SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
June 30, 1997
Commission File No. 1-9874
CALENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 South 36th Street, Suite 400, Omaha, NE 68131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 341-4500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Former name, former address and former fiscal year, if changed
since last report. N/A
63,668,907 shares of Common Stock, $0.0675 par value were
outstanding as of June 30, 1997.
CALENERGY COMPANY, INC.
Form 10-Q
June 30, 1997
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Independent Accountants' Report 3
Consolidated Balance Sheets, June 30, 1997
and December 31, 1996 4
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 32
Item 3. Defaults on Senior Securities 32
Item 4. Submission of Matters to a Vote of
Security Holders 32-33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33-34
Signatures 35
Exhibit Index 36
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
CalEnergy Company, Inc.
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of
CalEnergy Company, Inc. and subsidiaries as of June 30, 1997, and
the related consolidated statements of operations for the three
and six month periods ended June 30, 1997 and 1996 and the
related consolidated statements of cash flows for the six month
periods ended June 30, 1997 and 1996. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of CalEnergy
Company, Inc. and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented
herein), and in our report dated January 31, 1997 (February 27,
1997 as to Notes 6 and 20), we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance
sheet as of December 31, 1996 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
June 30 December 31
1997 1996
(unaudited)
ASSETS
Cash and cash equivalents $ 406,241 $ 424,500
Joint venture cash and investments 4,072 48,083
Restricted cash 84,640 107,143
Short-term investments 5,958 4,921
Accounts receivable 343,818 342,307
Due from joint ventures 16,662 17,556
Properties, plants, contracts
and equipment, net 3,666,627 3,348,583
Excess of cost over fair value of
net assets acquired, net 1,128,198 790,920
Equity investments 185,238 196,535
Deferred charges and other assets 433,607 432,359
Total assets $ 6,275,061 $ 5,712,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 132,711 $ 218,182
Other accrued liabilities 1,105,489 674,842
Parent company debt 953,817 1,146,685
Subsidiary and project debt 2,276,539 1,754,895
Deferred income taxes 328,204 469,199
Total liabilities 4,796,760 4,263,803
Deferred income 29,750 29,067
Company-obligated mandatorily redeemable
convertible preferred securities of subsidiary
trusts 283,930 103,930
Preferred securities of subsidiary 59,101 136,065
Minority interest 187,608 299,252
Stockholders' equity:
Preferred stock - authorized 2,000 shares,
no par value - -
Common stock - par value $0.0675 per share,
authorized 180,000 shares, issued 63,858 and
63,747 shares, outstanding 63,669 and 63,448 at
June 30, 1997 and December 31, 1996,
respectively 4,311 4,303
Additional paid in capital 561,428 563,567
Retained earnings 355,857 297,520
Treasury stock - 189 and 299 common
shares at June 30, 1997 and December 31,
1996, respectively, at cost (5,687) (8,787)
Unearned compensation - restricted stock (950) (5,471)
Cumulative effect of foreign currency
translation adjustment 2,953 29,658
Total stockholders' equity 917,912 880,790
Total liabilities and stockholders'
equity $ 6,275,061 $ 5,712,907
The accompanying notes are an integral part of these financial
statements.
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
____________(unaudited)___________
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Revenues:
Operating revenue $ 505,922 $ 104,735 $ 1,048,511 $ 180,679
Interest and other
income 19,072 11,059 42,459 25,471
Total revenues 524,994 115,794 1,090,970 206,150
Costs and expenses:
Cost of sales 241,548 --- 518,930 ---
Operating expense 70,122 22,431 147,208 41,387
General and administration12,005 5,117 25,492 9,296
Royalty expense 6,758 5,896 13,283 10,271
Depreciation and
amortization 70,456 25,660 137,912 43,713
Loss on equity investment
in Casecnan 1,289 1,812 3,957 2,774
Interest expense 71,644 36,725 142,266 71,504
Less interest capitalized(13,638) (11,602) (22,760) (23,508)
Dividends on convertible
preferred securities of
subsidiary trusts 4,436 1,443 7,154 1,443
Total costs and expenses 464,620 87,482 973,442 156,880
Income before income
taxes 60,374 28,312 117,528 49,270
Provision for income
taxes 24,342 9,040 46,591 15,537
Income before minority
interest 36,032 19,272 70,937 33,733
Minority interest 5,143 - 12,600 -
Net income available for
common stockholders $ 30,889 $ 19,272 $ 58,337 $ 33,733
Net income per share -
primary $ .47 $ .35 $ .89 $ .62
Net income per share -
fully diluted $ .46 $ .33 $ .87 $ .59
Average number of common and
common equivalent shares
outstanding 66,000 55,404 65,833 54,836
Fully diluted shares 73,726 66,472 72,269 64,726
The accompanying notes are an integral part of these financial
statements.
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30
1997 1996
Cash flows from operating activities:
Net income $ 58,337 $ 33,733
Adjustments to reconcile net cash flow
from operating activities:
Depreciation and amortization 124,437 39,849
Amortization of excess of cost over fair
value of net assets acquired 13,475 3,864
Amortization of deferred financing and
other costs 21,047 29,408
Provision for deferred income taxes 23,418 6,275
Loss (income) on equity investments (4,676) 2,774
Income applicable to minority interest 12,600 -
Changes in other items:
Accounts receivable (2,219) (11,127)
Accounts payable and accrued liabilities (83,447) 2,737
Deferred income (5,998) 181
Net cash flows from operating activities 156,974 107,694
Cash flows from investing activities:
Purchase of Northern Electric and Partnership
Interest, net of cash acquired (629,094) (58,044)
Distributions from equity investments 13,219 -
Malitbog construction (21,313) (64,353)
Mahanagdong construction (11,633) (29,451)
Indonesian construction (40,652) (30,597)
Exploration and other development costs (7,426) (2,716)
Capital expenditures relating to operations (101,166) (18,630)
Upper Mahiao construction - (23,734)
Salton Sea IV construction - (49,223)
Decrease (increase) in short-term investments (1,983) 30,895
Decrease in restricted cash 22,503 83,216
Decrease in other assets 71,301 9,833
Net cash flows from investing activities (706,244) (152,804)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred
securities of subsidiary trust 180,000 103,930
Repayment of parent company debt (195,000) -
Proceeds from subsidiary and project debt 598,280 229,672
Repayments of subsidiary and project debt (71,602) (143,106)
Proceeds from sale of common and treasury stock
and exercise of options 4,983 13,183
Decrease in amounts due from joint ventures 10,732 9,003
Deferred charges relating to debt financing (11,813) (4,566)
Purchase of treasury stock (1,875) (3,221)
Net cash flows from financing activities 513,705 204,895
Effect of exchange rate changes, net (26,705) -
Net increase (decrease) in cash and cash
equivalents (62,270) 159,785
Cash and cash equivalents at beginning
of period 472,583 149,704
Cash and cash equivalents at end of period $ 410,313 $ 309,489
Supplemental disclosures:
Interest paid, net of amount capitalized $ 123,802 $ 22,776
Income taxes paid $ 22,629 $ 9,154
The accompanying notes are an integral part of these financial statements.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
1. General:
In the opinion of management of CalEnergy Company, Inc. (the
"Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1997 and the results of operations for
the three and six months ended June 30, 1997 and 1996, and cash
flows for the six months ended June 30, 1997 and 1996.
The consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries, and its
proportionate share of the partnerships and joint ventures in
which it has an undivided interest in the assets and is
proportionally liable for its share of liabilities. Other
investments and corporate joint ventures where the Company has
the ability to exercise significant influence are accounted for
under the equity method. Investments, where the Company's
ability to influence is limited, are accounted for under the cost
method of accounting.
The results of operations for the three and six months ended June
30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
Certain amounts in the 1996 financial statements and supporting
footnote disclosures have been reclassified to conform to the
1997 presentation. Such reclassification did not impact
previously reported net income or retained earnings.
2. Other Footnote Information:
Reference is made to the Company's most recently issued annual
report that included information necessary or useful to the
understanding of the Company's business and financial statement
presentations.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
3. Properties, Plants, Contracts and Equipment:
Properties, plants, contracts and equipment comprise the
following:
June 30, December 31,
1997 1996
(unaudited)
Operating assets:
Distribution system $1,433,387 $1,101,860
Power plants 1,286,240 1,277,702
Wells and resource development 387,193 377,731
Power sales agreements 227,535 227,535
Licenses, equipment, wells and
resource development in progress 65,584 66,207
Total operating assets 3,399,939 3,051,035
Less accumulated depreciation
and amortization (388,874) (271,216)
Net operating assets 3,011,065 2,779,819
Mineral reserves 217,436 207,842
Construction in progress:
Malitbog 173,724 152,411
Mahanagdong 135,200 123,567
Indonesia 122,527 81,875
Other development 6,675 3,069
Total $ 3,666,627 $ 3,348,583
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
4. Income Taxes:
The Company's effective tax rate in 1997 is greater than the
Federal statutory rate primarily due to foreign and state taxes
partially offset by the depletion deduction. The significant
components of the deferred tax liability are the temporary
differences between the financial reporting basis and income tax
basis of the power plants, distribution system and the well and
resource development costs, offset by the benefit of investment
and geothermal energy tax credits.
5. Issuance of Convertible Preferred Securities:
On February 26, 1997 a subsidiary of the Company completed a
private placement (with certain shelf registration rights) of
$150,000 aggregate amount of 6 1/4% Trust Convertible Preferred
Securities ("Trust Securities"). In addition, an option to
purchase an additional 600 Trust Securities, or $30,000 aggregate
amount, was exercised by the initial purchasers to cover over-
allotments in connection with the placement. Each Trust Security
has a liquidation preference of fifty dollars and is convertible
at any time at the option of the holder into 1.1655 shares of
Company Common Stock (equivalent to a conversion price of $42.90
per common share) subject to adjustments in certain
circumstances.
6. Purchase of Northern Electric:
On December 24, 1996 CE Electric plc ("CE Electric"), which is
70% owned indirectly by the Company and 30% owned indirectly by
Peter Kiewit Sons', Inc. ("PKS"), acquired majority ownership of
the outstanding ordinary share capital of Northern Electric plc
("Northern") pursuant to a tender offer (the "Northern Tender
Offer") commenced in the United Kingdom by CE Electric on
November 5, 1996. As of March 18, 1997, CE Electric effectively
owned 100% of Northern's ordinary shares.
The Company and PKS contributed to CE Electric approximately
$410,000 and $176,000, respectively, of the approximately
$1,300,000 required to acquire all of Northern's ordinary and
preference shares in connection with the Northern Tender Offer.
The Company obtained such funds from cash on hand, short-term
borrowings, and borrowings of approximately $100,000 under a
Credit Agreement entered on October 28, 1996 (the "CalEnergy
Credit Facility"). The Company has repaid the entire CalEnergy
Credit Facility through the use of proceeds of the Trust
Securities offering. The remaining funds necessary to consummate
the Northern Tender Offer were provided from a 560,000
pounds ($932,176) Term Loan and Revolving Facility Agreement,
dated as of October 28, 1996 (the "U.K. Credit Facility")
obtained by CE Electric UK Holdings. The Company has not
guaranteed, and it is not otherwise subject to recourse for,
amounts
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
borrowed under the U.K. Credit Facility. As of June 30, 1997, CE
Electric UK Holdings had borrowed approximately 405,000 pounds
($674,163) under the U.K. Credit Facility to pay for Northern
ordinary and preference shares purchased to date, including
related costs.
In 1996, the Company also acquired Falcon Seaboard Resources,
Inc. and the remaining 50% ownership interest in the Edison
Mission Energy Partnerships. Unaudited pro forma combined
revenue, net income and primary earnings per share of the Company
for the six months ended June 30, 1997, as if the acquisitions
had occurred at the beginning of the year of acquisition after
giving effect to certain pro forma adjustments related to the
acquisitions were $1,090,970, $58,944 and $.90 compared to
$1,034,573, $24,701 and $.45 for the same period last year.
7. Commitments and Contingencies:
In November 1995, the Company closed the financing and commenced
construction of the Casecnan Project, a combined irrigation and
150 net MW hydroelectric power generation project (the "Casecnan
Project") located in the central part of the island of Luzon in
the Republic of the Philippines.
CE Casecnan Water and Energy Company, Inc., a Philippine
Corporation ("CE Casecnan") which is presently indirectly owned
as to approximately 35% of its equity by the Company and
approximately 35% indirectly owned by PKS, is developing the
Casecnan Project. CE Casecnan financed a portion of the costs of
the Casecnan Project through the issuance of $125,000 of its
11.45% Senior Secured Series A Notes due 2005 and $171,500 of its
11.95% Senior Secured Series B Bonds due 2010 and $75,000 of its
Secured Floating Rate Notes due 2002, pursuant to an indenture
dated as of November 27, 1995, as amended to date.
The Casecnan Project was being constructed pursuant to a fixed-
price, date-certain, turnkey construction contract (the "Hanbo
Contract") on a joint and several basis by Hanbo Corporation
("Hanbo") and Hanbo Engineering and Construction Co., Ltd.
("HECC"), both of which are South Korean corporations. As of May
7, 1997, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. CE Casecnan entered into a new turnkey engineering,
procurement and construction contract to complete the
construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract will be
conducted by a consortium of contractors and subcontractors
including Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
Colenco Power Engineering Ltd. and will be headed by Cooperativa
Muratori Cementisti CMC di Ravenna and Impressa Pizzarottie & C.
Spa. (collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination CE Casecnan
tendered a certificate of drawing to Korea First Bank ("KFB") on
May 7, 1997 under the irrevocable standby letter of credit issued
by KFB as security under the Hanbo Contract to pay for certain
transition costs and other presently ascertainable damages under
the Hanbo Contract. As a result of KFB's dishonor of the draw
request, CE Casecnan filed an action in New York State Court.
That Court granted CE Casecnan's request for a temporary
restraining order requiring KFB to deposit $79,329, the amount of
the requested draw, in an interest bearing account with an
independent financial institution in the United States. KFB
appealed this order, but the
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
Commitments and Contingencies (continued)
appellate court denied KFB's appeal and on May 19, 1997, KFB
transferred funds in the amount of $79,329 to a segregated New
York bank account pursuant to the Court order.
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The Replacement
Contractor was already on site and is expected to immediately
fully mobilize and commence engineering, procurement and
construction work on the Casecnan Project. The receipt of the
letter of credit funds from KFB remains essential and CE Casecnan
will continue to press KFB to honor its clear obligations under
the letter of credit and to pursue Hanbo and KFB for any
additional damages arising out of their actions to date.
On June 9, 1997, Edison filed a complaint alleging breach of
certain ISO4 power purchase agreements ("SO4 Agreements") between
Edison and Coso Finance Partners, Coso Power Partners and Coso
Energy Developers as a result of alleged improper venting of
certain noncondensible gases at the Coso geothermal energy
project located in California (partnerships in which CalEnergy
holds an approximate 50% ownership interest, collectively the
"Coso Partnerships"). In the complaint Edison seeks unspecified
damages, including the refund of certain amounts previously paid
under the SO4 Agreements, and termination of the SO4 Agreements.
The complaint was recently filed and the proceeding is in its
early procedural stages. CalEnergy believes this litigation has
entirely no merit. The Coso Partnerships intend to vigorously
defend this action and prosecute all available counterclaims
against Edison.
On February 14, 1995, NYSEG filed with the FERC a Petition for a
Declaratory Order, Complaint, and Request for Modification of
Rates in Power Purchase Agreements Imposed Pursuant to the Public
Utility Regulatory Policies Act of 1978 ("Petition") seeking FERC
(i) to declare that the rates NYSEG pays under the Saranac PPA,
which was approved by the New York Public Service Commission (the
"PSC") were in excess of the level permitted under PURPA and (ii)
to authorize the PSC to reform the Saranac PPA. On March 14,
1995, the Saranac Partnership intervened in opposition to the
Petition asserting, inter alia, that the Saranac PPA fully
complied with PURPA, that NYSEG's action was untimely and that
the FERC lacked authority to modify the Saranac PPA. On March
15, 1995, the Company intervened also in opposition to the
Petition and asserted similar arguments. On April 12, 1995, the
FERC by a unanimous (5-0) decision issued an order denying the
various forms of relief requested by NYSEG and finding that the
rates required under the Saranac PPA were consistent with PURPA
and the FERC's regulations. On May 11, 1995, NYSEG requested
rehearing of the order and, by order issued July 19, 1995, the
FERC unanimously (5-0) denied NYSEG's request. On June 14, 1995,
NYSEG petitioned the United States Court of Appeals for the
District of Columbia Circuit (the "Appeals Court") for review of
FERC's April 12, 1995 order. FERC moved to dismiss NYSEG's
petition for review on July 28, 1995. The Saranac Partnership
intervened in the appeal and concurred with NYSEG on the issue of
the Court's jurisdiction while disagreeing on the merits. On
July 11, 1997, the Appeals Court dismissed NYSEG's appeal holding
that it was without jurisdiction to review the FERC's order and
that any enforcement action under PURPA lies in federal district
court.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
Commitments and Contingencies (continued)
On August 7, 1997, NYSEG filed a complaint in the U.S. District
Court for the Northern District of New York against the FERC, the
PSC (and the Chairman, Deputy Chairman and the Commissioners of
the PSC as individuals in their official capacity), the Saranac
Partnership and Lockport Energy Associates, L.P. ("Lockport")
concerning the power purchase agreements that NYSEG entered into
with Saranac Partners and Lockport.
NYSEG's suit asserts that the PSC and the FERC improperly
implemented PURPA in authorizing the pricing terms that NYSEG,
the Saranac Partnership and Lockport agreed to in those
contracts. The action raises similar legal arguments to those
rejected by the FERC in its April and July 1995 orders. NYSEG in
addition asks for retroactive reformation of the contracts as of
the date of commercial operation and seeks a refund of $281
million from the Saranac Partnership. The Company believes that
NYSEG's claims are without merit for the same reasons described
in the FERC's orders. In addition, the Company believes that the
additional relief sought by NYSEG is unwarranted.
8. Subsequent Events:
On July 15, 1997, the Company advised New York State Electric &
Gas Corporation ("NYSEG") of its intention to commence a tender
offer (the "Tender Offer") to acquire that number of shares
("NYSEG Shares") of common stock, par value $6.66 2/3 per share,
of NYSEG which, together with the NYSEG Shares beneficially owned
by the Company, would represent 9.9% of the total number of NYSEG
Shares outstanding. On July 18, 1997 CE Electric (NY), Inc. a
wholly owned subsidiary of the Company (the "Purchaser"),
commenced the Tender Offer at a cash price of $24.50 per share.
The Company also advised NYSEG on July 15, 1997 that it was
prepared to negotiate a consensual merger (the "Proposed Merger")
in which each outstanding NYSEG Share would be exchanged for
$27.50 in cash. NYSEG's Board of Directors has recommended that
NYSEG's shareholders reject the Tender Offer and the Proposed
Merger.
On July 31, 1997, the United Kingdom Parliament passed the
windfall tax to be levied on privatized utilities, including
Northern, which will result in a third quarter charge to net
income of approximately $136 million.
On August 5, 1997, the Company and certain affiliated capital
funding trusts also filed with the Securities and Exchange
Commission a shelf registration statement covering up to $1.5
billion of common stock, preferred stock and debt securities
which may be sold from time to time for various purposes.
On August 6, 1997, the Company and the Purchaser announced that
it had executed fully underwritten financing commitments to fund
the Company's Proposed Merger with NYSEG or a possible subsequent
tender offer and a related merger that may be consumated subsequent
to such Tender Offer.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
Subsequent Events: (continued)
The financing commitments entered into by the Company and the
Purchaser relate to the following facilities:
* An amended and restated $250 million Company credit facility.
* A new $150 million Company revolving credit facility.
* A $500 million bridge financing facility, if required and to
the extent the net proceeds from certain possible future offerings
result in less than $500 million of net proceeds to the Company.
* $1.0 billion Purchaser credit facilities comprised of a $650
million five-year term loan and a $350 million five-year
revolving credit facility.
The Company presently intends to effect certain equity and debt securities
offerings on a prompt basis (subject to market conditions), in which case
drawings under the bridge facility may not be required. The equity
component of such future offerings is not currently expected to exceed
approximately $550 million.
On August 12, 1997, a subsidiary of the Company completed a
private placement (with certain shelf registration rights) of
$225,000 aggregate amount of 6 1/2% Trust Convertible Preferred
Securities (the "6 1/2% Trust Securities"). In addition, an
option to purchase an additional 900 of the 6 1/2% Trust
Securities, or $45,000 aggregate amount, was exercised by the
initial purchasers to cover overallotments in connection with the
placement. Each 6 1/2% Trust Security has a liquidation
preference of fifty dollars and is convertible at any time at the
option of the holder into 1.047 shares of Company Common Stock
(equivalent to a conversion price of $47.75 per common share)
subject to adjustments in certain circumstances.
9. Accounting Pronouncement:
In February 1997, the Financial Accounting Standards Board
adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share." SFAS 128, which becomes
effective for financial statements of the Company issued for
years ending after December 15, 1997, replaces primary and fully
diluted earnings per share, as disclosed under current
pronouncements, with basic and diluted earnings per share. Pro
forma basic earnings per share for the three months ending June
30, 1997 and 1996 are $.49 and $.37, respectively. For the six
months ending June 30, 1997 and 1996, pro forma basic earnings
per share are $.92 and $.65, respectively. Pro forma diluted
earnings per share for the three months ending June 30, 1997 and
1996 are $.46 and $.34, respectively. For the six months ending
June 30, 1997 and 1996, pro forma diluted earnings per share are
$.88 and $.60, respectively.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial
condition and results of operations during the periods included
in the accompanying statements of operations.
As a result of the acquisition of Northern, the Company's future
results will differ significantly from the Company's historical
results.
Acquisitions:
On December 24, 1996, CE Electric acquired majority ownership of
the outstanding ordinary share capital of Northern pursuant to
the tender offer ("Northern Tender Offer"). As of March 18,
1997, CE Electric effectively owned 100% of Northern's ordinary
shares.
In August 1996, the Company acquired Falcon Seaboard Resources,
Inc. ("Falcon Seaboard") for approximately $226,000, thereby
acquiring significant ownership in 520 MW of natural gas-fired
electric production facilities located in New York, Texas and
Pennsylvania and a related gas transmission pipeline.
In April 1996, the Company completed the buyout for approximately
$70,000 of its partner's interests ("Partnership Interest") in
four electric generating plants in Southern California, resulting
in sole ownership of the Imperial Valley Project.
Business of Northern:
During the three and six months ended June 30, 1997, a
significant portion of the Company's results of operations were
attributable to Northern's operations which consist primarily of
the distribution and supply of electricity and other auxiliary
businesses. Northern's operations are seasonal in nature with a
disproportionate percentage of revenues and earnings historically
being earned in the Company's first and fourth quarters.
Northern receives electricity from the national grid transmission
system and distributes electricity to each customer's premises
using its network of transformers, switchgear and cables.
Substantially all of the customers in Northern's authorized area
are connected to Northern's network and can only be supplied
electricity through Northern's distribution system, regardless of
whether the electricity is supplied by Northern's supply business
or by other suppliers, thus providing Northern with distribution
volume that is stable from year to year. Northern charges its
customers access fees for the use of the distribution system.
The prices for distribution to most customers are controlled by a
prescribed formula that limits increases (and may require
decreases) based upon the rate of inflation in the United Kingdom
and other regulatory action.
Northern's supply business primarily involves the bulk purchase
of electricity, through a central pool, and subsequent resale to
individual customers. Until March 31, 1998, Northern is the
exclusive supplier of electricity to premises in its authorized
area, except where the maximum
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Business of Northern: (continued)
demand of a customer is greater than 100kW. The supply business
generally is a high volume business which tends to operate at
lower profitability levels than the distribution business.
Currently the income received by the supply business from
customers with demand under 100kW is controlled by a prescribed
formula, while income received from other customers is not
regulated.
Power Generation Projects:
For purposes of consistent financial presentation, plant capacity
factors for Navy I, Navy II, and BLM (collectively the "Coso
Project") are based upon a capacity amount of 80 net MW for each
plant. Plant capacity factors for Vulcan, Hoch (Del Ranch),
Elmore and Leathers (collectively the "Partnership Project") are
based on capacity amounts of 34, 38, 38, and 38 net MW
respectively, and for Salton Sea I, Salton Sea II, Salton Sea III
and Salton Sea IV plants (collectively the "Salton Sea Project")
are based on capacity amounts of 10, 20, 49.8 and 39.6 net MW
respectively (the Partnership Project and the Salton Sea Project
are collectively referred to as the "Imperial Valley Project").
Plant capacity factors for Saranac, Power Resources, NorCon and
Yuma (collectively the "Gas Plants") are based on capacity
amounts of 240, 200, 80, and 50 net MW, respectively. Each plant
possesses an operating margin which allows for production in
excess of the amount listed above. Utilization of this operating
margin is based upon a variety of factors and can be expected to
vary between calendar quarters, under normal operating
conditions.
The Coso Project and the Partnership Project sell all electricity
generated by the respective plants pursuant to seven individual
long-term SO4 Agreements between the respective projects and
Southern California Edison Company ("Edison"). These SO4
Agreements provide for capacity payments, capacity bonus payments
and energy payments. Edison makes fixed annual capacity payments
to the projects, and to the extent that capacity factors exceed
certain benchmarks, is required to make capacity bonus payments.
The price for capacity and capacity bonus payments is fixed for
the life of the SO4 Agreements and the capacity payment is
significantly higher in the months of June through September.
Energy is sold at increasing scheduled rates for the first ten
years after firm operation and thereafter at Edison's Avoided
Cost of Energy.
The scheduled energy price periods of the Coso Project SO4
Agreements extend until at least August 1997, March 1999 and
January 2000 for each of the units operated by the Navy I, BLM
and Navy II Partnerships, respectively.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Power Generation Projects: (continued)
The scheduled energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan
Partnership and extend until December 1998, December 1998, and
December 1999 for each of the Hoch (Del Ranch), Elmore and
Leathers Partnerships, respectively.
Excluding Vulcan, which is receiving Edison's Avoided Cost of
Energy, the Company's SO4 Agreements provide for energy rates
ranging from 13.6 cents per kWh in 1997 to 15.6 cents per kWh in
1999.
The Salton Sea I Project sells electricity to Edison pursuant to
a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea I PPA"), which provides for capacity and energy
payments. The energy payment is calculated using a Base Price
which is subject to quarterly adjustments based on a basket of
indices. The time period weighted average energy payment for
Salton Sea I was 5.3 cents per kWh during the six months ended
June 30, 1997. As the Salton Sea I PPA is not an SO4 Agreement,
the energy payments do not revert to Edison's Avoided Cost of
Energy.
The Salton Sea II and Salton Sea III Projects sell electricity to
Edison pursuant to 30-year modified SO4 Agreements that provide
for capacity payments, capacity bonus payments and energy
payments. The price for contract capacity and contract capacity
bonus payments is fixed for the life of the modified SO4
Agreements. The energy payments for the first ten year period,
which expires April 4, 2000 for Salton Sea II and February 13,
1999 for Salton Sea III, are levelized at a time period weighted
average of 10.6 cents per kWh and 9.8 cents per kWh for Salton
Sea II and Salton Sea III, respectively. Thereafter, the monthly
energy payments will be at Edison's Avoided Cost of Energy. For
Salton Sea II only, Edison is entitled to receive, at no cost, 5%
of all energy delivered in excess of 80% of contract capacity
through March 31, 2004.
The Salton Sea IV Project sells electricity to Edison pursuant to
a modified SO4 agreement which provides for contract capacity
payments on 34 MW of capacity at two different rates based on the
respective contract capacities deemed attributable to the
original Salton Sea PPA option (20 MW) and to the original Fish
Lake PPA (14 MW). The capacity payment price for the 20 MW
portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 MW portion is a fixed levelized
rate. The energy payment (for deliveries up to a rate of 39.6
MW) is at a fixed price for 55.6% of the total energy delivered
by Salton Sea IV and is based on an energy payment schedule for
44.4% of the total energy delivered by Salton Sea IV. The
contract has a 30-year term but Edison is not required to
purchase the 20 MW of capacity and energy originally attributable
to the Salton Sea I PPA option after September 30, 2017, the
original termination date of the Salton Sea I PPA.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Power Generation Projects: (continued)
For the six months ended June 30, 1997, Edison's average Avoided
Cost of Energy was 3.2 cents per kWh which is substantially below
the contract energy prices earned for the six months ended June
30, 1997. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year. The Company cannot predict
the likely level of Avoided Cost of Energy prices under the SO4
Agreements and the modified SO4 Agreements at the expiration of
the scheduled payment periods. The revenues generated by each of
the projects operating under SO4 Agreements could decline
significantly after the expiration of the respective scheduled
payment periods.
The Upper Mahiao Project (the "Upper Mahiao Project") was "deemed
complete" in June 1996, meaning that construction of the plant
was completed on time by the Company but the required
transmission line was not completed by PNOC, and accordingly, the
Upper Mahiao Project began receiving capacity payments pursuant
to the Upper Mahiao Energy Conversion Agreement ("ECA") in July
of 1996. The Upper Mahiao Project is structured as a ten year
build-own-operate-transfer ("BOOT"), in which the Company's
subsidiary CE Cebu Geothermal Power Company, Inc. ("CE Cebu"),
the project company, is responsible for providing operations and
maintenance during the ten year BOOT period. The electricity
generated by the Upper Mahiao geothermal power plant is sold to
the PNOC - Energy Development Corporation ("PNOC-EDC"), which is
also responsible for supplying the facility with the geothermal
steam. After the ten year cooperation period, and the recovery
by the Company of its capital investment plus incremental return,
the plant will be transferred to PNOC-EDC at no cost.
PNOC-EDC is obligated to pay for electric capacity that is
nominated each year by CE Cebu, irrespective of whether PNOC-EDC
is willing or able to accept delivery of such capacity. PNOC-EDC
pays to CE Cebu a fee (the "Capacity Fee") based on the plant
capacity nominated to PNOC-EDC in any year (which, at the plant's
design capacity, is approximately 95% of total contract revenues)
and a fee (the "Energy Fee") based on the electricity actually
delivered to PNOC-EDC (approximately 5% of total contract
revenues). The Capacity Fee serves to recover the capital costs
of the project, to recover fixed operating costs and to cover
return on investment.
The Energy Fee is designed to cover all variable operating and
maintenance costs of the power plant. Payments under the Upper
Mahiao ECA are denominated in U.S. dollars, or computed in U.S.
dollars and paid in Philippine pesos at the then-current exchange
rate, except for the Energy Fee, which is paid in Philippine
pesos and will be used to pay Philippine peso-denominated
expenses. Significant portions of the Capacity Fee and Energy
Fee are indexed to U.S. and Philippine inflation rates,
respectively. PNOC-EDC's payment requirements, and its other
obligations under the Upper Mahiao ECA are supported by the
Government of the Philippines through a performance undertaking.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Power Generation Projects: (continued)
Unit I of the Malitbog Project (the "Malitbog Project") was
deemed complete in July 1996 and Units II and III in July 1997.
The Malitbog Project is owned and operated by Visayas Geothermal
Power Company ("VGPC"), a Philippine general partnership that is
wholly owned, indirectly, by the Company. Under its contract,
VGPC is to sell 100% of its output on substantially the same
basis as described above for the Upper Mahiao Project to PNOC-
EDC, which will in turn sell the power to the National Power
Corporation of the Philippines ("NPC"). However, VGPC receives
100% of its revenues from such sales in the form of capacity
payments. As with the Upper Mahiao Project, the Malitbog Project
is structured as a ten year BOOT, in which the Company will be
responsible for implementing construction of the geothermal power
plant and, as owner, for providing operations and maintenance for
the ten year BOOT period. After a ten year cooperation period,
and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at
no cost.
The electricity generated by the Mahanagdong Project located in
the Philippines (the "Mahanagdong Project") which was completed
in July 1997 will be sold to PNOC-EDC on a "take or pay" basis,
which is also responsible for supplying the facility with the
geothermal steam. The terms of the Mahanagdong ECA are
substantially similar to those of the Upper Mahiao ECA. All of
PNOC-EDC's obligations under the Mahanagdong ECA are supported by
the Government of the Philippines through a performance
undertaking. The capacity fees are expected to be approximately
97% of total revenues at the design capacity levels and the
energy fees are expected to be approximately 3% of such total
revenues.
The Saranac Project sells electricity to New York State Electric
& Gas pursuant to a 15-year negotiated power purchase agreement
(the "Saranac PPA"), which provides for capacity and energy
payments. Capacity payments, which in 1997 total 2.2 cents per
kWh, are received for electricity produced during "peak hours" as
defined in the Saranac PPA and escalate at approximately 4.1%
annually for the remaining term of the contract. Energy payments,
which average 6.6 cents per kWh in 1997, escalate at
approximately 4.4% annually for the remaining term of the
contract. The Saranac PPA expires in June of 2009.
The Power Resources Project sells electricity to Texas Utilities
Electric Company ("TUEC") pursuant to a 15-year negotiated power
purchase agreement (the "Power Resources PPA"), which provides
for capacity and energy payments. Capacity payments and energy
payments, which in 1997 are $3,032 per month and 2.96 cents per
kWh, respectively, escalate at 3.5% annually for the remaining
term of the contract. The Power Resources PPA expires in
September 2003.
The NorCon Project sells electricity to Niagara Mohawk Power
Corporation ("NIMO") pursuant to a 25-year negotiated power
purchase agreement (the "NorCon PPA") which provides for energy
payments calculated pursuant to an adjusting formula based on
NIMO's ongoing Tariff Avoided Cost and the contractual Long-Run
Avoided Cost. The NorCon PPA term extends through December 2017.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Power Generation Projects: (continued)
The NorCon Project has had a number of on-going contractual
disputes with NIMO which are unresolved and in August 1996 NIMO
proposed a buyout of the NorCon PPA as part of a generic
restructuring by NIMO of all its QF contracts in an effort to
restructure NIMO's purchased power obligations to meet the
challenge of industry deregulation and avoid what NIMO alleges as
the risk of a possible NIMO insolvency. The Company believes
that any contractual restructuring or even a NIMO insolvency
would not have a material adverse effect on its consolidated
financial results of operations.
The Yuma Project sells electricity to San Diego Gas & Electric
Company ("SDG&E") under an existing 30-year power purchase
contract. The energy is sold at SDG&E's Avoided Cost of Energy
and the capacity is sold to SDG&E at a fixed price for the life
of the power purchase contract. The contract term extends
through May 2024.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations for Three and Six Months Ended June 30,
1997 and 1996:
Operating revenue increased in the second quarter of 1997 to
$505,922 from $104,735 for the same period in 1996, a 383.0%
increase. The acquisition of Northern accounted for $355,578 of
this increase. The remainder of the increase is due to the
acquisition of Falcon Seaboard as well as the commencement of
earnings of Salton Sea IV, Upper Mahiao and Unit I of Malitbog.
For the six month period ended June 30, 1997, operating revenue
increased to $1,048,511 from $180,679 for the same period in
1996, a 480.3% increase. The acquisition of Northern accounted
for $756,074 of this increase. The remainder of the increase is
due to the acquisitions of Falcon Seaboard and the Partnership
Interest acquisition as well as the commencement of earnings of
Salton Sea IV, Upper Mahiao and Unit I of Malitbog.
The following operating data represents the aggregate capacity
and electricity production of the Coso Project:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Overall capacity factor 105.5% 109.5% 105.8% 109.1%
kWh produced
(in thousands) 553,100 574,100 1,102,700 1,144,000
Capacity NMW (average) 240 240 240 240
The capacity factor decreased for the three and six months ended
June 30, 1997 compared to the same periods in 1996 due to a
scheduled turbine overhaul at BLM in April 1997.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations for Three and Six Months Ended June 30,
1997 and 1996: (continued)
The following operating data represents the aggregate capacity
and electricity production of the Partnership Project:
Three Months EndedSix Months Ended
June 30 June 30
1997 1996 1997 1996
Overall capacity factor 98.2% 109.2% 100.0% 103.4%
kWh produced (in thousands) 317,400 353,000 642,700 668,600
Capacity NMW (average) 148 148 148 148
The overall capacity factor for the Partnership Project decreased
for the three and six months ended June 30, 1997 compared to the
same periods in 1996 due to turbine overhauls at Vulcan and Del
Ranch in April 1997.
The following operating data represents the aggregate capacity
and electricity production of the Salton Sea Project:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Overall capacity factor 89.4% 78.7% 94.1% 83.8%
kWh produced
(in thousands) 233,100 159,700 487,900 315,900
Capacity NMW (weighted
average)* 119.4 92.9 119.4 86.3
* Weighted average for the commencement of operations at the
Salton Sea IV in 1996.
The overall capacity factor for the Salton Sea Project has
increased for the three and six months ended June 30, 1997
compared to the same period in 1996 primarily as a result of the
commencement of operations at the Salton Sea IV Project and
operating efficiencies resulting in greater production at Salton
Sea Units I, II and III.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations for Three and Six Months Ended June 30,
1997 and 1996: (continued)
The following operating data represents the aggregate capacity
and electricity production of the Gas Plants:
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Overall capacity factor 85.5% 87.6% 87.4% 89.5%
kWh produced
(in thousands) 1,064,200 1,090,885 2,163,150 2,227,305
Installed capacity NMW 570 570 570 570
The capacity factor of the Gas Plants reflects certain
contractual curtailments. The capacity factors adjusted for
these contractual curtailments are 98.0% and 98.1% for the three
and six months ended June 30, 1997, compared with 99.4% and 99.7%
for the same periods in 1996.
Interest and other income increased in the second quarter of 1997
to $19,072 from $11,059 for the same period in 1996, a 72.5%
increase. For the six months ended June 30, 1997, interest and
other income increased to $42,459 from $25,471 for the same
period in 1996, a 66.7% increase. These increases are primarily
due to interest earned by Northern and equity earnings from
Saranac.
Cost of sales relates primarily to Northern's purchases of
electricity for resale.
Operating expense increased in the second quarter of 1997 to
$70,122 from $22,431 for the same period in 1996, a 212.6%
increase. For the six months ended June 30, 1997, operating
expense increased to $147,208 from $41,387 for the same period in
1996, a 255.7% increase. These increases are primarily due to
the acquisitions of Northern, Falcon Seaboard and the Partnership
Interest as well as the commencement of operations at Salton Sea
IV, Upper Mahiao and Unit I of Malitbog.
General and administration costs increased in the second quarter
of 1997 to $12,005 from $5,117 for the same period in 1996, a
134.6% increase. For the six months ended June 30, 1997,
general and administrative costs increased to $25,492 from
$9,296, a 174.2% increase. The increase is primarily due to the
administration costs at Northern.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations for Three and Six Months Ended June 30,
1997 and 1996: (continued)
Royalty expenses increased in the second quarter of 1997 to
$6,758 from $5,896 for the same period in 1996, a 14.6% increase.
For the six months ended June 30, 1997, royalty expenses
increased to $13,283 from $10,271 for the same period in 1996, a
29.3% increase. These increases are primarily due to the
commencement of operations at Salton Sea IV.
Depreciation and amortization increased in the second quarter of
1997 to $70,456 from $25,660 for the same period in 1996, a
174.6% increase. For the six months ended June 30, 1997,
depreciation and amortization increased to $137,912 from $43,713
for the same period in 1996, a 215.5% increase. These increases
are primarily due to the acquisitions of Northern and Falcon
Seaboard, and the commencement of operations at the Philippine
projects and Salton Sea IV.
Loss on equity investment in Casecnan reflects the Company's
construction period share of interest expense in excess of
capitalized interest and interest income at the Casecnan Project.
Interest expense, less amounts capitalized, increased in the
second quarter of 1997 to $58,006 from $25,123 for the same
period in 1996, a 130.9% increase. For the six months ended June
30, 1997, interest expense, less amounts capitalized, increased
to $119,506 from $47,996, a 149.0% increase. These increases are
primarily due to the acquisition of Northern, the greater average
outstanding debt and the decrease in capitalized interest due to
the commencement of operations at Salton Sea IV and the
Philippine projects.
Dividends on convertible preferred securities reflect financial
expense related to these securities which were issued in April
1996 and February 1997.
The provision for income taxes increased in the second quarter of
1997 to $24,342 from $9,040 for the same period in 1996, a 169.3%
increase. For the six months ended from June 30, 1997, provision
for income taxes increased to $46,591 from $15,537 for the same
period in 1996, a 199.9% increase. These increases are due to
higher income before taxes and an increase in the effective tax
rate due to the acquisition of Northern.
Net income available for common stockholders increased in the
second quarter of 1997 to $30,889 or $.47 per share from $19,272
or $.35 per share for the same period in 1996. For the six
months ended June 30, 1997, net income increased to $58,337 or
$.89 per share from $33,733, or $.62 per share for the same
period in 1996.
Liquidity and Capital Resources:
The Company's cash and cash equivalents were $406,241 at June 30,
1997 as compared to $424,500 at December 31, 1996. In addition,
the Company's share of joint venture cash and investments
retained in project control accounts at June 30, 1997 and
December 31, 1996 was $4,072 and $48,083, respectively.
Distributions out of the project control accounts are made
monthly to the Company for operations and maintenance and capital
costs and semiannually to each Coso Project partner for profit
sharing under a prescribed calculation subject to mutual
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
agreement by the partners. The Company recorded separately
restricted cash of $84,640 and $107,143 at June 30, 1997 and
December 31, 1996, respectively. The restricted cash balance as
of June 30, 1997 is comprised primarily of amounts deposited in
restricted accounts from which the Company will source its equity
contribution requirements relating to the Mahanagdong Project,
fund certain capital improvements at the Imperial Valley Project,
fund the Coso Project royalty payment and the Company's
proportionate share of the Power Resources Project, the Upper
Mahiao Project and the Malitbog Project cash reserves for debt
service reserve funds. Also, the Company had $5,958 and $4,921
of short term investments as of June 30, 1997 and December 31,
1996, respectively.
As of June 30, 1997, the Company holds 189 shares of treasury
stock at a cost of $5,687 to provide shares for issuance under
the Company's employee stock option and share purchase plan and
other outstanding convertible securities. The repurchase plan
attempts to minimize the dilutive effect of the additional shares
issued under these plans.
On August 12, 1997, a subsidiary of the Company completed a
private placement (with certain shelf registration rights) of
$225,000 aggregate amount of 6 1/2% Trust Convertible Preferred
Securities (the "6 1/2% Trust Securities"). In addition, an
option to purchase an additional 900 of the 6 1/2% Trust
Securities, or $45,000 aggregate amount, may be exercised by the
initial purchasers to cover overallotments in connection with the
placement. Each 6 1/2% Trust Security has a liquidation
preference of fifty dollars and is convertible at any time at the
option of the holder into 1.047 shares of Company Common Stock
(equivalent to a conversion price of $47.75 per common share)
subject to adjustments in certain circumstances.
On July 15, 1997, the Company advised New York State Electric &
Gas Corporation ("NYSEG") of its intention to commence a tender
offer (the "Tender Offer") to acquire that number of shares
("NYSEG Shares") of common stock, par value $6.66 2/3 per share,
of NYSEG which, together with the NYSEG Shares beneficially owned
by the Company, would represent 9.9% of the total number of NYSEG
Shares outstanding. On July 18, 1997 CE Electric (NY), Inc. a
wholly owned subsidiary of the Company (the "Purchaser"),
commenced the Tender Offer at a cash price of $24.50 per share.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Liquidity and Capital Resources: (continued)
The Company also advised NYSEG on July 15, 1997 that it was
prepared to negotiate a consensual merger (the "Proposed Merger")
in which each outstanding NYSEG Share would be exchanged for
$27.50 in cash. NYSEG's Board of Directors has recommended that NYSEG
Shareholders reject the Tender Offer and the Proposed Merger.
On August 5, 1997, the Company and certain affiliated capital
funding trusts also filed with the Securities and Exchange
Commission a shelf registration statement covering up to $1.5
billion of common stock, preferred stock and debt securities
which may be sold from time to time for various purposes.
On August 6, 1997, the Company and the Purchaser announced that
it had executed fully underwritten financing commitments to fund
the Company's proposed merger with NYSEG or a possible subsequent
tender offer and a related merger that may be consumated subsequent
to such Tender Offer.
The financing commitments entered into by the Company and the
Purchaser relate to the following facilities:
* An amended and restated $250 million Company credit facility.
* A new $150 million Company revolving credit facility.
* A $500 million bridge financing facility, if required and to
the extent the net proceeds from certain possible future offerings
result in less than $500 million of net proceeds to the Company.
* $1.0 billion Purchaser credit facilities comprised of a $650
million five-year term loan and a $350 million five-year
revolving credit facility.
The Company presently intends to effect certain equity and debt securities
offerings on a prompt basis (subject to market conditions), in which case
drawings under the bridge facility may not be required. The equity component
of such future offerings is not currently expected to exceed approximately
$550 million.
On February 26, 1997, a subsidiary of the Company completed a
private placement (with certain shelf registration rights) of
$150,000 aggregate amount of 6 1/4% Trust Convertible Preferred
Securities ("Trust Securities"). In addition, an option to
purchase an additional 600 Trust Securities, or $30,000 aggregate
amount, was exercised by the initial purchasers to cover over-
allotments in connection with the placement. Each Trust Security
has a liquidation preference of fifty dollars and is convertible
at any time at the option of the holder into 1.1655 shares of
Company Common Stock (equivalent to a conversion price of $42.90
per common share) subject to adjustments in certain
circumstances.
The Company and PKS contributed to CE Electric approximately
$410,000 and $176,000, respectively, of the approximately
$1,300,000 required to acquire all of Northern's ordinary and
preference shares in connection with the Northern Tender Offer.
The Company obtained such funds from cash on hand, short-term
borrowings, and borrowings of approximately $100,000 under a
Credit Agreement entered on October 28, 1996 (the "CalEnergy
Credit Facility"). The Company has repaid the entire CalEnergy
Credit Facility through the use of proceeds of the
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
Trust Securities offering. The remaining funds necessary to
consummate the Northern Tender Offer will be provided from a
560,000 pounds ($932,176) Term Loan and Revolving Facility
Agreement, dated as of October 28, 1996 (the "U.K. Credit
Facility") obtained by CE Electric UK Holdings. The Company has
not guaranteed, nor is it otherwise subject to recourse for,
amounts borrowed under the U.K. Credit Facility. As of June 30,
1997, CE Electric UK Holdings had borrowed approximately 405,000
pounds ($674,163) under the U.K. Credit Facility to pay for
Northern ordinary and preference shares purchased to date,
including relevant costs.
On July 31, 1997, the United Kingdom Parliament passed the
windfall tax to be levied on privatized utilities, including
Northern, which will result in a third quarter charge to net
income of approximately $136 million and is payable in two equal
installments.
In November 1995, the Company closed the financing and commenced
construction of the Casecnan Project, a combined irrigation and
150 net MW hydroelectric power generation project (the "Casecnan
Project") located in the central part of the island of Luzon in
the Republic of the Philippines.
CE Casecnan Water and Energy Company, Inc., a Philippine
Corporation ("CE Casecnan") which is presently indirectly owned
as to approximately 35% of its equity by the Company and
approximately 35% indirectly owned by PKS, is developing the
Casecnan Project. CE Casecnan financed a portion of the costs of
the Casecnan Project through the issuance of $125,000 of its
11.45% Senior Secured Series A Notes due 2005 and $171,500 of its
11.95% Senior Secured Series B Bonds due 2010 and $75,000 of its
Secured Floating Rate Notes due 2002, pursuant to an indenture
dated as of November 27, 1995, as amended to date.
The Casecnan Project was being constructed pursuant to a fixed-
price, date-certain, turnkey construction contract (the "Hanbo
Contract") on a joint and several basis by Hanbo Corporation
("Hanbo") and Hanbo Engineering and Construction Co. Ltd.
("HECC"), both of which are South Korean corporations. As of May
7, 1997, CE Casecnan terminated the Hanbo Contract due to
defaults by Hanbo and HECC including the insolvency of each such
company. CE Casecnan entered into a new turnkey engineering,
procurement and construction contract to complete the
construction of the Casecnan Project (the "Replacement
Contract"). The work under the Replacement Contract will be
conducted by a consortium of contractors and subcontractors
including Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
Colenco Power Engineering Ltd. and will be headed by Cooperativa
Muratori Cementisti CMC di Ravenna and Impressa Pizzarottie & C.
Spa. (collectively, the "Replacement Contractor").
In connection with the Hanbo Contract termination CE Casecnan
tendered a certificate of drawing to Korea First Bank ("KFB") on
May 7, 1997 under the irrevocable standby letter of credit issued
by KFB as security under the Hanbo Contract to pay for certain
transition costs and other presently ascertainable damages under
the Hanbo Contract. As a result of KFB's dishonor of the draw
request, CE Casecnan filed an action in New York State Court.
That Court granted CE Casecnan's request for a temporary
restraining order requiring KFB to
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
deposit $79,329, the amount of the requested draw, in an interest
bearing account with an independent financial institution in the
United States. KFB appealed this order, but the appellate court
denied KFB's appeal and on May 19, 1997, KFB transferred funds in
the amount of $79,329 to a segregated New York bank account
pursuant to the Court order.
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The Replacement
Contractor was already on site and is expected to immediately
fully mobilize and commence engineering, procurement and
construction work on the Casecnan Project. The receipt of the
letter of credit funds from KFB remains essential and CE Casecnan
will continue to press KFB to honor its clear obligations under
the letter of credit and to pursue Hanbo and KFB for any
additional damages arising out of their actions to date.
In August 1994, the Company closed the financing for the 165 net
MW Mahanagdong Project located in the Philippines (the
"Mahanagdong Project"). The total project cost for the facility
is approximately $320,000. The capital structure consists of a
term loan of $240,000 and approximately $80,000 in equity
contributions. The Overseas Private Investment Corporation
("OPIC") and a consortium of international commercial lenders are
providing the construction debt financing facility. The debt
provided by the commercial lenders is insured against political
risk by the Export-Import Bank of the United States ("Ex-Im
Bank"). Ten year term debt financing (which will replace the
construction debt) will be provided by Ex-Im Bank and by OPIC.
As of June 30, 1997, the Company's proportionate share of draws
on the construction loan totaled $83,421 and equity investments
made by a subsidiary of the Company totaled $40,840. OPIC is
providing political risk insurance on the equity. The
Mahanagdong Project was deemed complete as of July 25, 1997. As
with the Upper Mahiao Project, the Mahanagdong Project is
structured as a ten year BOOT, in which the Company will be
responsible for implementing construction of the geothermal power
plant and, as owner, for providing operations and maintenance for
the ten year BOOT period. After a ten year cooperation period,
and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at
no cost.
The electricity generated by the Mahanagdong Project will be sold
to PNOC-EDC, on a "take or pay" basis, which is also responsible
for supplying the facility with the geothermal steam. The terms
of the Mahanagdong ECA are substantially similar to those of the
Upper Mahiao ECA. All of PNOC-EDC's obligations under the
Mahanagdong ECA are supported by the Government of the
Philippines through a performance undertaking. The capacity fees
are expected to be approximately 97% of total revenues at the
design capacity levels and the energy fees are expected to be
approximately 3% of such total revenues. The Mahanagdong Project
is owned and operated by CE Luzon Geothermal Power Company, a
Philippine corporation, that is expected to be owned as follows:
45% by the Company, 45% by PKS, and up to 10% by another
industrial company.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
In December 1994, financing was closed and construction commenced
on the Malitbog Project, a 216 net MW geothermal project, to be
constructed in two phases, 72 net MW in 1996 and 144 net MW in
1997, located on the island of Leyte (the "Malitbog Project").
The Malitbog Project is being built and will be owned and
operated by Visayas Geothermal Power Company ("VGPC"), a
Philippine general partnership that is wholly owned, indirectly,
by the Company. Unit I of the Malitbog Project was deemed
complete by PNOC-EDC as of July 25, 1996. Units II and III were
deemed complete in July 1997. During deemed completion, PNOC-EDC
is required to pay, and has been paying, all capacity fees under
the take or pay provisions of the Malitbog ECA. VGPC is selling
100% of its capacity to PNOC-EDC, which will in turn sell the
power to the NPC.
The Malitbog Project has a total project cost of approximately
$280,000, including interest during construction and project
contingency costs. A consortium of international lenders and
OPIC have provided a total of $210,000 of construction and term
loan facilities. The $135,000 international commercial bank
portion is supported by political risk insurance from OPIC. As
of June 30, 1997, draws on the construction loan totaled
$162,344, and equity investments made by subsidiaries of the
Company totaled $70,000. The Company's equity participation is
covered by political risk insurance from OPIC. As with the Upper
Mahiao Project, the Malitbog Project is structured as a ten year
BOOT, in which the Company will be responsible for implementing
construction of the geothermal power plant and, as owner, for
providing operations and maintenance for the ten year BOOT
period. After a ten year cooperation period, and the recovery by
the Company of its capital investment plus incremental return,
the plant will be transferred to PNOC-EDC at no cost.
On December 2, 1994, a subsidiary of the Company, Himpurna
California Energy Ltd. ("HCE") executed a joint operation
contract (the "Dieng JOC") for the development of the geothermal
steam field and geothermal power facilities at the Dieng
geothermal field, located in Central Java (the "Dieng Project")
with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
("Pertamina"), the Indonesian national oil company, and executed
a "take-or-pay" energy sales contract (the "Dieng ESC") with both
Pertamina and P.T. PLN (Persero) ("PLN"), the Indonesian national
electric utility. HCE was formed pursuant to a joint development
agreement with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its
Indonesian partner, which is a subsidiary of Himpurna, an
association of Indonesian military veterans, whereby the Company
and P.T. HEA have agreed to work together on an exclusive basis
to develop the Dieng Project (the "Dieng Joint Venture"). The
Dieng Joint Venture is structured with subsidiaries of the
Company holding an approximate 47% interest (including certain
assignments of dividend rights representing an
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
economic interest of 2%), and subsidiaries of PKS holding an
approximate 47% interest (including certain assignments of
dividend rights representing an economic interest of 2%) and P.T.
HEA holding a 6% interest in the Dieng Project. The construction
contractor for the Dieng Unit I project, a joint venture of PKS
and Holt, is on schedule to complete the Unit I plant and
commence commercial operation by the fourth quarter of 1997.
Financial closing and first disbursement of construction loan
funds occurred on October 3, 1996.
Pursuant to the Dieng JOC and ESC, Pertamina has granted to HCE
the geothermal field and the wells and other facilities presently
located thereon and HCE will build, own and operate power
production units with an aggregate capacity of up to 400 MW. HCE
will accept the field operation responsibility for developing and
supplying the geothermal steam and fluids required to operate the
plant. The Dieng JOC is structured as a build own transfer
agreement and will expire (subject to extension by mutual
agreement) on the date which is the later of (i) 42 years
following effectiveness of the Dieng JOC and (ii) 30 years
following the date of commencement of commercial generation of
the final unit completed. Upon the expiration of the proposed
Dieng JOC, all facilities will be transferred to Pertamina at no
cost. HCE is required to pay Pertamina a production allowance
equal to three percent of HCE's net operating income from the
Dieng Project, plus a further amount based upon the negotiated
value of existing Pertamina geothermal production facilities that
the Company expects will be made available by Pertamina.
Pursuant to the Dieng ESC, PLN agreed to purchase and pay for all
of the Dieng Project's capacity and energy output on a "take or
pay" basis regardless of PLN's ability to accept such energy made
available from the Dieng Project for a term equal to that of the
Dieng JOC. The price paid for electricity includes a base energy
price per kWh multiplied by the number of kWhs the plants deliver
or are "capable of delivering," whichever is greater. Energy
price payments are also subject to adjustment for inflation. PLN
will also pay a capacity payment based on plant capacity. All
such payments are payable in U.S. dollars.
HCE began well testing in the fourth quarter of 1995 and issued a
notice to proceed for the construction and supply of an initial
55 net MW unit ("Dieng Unit I") in the first quarter of 1996. PT
Kiewit/Holt Indonesia, a consortium consisting of Kiewit
Construction Group, Inc., a subsidiary of PKS ("KCG") and Holt,
will construct Dieng Unit I pursuant to a fixed price, date
certain, turnkey construction contract ("Construction Contract").
Affiliates of KCG and Holt will provide the engineered supply
with respect to Dieng Unit I pursuant to a fixed price, date
certain, turnkey supply contract ("Supply Contract"). The
Construction Contract and Supply Contract are sometimes referred
to herein as the "Dieng EPC" and KCG, Holt and their affiliates
party to the Construction Contract and Supply Contract are
sometimes referred to herein,
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
collectively, as the "Construction Consortium." The obligations
of the Construction Consortium under the Construction and Supply
Contracts are supported by a guaranty of KCG and Holt. KCG is
the lead member of the Construction Consortium, with a 60%
interest. HCE will be responsible for operating and managing the
Dieng Project.
Pursuant to the Dieng JOC and ESC, the Company presently intends
to proceed on a modular basis with construction of three
additional units to follow Dieng Unit I, resulting in an
aggregate first phase net capacity at this site of 220 MW. The
Company estimates that the total project cost of these units will
be approximately $450 million. The next phase is expected to
expand the total capacity to 400 MW. The cost of the full Dieng
Project is estimated to approximate $1 billion.
The Dieng field has been explored domestically for over 20 years
and Holt has been active in the area for more than five years.
Pertamina has drilled a total of 27 wells to date. The Company
has a significant amount of data, which it believes to be
reliable as to the production capacity of the field. However, a
number of significant steps, both financial and operational, must
be completed before the Dieng Project can proceed further. These
steps, none of which can be assured, include completing the
drilling of wells and the constructing of the plant for Dieng
Unit I and obtaining required regulatory permits and approvals,
completing the well testing, entering into a construction
agreement and other project contracts, and arranging financing
for the other units at Dieng.
On June 12, 1997, the Company announced that its special-purpose
subsidiary, CE Indonesia Funding Corp., entered into a $400
million revolving credit facility (which is nonrecourse to the
Company) to finance the development and construction of the
Company's geothermal power facilities at Dieng and Patuha sites
in Indonesia.
Magma sought new long-term final SO4 power purchase agreements in
the Salton Sea area through the bidding process adopted by the
California Public Utilities Commission ("CPUC") under its 1992
Biennial Resource Plan Update ("BRPU"). In its BRPU, the CPUC
cited the need for an additional 9,600 MW of power production
through 1999 among California's three investor-owned utilities,
Edison, SDG&E and Pacific Gas and Electric Company. Of this
amount, 275 MW was set aside for bidding by independent power
producers (such as Magma) utilizing renewable resources. Pursuant
to an order of the CPUC dated June 22, 1994 (confirmed on
December 21, 1994), Magma was awarded 163 net MW for sale to
Edison and SDG&E, with in-service dates in 1997 and 1998. On
February 23, 1995 the Federal Energy Regulatory Commission
("FERC") issued an order finding that the CPUC's BRPU program
violated the Public Utilities Regulatory Policies Act ("PURPA")
and FERC's implementing regulations and recommended negotiated
settlements. In response, the CPUC issued an Assigned
Commissioners Ruling encouraging settlements between the final
winning bidders and the utilities. The utilities are expected to
continue to challenge the BRPU and, in light of the regulatory
uncertainty, there can be no assurance that power sales contracts
will be executed
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
or that any such projects will be completed. In light of these
developments, the Company agreed to execute an agreement with
Edison on March 16, 1995 providing that in certain circumstances
it would withdraw its Edison BRPU bid in consideration for the
payment of certain sums. In December 1996, the Company entered
into a confidential cash buyout agreement with SDG&E. These
agreements are subject to CPUC approval.
The Company is actively seeking to develop, construct, own and
operate new energy projects, both domestically and
internationally, the completion of any of which is subject to
substantial risk. Development can require the Company to expend
significant sums for preliminary engineering, permitting, fuel
supply, resource exploration, legal and other expenses in
preparation for competitive bids which the Company may not win or
before it can be determined whether a project is feasible,
economically attractive or capable of being financed. Successful
development and construction is contingent upon, among other
things, negotiation on terms satisfactory to the Company of
engineering, construction, fuel supply and power sales contracts
with other project participants, receipt of required governmental
permits and consents and timely implementation of construction.
Further, there can be no assurance that the Company, which is
substantially leveraged, will obtain access to the substantial
debt and equity capital required to continue to develop and
construct projects or to refinance projects. The Company's
future growth is dependent, in large part, upon the demand for
significant amounts of additional electrical generating capacity
and its ability to obtain contracts to supply portions of this
capacity. There can be no assurance that development efforts on
any particular project, or the Company's efforts generally, will
be successful.
The Company believes the international independent power market
holds the majority of new opportunities for financially
attractive private power development in the next several years.
The financing, construction and development of projects outside
the United States entail significant political and financial
risks (including, without limitation, uncertainties associated
with first time privatization efforts in the countries involved,
currency exchange rate fluctuations, currency repatriation
restrictions, political instability, civil unrest and
expropriation) and other structuring issues that have the
potential to cause substantial delays or material impairment of
value to the project being developed, which the Company may not
be fully capable of insuring against. The uncertainty of the
legal environment in certain foreign countries in which the
Company may develop or acquire projects could make it more
difficult for the Company to enforce its rights under
agreements relating to such projects. In addition, the laws and
regulations of certain countries may limit the ability of the
Company to hold a majority interest in some of the projects that
it may develop or acquire. The Company's international projects
may, in certain cases, be terminated by a government. Projects
in operation, construction and development are subject to a
number of uncertainties more specifically described in the
Company's Form 8-K, dated February 25, 1997, filed with the
Securities and Exchange Commission.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
As of June 30, 1997, there are no material outstanding
lawsuits; however see Note 7, Commitments and Contingencies.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
a. The Company's Annual Meeting of Stockholders
was held on May 15, 1997.
b. Directors elected at the Company's Annual
Meeting of Stockholders on May 15, 1997 are named
below as follows:
David H. Dewhurst (Class II)
Richard R. Jaros (Class II)
David R. Morris (Class II)
Neville G. Trotter (Class II)
Edgar D. Aronson (Class III)
Bernard W. Reznicek (Class III)
Directors whose term of office as a Director
continued after the meeting are named below as follows:
Judith E. Ayres
James Q. Crowe
Richard K. Davidson
Walter Scott, Jr.
John R. Shiner
David L. Sokol
David E. Wit
c. The meeting proposals were voted on at the
annual meeting:
(i) Proposal 1 - Election of Directors
(with terms expiring at the 2000 annual
meeting for the class II directors and
at the 1998 annual meeting for the class
III directors.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Withholding
Nominees For Authority
David H. Dewhurst 56,795,916 280,900
Richard R. Jaros 56,791,399 285,417
David R. Morris 56,800,386 276,430
Neville G. Trotter 56,794,159 282,657
Edgar D. Aronson 56,797,297 279,519
Bernard W. Reznicek 56,799,936 276,880
(ii) Proposal 2 - Amend the Company's
Restated Certificate of Incorporation to
increase the number of authorized shares to
180,000,000 from 80,000,000.
Such proposal passed with 50,438,905
affirmative votes. 6,478,527 votes were cast
against such proposal with 159,384 shares abstaining.
(iii) Proposal 3 - Ratification of an amendment
of the Company's Stock Option Plan to increase the
aggregate number of option shares that are available for
grant under the plan by 2,000,000.
Such proposal passed with 50,744,062
affirmative votes. 6,109,161 votes were cast against
such proposal with 223,593 shares abstaining.
(iv) Proposal 4 - Ratification of the appointment of
Deloitte & Touche LLP as independent
auditors for the fiscal year 1997.
Such proposal passed with 56,895,677
affirmative votes. 45,029 votes were cast against
such proposal with 136,110 shares abstaining.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
(b) Reports on Form 8-K:
During the quarter ended June 30, 1997 the Company filed
the following:
(i) Form 8-K dated May 7, 1997 reporting its indirect
subsidiary CE Casecnan's termination of the Hanbo
contract and finalization of the replacement contract.
(ii)Form 8-K dated May 20, 1997 reporting that Korea
First Bank ("KFB") has funded the amount of
$79,329,000 into a New York bank account pending
resolution of CE Casecnan's summary judgment motion
to require KFB to honor draw on its letter of
credit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CALENERGY COMPANY, INC.
Date: August 14, 1997 /s/ Gregory E. Abel
Gregory E. Abel
President and Chief Operating Officer,
CalEnergy Europe and
Chief Accounting Officer, CalEnergy
Company, Inc.
/s/ Craig M. Hammett
Craig M. Hammett
Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 37
15 Awareness Letter of Independent Accountants 38
27 Financial Data Schedule 39
Exhibit 11
CALENERGY COMPANY, INC.
CALCULATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
(dollars in thousands, except per share amounts)
___________________
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Actual weighted average shares
outstanding for the period 63,531,050 52,056,951 63,520,792 51,608,292
Dilutive stock options and warrants
using average market prices 2,468,737 3,346,753 2,311,837 3,227,441
Primary shares outstanding 65,999,787 55,403,704 65,832,629 54,835,733
Additional dilutive stock options
using ending market price and
assuming conversion of convertible
debt, convertible subordinated
debenture and convertible preferred
securities of subsidiary
trusts 7,726,679 11,068,567 6,436,598 9,890,187
Fully dilutive shares
outstanding 73,726,466 66,472,271 72,269,227 64,725,920
Net income available for
common stockholders $ 30,889 $ 19,272 $ 58,337 $ 33,733
Primary earnings per share $ .47 $ .35 $ .89 $ .62
Fully diluted earnings per share
based on SEC interpretive release
No. 34-9083* $ .46 $ .33 $ .87 $ .59
*Net income available for common stockholders for the three and
six months ended June 30, 1997 was increased by dividends on
convertible preferred securities of subsidiary trusts, net of tax
effect, of $2,751 and $4,416, respectively. Net income available
for common stockholders for the three and six months ended June
30, 1996 was increased by the interest expense associated with
the convertible debt and convertible subordinated debentures and
dividends on convertible preferred securities of subsidiary
trusts, net of tax effect, of $2,573 and $4,272, respectively.
Exhibit 15
CalEnergy Company, Inc.
Omaha, Nebraska
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of the
unaudited interim financial information of CalEnergy Company,
Inc. for the three and six month periods ended June 30, 1997 and
1996 as indicated in our report dated August 12, 1997; because we
did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included
in your Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, is incorporated by reference in Registration Statements
No. 33-41152, No. 33-52147 and No. 333-30395 on Form S-8 and
Registration Statements No. 35-51363 and No. 333-32821 on Form S-
3.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act, is not considered a part of
a Registration Statement prepared or certified by an accountant
or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 14, 1997
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<PERIOD-END> JUN-30-1997
<CASH> 494,953
<SECURITIES> 5,958
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283,930
59,101
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