Vulcan/BN Geothermal Power Company (a Nevada general
partnership in which BN Geothermal Inc. owns a 50 percent
interest) included in Note 4 to the financial statements.
That information was derived from statements which were
audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to such amounts, is
based solely on the reports of other auditors.
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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of BN
Geothermal Inc. as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
June 7, 1996
BN GEOTHERMAL INC.
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
ASSETS
Investment in partnership $ 2,365 $ 16,315
Deferred taxes and tax credits, net 8,081 4,962
-------- --------
Total assets $ 10,446 $ 21,277
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable - affiliates $ 3,073 $ 782
-------- --------
Total liabilities 3,073 782
-------- --------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding 1 1
Additional paid-in capital 47,960 47,960
Accumulated deficit (40,588) (27,466)
-------- --------
Total shareholder's equity 7,373 20,495
-------- --------
Total liabilities and shareholder's
equity $ 10,446 $ 21,277
======== ========
The accompanying notes are an integral part of these balance
sheets.
BN GEOTHERMAL INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
Operating Revenue:
Equity in income from partnership $ - $ - $ 2,211
----- ------- -------
Total operating revenue - - 2,211
----- ------- -------
Operating Expenses:
Administrative and general
expenses 685 625 845
Depreciation and amortization - - 23
Impairment of investment - - 13,971
----- ------- -------
Total operating expenses 685 625 14,839
----- ------- -------
Loss before income taxes (685) (625) (12,628)
Credit for income taxes (731) (1,042) (3,268)
----- ------- --------
Income (loss) before cumulative effect
of change in accounting principle 46 417 (9,360)
Cumulative effect on prior years of
change in accounting for income taxes - - 1,420
----- ------- --------
NET INCOME (LOSS) $ 46 $ 417 $ (7,940)
===== ======= ========
The accompanying notes are an integral part of these financial
statements.
BN GEOTHERMAL INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
BALANCE, December 31,
1992 $1 $47,960 $ (4,772) $ 43,189
Net loss - - (7,940) (7,940)
Cash distributions - - (7,781) (7,781)
-- ------- -------- --------
BALANCE, December 31,
1993 1 47,960 (20,493) 27,468
Net income - - 417 417
Cash distributions - - (7,390) (7,390)
-- ------- -------- --------
BALANCE, December 31,
1994 1 47,960 (27,466) 20,495
Net income - - 46 46
Cash distributions - - (13,168) (13,168)
-- ------- -------- --------
BALANCE, December 31,
1995 $1 $47,960 $(40,588) $7,373
== ======= ======== ========
The accompanying notes are an integral part of these financial
statements.
BN GEOTHERMAL INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 46 $ 417 $(7,940)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in income from partnership - - (2,211)
Impairment loss - - 13,971
Distributions from partnership 13,950 12,000 9,000
Increase in deferred taxes and
tax credits (3,119) (1,199) (8,453)
Increase (decrease) in accounts
payable - affiliates 2,291 (3,828) 3,414
-------- ------- -------
Net cash provided by operating
activities 13,168 7,390 7,781
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (13,168) (7,390) (7,781)
-------- ------- ------
Net cash used in financing activities (13,168) (7,390) (7,781)
-------- ------- ------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
-------- ------- -------
CASH AT END OF YEAR $ - $ - $ -
======== ======= =======
The accompanying notes are an integral part of these financial
Statements.
BN GEOTHERMAL INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Dollars in thousands)
1. ORGANIZATION
On December 15, 1988, BN Geothermal Inc. (BNG) was formed
through the issuance of 1,000 shares of common stock to Edison
Mission Energy, formerly Mission Energy Company. Edison
Mission Energy is a wholly owned subsidiary of The Mission
Group (TMG), a wholly owned non-utility subsidiary of Edison
International, formerly SCEcorp, the parent holding company of
Southern California Edison Company (Edison).
BNG was organized to hold Edison Mission Energy's 50 percent
investment in Vulcan/BN Geothermal Power Company (the
Partnership), a Nevada general partnership. BNG is partners
with Vulcan Power Company, a wholly owned subsidiary of Magma
Power Company which was subsequently acquired by CalEnergy
Company, Inc. The Partnership was organized to design,
construct, own and operate a 34 megawatt (contract nameplate)
geothermal facility located in the Niland area of the Imperial
Valley, California.
On April 17, 1996, the stock of BNG was acquired by CalEnergy
Company, Inc. which owns and operates the remaining 50%
interest in the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the accounts of
BNG and its 50 percent investment in the Partnership. BNG
accounted for its investment in the Partnership on the equity
method until June 1993, at which time BNG (under its prior
ownership by Edison Mission Energy) wrote down its investment
to an amount which equaled its then current estimate of future
cash flows to be generated by the project. As a result,
subsequent to July 1993 BNG discontinued recognizing income
from the Partnership and began reducing its investment as cash
was received.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
b.Impairment of Investment in Energy Project
BNG periodically evaluates the potential impairment of its
investment in its energy project based on a review of
estimated future cash flows expected to be generated. If the
carrying amount of the investment exceeds the amount of the
expected future cash flow, an impairment loss is recognized
accordingly (see Note 4).
Effective January 1, 1996, BNG will be required to adopt
Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement
requires, among other things, that an impairment loss shall
only be recognized when the carrying amount of a long-lived
asset exceeds the expected future cash flows (undiscounted and
without interest charges) and that, when appropriate, the
amount of loss to be recognized shall be measured as the
amount by which the carrying value exceeds the fair value of
the asset. The initial adoption of this statement is not
expected to have a material adverse effect on the financial
position or results of operations of BNG.
c. Income Taxes
BNG is included in the consolidated federal income tax and
combined state franchise tax returns of Edison International.
BNG calculates its income tax provision on a separate company
basis under tax sharing agreements with Edison Mission Energy
and TMG, which in turn has an agreement with Edison
International. Tax benefits generated by BNG and used in the
Edison International consolidated tax returns are recognized
by BNG without regard to separate company limitations.
BNG accounts for income taxes using the asset-and-liability
method, wherein deferred tax assets and liabilities are
recognized for future tax consequences of temporary
differences between the carrying amounts and the tax basis of
assets and liabilities using enacted rates. Investment tax
credits are deferred and amortized over the term of the power
purchase agreement of the project. Income tax accounting
policies are discussed further in Note 5.
3. RELATED PARTY TRANSACTIONS
Edison Mission Energy charges BNG for an allocation of
overhead and other costs incurred on behalf of BNG. Payments
made for these transactions amounted to approximately $0.7
million in 1995, $0.6 million in 1994 and $0.8 million in
1993. BN Geothermal Inc. recognized amounts payable to
Mission Energy for income taxes and the above charges totaling
$3.1 million in 1995 and $.8 million in 1994 (see Note 5).
The Partnership generated revenue from sales of electricity to
Edison of $41.3 million in 1995, $36.5 million in 1994 and
$34.0 million in 1993.
4. INVESTMENT IN ENERGY PROJECT
The Partnership sells all electricity produced to Edison under
a 30 year Power Purchase Agreement expiring in 2016. The
Power Purchase Agreement provides for the payment of both
capacity payments and energy payments in the first and second
periods of the contract.
The capacity payments are a fixed amount for the entire
contract term and are based on the plant's contract capacity,
as defined in the Power Purchase Agreement. The Partnership
earns its maximum contract capacity payment in each month of
the year they are able, after excluding scheduled maintenance
hours, to deliver 80 percent of the contract capacity. In
addition, the Partnership is eligible to earn a monthly bonus
capacity payment if they operate at levels in excess of
capacity levels specified in the Power Purchase Agreement.
The energy payments are calculated based upon power output
and, for the initial 10 year period of the contract
established prices, as defined, in the Power Purchase
Agreement. Contractual payments for energy delivered range
from 10.1 cents per kWh in 1993 to 13.6 cents per kWh in 1996.
Beginning in February 1996, the purchase price for energy,
under the second period of the Power Purchase Agreement, will
change from the established prices to the actual avoided
energy cost experienced by Edison. For the year ended
December 31, 1995, Edison's average avoided cost of energy was
2.1 cents per kWh which is substantially below the contracted
energy prices earned for 1995. Estimates of Edison's future
avoided cost vary from year to year. 1n 1993, the Company
recorded an impairment loss of $14.0 million due to lower
avoided cost forecasts and subsequent to June 1993, deferred
recognition of all earnings.
BNG's investment in energy project was $2.4 million and
$16.3 million as of December 31, 1995 and 1994, respectively.
The following table presents summarized Vulcan/BN Geothermal
Power Company partnership financial information:
Years ended December 31,
1995 1994 1993
Revenue $41,755 $36,860 $34,159
Expenses 15,948 20,732 21,926
------- ------- -------
Net income $25,807 $16,128 $12,233
======= ======= =======
December 31,
1995 1994
Other assets $14,437 $12,649
Property, plant and
equipment, net 58,379 63,154
------- -------
Total assets $72,816 $75,803
======= =======
Total liabilities $ 669 $ 1,563
Partners' equity 72,147 74,240
------- -------
Total liabilities and
partners' equity $72,816 $75,803
======= =======
Amounts reflected above were derived from the audited
financial statements of the Partnership. As noted above, in
1993 BNG wrote down its investment in the Partnership and
discontinued recognizing future earnings based upon its
evaluation (which, due to the many uncertainties involved, is
not necessarily consistent with that of its partner) of
expected future operating results considering the conversion
to avoided cost pricing for power under the terms of the
contract as well as other factors related to the operation of
the energy project. The difference between BNG's 50 percent
share of the net income and partners' capital reflected above
and the amounts reflected as income from equity investments
and investment in partnership in the accompanying financial
statements is the result of the impairment write down taken by
BNG as well as the subsequent non-recognition of earnings by
BNG.
5. INCOME TAXES
In January 1993, BNG adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," which
requires the asset-and-liability method of accounting for
income taxes. The favorable cumulative effect of
implementation was $1.4 million.
Income tax expense includes the current tax liability from
operations and the change in deferred income taxes during the
year. The components of the net accumulated deferred income
tax asset were:
December 31,
1995 1994
Deferred tax asset-
Impairment reserve and
non-recognition of earnings $14,040 $ 8,779
------- -------
Deferred tax liabilities:
Depreciation and amortization 5,807 3,668
Tax credits, net 152 149
------- -------
Total 5,959 3,817
------- -------
Deferred taxes and tax
credits, net $ 8,081 $ 4,962
======= =======
The credit for income taxes is comprised of the following:
Years ended December 31,
1995 1994 1993
Current:
Federal $ 1,662 $ (96) $ 3,238
State 726 253 527
------- ------- -------
Total current 2,388 157 3,765
------- ------- -------
Deferred:
Federal (1,976) (575) (5,723)
State (1,143) (624) (1,310)
------- ------- -------
Total deferred (3,119) (1,199) (7,033)
------- ------- -------
Credit for income taxes $ (731) $(1,042) $(3,268)
======= ======= =======
The components of the deferred tax credit which arise from tax
credits and timing differences between financial and tax
reporting, are presented below:
Years ended December 31,
1995 1994 1993
Depreciation $ 2,158 $ 2,159$(1,551)
Investment tax credits (16) (61) -
Impairment reserve and
non-recognition of earnings (5,261) (3,297) (5,482)
------- ------- -------
Total deferred credit $(3,119)$(1,199)$(7,033)
======= ======= =======
Variations from the 35 percent federal statutory rate are as
follows:
Years ended December 31,
1995 1994 1993
Expected credit for
federal income taxes $(240) $(219) $(2,757)
Increase in the credit for
taxes resulting from:
State tax - net of federal
deduction (103) (143) (477)
Amortization of tax credits (16) (61) -
Percentage depletion (354) (610) -
Other (18) (9) (34)
----- ------- -------
Total credit for income taxes $(731) $(1,042) $(3,268)
===== ======= =======
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Conejo Energy Company:
We have audited the accompanying balance sheets of Conejo
Energy Company as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's equity and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our
audits. We did not audit the summary financial information of
Del Ranch, L.P. (a California limited partnership in which
Conejo Energy Company owns a 10 percent limited and a 40
percent general partner interest) included in Note 4 to the
financial statements. That information was derived from
statements which were audited by other auditors whose reports
have been furnished to us and our opinion, insofar as it
relates to such amounts, is based solely on the reports of
other auditors.
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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of
Conejo Energy Company as of December 31, 1995 and 1994, and
the results of its operations and its cash flows for the three
years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
June 7, 1996
CONEJO ENERGY COMPANY
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
ASSETS
Accounts receivable - affiliates $ 1,180 $ 4,944
Investment in partnership 16,865 24,065
-------- --------
Total assets $ 18,045 $ 29,009
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $ 13,659 $ 17,561
-------- --------
Total liabilities 13,659 17,561
-------- --------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 23,532 23,532
Accumulated deficit (19,146) (12,084)
-------- --------
Total shareholder's equity 4,386 11,448
-------- --------
Total liabilities and shareholder's equity $ 18,045 $ 29,009
======== ========
The accompanying notes are an integral part of these balance
sheets.
CONEJO ENERGY COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
Operating Revenue:
Equity in income from partnership $ - $ - $ 1,366
----- ------- -------
Total operating revenue - - 1,366
----- ------- -------
Operating Expenses:
Administrative and general
expenses 685 625 625
Depreciation and amortization - - 17
Impairment loss - - 4,600
----- ------- -------
Total operating expenses 685 625 5,242
----- ------- -------
Loss before income taxes (685) (625) (3,876)
Credit for income taxes (823) (1,150) (1,122)
----- ------- -------
NET INCOME (LOSS) $ 138 $ 525 $(2,754)
===== ======= =======
The accompanying notes are an integral part of these financial
statements.
CONEJO ENERGY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
BALANCE, December 31,
1992 $- $23,532 $ (3,105) $20,427
Net loss - - (2,754) (2,754)
Cash distributions - - (2,500) (2,500)
-- ------- -------- -------
BALANCE, December 31,
1993 - 23,532 (8,359) 15,173
Net income - - 525 525
Cash distributions - - (4,250) (4,250)
-- ------- -------- -------
BALANCE, December 31,
1994 - 23,532 (12,084) 11,448
Net income - - 138 138
Cash distributions - - (7,200) (7,200)
-- ------- -------- -------
BALANCE, December 31,
1995 $- $23,532 $(19,146) $ 4,386
== ======= ======== =======
The accompanying notes are an integral part of these financial
statements.
CONEJO ENERGY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 138 $ 525 $(2,754)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in income from partnership - - (1,366)
Impairment loss - - 4,600
Distributions from partnership 7,200 4,250 2,500
Decrease in deferred taxes and
tax credits (3,902) (3,017) (1,908)
Decrease in accounts receivable -
affiliates 3,764 2,492 1,428
-------- ------- -------
Net cash provided by operating
activities 7,200 4,250 2,500
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (7,200) (4,250) (2,500)
-------- ------- -------
Net cash used in financing activities (7,200) (4,250) (2,500)
-------- ------- -------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
-------- ------- -------
CASH AT END OF YEAR $ - $ - $ -
======== ======= =======
The accompanying notes are an integral part of these financial
statements.
CONEJO ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Dollars in thousands)
1. ORGANIZATION
On December 23, 1987, Conejo Energy Company (Conejo) was
formed through the issuance of 100 shares of common stock
to Edison Mission Energy, formerly Mission Energy Company.
Edison Mission Energy is a wholly owned subsidiary of The
Mission Group (TMG), a wholly owned non-utility subsidiary
of Edison International, formerly SCEcorp, the parent
holding company of Southern California Edison Company
(Edison).
Conejo was organized to hold Edison Mission Energy's 10
percent limited partner and 40 percent general partner
investments in Del Ranch, L.P. (the Partnership), a
California limited partnership. Conejo is partners with
Magma Power Company, (which was subsequently acquired by
CalEnergy Company, Inc.) a 10 percent limited partner and
California Energy Operating Company (formerly Magma
Operating Company, a subsidiary of Magma Power Company), a
40 percent general partner. The Partnership was organized
to design, construct, own and operate a 38 megawatt
(contract nameplate) geothermal facility located in the
Niland area of the Imperial Valley, California.
On April 17, 1996, the stock of Conejo was acquired by
CalEnergy Company, Inc. which owns and operates the
remaining 50% interest in the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the accounts
of Conejo and its 50 percent investment in the
Partnership. Conejo accounted for its investment in the
Partnership on the equity method until July 1993, at which
time Conejo (under its prior ownership by Edison Mission
Energy) wrote down its investment to an amount which
equaled its then current estimate of future cash flows to
be generated by the project. As a result, subsequent to
June 1993 Conejo discontinued recognizing income from the
Partnership and began reducing its investment as cash was
received.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b.Impairment of Investment in Energy Project
Conejo periodically evaluates the potential impairment of
its investment in its energy project based on a review of
estimated future cash flows expected to be generated. If
the carrying amount of the investment exceeds the amount
of the expected future cash flow, an impairment loss is
recognized accordingly (see Note 4).
Effective January 1, 1996, Conejo will be required to
adopt Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". This statement
requires, among other things, that an impairment loss
shall only be recognized when the carrying amount of a
long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) and that, when
appropriate, the amount of loss to be recognized shall be
measured as the amount by which the carrying value exceeds
the fair value of the asset. The initial adoption of this
statement is not expected to have a material adverse
effect on the financial position or results of operations
of Conejo.
c. Income Taxes
Conejo is included in the consolidated federal income tax
and combined state franchise tax returns of Edison
International. Conejo calculates its income tax provision
on a separate company basis under tax sharing agreements
with Edison Mission Energy and TMG, which in turn has an
agreement with Edison International. Tax benefits
generated by Conejo and used in the Edison International
consolidated tax returns are recognized by Conejo without
regard to separate company limitations.
Conejo accounts for income taxes using the asset-and-
liability method, wherein deferred tax assets and
liabilities are recognized for future tax consequences of
temporary differences between the carrying amounts and the
tax basis of assets and liabilities using enacted rates.
Investment tax credits are deferred and amortized over the
term of the power purchase agreement of the project.
Income tax accounting policies are discussed further in
Note 5.
3. RELATED PARTY TRANSACTIONS
Edison Mission Energy charges Conejo for an allocation of
overhead and other costs incurred on behalf of Conejo.
Payments made for these transactions amounted to
approximately $0.7 million in 1995, $0.6 million in 1994
and $0.6 million in 1993. Conejo recognized amounts
receivable from Edison Mission Energy for income taxes,
net of the charges noted above totaling $1.2 million in
1995 and $4.9 million in 1994 (see Note 5).
The Partnership generated revenue from sales of
electricity to Edison of $46.4 million in 1995, $44.6
million in 1994 and $40.6 million in 1993.
4. INVESTMENT IN ENERGY PROJECT
The Partnership sells all electricity produced to Edison
under a 30 year Power Purchase Agreement expiring in 2018.
The Power Purchase Agreement provides for the payment of
both capacity payments and energy payments in the first
and second periods of the contract.
The capacity payments are a fixed amount for the entire
contract term and are based on the plant's contract
capacity, as defined in the Power Purchase Agreement. The
Partnership earns its maximum contract capacity payment in
each month of the year they are able, after excluding
scheduled maintenance hours, to deliver 80 percent of the
contract capacity. In addition, the Partnership is
eligible to earn a monthly bonus capacity payment if they
operate at levels in excess of capacity levels specified
in the Power Purchase Agreement.
The energy payments are calculated based upon power output
and, for the initial 10 year period of the contract
established prices, as defined, in the Power Purchase
Agreement. Contractual payments for energy delivered
range from 10.1 cents per kWh in 1993 to 13.6 cents per
kWh in 1998. Beginning in January 1999, the purchase
price for energy, under the second period of the Power
Purchase Agreement, will change from the established
prices to the actual avoided energy cost experienced by
Edison. For the year ended December 31, 1995, Edison's
average avoided cost of energy was 2.1 cents per kWh which
is substantially below the contracted energy prices earned
for 1995. Estimates of Edison's future avoided cost vary
from year to year. 1n 1993, the Company recorded an
impairment loss of $4.6 million due to lower avoided cost
forecasts and deferred recognition of all earnings
subsequent to June 1993.
Conejo's investment in energy project was $16.9 million
and $24.1 million as of December 31, 1995 and 1994,
respectively.
The following table presents summarized Del Ranch, L.P.
partnership financial information:
Years ended December 31,
1995 1994 1993
Revenue $47,353 $45,291 $41,059
Expenses 31,308 32,273 33,522
------- ------- -------
Net income $16,045 $13,018 $ 7,537
======= ======= =======
December 31,
1995 1994
Other assets $29,617 $29,347
Property, plant and
equipment, net 62,894 67,629
------- -------
Total assets $92,511 $96,976
======= =======
Other liabilities $ 3,016 $ 2,540
Project debt 27,324 33,910
Partners' equity 62,171 60,526
------- -------
Total liabilities and
partners' equity $92,511 $96,976
======= =======
The project debt is payable in various installments
through September 15, 2001. This debt is non-recourse
against Conejo and is collateralized by substantially all
the assets of the Partnership.
Amounts reflected above were derived from the audited
financial statements of the Partnership. As noted above,
in 1993 Conejo wrote down its investment in the
Partnership and discontinued recognizing future earnings
based upon its (which, due to the many uncertainties
involved, is not necessarily consistent with that of its
partner) evaluation of expected future operating results
considering the conversion to avoided cost pricing for
power under the terms of the contract as well as other
factors related to the operation of the energy project.
The difference between Conejo's 50 percent share of the
net income and partners' capital reflected above and the
amounts reflected as income from equity investments and
investment in partnership in the accompanying financial
statements is the result of the impairment write down
taken by Conejo as well as the subsequent non-recognition
of earnings by Conejo.
5. INCOME TAXES
In January 1993, Conejo adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income
Taxes," which requires the asset-and-liability method of
accounting for income taxes. The unfavorable cumulative
effect of implementation was $.5 million.
Income tax expense includes the current tax liability from
operations and the change in deferred income taxes during
the year. The components of the net accumulated deferred
income tax liability were:
December 31,
1995 1994
Deferred tax asset-
Impairment reserve and
non-recognition of earnings $ 8,832 $ 5,525
------- -------
Deferred tax liabilities:
Depreciation and amortization 20,212 20,665
Tax credits, net 2,279 2,421
------- -------
Total 22,491 23,086
------- -------
Deferred taxes and tax
credits, net $13,659 $17,561
======= =======
The credit for income taxes is comprised of the following:
Years ended December 31,
1995 1994 1993
Current:
Federal $ 2,529 $ 1,604 $ 658
State 550 263 128
------- ------- -------
Total current 3,079 1,867 786
------- ------- -------
Deferred:
Federal (3,054) (2,478) (1,431)
State (848) (539) (477)
------- ------- -------
Total deferred (3,902) (3,017) (1,908)
------- ------- -------
Credit for income taxes $ (823) $(1,150) $(1,122)
======= ======= =======
The components of the deferred tax credit which arise from
tax credits and timing differences between financial and
tax reporting, are presented below:
Years ended December 31,
1995 1994 1993
Depreciation and amortization$ (335) $ 204 $ 1,029
Investment tax credits (260) (633) -
Impairment reserve and
non-recognition of earnings (3,307) (2,588) (2,937)
------- ------- -------
Total deferred credit $(3,902) $(3,017) $(1,908)
======= ======= =======
Variations from the 35 percent federal statutory rate are
as follows:
Years ended December 31,
1995 1994 1993
Expected credit for
federal income taxes $(240) $ (219) $(1,357)
Increase (decrease) in the
credit for taxes resulting
from:
State tax - net of federal
deduction (78) (69) (234)
Amortization of tax credits (260) (633) -
Percentage depletion (211) (180) -
Cumulative effect of FAS 109 - - 484
Other (34) (49) (15)
----- ------- -------
Total credit for income taxes $(823) $(1,150) $(1,122)
===== ======= =======
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Niguel Energy Company:
We have audited the accompanying balance sheets of Niguel
Energy Company as of December 31, 1995 and 1994, and the
related statements of operations and shareholder's equity,
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of management. Our responsibility is to
express an opinion on these financial statements based on
our audits. We did not audit the summary financial
information of Elmore, L.P.(a California limited
partnership in which Niguel Energy Company owns a 10
percent limited and a 40 percent general partner interest)
included in Note 4 to the financial statements. That
information was derived from statements which were audited
by other auditors whose reports have been furnished to us
and our opinion, insofar as it relates to such amounts, is
based solely on the reports of other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of
other auditors, the financial statements referred to above
present fairly, in all material respects, the financial
position of Niguel Energy Company as of December 31, 1995
and 1994, and the results of its operations and its cash
flows for the three years in the period ended December 31,
1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Orange County, California
June 7, 1996
NIGUEL ENERGY COMPANY
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
ASSETS
Accounts receivable - affiliates $ 3,323 $ 7,116
Investment in partnership 17,623 25,523
-------- --------
Total assets $ 20,946 $ 32,639
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $ 15,511 $ 19,433
-------- --------
Total liabilities 15,511 19,433
-------- --------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 23,533 23,533
Accumulated deficit (18,098) (10,327)
-------- --------
Total shareholder's equity 5,435 13,206
-------- --------
Total liabilities and shareholder's
equity $ 20,946 $ 32,639
======== ========
The accompanying notes are an integral part of these balance
sheets.
NIGUEL ENERGY COMPANY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
Operating Revenue:
Equity in income from partnership $ - $ - $ 1,359
----- ------- -------
Total operating revenue - - 1,359
----- ------- -------
Operating Expenses:
Administrative and general
expenses 685 625 625
Depreciation and amortization - - 10
Impairment loss - - 7,000
----- ------- -------
Total operating expenses 685 625 7,635
----- ------- -------
Loss before income taxes (685) (625) (6,276)
Credit for income taxes (814) (1,329) (2,052)
----- ------- -------
NET INCOME (LOSS) $ 129 $ 704$(4,224)
===== ======= =======
The accompanying notes are an integral part of these
financial statements.
NIGUEL ENERGY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
BALANCE, December 31,
1992 $- $23,533 $ (4,807) $18,726
Net loss - - (4,224) (4,224)
-- ------- -------- -------
BALANCE, December 31,
1993 - 23,533 (9,031) $14,502
Net income - - 704 704
Cash distributions - - (2,000) (2,000)
-- ------- -------- -------
BALANCE, December 31,
1994 - 23,533 (10,327) 13,206
Net income - - 129 129
Cash distributions - - (7,900) (7,900)
-- ------- -------- -------
BALANCE, December 31,
1995 $- $23,533 $(18,098) $ 5,435
== ======= ======== =======
The accompanying notes are an integral part of these
financial statements.
NIGUEL ENERGY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 129 $ 704$(4,224)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in income from partnership - -(1,359)
Impairment loss - - 7,000
Distributions from partnership 7,900 2,000 -
Increase in deferred taxes and
and tax credits (3,922) (3,146)(2,684)
Decrease in accounts receivable -
affiliates 3,793 2,442 1,267
-------- ------- ------
Net cash provided by operating activities 7,900 2,000 -
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (7,900) (2,000) -
-------- ------- ------
Net cash used in financing activities (7,900) (2,000) -
-------- ------- ------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
-------- ------- ------
CASH AT END OF YEAR $ - $ - $ -
======== ======= ======
The accompanying notes are an integral part of these
financial statements.
NIGUEL ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Dollars in thousands)
1. ORGANIZATION
On December 23, 1987, Niguel Energy Company (Niguel) was
formed through the issuance of 100 shares of common stock to
Edison Mission Energy, formerly Mission Energy Company.
Edison Mission Energy is a wholly owned subsidiary of The
Mission Group (TMG), a wholly owned non-utility subsidiary of
Edison International, formerly SCEcorp, the parent holding
company of Southern California Edison Company (Edison).
Niguel was organized to hold Edison Mission Energy's 10
percent limited partner and 40 percent general partner
investments in Elmore, L.P. (the Partnership), a California
limited partnership. Niguel is partners with Magma Power
Company, (which was subsequently acquired by CalEnergy
Company, Inc.) a 10 percent limited partner and California
Energy Operating Company (formerly Magma Operating Company, a
subsidiary of Magma Power Company), a 40 percent general
partner. The Partnership was organized to design, construct,
own and operate a 38 megawatt (contract nameplate) geothermal
facility located in the Niland area of the Imperial Valley,
California.
On April 17, 1996, the stock of Niguel was acquired by
CalEnergy Company, Inc. which owns and operates the remaining
50% interest in the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the accounts of
Niguel and its 50 percent investment in the Partnership.
Niguel accounted for its investment in the Partnership on the
equity method until July 1993, at which time Niguel (under its
prior ownership by Edison Mission Energy) wrote down its
investment to an amount which equaled its then current
estimate of future cash flows to be generated by the project.
As a result, subsequent to June 1993 Niguel discontinued
recognizing income from the Partnership and began reducing its
investment as cash was received.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
b.Impairment of Investment in Energy Project
Niguel periodically evaluates the potential impairment of its
investment in its energy project based on a review of
estimated future cash flows expected to be generated. If the
carrying amount of the investment exceeds the amount of the
expected future cash flow, an impairment loss is recognized
accordingly (see Note 4).
Effective January 1, 1996, Niguel will be required to adopt
Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". This statement
requires, among other things, that an impairment loss shall
only be recognized when the carrying amount of a long-lived
asset exceeds the expected future cash flows (undiscounted and
without interest charges) and that, when appropriate, the
amount of loss to be recognized shall be measured as the
amount by which the carrying value exceeds the fair value of
the asset. The initial adoption of this statement is not
expected to have a material adverse effect on the financial
position or results of operations of Niguel.
c. Income Taxes
Niguel is included in the consolidated federal income tax and
combined state franchise tax returns of Edison International.
Niguel calculates its income tax provision on a separate
company basis under tax sharing agreements with Edison Mission
Energy and TMG, which in turn has an agreement with Edison
International. Tax benefits generated by Niguel and used in
the Edison International consolidated tax returns are
recognized by Niguel without regard to separate company
limitations.
Niguel accounts for income taxes using the asset-and-liability
method, wherein deferred tax assets and liabilities are
recognized for future tax consequences of temporary
differences between the carrying amounts and the tax basis of
assets and liabilities using enacted rates. Investment tax
credits are deferred and amortized over the term of the power
purchase agreement of the project. Income tax accounting
policies are discussed further in Note 5.
3. RELATED PARTY TRANSACTIONS
Edison Mission Energy charges Niguel for an allocation of
overhead and other costs incurred on behalf of Niguel.
Payments made for these transactions amounted to approximately
$0.7 million in 1995, $0.6 million in 1994 and $0.6 million in
1993. Niguel recognized amounts receivable from Edison
Mission Energy for income taxes, net of the above charges,
totaling $3.3 million in 1995 and $7.1 million in 1994 (see
Note 5).
The Partnership generated revenue from sales of electricity to
Edison of $47.3 million in 1995, $43.4 million in 1994 and
$41.3 million in 1993.
4. INVESTMENT IN ENERGY PROJECT
The Partnership sells all electricity produced to Edison under
a 30 year Power Purchase Agreement expiring in 2018. The
Power Purchase Agreement provides for the payment of both
capacity payments and energy payments in the first and second
periods of the contract.
The capacity payments are a fixed amount for the entire
contract term and are based on the plant's contract capacity,
as defined in the Power Purchase Agreement. The Partnership
earns its maximum contract capacity payment in each month of
the year they are able, after excluding scheduled maintenance
hours, to deliver 80 percent of the contract capacity. In
addition, the Partnership is eligible to earn a monthly bonus
capacity payment if they operate at levels in excess of
capacity levels specified in the Power Purchase Agreement.
The energy payments are calculated based upon power output
and, for the initial 10 year period of the contract,
established prices, as defined, in the Power Purchase
Agreement. Contractual payments for energy delivered range
from 10.1 cents per kWh in 1993 to 13.6 cents per kWh in 1998.
Beginning in January 1999, the purchase price for energy,
under the second period of the Power Purchase Agreement, will
change from the established prices to the actual avoided
energy cost experienced by Edison. For the year ended
December 31, 1995, Edison's average avoided cost of energy was
2.1 cents per kWh which is substantially below the contracted
energy prices earned for 1995. Estimates of Edison's future
avoided cost vary from year to year. 1n 1993, the Company
recorded an impairment loss of $7.0 million due to lower
avoided cost forecasts and, subsequent to June 1993, deferred
recognition of all earnings.
Niguel's investment in energy project was $17.6 million and
$25.5 million as of December 31, 1995 and 1994, respectively.
The following table presents summarized Elmore, L.P.
partnership financial information:
Years ended December 31,
1995 1994 1993
Revenue $48,339 $44,027 $41,723
Expenses 32,163 32,433 34,155
------- ------- -------
Net income $16,176 $11,594 $ 7,568
======= ======= =======
December 31,
1995 1994
Other assets $ 29,898 $ 29,313
Property, plant and
equipment, net 69,060 74,114
-------- --------
Total assets $ 98,958 $103,427
======== ========
Other liabilities $ 3,277 $ 1,223
Project debt 28,626 35,525
Partners' equity 67,055 66,679
-------- --------
Total liabilities and
partners' equity $ 98,958 $103,427
======== ========
The project debt is payable in various installments through
September 15, 2001. This debt is non-recourse against Niguel
and is collateralized by substantially all the assets of the
Partnership.
Amounts reflected above were derived from the audited
financial statements of the Partnership. As noted above, in
1993 Niguel wrote down its investment in the Partnership and
discontinued recognizing future earnings based upon its
evaluation (which, due to the many uncertainties involved, is
not necessarily consistent with that of its partner) of
expected future operating results considering the conversion
to avoided cost pricing for power under the terms of the
contract as well as other factors related to the operation of
the energy project. The difference between Niguel's 50
percent share of the net income and partners' capital
reflected above and the amounts reflected as income from
equity investments and investment in partnership in the
accompanying financial statements is the result of the
impairment write down taken by Niguel as well as the
subsequent non-recognition of earnings by Niguel.
5. INCOME TAXES
In January 1993, Niguel adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes,"
which requires the asset-and-liability method of accounting
for income taxes. The unfavorable cumulative effect of
implementation was $.5 million.
Income tax expense includes the current tax liability from
operations and the change in deferred income taxes during the
year. The components of the net accumulated deferred income
tax liability were:
December 31,
1995 1994
Deferred tax asset-
Impairment reserve and
non-recognition of earnings $ 9,519 $ 6,177
------- -------
Deferred tax liabilities:
Depreciation and amortization 22,567 22,997
Tax credits, net 2,463 2,613
------- -------
Total 25,030 25,610
------- -------
Deferred taxes and tax
credits, net $15,511 $19,433
======= =======
The credit for income taxes is comprised of the following:
Years ended December 31,
1995 1994 1993
Current:
Federal $ 2,569 $ 1,561 $ 558
State 539 256 74
------- ------- -------
Total current 3,108 1,817 632
------- ------- -------
Deferred:
Federal (3,079) (2,601) (2,063)
State (843) (545) (621)
------- ------- -------
Total deferred (3,922) (3,146) (2,684)
------- ------- -------
Credit for income taxes $ (814) $(1,329) $(2,052)
======= ======== =======
The components of the deferred tax credit which arise from tax
credits and timing differences between financial and tax
reporting, are presented below:
Years ended December 31,
1995 1994 1993
Depreciation and amortization $ (298)$ (113) $ 1,158
Investment tax credits (282) (698) -
Impairment reserve and
non-recognition of earnings (3,342) (2,335) (3,842)
------- ------- -------
Total deferred credit $(3,922) $(3,146) $(2,684)
======= ======= =======
Variations from the 35 percent federal statutory rate are as
follows:
Years ended December 31,
1995 1994 1993
Expected credit for
federal income taxes $(240) $ (219) $(2,197)
(Increase) decrease in the
credit for taxes resulting
from:
State tax - net of federal
deduction (73) (89) (380)
Amortization of tax credits (282) (698) -
Percentage depletion (179) (298) -
Cumulative effect of FAS 109 - - 535
Other (40) (25) (10)
----- ------- -------
Total credit for income taxes $(814) $(1,329) $(2,052)
===== ======= =======
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of San Felipe Energy Company:
We have audited the accompanying balance sheets of San Felipe
Energy Company as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's equity and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our
audits. We did not audit the summary financial information of
Leathers, L.P.(a California general partnership in which San
Felipe Energy Company owns a 10 percent limited and a 40
percent general partner interest) included in Note 4 to the
financial statements. That information was derived from
statements which were audited by other auditors whose reports
have been furnished to us and our opinion, insofar as it
relates to such amounts, is based solely on the reports of
other auditors.
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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other
auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of
San Felipe Energy Company as of December 31, 1995 and 1994,
and the results of its operations and its cash flows for the
three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
June 7, 1996
SAN FELIPE ENERGY COMPANY
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
(In thousands)
1995 1994
ASSETS
Accounts receivable - affiliates $ 11,098 $14,021
Investment in partnership 18,690 24,290
-------- --------
Total assets $ 29,788 $38,311
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $ 16,702 $19,531
-------- --------
Total liabilities 16,702 19,531
-------- --------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 18,282 18,282
Retained earnings (deficit) (5,196) 498
-------- --------
Total shareholder's equity 13,086 18,780
-------- --------
Total liabilities and shareholder's
equity $ 29,788 $38,311
======== ========
The accompanying notes are an integral part of these balance
sheets.
SAN FELIPE ENERGY COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
Operating Revenue:
Equity in income from partnership $ - $ - $1,168
----- ------- ------
Total operating revenue - - 1,168
----- ------- ------
Operating Expenses:
Administrative and general
expenses 685 625 625
Depreciation and amortization - - 20
----- ------- ------
Total operating expenses 685 625 645
----- ------- ------
Income (loss) before income taxes (685) (625) 523
Provision (credit) for income taxes (591) (1,088) 584
----- ------- ------
NET INCOME (LOSS) $ (94) $ 463 $ (61)
===== ======= ======
The accompanying notes are an integral part of these financial
statements.
SAN FELIPE ENERGY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
BALANCE, December 31,
1992 $- $18,282 $ 3,596 $21,878
Net loss - - (61) (61)
Cash distributions - - (2,000) (2,000)
-- ------- -------- --------
BALANCE, December 31,
1993 - 18,282 $ 1,535 $19,817
Net income - - 463 463
Cash distributions - - (1,500) (1,500)
-- ------- -------- -------
BALANCE, December 31,
1994 - 18,282 498 18,780
Net loss - - (94) (94)
Cash distributions - - (5,600) (5,600)
-- ------- -------- -------
BALANCE, December 31,
1995 $- $18,282 $ (5,196) $13,086
== ======= ======== =======
The accompanying notes are an integral part of these financial
statements.
SAN FELIPE ENERGY COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (94) $ 463 $ (61)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Equity in income from partnership - - (1,168)
Distributions from partnership 5,600 1,500 2,000
Decrease in deferred taxes and
tax credits (2,829) (2,346) (1,400)
Decrease in accounts receivable -
affiliates 2,923 1,883 2,629
------ ------ ------
Net cash provided by operating activities 5,600 1,500 2,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (5,600) (1,500) (2,000)
------ ------ ------
Net cash used in financing activities (5,600) (1,500) (2,000)
------ ------ ------
NET INCREASE IN CASH - - -
CASH AT BEGINNING OF YEAR - - -
------ ------ ------
CASH AT END OF YEAR $ - $ - $ -
====== ====== ======
The accompanying notes are an integral part of these financial
statements.
SAN FELIPE ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Dollars in thousands)
1. ORGANIZATION
On August 11, 1988, San Felipe Energy Company (San
Felipe) was formed through the issuance of 100 shares of
common stock to Edison Mission Energy, formerly Mission
Energy Company. Edison Mission Energy is a wholly owned
subsidiary of The Mission Group (TMG), a wholly owned non-
utility subsidiary of Edison International, formerly
SCEcorp, the parent holding company of Southern
California Edison Company (Edison).
San Felipe was organized to hold Edison Mission Energy's
10 percent limited partner and 40 percent general partner
investments in Leathers, L.P. (the Partnership), a
California limited partnership. San Felipe is partners
with Magma Power Company, (which was subsequently
acquired by CalEnergy Company, Inc.) a 10 percent limited
partner and California Energy Operating Company (formerly
Magma Operating Company, a subsidiary of Magma Power
Company), a 40 percent general partner. The Partnership
was organized to design, construct, own and operate a 38
megawatt (contract nameplate) geothermal facility located
in the Niland area of the Imperial Valley, California.
On April 17, 1996, the stock of San Felipe was acquired
by CalEnergy Company, Inc. which owns and operates the
remaining 50% interest is the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the
accounts of San Felipe and its 50 percent investment in
the Partnership. San Felipe accounted for its investment
in the Partnership on the equity method until July 1993,
at which time San Felipe (under its prior ownership by
Edison Mission Energy) determined that the carrying value
of its investment equaled its then current estimate of
future cash flows to be generated by the project. As a
result, subsequent to June 1993 San Felipe discontinued
recognizing income from the Partnership and began
reducing its investment as cash was received.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b.Impairment of Investment in Energy Project
San Felipe periodically evaluates the potential
impairment of its investment in its energy project based
on a review of estimated future cash flows expected to be
generated. If the carrying amount of the investment
exceeds the amount of the expected future cash flow, an
impairment loss is recognized accordingly.
Effective January 1, 1996, San Felipe will be required to
adopt Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". This statement
requires, among other things, that an impairment loss
shall only be recognized when the carrying amount of a
long-lived asset exceeds the expected future cash flows
(undiscounted and without interest charges) and that,
when appropriate, the amount of loss to be recognized
shall be measured as the amount by which the carrying
value exceeds the fair value of the asset. The initial
adoption of this statement is not expected to have a
material adverse effect on the financial position or
results of operations of San Felipe.
c. Income Taxes
San Felipe is included in the consolidated federal income
tax and combined state franchise tax returns of Edison
International. San Felipe calculates its income tax
provision on a separate company basis under tax sharing
agreements with Edison Mission Energy and TMG, which in
turn has an agreement with Edison International. Tax
benefits generated by San Felipe and used in the Edison
International consolidated tax returns are recognized by
San Felipe without regard to separate company
limitations.
San Felipe accounts for income taxes using the asset-and-
liability method, wherein deferred tax assets and
liabilities are recognized for future tax consequences of
temporary differences between the carrying amounts and
the tax basis of assets and liabilities using enacted
rates. Investment tax credits are deferred and amortized
over the term of the power purchase agreement of the
project. Income tax accounting policies are discussed
further in Note 5.
3. RELATED PARTY TRANSACTIONS
Edison Mission Energy charges San Felipe for an
allocation of overhead and other costs incurred on behalf
of San Felipe. Payments made for these transactions
amounted to approximately $0.7 million in 1995, $0.6
million in 1994 and $0.6 million in 1993. San Felipe
recognized amounts receivable from Edison Mission Energy
for income taxes, net of the above charges, totaling
$11.1 million in 1995 and $14.0 million in 1994 (see Note
5).
The Partnership generated revenue from sales of
electricity to Edison of $46.8 million in 1995, $43.0
million in 1994 and $39.5 million in 1993.
4. INVESTMENT IN ENERGY PROJECT
The Partnership sells all electricity produced to Edison
under a 30 year Power Purchase Agreement expiring in
2019. The Power Purchase Agreement provides for the
payment of both capacity payments and energy payments in
the first and second periods of the contract.
The capacity payments are a fixed amount for the entire
contract term and are based on the plant's contact
capacity, as defined in the Power Purchase Agreement.
The Partnership earns its maximum contract capacity
payment in each month of the year they are able, after
excluding scheduled maintenance hours, to deliver 80
percent of the contract capacity. In addition, the
Partnership is eligible to earn a monthly bonus capacity
payment if they operate at levels in excess of capacity
levels specified in the Power Purchase Agreement.
The energy payments are calculated based upon power
output and, for the initial 10 year period of the
contract established prices, as defined, in the Power
Purchase Agreement. Contractual payments for energy
delivered range from 10.1 cents per kWh in 1993 to 15.6
cents per kWh in 1999. Beginning in January 2000, the
purchase price for energy, under the second period of the
Power Purchase Agreement, will change from the
established prices to the actual avoided energy cost
experienced by Edison. For the year ended December 31,
1995, Edison's average avoided cost of energy was 2.1
cents per kWh which is substantially below the contracted
energy prices earned for 1995. Estimates of Edison's
future avoided cost vary from year to year. Due to lower
avoided cost forecasts the Company began deferring
recognition of all earnings subsequent to June 1993.
San Felipe's investment in energy project was $18.7
million and $24.3 million as of December 31, 1995 and
1994, respectively.
The following table presents summarized Leathers, L.P.
partnership financial information:
Years ended December 31,
1995 1994 1993
Revenue $47,753 $43,844 $39,967
Expenses 35,404 35,602 32,935
------- ------- -------
Net income $12,349 $ 8,242 $ 7,032
======= ======= =======
December 31,
1995 1994
Other assets $ 28,094 $ 34,402
Property, plant and
equipment, net 83,386 84,725
-------- --------
Total assets $111,480 $119,127
======== ========
Other liabilities $ 3,604 $ 4,449
Project debt 53,464 61,415
Partners' equity 54,412 53,263
-------- --------
Total liabilities and
partners' equity $111,480 $119,127
======== ========
The Project debt is payable in various installments
through September 15, 2002. This debt is non-recourse
against San Felipe and is collateralized by substantially
all the assets of the Partnership.
Amounts reflected above were derived from the audited
financial statements of the Partnership. As noted above,
in 1993 San Felipe discontinued recognizing future
earnings based upon its evaluation (which, due to the
many uncertainties involved, is not necessarily
consistent with that of it's partner) of expected future
operating results considering the conversion to avoided
cost pricing for power under the terms of the contract as
well as other factors related to the operation of the
energy project. The difference between San Felipe's 50
percent share of the net income and partners' capital
reflected above and the amounts reflected as income from
equity investments and investment in partnership in the
accompanying financial statements is the result of the
non-recognition of earnings by San Felipe.
5. INCOME TAXES
In January 1993, San Felipe adopted Statement of
Financial Accounting Standards No. 109 "Accounting for
Income Taxes," which requires the asset-and-liability
method of accounting for income taxes. The unfavorable
cumulative effect of implementation was $.4 million.
Income tax expense includes the current tax liability
from operations and the change in deferred income taxes
during the year. The components of the net accumulated
deferred income tax liability were:
December 31,
1995 1994
Deferred tax asset-
Non-recognition of earnings $ 5,203 $ 2,898
------- -------
Deferred tax liabilities:
Depreciation and amortization 19,272 19,611
Tax credits, net 2,633 2,818
------- -------
Total 21,905 22,429
------- -------
Deferred taxes and tax
credits, net $16,702 $19,531
======= =======
The provision (credit) for income taxes is comprised of
the following:
Years ended December 31,
1995 1994 1993
Current:
Federal $ 2,102 $1,177 $ 1,702
State 136 81 282
------- ------- -------
Total current 2,238 1,258 1,984
------- ------- -------
Deferred:
Federal (2,542) (2,116)(1,128)
State (287) (230) (272)
------- ------- -------
Total deferred (2,829) (2,346) (1,400)
------- ------- -------
Provision (credit) for
income taxes $ (591) $(1,088) $ 584
======= ======= =======
The components of the deferred tax credit which arise
from tax credits and timing differences between financial
and tax reporting, are presented below:
Years ended December 31,
1995 1994 1993
Depreciation and amortization$ (237) $ 374 $ (488)
Investment tax credits (287) (734) -
Non-recognition of earnings (2,305) (1,986) (912)
------- ------- -------
Total deferred credit $(2,829) $(2,346) $(1,400)
======= ======= =======
Variations from the 35 percent federal statutory rate are
as follows:
Years ended December 31,
1995 1994 1993
Expected provision (credit)
for federal income taxes $(240) $(219) $ 183
Increase (decrease) in the
provision (credit) for taxes
resulting from:
State tax - net of federal
deduction (53) (55) 32
Amortization of tax credits (287) (734) -
Percentage depletion (67) (102) -
Cumulative effect of FAS 109 - - 374
Other 56 22 (5)
----- ------- -----
Total provision (credit) for
income taxes $(591) $(1,088) $ 584
===== ======= =====
Financial Statements for Period Ending March 31, 1996
The balance sheets of businesses acquired as of March
31, 1996 and December 1, 1995, the statements of operations
for the three months ended March 31, 1996 and 1995, and
cash flows for the three months ended March 31, 1996 and
1995, and the notes thereto, are set forth below.
The unaudited interim financial statements reflect all
adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are considered
necessary for a fair presentation of the results of the
periods covered.
BN GEOTHERMAL INC.
BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Investment in partnership $ 2,365 $ 2,365
Deferred taxes and tax credits, net 8,692 8,081
-------- --------
Total assets $ 11,057 $ 10,446
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable - affiliates $ - $ 3,073
-------- --------
Total liabilities $ - $ 3,073
-------- --------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding 1 1
Additional paid-in capital 51,678 47,960
Accumulated deficit (40,622) (40,588)
-------- --------
Total shareholder's equity 11,057 7,373
-------- --------
Total liabilities and shareholder's
equity $ 11,057 $ 10,446
======== ========
The accompanying notes are an integral part of these
balance sheets.
BN GEOTHERMAL INC.
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Operating Revenue:
Equity in income from partnership $ - $ -
------ ------
Total operating revenue - -
------ ------
Operating Expenses:
Administrative and general expenses 171 171
------ ------
Total operating expenses 171 171
------ ------
Loss before income taxes (171) (171)
Credit for income taxes (137) (183)
------ ------
NET INCOME (LOSS) $ (34) $ 12
====== ======
The accompanying notes are an integral part of these financial statements.
BN GEOTHERMAL INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (34) $ 12
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Distributions from partnership - 2,250
Increase in deferred taxes and
tax credits (611) (1,167)
Increase (decrease) in accounts
payable - affiliates (3,073) 1,155
------ ------
Net cash provided by operating
activities (3,718) 2,250
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent - (2,250)
Contributions from parent 3,718 -
------ ------
Net cash used in financing activities 3,718 (2,250)
------ ------
NET INCREASE IN CASH - -
CASH AT BEGINNING OF YEAR - -
------ ------
CASH AT END OF YEAR $ - $ -
====== ======
The accompanying notes are an integral part of these
financial statements.
BN GEOTHERMAL INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the
accounts of BN Geothermal, Inc. (BNG) and its 50 percent
investment in Vulcan/BN Geothermal Power Company (the
Partnership). BNG accounted for its investment in the
Partnership on the equity method until June 1993, at
which time BNG wrote down its investment to an amount
which equaled its estimate of future cash flows to be
generated by the project. As a result, subsequent to
July 1993 BNG discontinued recognizing income from the
Partnership and began reducing its investment as cash was
received.
2. INVESTMENT IN ENERGY PROJECT
The following table presents summarized financial
information of the Partnership:
Three Months ended
March 31,
1996 1995
Revenue $ 5,632 $ 9,434
Expenses 3,661 3,903
------- -------
Net income $ 1,971 $ 5,531
======= =======
March 31, December
31,
1996 1995
Other assets $ 17,480 $14,437
Property, plant and
equipment, net 57,178 58,379
-------- --------
Total assets $74,658 $72,816
======== ========
Total liabilities $ 541 $ 669
Partners' equity 74,117 72,147
-------- --------
Total liabilities and
partners' equity $74,658 $72,816
======== ========
The difference between BNG's 50 percent share of the net
income and partners' capital reflected above and the
amounts reflected as income from equity investments and
investment in partnership in the accompanying financial
statements is the result of the impairment write down taken
by BNG as well as the subsequent non-recognition of
earnings by BNG.
CONEJO ENERGY COMPANY
BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Accounts receivable - affiliates $ - $ 1,180
Investment in partnership 16,865 16,865
------- -------
Total assets $16,865 $18,045
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $12,749 $13,659
------- -------
Total liabilities 12,749 13,659
------- -------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 23,261 23,532
Accumulated deficit (19,145) (19,146)
------- -------
Total shareholder's equity 4,116 4,386
------- -------
Total liabilities and shareholder's
equity $16,865 $18,045
======= =======
The accompanying notes are an integral part of these
balance sheets.
CONEJO ENERGY COMPANY
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
March 31
1996 1995
Operating Revenue:
Equity in income from partnership $ - $ -
------- -------
Total operating revenue - -
------- -------
Operating Expenses:
Administrative and general
expenses 171 171
------- -------
Total operating expenses 171 171
------- -------
Loss before income taxes 171 (171)
Credit for income taxes (172) (160)
------- -------
NET INCOME (LOSS) $ 1 $ (11)
======= =======
The accompanying notes are an integral part of these
financial statements.
CONEJO ENERGY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1 $ (11)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Distributions from partnership - 3,000
Decrease in deferred taxes and
tax credits (910) (633)
Decrease in accounts receivable -
affiliates 1,180 644
------ ------
Net cash provided by operating activities 271 3,000
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (271) (3,000)
------ ------
Net cash used in financing activities (271) (3,000)
------ ------
NET INCREASE IN CASH - -
CASH AT BEGINNING OF YEAR - -
------ ------
CASH AT END OF YEAR $ - $ -
====== ======
The accompanying notes are an integral part of these
financial statements.
CONEJO ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the
accounts of Conejo and its 50 percent investment in Del
Ranch L.P. (the Partnership). Conejo accounted for its
investment in the Partnership on the equity method until
June 1993, at which time Conejo wrote down its investment
to an amount which equaled its estimate of future cash
flows to be generated by the project. As a result,
subsequent to July 1993 Conejo discontinued recognizing
income from the Partnership and began reducing its
investment as cash was received.
2. INVESTMENT IN ENERGY PROJECT
The following table presents summarized financial
information of the Partnership:
Three Months Ended
March 31,
1996 1995
Revenue $11,385 $ 9,429
Expenses 7,996 7,405
------- -------
Net income $ 3,389 $ 2,024
======= =======
March 31, December 31,
1996 1995
Other assets $28,934 $29,617
Property, plant and
equipment, net 62,582 62,894
------- -------
Total assets $91,516 $92,511
======= =======
Other liabilities $ 2,082 $ 3,016
Project debt 23,873 27,324
Partners' equity 65,561 62,171
------- -------
Total liabilities and
partners' equity $91,516 $92,511
======= =======
The difference between Conejo's 50 percent share of the net
income and partners' capital reflected above and the
amounts reflected as income from equity investments and
investment in partnership in the accompanying financial
statements is the result of the impairment write down taken
by Conejo as well as the subsequent non-recognition of
earnings by Conejo.
NIGUEL ENERGY COMPANY
BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Accounts receivable - affiliates $ - $ 3,323
Investment in partnership 17,623 17,623
------- -------
Total assets $17,623 $20,946
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $14,729 $15,511
------- -------
Total liabilities 14,729 15,511
------- -------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 20,986 23,533
Accumulated deficit (18,092) (18,098)
------- -------
Total shareholder's equity 2,894 5,435
------- -------
Total liabilities and shareholder's
equity $17,623 $20,946
======= =======
The accompanying notes are an integral part of these
balance sheets.
NIGUEL ENERGY COMPANY
STATEMENTS OF INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Operating Revenue:
Equity in income from partnership $ - $ -
------- -------
Total operating revenue - -
------- -------
Operating Expenses:
Administrative and general
expenses 171 171
------- -------
Total operating expenses 171 171
------- -------
Loss before income taxes 171 (171)
Credit for income taxes (177) (184)
------- -------
NET INCOME (LOSS) $ 6 $ 13
======= =======
The accompanying notes are an integral part of these
financial statements.
NIGUEL ENERGY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6 $ 13
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Distributions from partnership - 3,500
Decrease in deferred taxes and
and tax credits (782) (822)
Decrease in accounts receivable -
affiliates 3,323 809
------ ------
Net cash provided by operating activities 2,547 3,500
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (2,547) (3,500)
------ ------
Net cash used in financing activities (2,547) (3,500)
------ ------
NET INCREASE IN CASH - -
CASH AT BEGINNING OF YEAR - -
------ ------
CASH AT END OF YEAR $ - $ -
====== ======
The accompanying notes are an integral part of these
financial statements.
NIGUEL ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the
accounts of Niguel and its 50 percent investment in
Elmore L.P. (the Partnership). Conejo accounted for its
investment in the Partnership on the equity method until
June 1993, at which time Elmore wrote down its investment
to an amount which equaled its estimate of future cash
flows to be generated by the project. As a result,
subsequent to July 1993 Elmore discontinued recognizing
income from the Partnership and began reducing its
investment as cash was received.
4. INVESTMENT IN ENERGY PROJECT
The following table presents summarized financial
information of the Partnership:
Three Months Ended
March 31,
1996 1995
Revenue $10,123 $10,752
Expenses 7,270 7,549
------- -------
Net income $ 2,853 $ 3,203
======= =======
March 31, December 31,
1996 1995
Other assets $27,332 $29,898
Property, plant and
equipment, net 68,671 69,060
------- -------
Total assets $96,003 $98,958
======= =======
Other liabilities $ 1,084 $ 3,277
Project debt 25,010 28,626
Partners' equity 69,909 67,055
------- -------
Total liabilities and
partners' equity $96,003 $98,958
======= =======
The difference between Niguel's 50 percent share of the net
income and partners' capital reflected above and the
amounts reflected as income from equity investments and
investment in partnership in the accompanying financial
statements is the result of the impairment write down taken
by Niguel as well as the subsequent non-recognition of
earnings by Niguel.
SAN FELIPE ENERGY COMPANY
BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Accounts receivable - affiliates $ - $11,098
Investment in partnership 18,690 18,690
------- -------
Total assets $18,690 $29,788
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred taxes and tax credits $16,009 $16,702
------- -------
Total liabilities 16,009 16,702
------- -------
Shareholder's equity:
Common stock, no par value;
10,000 shares authorized;
100 shares issued and outstanding - -
Additional paid-in capital 7,890 18,282
Retained earnings (deficit) (5,209) (5,196)
------- -------
Total shareholder's equity 2,681 13,086
------- -------
Total liabilities and shareholder's
equity $18,690 $29,788
======= =======
The accompanying notes are an integral part of these
balance sheets.
SAN FELIPE ENERGY COMPANY
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Operating Revenue:
Equity in income from partnership $ - $ -
----- -----
Total operating revenue - -
----- -----
Operating Expenses:
Administrative and general
expenses 171 171
----- -----
Total operating expenses 171 (171)
----- -----
Income (loss) before income taxes 171 (171)
Provision (credit) for income taxes (158) (140)
----- -----
NET INCOME (LOSS) $ (13) $ (31)
===== =====
The accompanying notes are an integral part of these
financial statements.
SAN FELIPE ENERGY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (13) $ (31)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Distributions from partnership - 3,000
Decrease in deferred taxes and
tax credits (693) (267)
Decrease in accounts receivable -
affiliates 11,098 298
------- ------
Net cash provided by operating activities 10,392 3,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends to parent (10,392) (3,000)
------- ------
Net cash used in financing activities (10,392) (3,000)
------- ------
NET INCREASE IN CASH - -
CASH AT BEGINNING OF YEAR - -
------- ------
CASH AT END OF YEAR $ - $ -
======= ======
The accompanying notes are an integral part of these
financial statements.
SAN FELIPE ENERGY COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Dollars in thousands)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying financial statements include the
accounts of San Felipe and its 50 percent investment in
Leathers, L.P. (the Partnership). San Felipe accounted
for its investment in the Partnership on the equity
method until June 1993, at which time Elmore wrote down
its investment to an amount which equaled its estimate of
future cash flows to be generated by the project. As a
result, subsequent to July 1993 San Felipe discontinued
recognizing income from the Partnership and began
reducing its investment as cash was received.
4. INVESTMENT IN ENERGY PROJECT
The following table presents summarized financial
information of the Partnership:
Three Months Ended
March 31,
1996 1995
Revenue $10,138 $10,674
Expenses 7,971 8,751
------- -------
Net income $ 2,167 $ 1,923
======= =======
March 31, December 31,
1996 1995
Other assets $14,437 $ 28,094
Property, plant and
equipment, net 58,379 83,386
------- --------
Total assets $72,816 $111,480
======= ========
Other liabilities $ 669 $ 3,604
Project debt 53,464
Partners' equity 72,147 54,412
------- --------
Total liabilities and
partners' equity $72,816 $111,480
======= ========
The difference between San Felipe's 50 percent share of the
net income and partners' capital reflected above and the
amounts reflected as income from equity investments and
investment in partnership in the accompanying financial
statements is the result of the impairment write down taken
by San Felipe as well as the subsequent non-recognition of
earnings by San Felipe.
(b) Pro Forma financial information
PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
The following Pro Forma Condensed Combined Unaudited
Balance Sheet as of March 31, 1996 and the Pro Forma
Condensed Combined Unaudited Statements of Earnings for the
year ended December 31, 1995 and the three months ended
March 31, 1996 of CalEnergy (the "Company") combine the
historical consolidated balance sheets of the Company and
BN Geothermal, Inc., Niguel Energy Company, San Felipe
Energy Company and Conejo Energy Company (collectively
referred to as the "Acquired Companies") as if the
acquisition of the Acquired Companies had been effected on
March 31, 1996 and the historical statements of income as
if the acquisition of the Acquired Companies had been
effected at the beginning of each of the periods presented.
The acquisition of the Acquired Companies is recorded
under the purchase method of accounting, after giving
effect to the pro forma adjustments and assumptions
described in the accompanying notes.
The Company has completed its preliminary assessment
of the fair values of the Acquired Company's assets and
liabilities. The Company expects to finalize its fair
value assessment in 1996. Accordingly, the final pro forma
combined amounts may differ from those set forth herein.
The pro forma condensed combined unaudited financial
data are intended for information purposes only and are not
intended to present the results that would have actually
occurred if the acquisition of the Acquired Companies had
been in effect on the assumed dates and for the assumed
periods, and are not necessarily indicative of the results
that may be obtained in the future.
PRO FORMA UNAUDITED CONDENSED BALANCE SHEET
March 31, 1996
(In thousands)
(2,3A,B&C)
The Acquired Pro Forma Pro Forma
Company Companies Adjustments Combined
Assets
Cash and Investments $144,568 $ - $(31,564) $ 113,004
Joint venture cash and investments 56,764 - 26,182 82,946
Restricted cash 124,818 - - 124,818
Short-term investments 12,691 - - 12,691
Accounts receivable and other assets 47,527 - 19,379 66,906
Due from Joint Ventures 27,731 - - 27,731
Properties, plants, contracts and
equipment, net 1,860,094 - 77,986 1,938,080
Notes receivable-Joint Ventures 11,561 - - 11,561
Excess of cost over fair value of
net assets acquired, net 299,739 - - 299,739
Investments in partnerships 60,207 55,543 (55,543) 60,207
Deferred charges and other assets 75,700 8,692 (8,692) 75,700
---------- ------- -------- ----------
Total assets $2,721,400 $64,235 $ 27,748 $2,813,383
========== ======= ======== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 7,768 $ - $ 1,062 $ 8,830
Other accrued liabilities 97,452 - 4,203 101,655
Project finance loans 235,464 - (48,282) 187,182
Construction loans 251,386 - - 251,386
Senior discount notes 489,517 - - 489,517
Salton Sea notes and bonds 452,088 - 135,000 587,088
Limited recourse senior secured
notes 200,000 - - 200,000
Convertible subordinate debentures 100,000 - - 100,000
Convertible debt (Note 13) 64,850 - - 64,850
Deferred income taxes 228,063 43,487 (43,487) 228,063
---------- ------- -------- ----------
Total liabilities 2,126,588 43,487 48,496 2,218,571
Deferred income 25,584 - - 25,584
Total stockholders' equity 569,228 20,748 (20,748) 569,228
---------- ------- -------- ----------
Total liabilities and stockholders'
equity $2,721,400 $64,235 $ 27,748 $2,813,383
========== ======= ======== ==========
The accompanying notes are an integral part of these pro forma unaudited
condensed financial statements.
PRO FORMA UNAUDITED CONDENSED STATEMENTS OF EARNING
for the Year Ended December 31, 1995
(In thousands, except per share data)
(1&3D)
The Acquired Pro Forma Pro Forma
Company Companies Adjustments Combined
Revenue:
Sales of electricity and steam $335,630 $ - $97,728 $433,358
Royalty income 19,482 - 980 20,462
Interest and other income 43,611 - 401 44,012
-------- ------- ------- --------
Total revenues 398,723 - 99,109 497,832
-------- ------- ------- --------
Cost and expenses:
Plant operations 79,294 - 45,604 124,898
General and administration 23,376 2,740 1,064 27,180
Royalties 24,308 - - 24,308
Depreciation and amortization 72,249 - 19,035 91,284
Loss on equity investment in
Casecnan 362 - - 362
Interest 134,637 - 8,148 142,785
Less interest capitalized (32,554) - (604) (33,158)
-------- ------- ------- --------
Total expenses 301,672 2,740 73,247 377,659
-------- ------- ------- --------
Income before provision for
income taxes 97,051 (2,740) 25,862 120,173
Provision for income taxes 30,631 (2,959) 12,944 40,616
-------- ------- ------- --------
Income before minority interest and
preferred dividends 66,420 219 12,918 79,557
Minority interest 3,005 - (3,005) -
-------- ------- ------- --------
Net Income 63,415 219 15,923 79,557
Preferred dividends 1,080 - - 1,080
-------- ------- ------- --------
Net income available to common
stockholders $ 62,335 $ 219 $15,923 $78,477
======== ======= ======= =======
Net income per share-primary $ 1.25 $ 1.49
-------- --------
Net income per share-fully diluted $ 1.18 $ 1.39
-------- --------
Average number of shares
outstanding-primary 49,971 52,772
-------- --------
Fully diluted shares 57,742 60,543
-------- --------
The accompanying notes are an integral part of these pro forma unaudited
condensed financial statements.
PRO FORMA UNAUDITED CONDENSED STATEMENTS OF EARNING
for the Three Months Ended March 31, 1996
(In thousands, except per share data)
(1&3D)
The Acquired Pro Forma Pro Forma
Company Companies Adjustments Combined
Revenue:
Sales of electricity and steam $75,944 $ - $18,250 $ 94,194
Royalty income 3,893 - - 3,893
Interest and other income 10,519 - (44) 10,475
------- ------- ------- --------
Total revenues 90,356 - 18,206 108,562
------- ------- ------- --------
Cost and expenses:
Plant operations 18,956 - 9,911 28,867
General and administration 4,179 684 - 4,863
Royalties 4,375 - - 4,375
Depreciation and amortization 18,053 - 3,831 21,884
Loss on equity investment in
Casecnan 962 - - 962
Interest 34,779 - 1,683 36,462
Less interest capitalized (11,906) - - (11,906)
------- ------- ------- --------
Total expenses 69,398 684 15,425 85,507
------- ------- ------- --------
Income before provision for
income taxes 20,958 (684) 2,781 23,055
Provision for income taxes 6,497 (644) 1,728 7,581
------- ------- ------- --------
Net income available to common
stockholders $14,461 $ (40) $ 1,053 $ 15,474
======= ======= ======= ========
Net income per share-primary $ .27 $ .29
------- --------
Net income per share-fully diluted $ .26 $ .28
------- --------
Average number of shares
outstanding-primary 54,114 54,114
------- --------
Fully diluted shares 63,228 63,228
------- --------
The accompanying notes are an integral part of these pro
forma unaudited condensed financial statements.
NOTES TO PRO FORMA CONDENSED COMBINED UNAUDITED
FINANCIAL DATA
(Table in thousands)
On April 17, 1996, a subsidiary of CalEnergy Company,
Inc. (the "Company") acquired all of the stock of BN
Geothermal, Inc. ("BNG"), Niguel Energy Company ("Niguel"),
San Felipe Energy Company ("San Felipe") and Conejo Energy
Company (collectively referred to as the "Acquired
Companies") from Edison Mission Energy for $70 million. The
Acquired Companies own 50% partnership interests in each of
the Imperial Valley partnership projects (the "Partnership
Projects") in which the Company had an existing 50% interest
resulting from the acquisition of Magma Power Company. The
acquisition of the Acquired Companies has been accounted for
as a purchase business combination pursuant to the principles
of APB Opinion No. 16, "Business Combinations." In applying
APB No. 16, all identifiable assets acquired and liabilities
assumed are assigned a portion of the cost of acquiring the
Acquired Companies, equal to their fair values at the date of
the acquisitions. The net cash flow projections used for
determining the fair values in the purchase accounting were
those used for the acquisitions as prepared by the Company
and reflect estimated cost reductions. The resulting
purchase accounting adjustments are based on the historical
financial statements of the Acquired Companies and the
Partnership Projects in which the Acquired Companies have
invested.
The Pro Forma Condensed Combined Unaudited Financial Data
are based on the following assumptions:
1. The acquisition of the Acquired Companies occurred
at the beginning of the periods presented for statements
of earnings purposes.
2. The Acquired Companies will be consolidated with
the Company based on their proportionate share of
Partnership Projects in which they have invested.
3. The pro forma adjustments to reflect the effect of
the acquisition of the Acquired Companies are as
follows:
A. The adjustments which have been made to the net
assets of the Acquired Companies to reflect the
effect of the acquisitions accounted for as a
purchase business combination follow:
Property and plant.........................$(101,999)
Power sale agreements...................... 44,797
Other assets and liabilities................ (4,882)
---------
Decrease in net assets..................$ (62,084)
=========
B. The Salton Sea Funding Corporation notes and
bonds were issued and all existing project level debt
of the Partnership Projects was paid off at the date
of the pro forma balance sheet.
C. Elimination of deferred income taxes of the
Acquired Companies as a result of the election to
step up the tax basis of assets acquired.
D. The pro forma adjustments to the Pro Forma
Condensed Combined Unaudited Statements of Earnings
are as follows:
i. Provide depreciation and amortization of the
fair values assigned to all identifiable assets
as described below and capitalize interest on
costs allocated to projects under development and
construction. The Company's policy is to provide
depreciation and amortization expense upon the
commencement of revenue production over the
estimated remaining useful life of the
identifiable assets and to periodically assess
the carrying value of such assets for possible
impairment in accordance with the provisions of
Statement of Financial Accounting Standards No.
121.
The fair value of property and equipment, net of
salvage value, and exploration and development
cost is depreciated using the straight line
method over the remaining portion (approximately
23 years) of the original 30-year life.
Power sales agreements have been assigned values
separately for each of (1) the remaining portion
of the scheduled price periods of the power sales
agreements and (2) the 20 year avoided cost
periods of the power sales agreements and are
being amortized separately over such periods
using the straight line method.
ii. Adjust interest relating to (1) the issuance
of the Salton Sea Funding Corporation notes and
bonds net of the repayment of all project level
debt at the Partnership Projects and (2) the use
of existing funds.
iii. For the year ended December 31, 1995,
reflect the Magma Acquisition as a purchase
business combination beginning January 1, 1995.
iv. Change in income tax expense as a result of
pro forma adjustments which affect taxable
income.
SIGNATURE
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 hereunto duly
authorized.
CalEnergy Company, Inc.
By: /s/ Douglas L. Anderson
Douglas L. Anderson
Assistant Secretary
Dated: July 1, 1996
