Securities and Exchange Commission
Washington, DC 20549
Form 8-K/A
Current Report
Pursuant to Section 13 to 15(d) of the
Securities Exchange Act 1934
Date of Report August 27, 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 Employee
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
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets
On August 7, 1996 the Registrant completed the acquisition of
Falcon Seaboard Resources, Inc. ("F.S.R.I."), including its
ownership interest in three operating gas-fired cogeneration
plants located in Texas, Pennsylvania and New York and a related
natural gas pipeline, also located in New York, for a cash
purchase price of $226 million. The three cogeneration
facilities total 520 MW in capacity and sell power under long-
term power purchase agreements.
The historical financial statements of F.S.R.I. included in Item
7 for periods prior to the acquisition present F.S.R.I. in its
entirety, however, certain assets, liabilities and subsidiaries
of F.S.R.I. not associated with the operating facilities acquired
by the Registrant were distributed out of F.S.R.I. prior to the
Registrant's acquisition of F.S.R.I. stock. The subsidiaries
that were distributed prior to the acquisition were Falcon
Seaboard Energy Services, Planergy, Inc., Target Energy, L.P.,
and all foreign subsidiaries. The assets and related liabilities
distributed were primarily those related to F.S.R.I.'s oil and
natural gas properties and operations. In addition, prior to the
acquisition, existing common stock warrants were retired and
employment and consulting agreements were terminated. See notes
1, 4, 6 and 7 to the historical financial statements.
The Registrant previously reported this event as Item 2 on Form 8-
K dated August 7, 1996, noting that the financial statements
would be filed at a later date. Such financial statements are
included herein.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
Falcon Seaboard Resources, Inc.
Independent Auditors' Report 4
Consolidated Balance Sheets
as of December 31, 1995 and 1994 5
Consolidated Statements of Operations and
Retained Earnings (Deficit)
for the Years Ended December 31,
1995, 1994 and 1993 7
Consolidated Statements of Cash Flows
for the Years Ended December 31,
1995, 1994 and 1993 8
Notes to Consolidated Financial Statements 9
Financial statements for the period ended June 30, 1996:
Falcon Seaboard Resources, Inc.
Consolidated Balance Sheet as of
June 30, 1996 (unaudited) 22
Consolidated Statements of Operations for the Six
Months Ended June 30, 1996 and 1995 (unaudited) 24
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 (unaudited) 25
Notes to Consolidated Financial Statements 26
(b) Pro Forma Condensed Combined Unaudited Financial Data:
Condensed Combined Unaudited Balance Sheet as of
June 30, 1996 29
Condensed Combined Unaudited Statement of Earnings
for the year ended December 31, 1995 30
Condensed Combined Unaudited Statement of Earnings
for the six months ended June 30, 1996 31
Notes to Pro Forma Condensed Combined Unaudited
Financial Data 32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Falcon Seaboard Resources, Inc.:
We have audited the accompanying consolidated balance sheets of
Falcon Seaboard Resources, Inc. and subsidiaries (the "Company")
as of December 31, 1995 and 1994, and the related consolidated
statements of operations and retained earnings (deficit) and of
cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 5, the Company changed its method of
accounting for income taxes in 1993.
Deloitte & Touche LLP
Houston, Texas
March 29, 1996
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $ 25,565,297 $ 26,299,142
Accounts receivable 7,297,629 7,934,293
Other receivables 154,180 631,244
Prepaid expenses and other
current assets 648,806 655,668
Accounts receivable from affiliated
partnerships (Note 2) 43,195 357,604
----------- ------------
Total current assets 33,709,107 35,877,951
----------- ------------
Property and equipment:
Land 545,731 508,231
Cogeneration facility (Note 3) 115,565,836 115,443,829
Oil and gas investments 34,914,366 33,375,155
Furniture, fixtures and equipment 5,378,898 4,433,750
----------- ------------
Total 156,404,831 153,760,965
Accumulated depreciation and
depletion (60,926,060) (53,164,008)
----------- ------------
Property and equipment, net 95,478,771 100,596,957
----------- ------------
Other assets:
Deferred taxes (Note 5) 1,147,983 2,993,133
Inventory 3,590,346 3,222,185
Restricted cash 750,000 750,000
Goodwill, net of accumulated
amortization of $86,675 and
$28,737 in 1995 and 1994,
respectively 2,218,375 1,503,890
Investments in partnerships (Note 2) 7,994,293 4,506,346
Other 2,382,909 987,570
----------- ------------
Total other assets 18,083,906 13,963,124
----------- ------------
TOTAL $147,271,784 $150,438,032
=========== ============
The accompanying notes are an integral part of these financial
statements.
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
Liabilities And Shareholder's Equity (Deficit)
Current liabilities:
Accounts payable $ 5,257,056 $ 3,337,272
Accrued liabilities 4,421,863 8,045,550
Current portion of long-term
debt (Note 3) 9,848,625 8,683,047
----------- ----------
Total current liabilities 19,527,544 20,065,869
----------- ----------
Long-term liabilities:
Long-term debt (Note 3) 113,785,569 123,745,331
Deferred revenue (Note 2) 8,745,170 8,391,509
Other 1,995,227 2,550,124
------------ -----------
Total long-term liabilities 124,525,966 134,686,964
------------ -----------
Commitments and contingencies (Note 4)
Shareholder's equity (deficit) (Note 7):
Common stock, $.01 par value;
1,000,000 shares authorized;
1,192 and 1,100 shares issued
and outstanding as of December
31, 1995 and 1994, respectively 12 11
Paid-in capital 204,988 204,989
Currency translation adjustment
(Note 6) (184,551) (229,469)
Retained earnings (deficit) 3,197,825 (4,290,332)
------------ -----------
Total shareholder's equity
(deficit) 3,218,274 (4,314,801)
------------ -----------
TOTAL $147,271,784 $150,438,032
============ ===========
The accompanying notes are an integral part of these financial statements.
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED
EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
REVENUES: ---------- ---------- ----------
Electricity sales $72,004,451 $67,494,606 $66,653,174
Steam sales 2,245,539 2,021,455 1,998,145
Oil and gas sales 2,146,227 3,172,351 1,327,621
Project management revenue (Note 2) 2,733,683 2,274,106 1,712,146
Expense reimbursements (Note 2) 6,401,907 3,732,168 1,769,087
Project development revenue (Note 2) 2,892,154 7,491,073 2,155,855
Demand side management revenue 5,082,625 8,819,346 -
---------- ---------- ----------
Total revenues 93,506,586 95,005,105 75,616,028
---------- ---------- ----------
Operating costs:
Fuel, transportation and
water (Note 4) 32,778,470 30,746,036 32,201,567
Depreciation, depletion and
amortization 7,889,163 8,234,038 7,358,207
Operations 12,441,193 15,657,730 6,061,473
Maintenance 3,561,681 3,085,444 3,617,900
Project development 11,517,202 8,038,577 9,569,259
----------- ---------- ----------
Total operating costs 68,187,709 65,761,825 58,808,406
----------- ---------- ----------
Operating income 25,318,877 29,243,280 16,807,622
----------- ---------- ----------
General and administrative expenses 16,996,276 12,376,030 7,079,665
----------- ---------- ----------
Other (income) expense:
Interest expense (Note 3) 14,979,955 16,128,153 15,435,032
Interest income (1,310,101) (985,525) (1,130,070)
Equity earnings from partnerships (16,775,725) (6,472,646) (384,629)
Other (income) expense (22,901) 260,851 35,505
----------- ---------- ----------
Total other (income) expense, net(3,128,772) 8,930,833 13,955,838
----------- ---------- ----------
Income (loss) before income tax 11,451,373 7,936,417 (4,227,881)
Net Income tax provision (benefit) (Note 5)3,963,2162,773,552 (1,408,832)
----------- ---------- ----------
Net income (loss) before cumulative effect
of change in accounting principle 7,488,157 5,162,865 (2,819,049)
Cumulative effect of change in
accounting principle (Note 5) - - 3,831,443
----------- ---------- ----------
Net income 7,488,157 5,162,865 1,012,394
Deficit, beginning of year (4,290,332) (9,453,197) (9,465,591)
Distribution to shareholder - - (1,000,000)
----------- ---------- ----------
Retained earnings (deficit),
end of year $ 3,197,825 $(4,290,332) $(9,453,197)
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
OPERATING ACTIVITIES: ----------- ----------- ----------
Net income $ 7,488,157 $ 5,162,865 $1,012,394
Noncash items included in net income:
Depreciation, depletion and amortization 7,889,163 8,234,038 7,455,322
Deferred income taxes 1,845,150 2,383,043 (1,544,733)
Undistributed earnings of partnerships (3,487,947) (3,996,671) (358,486)
Deferred revenue 353,661 (3,545,261) 111,734
Cumulative effect of change in accounting
for income taxes - - (3,831,443)
Changes in assets and liabilities
that provided (used) cash:
Accounts receivable and other receivables 1,152,916 469,443 (864,129)
Inventory (368,161) (505,163) 91,219
Prepaid expenses and other current assets 81,344 722,070 522,832
Other assets (1,395,339) 176,160 478,964
Accounts receivable from affiliated
partnerships 314,409 2,681,785 68,994
Accounts payable 1,693,721 900,308 (3,578,158)
Accrued liabilities (3,623,687) (1,436,517) 4,709,705
Other long-term liabilities (554,897) 1,371,962 (468,449)
----------- ----------- ----------
Net cash provided by operating
activities 11,388,490 12,618,062 3,805,766
----------- ----------- ----------
Investing activities:
Property additions (2,477,313) (3,057,247) (8,596,846)
Purchase of Subsidiaries (704,110) (2,560,638) -
Investments - - (40,379)
----------- ----------- ----------
Net cash used in investing activities (3,181,423) (5,617,885) (8,637,225)
----------- ----------- ----------
Financing activities:
Repayments of debt (8,985,830) (7,448,710) (6,548,752)
Borrowings of debt - 92,169 -
Shareholder distribution - - (1,000,000)
----------- ----------- ----------
Net cash used in financing activities (8,985,830) (7,356,541) (7,548,752)
----------- ----------- ----------
Effect of foreign currency translation 44,918 (60,652) (55,471)
----------- ----------- ----------
Net decrease in cash and cash equivalents (733,845) (417,016)(12,435,682)
Cash and cash equivalents, beginning
of year 26,299,142 26,716,158 39,151,840
----------- ----------- ----------
Cash and cash equivalents, end of year $25,565,297 $26,299,142 $26,716,158
=========== =========== ==========
Supplemental disclosure of cash flow
information:
Interest paid $13,913,263 $14,670,121 $15,223,486
=========== =========== ==========
Income taxes paid $ 2,415,562 $ 235,000 $ -
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial
statements include the operations and accounts of Falcon Seaboard
Resources, Inc. ("F.S.R.I.") and its wholly owned subsidiaries
(collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
The Company's five principal operating entities are: Falcon
Seaboard Energy Corporation, Falcon Seaboard Pipeline
Corporation, Falcon Seaboard Power Corporation, Falcon Seaboard
Energy Services Inc., and Falcon Seaboard Oil Company and their
wholly owned subsidiaries. Investments in partnerships which are
not controlled by the Company are accounted for using the equity
method of accounting.
Nature of Business
Falcon Seaboard Energy Corporation, through its operating
subsidiaries, acquires, develops, owns and operates oil and
natural gas properties for the benefit of affiliated power
projects as well as for sale to third parties.
Falcon Seaboard Pipeline Corporation, through its operating
subsidiaries, acquires, develops, owns and operates oil and
natural gas properties for the benefit of affiliated power
projects.
Falcon Seaboard Power Corporation ("FSPC"), through its
subsidiaries, was formed to develop, design, own and operate
cogeneration and independent power plants. FSPC is the parent
company to Falcon Power Operating Company ("FPOC"), Northern
Consolidated Power, Inc. ("Norcon") and Saranac Energy Company,
Inc. ("SECI"). FPOC provides operations and maintenance services
to the independent power plants owned by the Company and
affiliated partnerships. Norcon holds general and limited
partnership interests in a 79.9 megawatt cogeneration facility
which began operations in December 1992. SECI holds general and
limited partnership interests in a 240 megawatt cogeneration
facility and a natural gas pipeline that supplies fuel to the
facility. The pipeline began commercial operations in January
1994. The cogeneration facility began commercial operations in
June 1994.
Falcon Seaboard Energy Services ("FSES"), formerly a subsidiary
of FSPC, is the parent company to Planergy, Inc. ("Planergy") and
Target Energy, L.P. ("Target"). Planergy and Target (100% owned
subsidiaries), acquired during 1994 and 1995, respectively,
provide energy consulting and demand side management services to
various customers throughout the United States.
Falcon Seaboard Oil Company ("FSOC") acquires, develops, owns and
operates oil and natural gas properties and is the parent company
of Power Resources, Inc. ("PRI"), which owns and operates a 200
megawatt cogeneration facility.
Revenue Recognition - Revenue from cogeneration activities is
recognized when electrical and steam output is delivered in
accordance with contract terms. Revenue is recognized from sales
of oil and gas when the product is delivered to the customer.
The Company receives revenues for providing development and other
services to partnerships in which it holds an equity interest.
When such costs are capitalized to the related facilities by the
partnerships, the Company defers any profit associated with these
services to the extent of the Company's economic interest in the
partnership and amortizes these amounts over the life of the
related facility.
Development Costs - The Company expenses all costs incurred in
the design and development of projects in the initial stages
until the contracts necessary for project completion are
executed.
Inventory - Inventory is stated at the lower of average cost or
market value.
Property and Equipment and Depreciation - Property and equipment
are stated at cost. A maintenance and repair reserve is recorded
based on the Company's long-term scheduled major maintenance
plans for the PRI cogeneration facility. Other maintenance and
repairs are charged to expense as incurred. Depreciation expense
is computed using the straight-line or accelerated methods of
accounting over the following useful lives:
Furniture, fixtures and equipment 5 - 31 years
Cogeneration facility 6 - 20 years
The Company's method for assessing impairment of long-lived
assets, except for oil and gas properties, is to compare the
total net capitalized cost of the long-lived assets to the
undiscounted future cash flows of the assets. Future net cash
flows are determined using various estimates of future
performance and exclude debt service.
Oil and Gas Operations - The Company follows the full cost method
of accounting for oil and gas operations. Accumulated depletion
at December 31, 1995 and 1994 totaled approximately $7,600,000
and $6,800,000, respectively. Costs to acquire mineral interests
in oil and gas properties and to drill and equip development
wells are capitalized. Costs associated with oil and gas
properties are amortized using the units-of-production method
based upon estimates of proved reserves. The Company evaluates
the recoverability of its oil and gas properties by determining
that the discounted future cash flows on an aggregated basis are
sufficient to recover the net carrying value.
Federal Income Tax - The Company and its subsidiaries file a
consolidated federal income tax return. Effective January 1,
1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes"("SFAS No. 109").
The provision for deferred income taxes reflects the tax effect
of differences in the timing of recognizing revenues and expenses
for tax and financial reporting purposes. Income taxes are
recognized for (a) the amount of taxes payable or refundable for
the current year, and (b) deferred tax liabilities and assets for
the future consequences of events that have been recognized in
the Company's financial statements or tax returns. The effects
of income taxes are measured based on enacted tax law and rates.
Deferred Debt Costs - Costs associated with securing PRI's term
loan were capitalized and are being amortized over the period the
term loan is outstanding. The amortization associated with such
costs is included in interest expense.
Cash and Cash Equivalents - For purposes of reporting
consolidated cash flows, cash equivalents represent short-term,
highly liquid investments with an original maturity of less than
three months.
Foreign Currency Translation Adjustments - Foreign currency
translation adjustments result from the process of translating
foreign currency denominated financial statements of certain
foreign subsidiaries into U.S. dollars. Such adjustments are
reported and accumulated as a separate component of equity (see
Note 6).
Goodwill - Goodwill resulting from the Planergy and Target
acquisitions are being amortized on a straight-line basis over a
period of 40 and 25 years, respectively.
Use of Estimates in Financial Statement Preparation - The
preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions
that affect the reported amounts as well as certain disclosures.
The Company's financial statements include amounts that are based
on management's best estimates and judgments. Actual results
could differ from those estimates.
Accounting Pronouncements - In March 1995, the Financial
Accounting Standards Board issued Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This Statement had no impact on the
Company's results of operations or financial position upon
adoption in the fourth quarter of 1995.
2. INVESTMENT IN PARTNERSHIPS
The Company holds noncontrolling general and limited partnership
interests in two partnerships, Saranac Power Partners, L.P.
("Saranac L.P."), and Norcon Power Partners, L.P. ("Norcon
L.P."), which were formed to build, own and operate cogeneration
facilities. The lenders to these partnerships have recourse only
against these facilities and the income and revenues therefrom.
The Company's stated partnership interest in each of these
partnerships is 80%. The Company's economic interests in these
partnerships are less than 80% until the outside limited
partners' returns, as defined in the Partnership agreements, are
achieved.
The Company previously received net payments totaling $7,276,107
from Norcon L.P. related to the development of its facility. The
Company recorded 80% of the distribution as revenues and
reflected the remaining 20% as deferred revenue in the
consolidated balance sheet. The deferred revenue amount
represents the Company's economic interest in the cash flows of
the Norcon. L.P. The deferred balance will be amortized to
income ratably over a 25-year period.
The Company received development and construction management fees
totaling $3,968,480, $4,430,812 and $3,420,000 from Saranac L.P.
during 1995, 1994 and 1993, respectively. The Company recorded
approximately 50% of the fees, net of related expenses, as
revenue and reflected the remaining amount as deferred revenue in
the consolidated financial statements. The deferred revenue
percentage represents the Company's economic interest in the cash
flows of Saranac L.P. The deferred balance will be amortized to
income ratably over a 25-year period.
FPOC has contracted with Norcon L.P. and Saranac L.P. to provide
operations and maintenance ("O&M") services to their cogeneration
facilities and pipeline. The O&M agreements for the cogeneration
facilities expire January 1, 2009, and July 1, 2010. The O&M
agreement for the pipeline expires June 20, 2010. The O&M
agreements provide for monthly and quarterly fees which are
subject to escalation provisions and reimbursement of certain
costs as specified in the applicable agreements. The amounts due
under these agreements are included in the accounts receivable
from affiliated partnerships in the accompanying balance sheets.
The following is a summary of aggregated financial information
for all investments owned by the Company which are accounted for
under the equity method at December 31, 1995 and 1994 and for the
three years ended December 31, 1995:
1995 1994 1993
------------ ------------ -----------
Balance Sheets
Assets:
Current assets $ 33,704,972 $ 21,501,185
Restricted cash and other assets 8,960,974 24,385,482
Property and equipment (net) 417,394,648 434,976,297
------------ ------------
Total assets $460,060,594 $480,862,964
============ ============
Liabilities and Equity:
Current liabilities $19,477,135 $12,863,512
Other accrued liabilities 38,325 17,650,447
Long-term note payable 316,537,814 320,004,890
Partner's capital 124,007,320 130,344,115
------------ ------------
Total liabilities and equity $460,060,594 $480,862,964
============ ============
The Company's share of equity $ 7,994,293 $ 4,506,346
============ ============
Statements of Operations:
Revenues $156,489,748 $95,263,117 $38,360,070
Operating expenses (79,805,603) (49,541,574) (19,007,353)
Depreciation (18,153,265) (12,018,552) (5,209,723)
General and administrative
expenses (10,436,812) (6,160,068) (2,503,534)
Interest expense - net (26,919,967) (22,236,279) (12,316,649)
------------ ------------ -----------
Net income (loss) $ 21,174,101 $ 5,306,644 $ (677,189)
============ ============ ===========
The Company's share of net
income $ 16,775,725 $ 6,472,646 $ 384,629
============ ============ ===========
The cogeneration facilities are qualifying facilities under the
Public Utility Regulatory Act of 1978 ("PURPA") and their sales
of electricity contracts are subject to the regulations under
PURPA. In order to promote open competition in the industry,
legislation has been proposed in the U.S. Congress that calls for
either a repeal of sections of PURPA on a prospective basis or a
significant restructuring of the regulations governing the
electric industry, including sections of PURPA. Current federal
legislative proposals would not abrogate, amend or modify
existing contracts with electric utilities. The ultimate outcome
of any proposed legislation is unknown at this time.
3. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995
and 1994:
1995 1994
Planergy and Target notes payable ----------- -------------
to a bank and financing companies,
secured by transportation equipment,
principal and interest due monthly
at interest rates of 8.0% to 13.75%,
final payment due March 5, 1999. $ 17,373 $ 312,422
PRI term loan payable to a consortium
of banks with interest and principal
due quarterly over a 15 year period.
Payments began March 31, 1989.
$55,000,000 of the original principal
carried an interest rate of 10.385%.
$110,000,000 of the original principal
carries an interest rate of 10.625%.
The loan is collateralized by all of
the assets of PRI. 124,393,747 132,989,998
Less deferred debt costs (net of
accumulated amortization) (776,926) (874,042)
------------ ------------
Net borrowings 123,634,194 132,428,378
Less current portion (9,848,625) (8,683,047)
------------ -----------
Long-term debt $113,785,569 $123,745,331
============ ===========
The effective interest rate also can be increased by payments
under a Compensation Agreement included in PRI's term loan. The
Compensation Agreement, which entitles two of the term lenders to
receive quarterly payments equivalent to a percentage of PRI's
discretionary cash flow (DCF) as separately defined in the
agreement, became effective initially for a 13-year period
beginning January 1, 1991 and ending December 31, 2003. Under
certain conditions relating to the amount of PRI's cash flow and
the restrictions on cash distributions, PRI has the option to
replace the payment obligation in a quarter with a payment to be
calculated in a future quarter added to the end of the initial
term of the agreement. The Compensation Agreement entitles the
lenders to payments totaling 10% of the DCF for the first ten
years, 7.5% of the DCF for the next three years and 10% of the
DCF for each quarter added to the initial term of the agreement.
PRI recorded additional interest expense of $930,000 and
$1,042,000 in 1995 and 1994, respectively, related to amounts
owed under the Compensation Agreement. No payments were made
under the Compensation Agreement during 1993.
In September 1995, Planergy elected to pay off all of its long-
term obligations. No prepayment penalties were assessed.
Scheduled maturities of long-term debt are as follows:
Year Ending December 31:
1996 $9,848,625
1997 11,228,748
1998 12,805,000
1999 14,267,500
2000 16,087,500
Thereafter 60,173,747
-----------
Total $124,411,120
===========
Under PRI's term loan agreement, certain covenants and debt
service coverage ratios must be met before cash distributions can
be made to FSOC. PRI was in compliance with these requirements
at December 31, 1995.
Effective June 5, 1989, PRI entered into an interest rate swap
agreement with its lenders as a means of hedging floating
interest rate exposure related to its 15-year term loan. The
swap agreement was for initial notional amounts of $55,000,000
and $110,000,000, declining in correspondence with the principal
balances, and effectively fixed the interest rates at 9.26% and
9.50%, respectively. During 1995, PRI paid $4,234,256 related to
this agreement which was included in interest expense. PRI is
exposed to credit loss in the event of nonperformance by the
lender under the interest rate swap agreement. However, PRI does
not anticipate nonperformance by the lender.
4. COMMITMENTS AND CONTINGENCIES
PRI has contracted to purchase natural gas for its cogeneration
facility under two separate agreements: a ten-year agreement for
up to 30,000 MMBTU per day, which expires in June 1997, and a
fifteen-year agreement for 3,600 MMBTU per day, which expires
September 2003. These agreements include annual price
adjustments, and the 15-year agreement includes a provision which
allows the seller to terminate the agreement with a two year
written notice. As of December 31, 1995, the seller had not
elected to terminate this agreement; therefore, the minimum
volumes under the 15-year agreement are included in the future
minimum payments under these contracts as follows:
Year Ending December 31:
1996 $22,153,418
1997 17,471,722
1998 3,499,164
1999 3,569,454
2000 3,641,022
Thereafter 10,364,036
----------
Total $60,698,816
==========
The Company has contracted to purchase natural gas for its
cogeneration facility under an 8-year agreement for up to 30,200
MMBTU per day through June 1997 and up to 49,200 thereafter
through the expiration of the agreement in September 2003. The
minimum volumes under the 8-year agreement are included in the
future minimum payments under this contract as follows:
Year Ending December 31:
1996 $ 9,019,704
1997 16,621,359
1998 24,643,632
1999 25,509,120
2000 26,469,706
Thereafter 77,486,448
-----------
Total $179,749,969
===========
The Company has operating leases for office space and equipment
used in oil and gas operations. Rental expenses for 1995, 1994
and 1993 were approximately $1,059,736, $696,917 and $394,492,
respectively. FSOC has contracted for consulting and employment
services through December 1, 2003. The payments under these
employment and consulting agreements are guaranteed by F.S.R.I.
but may be deferred at an interest rate of 10.5% per annum.
Future minimum payments under these long term contractual
obligations are approximately as follows:
Year Ending December 31:
1996 $ 3,398,178
1997 3,283,770
1998 2,786,566
1999 2,660,460
2000 2,536,505
Thereafter 7,350,455
----------
Total $22,015,934
==========
All of PRI's sales of electricity and steam are made to two
customers under long-term contracts which expire in 2003.
5. INCOME TAXES
The Company adopted SFAS No. 109 effective January 1, 1993,
recording a cumulative effect of an accounting change that
increased net income for 1993 by $3,831,443. The cumulative
effect results primarily from the recognition of tax net
operating loss carryforwards not previously recorded. In
accordance with SFAS No. 109, income taxes are recognized for (a)
the amount of taxes payable or refundable for the current year,
and (b) deferred tax liabilities and assets for the future
consequences of events that have been recognized in the Company's
financial statements or tax returns. The effects of income taxes
are measured based on enacted tax laws and rates.
The aggregate amount of current and deferred tax expense for the
years ended December 31, 1995, 1994 and 1993 is shown below:
1995 1994 1993
--------- ---------- ----------
Current $2,118,066 $ 390,509 $ 135,901
Deferred 1,845,150 2,383,043 (1,544,733)
--------- --------- ----------
Total $3,963,216 $2,773,552 $(1,408,832)
========= ========= ==========
At December 31, 1995, the Company had tax net operating loss
carryforwards and alternative minimum tax credit carryforwards of
approximately $7,700,000 and $2,381,000, respectively, available
to offset future federal income taxes. The tax net operating
loss carryforwards will expire in 2004 and 2007 if not previously
utilized. Temporary differences between income reported for
income tax and financial reporting purposes result primarily from
net operating loss carryforwards, intangible drilling costs,
litigation accruals, maintenance reserves and depreciation. At
December 31, 1995, and 1994, the Company had deferred tax assets
and liabilities as shown below:
1995 1994
----------- -----------
Deferred tax asset $ 9,141,880 $10,484,199
Deferred tax liability (7,993,897) (7,491,066)
----------- -----------
Net deferred tax asset $ 1,147,983 $ 2,993,133
=========== ===========
6. CURRENCY TRANSLATION ADJUSTMENT
Following is an analysis of the change in the currency
translation adjustment for the years ended December 31, 1995,
1994 and 1993:
1995 1994 1993
-------- -------- --------
Currency translation adjustment
at January 1 $(229,469) $(168,817) $(113,346)
Current translation adjustments 44,918 (60,652) (55,471)
-------- -------- --------
Current translation adjustment at
December 31 $(184,551) $(229,469) $(168,817)
========= ========= =========
7. COMMON STOCK WARRANTS
In 1992, FSOC issued warrants for approximately 428 shares of its
common stock. The warrants can be exercised any time until
February 6, 2007 at a total exercise price of $3,576,986. If
exercised, the warrants would represent 30% of all issued and
outstanding stock of FSOC. If a public offering of its stock is
made, FSOC has the right to redeem the warrants for $1,365,080.
FSOC has agreed not to declare or pay any dividends while the
warrants are outstanding.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of
financial instruments are presented in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Fair value as used in SFAS No. 107
represents the amount at which the instrument could be exchanged
in a current transaction between willing parties. The estimated
fair value amounts have been determined by the Company using
available market information and appropriate valuation
methodologies. Judgment is necessarily required in interpreting
market data, and the use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and cash equivalents, accounts receivable, other
receivables, accounts payable and accrued expenses are carried at
amounts which reasonably approximate their fair value at December
31, 1995 and 1994. The Company is unable to determine the fair
value of the amounts due from affiliated partnerships due to the
related party nature of the receivable.
December 31, 1995 December 31, 1994
------------------------ --------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------- ----------- -----------
Balance sheet
financial instruments -
Long-term debt-
term loan $ 123,616,821 $123,616,821 $132,115,956 $132,115,956
Other financial
instruments - interest
rate swap agreements (19,146,518) (7,800,000)
Long-Term Debt - Borrowings under the term loan bear floating
interest rates at current market levels, and, therefore, carrying
values in the financial statements approximate fair value.
Interest Rate Swap Agreements - The fair value of interest rate
swap agreements is based on termination values obtained from the
lender.
FALCON SEABOARD RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June December
1996 1995
---------- -----------
(unaudited)
ASSETS
Cash and cash equivalents $ 18,796,866 $ 18,790,432
Restricted cash 7,863,160 7,524,865
Accounts receivable 7,157,198 7,297,629
Accounts receivable from
affiliated partnerships 1,660,872 43,195
Property and equipment:
Land 595,731 545,731
Cogeneration facility 115,626,910 115,565,836
Oil and gas investments 23,747,199 34,914,366
Furniture, fixtures and equipment 5,660,777 5,378,898
----------- -----------
Total 145,630,617 156,404,831
Accumulated depreciation
and depletion (64,954,565) (60,926,060)
----------- -----------
Property and equipment, net 80,676,052 95,478,771
----------- -----------
Goodwill, net of accumulated
amortization of $121,093 and
$86,675, respectively 2,183,956 2,218,375
Investment in partnerships 9,117,007 7,994,293
Deferred taxes 2,392,482 1,147,983
Other assets 10,119,425 6,776,241
----------- -----------
Total assets $139,967,018 $147,271,784
=========== ===========
The accompanying notes are an integral part of these financial
statements.
FALCON SEABOARD RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
June 30, December 31,
1996 1995
---------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Accounts payable $ 718,103 $ 5,257,056
Accrued liabilities 8,183,526 4,421,863
Project finance loans 119,493,114 123,634,194
Other liabilities - 1,995,227
----------- -----------
Total liabilities 128,394,743 135,308,340
Deferred revenue 8,604,813 8,745,170
Shareholders Equity:
Common Stock, $.01 par value;
1,000,000 shares authorized;
1,192 shares issued and
outstanding 12 12
Paid in capital 204,988 204,988
Retained earnings 2,762,462 3,013,274
----------- -----------
Total shareholders equity 2,967,462 3,218,274
----------- -----------
Total $139,967,018 $147,271,784
=========== ===========
The accompanying notes are an integral part of these financial
statements.
FALCON SEABOARD RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended
June 30,
---------------------------
1996 1995
----------- -----------
(unaudited)
Revenues:
Cogeneration sales $ 39,986,263 $ 37,033,578
Oil and gas sales 1,310,938 931,350
Energy services revenue 2,693,455 2,071,423
Project development management
revenue 1,617,403 1,448,760
----------- -----------
Total revenues 45,608,059 41,485,111
Operating Cost:
Fuel, transportation and
water cost 18,681,498 15,995,699
Operations 3,349,400 3,851,111
Maintenance 1,855,885 1,752,656
Depreciation, depletion and
amortization 4,132,018 3,839,467
Loss from write-off of oil
and gas investments 11,183,488 -
----------- -----------
Total operating costs 39,202,289 25,438,933
----------- -----------
Operating income 6,405,770 16,046,178
General and administrative
expenses 13,511,002 11,788,619
Other (Income) Expenses:
Interest expense 7,099,082 7,674,543
Interest income (665,702) (667,727)
Equity earnings in partnerships (13,162,446) (8,859,553)
Other income, net (3,134) 55,273
----------- -----------
Other income, net (6,732,200) (1,797,464)
----------- -----------
Income (loss) before income tax (373,032) 6,055,023
Income tax provision (benefit) (128,696) 2,119,258
----------- -----------
Net Income (loss) $ (244,336) $ 3,935,765
=========== ===========
The accompanying notes are an integral part of these financial
statements.
FALCON SEABOARD RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
---------------------------
1996 1995
----------- -----------
OPERATING ACTIVITIES: (Unaudited)
Net income(loss) $ (244,336) $ 3,935,765
Adjustments to reconcile net cash flows
from operating activities:
Depreciation, depletion and amortization 4,132,018 3,839,467
Deferred income taxes (1,244,499) 998,782
Undistributed earnings of partnerships (1,122,714) (8,859,553)
Deferred revenue (140,357) (174,149)
Loss from write-off of oil and gas
investments 11,183,488 -
Changes in assets and liabilities:
Accounts receivable 140,431 1,148,857
Other assets (2,683,910) (249,859)
Accounts receivable from affiliated
partnerships (1,617,677) 357,604
Accounts payable (4,538,953) (2,548,795)
Accrued liabilities 3,761,663 (2,230,082)
Advance due to partnerships - 584,377
Other long-term liabilities (1,995,227) 15,368
----------- -----------
Net cash flows from operating
activities 5,629,927 (3,182,218)
----------- -----------
Investing activities:
Property additions (409,274) (653,846)
Increase in restricted cash (338,295) -
Other - 19,158
Distributions from partnerships - 6,526,930
----------- -----------
Net cash flows from investing
activities (747,569) 5,892,242
----------- -----------
Financing activities:
Repayments of debt (4,869,448) (4,303,677)
----------- -----------
Net cash flows from financing
activities 4,869,448) (4,303,677)
----------- -----------
Effect of foreign currency translation (6,476) 22,036
----------- -----------
Net increase decrease in cash and
cash equivalents 6,434 (1,571,617)
----------- -----------
Cash and cash equivalents, beginning
of year 18,790,432 26,299,142
----------- -----------
Cash and cash equivalents, end of year $18,796,866 $24,727,525
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 6,565,254 $ 7,032,672
=========== ===========
Income taxes paid $ 1,116,000 $ 1,236,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
FALCON SEABOARD RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General:
In the opinion of management of Falcon Seaboard Resources, Inc.
(the "Company"), the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the
financial position as of June 30, 1996 and the results of
operations and cash flows for the six months ended June 30, 1996
and 1995.
The results of operations for the six months ended June 30, 1996
and 1995 are not necessarily indicative of the results to be
expected for the full year.
Certain amounts in the 1995 financial statements have been
reclassified to conform to the 1996 presentation. Such
reclassification did not impact previously reported net income or
retained earnings.
2. Other Footnote Information:
Reference is made to the Company's December 31, 1995 audited
financial statements, included in this Form 8-K/A, that included
information necessary or useful to the understanding of the
Company's business and financial statement presentations. In
particular, the Company's significant accounting policies and
practices were presented as Note 1 to the consolidated financial
statements included in that report. Reference is also made to
CalEnergy Company Inc.'s ("CECI") form 8-K dated August 21, 1996
identifying important factors that could cause CECI's actual
results to differ materially from those projected in forward-
looking statements of CECI made by or on behalf of CECI.
3. Subsequent Event:
On August 7, 1996, CECI acquired 100% of the outstanding stock of
F.S.R.I. for $226,000,000. Certain assets, liabilities and
subsidiaries of F.S.R.I. were distributed out of F.S.R.I. prior
to CECI's acquisition of F.S.R.I. stock. The subsidiaries that
were distributed prior to the acquisition were Falcon Seaboard
Energy Services, Planergy, Inc., Target Energy, L.P. and all
foreign subsidiaries. The assets and related liabilities
distributed were those primarily related to F.S.R.I.'s oil and
natural gas properties and operations. In addition, prior to the
acquisition, existing common stock warrants were retired and
employment and consulting agreements were terminated.
PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
The following Pro Forma Condensed Combined Unaudited
Balance Sheet as of June 30, 1996 and the Pro Forma
Condensed Combined Unaudited Statements of Earnings for the
year ended December 31, 1995 and the six months ended June
30, 1996 of CalEnergy Company, Inc. (the "Company") combine
the historical consolidated balance sheets of the Company,
and (i) Falcon Seaboard Resources, Inc. ("F.S.R.I.") and
(ii) BN Geothermal, Inc., Niguel Energy Company, San Felipe
Energy Company and Conejo Energy Company (collectively
referred to as the "Acquired Companies") as if the
acquisitions of F.S.R.I. and the Acquired Companies had
been effected on June 30, 1996 and the historical
statements of earnings as if the acquisitions of F.S.R.I.
and the Acquired Companies had been effected at the
beginning of each of the periods presented. The
acquisitions of F.S.R.I. and the Acquired Companies are
recorded under the purchase method of accounting, after
giving effect to the applicable pro forma adjustments and
assumptions described in the accompanying notes.
The Company has completed its preliminary assessment of the
fair values of F.S.R.I. and the Acquired Company's assets
and liabilities. The Company expects to finalize its fair
value assessment in 1996. Accordingly, the final combined
amounts may differ from the pro forma amounts 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 F.S.R.I. and 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.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED UNAUDITED BALANCE SHEET
June 30, 1996
(In thousands)
(3B)
Companies (3A&C)
The F.S.R.I. not Pro Forma Pro Forma
Company Consolidated Acquired Adjustments Combined
-------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Investments $ 253,661 $18,797 $ (312) $(194,000) $ 78,146
Joint venture cash and
investments 55,828 - - - 55,828
Restricted cash 79,237 7,863 - - 87,100
Short-term investments 3,295 - - - 3,295
Accounts receivable 79,771 7,157 (1,275) - 85,653
Due from Joint Ventures 17,215 1,661 (1,483) - 17,393
Properties, plants, contracts
and equipment, net 2,028,624 80,676 (17,423) 104,654 2,196,531
Notes receivable-partnerships 11,909 - - - 11,909
Excess of cost over fair value
of net assets acquired, net 297,807 2,184 (2,184) 99,206 397,013
Equity investments 59,595 9,117 - 136,375 205,087
Deferred income taxes - 2,393 1,607 (4,000) -
Deferred charges and other
assets 88,185 10,119 (4,849) 3,418 96,873
---------- ------- -------- ---------- ---------
Total assets $2,975,127 $139,967 $(25,919) $ 145,653 $3,234,828
========== ======= ======== ========== =========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 6,753 $ 718 $ (718) $ - $ 6,753
Other accrued liabilities 91,575 8,184 (1,167) 4,000 102,592
Revolving line of credit - - - 35,000 35,000
Project finance loans 187,172 119,493 (15) - 306,650
Construction loans 305,870 - - - 305,870
Senior discount notes 501,798 - - - 501,798
Salton Sea notes and bonds 563,035 - - - 563,035
Limited recourse senior
secured notes 200,000 - - - 200,000
Convertible subordinated
debentures 100,000 - - - 100,000
Convertible debt (Note 13) 64,850 - - - 64,850
Deferred income taxes 235,995 - - 91,206 327,201
---------- ------- -------- ---------- ---------
Total liabilities 2,257,048 128,395 (1,900) 130,206 2,513,749
Deferred income 26,213 8,605 (15) (8,590) 26,213
Convertible preferred
securities of subsidiary 103,930 - - - 103,930
Total stockholders' equity 587,936 2,967 (24,004) 24,037 590,936
---------- ------- -------- ---------- ---------
Total liabilities and
stockholders' equity $2,975,127 $139,967 $(25,919) $ 145,653 $3,234,828
========== ======= ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma unaudited
condensed financial statements.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNING
for the Year Ended December 31, 1995
(In thousands, except per share data)
(3B)
(1,2C&D) Companies (1,3D)
The Acquired Pro Forma The Company F.S.R.I. not Pro Forma Pro Forma
Company Companies Adjustments As Adjusted Consolidated Acquired Adjustments Combined
------- --------- ----------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales of electricity
and steam $335,630 $ - $97,728 $433,358 $74,250 $ - $ - $507,608
Royalty income 19,482 - 980 20,462 - - - 20,462
Interest and other income 43,611 - (959) 42,652 20,589 16,580 (9,700) 36,961
-------- ------- ------- -------- ------- ------- -------- -------
Total revenues 398,723 - 97,749 496,472 94,839 16,580 (9,700) 565,031
-------- ------- ------- -------- ------- ------- -------- -------
Cost and expenses:
Plant operations 79,294 - 45,604 124,898 48,782 6,366 - 167,314
General and administration23,376 2,740 1,064 27,180 28,513 27,288 (375) 28,030
Royalties 24,308 - - 24,308 - - - 24,308
Depreciation and
amortization 72,249 - 24,994 97,243 7,889 1,486 13,717 117,363
Interest 134,637 - 10,937 145,574 14,980 198 2,450 162,806
Less interest
capitalized (32,554) - (1,347) (33,901) - - - (33,901)
-------- ------- ------- -------- ------- ------- ------- -------
Total costs and expenses301,310 2,740 81,252 385,302 100,164 35,338 15,792 465,920
-------- ------- ------- -------- ------- ------- ------- -------
Income (loss) before provision
for income taxes 97,413 (2,740) 16,497 111,170 (5,325) (18,758) (25,492) 99,111
Equity in (earnings) loss
of affiliates 362 - - 362 (16,776) - 12,249 (4,165)
Provision for income taxes30,631 (2,959) 5,363 33,035 3,963 - (6,013) 30,985
-------- ------- ------- -------- ------- ------- ------- -------
Income (loss) before
minority interest and
preferred dividends 66,420 219 11,134 77,773 7,488 (18,758) (31,728) 72,291
Minority interest 3,005 - (3,005) - - - - -
-------- ------- ------- -------- ------- ------- ------- --------
Net income (loss) 63,415 219 14,139 77,773 7,488 (18,758) (31,728) 72,291
Preferred dividends 1,080 - - 1,080 - - - 1,080
-------- ------- ------- -------- ------- ------- ------- --------
Net income (loss) available to
common stockholders $ 62,335 $ 219 $14,139 $ 76,693 $ 7,488 $(18,758) $(31,728) $ 71,211
======== ======= ======= ======== ======= ======= ======= ========
Net income per
share-primary $ 1.25 $ 1.45 $ 1.35
-------- -------- --------
Net income per
share-fully diluted $ 1.18 $ 1.37 $ 1.29
-------- -------- --------
Average number of shares
outstanding-primarily 49,971 52,772 52,772
-------- -------- --------
Fully diluted shares 57,742 60,543 60,543
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these pro forma unaudited
condensed financial statements.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENTS OF EARNING
for the Six Months Ended June 30, 1996
(In thousands, except per share data)
(3B)
(1,2C&D) Companies (1,3D)
The Acquired Pro Forma The Company F.S.R.I. not Pro Forma Pro Forma
Company Companies Adjustments As Adjusted Consolidated Acquired Adjustments Combined
------- --------- ----------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Sales of electricity and
steam $180,679 $ - $18,250 $198,929 $39,986 $ - $ - $238,915
Royalty income 5,015 - - 5,015 - - 5,015
Interest and other income 20,456 - 436 20,892 6,291 4,327 (4,850) 18,006
-------- ------- ------- -------- ------- ------- -------- -------
Total revenues 206,150 - 18,686 224,836 46,277 4,327 (4,850) 261,936
-------- ------- ------- -------- ------- ------- -------- -------
Cost and expenses:
Plant operations 41,38 - 9,911 51,298 23,886 1,146 - 74,038
General and administration 10,739 684 - 11,423 13,511 12,860 (226) 11,848
Royalties 10,271 - - 10,271 - - 10,271
Depreciation and amortization 43,713 - 5,259 48,972 15,316 12,052 6,859 59,095
Interest 71,504 - 1,700 73,204 7,099 25 1,225 81,503
Less interest capitalized (23,508) - - (23,508) - - (23,508)
-------- ------- ------- -------- ------- ------- ------- -------
Total costs and expenses 154,106 684 16,870 171,660 59,812 26,083 7,858 213,247
-------- ------- ------- -------- ------- ------- ------- -------
Income (loss) before provision
for income taxes 52,044 (684) 1,816 53,176 (13,535) (21,756) (12,708) 48,689
Equity in (earnings) loss of
affiliates 2,774 - - 2,774 (13,162) - 6,125 (4,263)
Provision for income taxes 15,537 (644) 683 15,576 (129) - 1,277 16,724
-------- ------- ------- -------- ------- ------- ------- -------
Net income (loss) $ 33,733 $ (40) $ 1,133 $34,826 $ (244) $(21,756) $(20,110) $ 36,228
======== ======= ======= ======= ======= ======= ======= ========
Net income per share-primary$ 0.62 $ 0.64 $ 0.66
-------- ------- --------
Net income per share-fully
diluted $ 0.59 $ 0.60 $ 0.63
-------- ------- --------
Average number of shares
outstanding-primarily 54,836 54,836 54,836
-------- ------- --------
Fully diluted shares 64,726 64,726 64,726
-------- ------- --------
</TABLE>
The accompanying notes are an integral part of these pro forma unaudited
condensed financial statements.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL DATA
(Table in thousands)
On August 7, 1996, CalEnergy Company, Inc. (the "Company")
acquired all of the stock of Falcon Seaboard Resources, Inc.
("F.S.R.I."), including its ownership interests in three
operating gas-fired cogeneration plants, Saranac Power Partners,
L.P., Power Resources, Inc. and Norcon Power Partners, L.P., for
$226 million in cash. Certain assets, liabilities and
subsidiaries of F.S.R.I. were distributed out of F.S.R.I. prior
to the Company's acquisition of F.S.R.I. stock.
On April 17, 1996, a subsidiary of 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% ownership interest
resulting from the acquisition of Magma Power Company ("Magma").
During the first quarter of 1995, the Company acquired the stock
of Magma.
The acquisitions of F.S.R.I., the Acquired Companies and Magma
have been accounted for as purchase business combinations
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 F.S.R.I., the Acquired Companies and Magma,
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
fair values determined in purchase accounting and the historical
financial statements of F.S.R.I., the Acquired Companies and the
Partnership Projects in which the Acquired Companies have
invested and Magma.
The Pro Forma Condensed Combined Unaudited Financial Data are
based on the following assumptions:
1. The acquisition of F.S.R.I., the Acquired Companies
and Magma occurred at the beginning of the periods
presented for statements of earnings purposes.
2. The acquisition on April 17, 1996 of the Acquired
Companies is reflected in the Company's historical June
30, 1996, consolidated historical financial statements
beginning April 1, 1996. 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 assets and liabilities 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)
--------
Net decrease in assets
and liabilities $ (62,084)
========
B. The Salton Sea Funding Corporation Series
D notes and Series E bonds were issued and all
existing project level debt of the Partnership
Projects was paid off at the beginning of the period
presented.
C. 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 Series D notes and Series E bonds
net of the repayment of all project level debt
at the Partnership Projects and (2) the use of
existing funds.
iii. Change in income tax expense as a
result of pro forma adjustments which affect
taxable income.
D. For the year ended December 31, 1995,
reflect the Magma Acquisition as a purchase
business combination beginning January 1, 1995.
3. The pro forma adjustments to reflect the effect of
the F.S.R.I. acquisition are as follows:
A. The adjustments which have been made to
the assets and liabilities of F.S.R.I. to reflect
the effect of the acquisition accounted for as a
purchase business combination follow:
Property and plant $ 58,050
Power sale agreements 46,604
Goodwill 99,206
Equity investments 136,375
Other assets and liabilities 8,008
Deferred taxes (95,206)
--------
Net increase in assets and
liabilities $253,037
========
B. The F.S.R.I. historical statements have
been adjusted to reflect the exclusion of F.S.R.I.
assets, liabilities and subsidiaries not acquired
by the Company and eliminate historical general and
administrative expenses and project development
expenses of F.S.R.I. which will no longer be
incurred by F.S.R.I. These F.S.R.I. assets,
liabilities and subsidiaries were distributed out
of F.S.R.I. prior to the acquisition of F.S.R.I.'s
stock by the Company.
C. The cash which the Company used to
acquire F.S.R.I., including estimated transactions
costs, has been provided for in the pro forma
adjustments as follows:
Reduce cash on hand $194,000
Increase short-term borrowings 35,000
--------
Total sources of cash $229,000
========
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. 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 is depreciated using the straight
line method over the remaining portion (between
22-28 years) of the original 30-year life.
Power sales agreements have been
assigned values for the remaining contract
period and are being amortized over such
period using the straight line method.
The fair values assigned to
F.S.R.I.'s equity investments are being
amortized over the remaining contract periods
using the straight line method.
ii. Record amortization of the
excess of the purchase price over the net
assets acquired using the straight line method
over the remaining weighted average useful life
of the facilities acquired (25 years).
iii. Record anticipated incremental
general and administrative expenses of CECI of
$850,000 per year and reclassify historical
state franchise taxes from general and
administrative expenses to income tax expense.
iv. Adjust interest relating to (1)
the borrowings under the Company's revolving
line of credit and (2) the use of existing
funds.
v. Change in income tax expense as
a result of pro forma adjustments which affect
taxable income.
SIGNATURE
Pursuant to the requirements of the Securities and 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: August 27, 1996
