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
March 31, 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
63,529,955 shares of Common Stock, $0.0675 par value were outstanding as of
March 31, 1997.
CALENERGY COMPANY, INC.
Form 10-Q
March 31, 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, March 31, 1997
and December 31, 1996 4
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults on Senior Securities 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Exhibit Index 29
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 March 31, 1997, and the related
consolidated statements of operations and cash flows for the three month
periods ended March 31, 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
April 29, 1997
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
March 31 December 31
1997 1996
(unaudited)
ASSETS
Cash and cash equivalents $ 328,606 $ 424,500
Joint venture cash and investments 46,895 48,083
Restricted cash 82,228 107,143
Short-term investments 6,742 4,921
Accounts receivable 347,594 342,307
Due from joint ventures 19,699 17,556
Properties, plants, contracts and equipment,
net 3,581,440 3,348,583
Excess of cost over fair value of net assets
acquired, net 1,060,670 790,920
Equity investments 191,933 196,535
Deferred charges and other assets 472,243 432,359
Total assets $6,138,050 $5,712,907
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 114,765 $ 218,182
Other accrued liabilities 988,523 674,842
Parent company debt 953,804 1,146,685
Subsidiary and project debt 2,274,815 1,754,895
Deferred income taxes 353,869 469,199
Total liabilities 4,685,776 4,263,803
Deferred income 23,647 29,067
Company-obligated mandatorily redeemable
convertible preferred securities of
subsidiary trusts 283,930 103,930
Preferred securities of subsidiary 89,040 136,065
Minority interest 179,293 299,252
Stockholders' equity:
Common stock - par value $0.0675 per share,
authorized 80,000 shares, issued 63,733 and
63,747 shares, outstanding 63,530 and 63,448
at March 31, 1997 and December 31, 1996,
respectively 4,303 4,303
Additional paid in capital 560,482 563,567
Retained earnings 324,968 297,520
Treasury stock - 203 and 299 common
shares at March 31, 1997 and December 31,
1996, respectively, at cost (5,933) (8,787)
Unearned compensation - restricted stock (5,089) (5,471)
Cumulative effect of foreign currency
translation adjustment (2,367) 29,658
Total stockholders' equity 876,364 880,790
Total liabilities and stockholders' equity $6,138,050 $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)
________________________________
Three Months Ended
March 31
1997 1996
(unaudited)
Revenues:
Operating revenue $ 542,589 $ 75,944
Interest and other income 23,387 14,412
Total revenues 565,976 90,356
Costs and expenses:
Cost of sales 277,382 ---
Operating expense 77,086 18,956
General and administration 13,487 4,179
Royalty expense 6,525 4,375
Depreciation and amortization 67,456 18,053
Loss on equity investment in Casecnan 2,668 962
Interest expense 70,622 34,779
Less interest capitalized (9,122) (11,906)
Dividends on convertible preferred
securities of subsidiary trusts 2,718 ---
Total costs and expenses 508,822 69,398
Income before income taxes 57,154 20,958
Provision for income taxes 22,249 6,497
Income before minority interest 34,905 14,461
Minority interest 7,457 ---
Net income available for
common stockholders $ 27,448 $ 14,461
Net income per share - primary $ .42 $ .27
Net income per share - fully diluted $ .41 $ .26
Average number of common and
common equivalent shares
outstanding 65,647 54,114
Fully diluted shares 70,715 63,228
The accompanying notes are an integral part of these financial statements.
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31
1997 1996
Cash flows from operating activities: (unaudited)
Net income $ 27,448 $ 14,461
Adjustments to reconcile net cash flow from
operating activities:
Depreciation and amortization 60,362 16,121
Amortization of excess of cost over fair value
of net assets acquired 7,094 1,932
Amortization of deferred financing and other costs 10,081 14,226
Provision for deferred income taxes 7,048 1,543
Loss (income) on equity investments (1,491) 962
Income applicable to minority interest 7,457 -
Changes in other items:
Accounts receivable (5,287) 10,382
Accounts payable and accrued liabilities (105,933) 7,759
Deferred income (5,420) (448)
Income tax payable - 4,913
Net cash flows from operating activities 1,359 71,851
Cash flows from investing activities:
Purchase of Northern Electric, net of cash acquired (599,155) -
Distributions from equity investments 6,165 -
Malitbog construction (9,769) (31,221)
Mahanagdong construction (6,528) (19,997)
Indonesian construction (16,886) (250)
Exploration and other development costs (3,429) (5,986)
Capital expenditures relating to operating projects (4,507) (2,962)
Upper Mahiao construction - (7,233)
Salton Sea IV construction - (28,288)
Decrease (increase) in short-term investments (2,767) 21,499
Decrease in restricted cash 24,915 24,409
Decrease in other assets 29,070 1,451
Net cash flows from investing activities (582,891) (48,578)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred
securities of subsidiary trust 180,000 -
Repayment of parent company debt (195,000) -
Proceeds from subsidiary and project debt 531,058 40,188
Repayments of subsidiary and project debt (2,808) (22,469)
Proceeds from sale of common and treasury stock
and exercise of options 2,854 14,103
Decrease (increase) in amounts due from joint ventures 9,435 (246)
Deferred charges relating to debt financing (9,064) -
Purchase of treasury stock - (3,221)
Net cash flows from financing activities 516,475 28,355
Effect of exchange rate changes, net (32,025) -
Net increase (decrease) in cash and cash equivalents (97,082) 51,628
Cash and cash equivalents at beginning of period 472,583 149,704
Cash and cash equivalents at end of period $ 375,501 $ 201,332
Supplemental disclosures:
Interest paid, net of amount capitalized $ 47,625 $ 10,782
Income taxes paid $ 3,761 $ -
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 March 31, 1997 and the results of
operations for the three months ended March 31, 1997 and 1996, and cash flows
for the three months ended March 31, 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 months ended March 31, 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. In particular, the Company's
significant accounting policies and practices were presented as Note 2 to the
consolidated financial statements included in that report.
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:
March 31, December 31,
1997 1996
(unaudited)
Operating assets:
Power plants and distribution system $ 2,589,185 $ 2,359,876
Wells and resource development 415,724 391,922
Power sales agreements 233,030 233,030
Licenses, equipment, wells and
resource development in progress 66,297 66,207
Total operating assets 3,304,236 3,051,035
Less accumulated depreciation and amortization (332,179) (271,216)
Net operating assets 2,972,057 2,779,819
Mineral reserves 212,514 207,842
Construction in progress:
Malitbog 162,180 152,411
Mahanagdong 130,095 123,567
Indonesia 98,761 81,875
Other development 5,833 3,069
Total $3,581,440 $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 CalEnergy Capital Trust II, a special purpose Delaware
business trust organized by the Company (the "Trust II"), pursuant to the
Amended and Restated Declaration of Trust (the "Declaration") dated as of
February 26, 1997, 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 "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.
As of March 31, 1997, the Company and PKS had 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 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 into with Credit Suisse on October 28, 1996 (the
"CalEnergy Credit Facility"). The Company has repaid the entire CalEnergy
Credit Facility through the use of proceeds of the $150,000 Trust Securities
offering. The remaining funds necessary to consummate the Tender Offer will be
provided from a 560,000 pound ($921,480) Term Loan and Revolving Facility
Agreement, dated as of October 28, 1996 (the "U.K. Credit Facility") obtained by
CE Electric. The Company has not guaranteed, and it is not otherwise subject
to recourse for
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
amounts borrowed under the U.K. Credit Facility. As of March 31, 1997, CE
Electric had borrowed approximately 385,000 pounds ($633,518) under the U.K.
Credit Facility to pay for Northern ordinary and preference shares purchased to
date, including relevant costs.
Unaudited pro forma combined revenue, net income and primary earnings per share
of the Company, Northern, Falcon Seaboard Resources, Inc. and the Edison
Mission Energy Partnership Interest for the three months ended March 31, 1997,
as if the acquisitions had occurred at the beginning of the year after giving
effect to certain pro forma adjustments related to the acquisitions were
$565,976, $28,055 and $.43 compared to $558,013, $5,848 and $.11 for the same
period last year.
7. Commitments and Contingencies:
In November 1995, a partially owned indirect subsidiary of the Company, CE
Casecnan Water and Energy Company, Inc., a Philippine corporation ("CE
Casecnan"), 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 is presently indirectly owned as to approximately 35% of its
equity by the Company and approximately 35% indirectly owned by PKS. 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 and entered into
a new engineering, procurement and construction contract to complete the
construction of the Casecnan Project. The Hanbo Contract has been terminated
because of events of default under the contract including the fact that both
HECC and Hanbo are insolvent and have filed for court receivership protection
in the Republic of Korea. In connection with the Hanbo Contract termination,
CE Casecnan made a draw under the irrevocable standby letter of credit issued
by Korea First Bank ("KFB") as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable damages under the
Hanbo Contract. If KFB were to fail to honor its obligations under the
Casecnan letter of credit, such action could have a material adverse effect on
the Casecnan Project and CE Casecnan.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
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
Pizzarotti & C. Spa.
8. 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 month periods ending March 31, 1997 and 1996 are $.43 and $.28,
respectively. Pro forma diluted earnings per share for the three month periods
ending March 31, 1997 and 1996 are $.42 and $.27, 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 historical results
could differ significantly from the Company's actual future results.
Acquisitions:
On December 24, 1996, CE Electric acquired majority ownership of the
outstanding ordinary share capital of Northern pursuant to the 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 quarter ended March 31, 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
higher 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 of each contract 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 5.22 cents per kWh during the three months ended March 31, 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 three months ended March 31, 1997, Edison's average Avoided Cost of
Energy was 3.8 cents per kWh which is substantially below the contract energy
prices earned for the three months ended March 31, 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 was "deemed complete" in June 1996, meaning that
construction was completed on time but the required transmission line was not
completed, and began receiving capacity payments pursuant to the Upper Mahiao
Energy Conversion Agreement ("ECA") in July of 1996. The project is structured
as a ten year build-own-operate-transfer ("BOOT"), in which the Company's
subsidiary CE Cebu Geothermal Power Company, Inc. ("CE Cebu"), the project
company, 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 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 was deemed complete in July 1996. The Malitbog
Project is being built, owned and operated by Visayas Geothermal Power Company
("VGPC"), a Philippine general partnership that is wholly owned, indirectly, by
the Company. VGPC is selling 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 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
("Niagara") 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 Niagara's ongoing Tariff Avoided Cost and the
contractual Long-Run Avoided Cost. The NorCon PPA term extends through
December 2017. The Company and Niagara are currently engaged in discussions
regarding a potential restructuring or buyout and termination of the NorCon
PPA.
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 Months Ended March 31, 1997 and 1996:
Operating revenue increased in the first quarter of 1997 to $542,589 from
$75,944 for the same period in 1996, a 614.5% increase. The acquisition of
Northern accounted for $400,496 of this increase. The remainder of the
increase is due to the acquisitions of Falcon Seaboard and the Partnership
Interest as well as the commencement of earnings of Salton Sea Unit 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
March 31
1997 1996
Overall capacity factor 106.0% 108.7%
kWh produced (in thousands) 549,600 569,900
Capacity NMW (average) 240 240
The capacity factor for the three months ended March 31, 1997 compared to the
same period in 1996 reflects the relatively consistent production at all three
plants.
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 Months Ended March 31, 1997 and 1996:
(continued)
The following operating data represents the aggregate capacity and electricity
production of the Partnership Project:
Three Months Ended
March 31
1997 1996
Overall capacity factor 101.8% 97.6%
kWh produced (in thousands) 325,300 315,600
Capacity NMW (average) 148 148
The overall capacity factor for the Partnership Project increased for the first
quarter of 1997 compared to the first quarter of 1996 due to increased
production at Leathers and Elmore as both facilities had scheduled turbine
overhauls in 1996.
The following operating data represents the aggregate capacity and electricity
production of the Salton Sea Project:
Three Months Ended
March 31
1997 1996
Overall capacity factor 98.8% 89.6%
kWh produced (in thousands) 254,800 156,200
Capacity NMW (average) 119.4 79.8
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 Months Ended March 31, 1997 and 1996:
(continued)
The overall capacity factor for the Salton Sea Project has increased for the
three months ended March 31, 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.
The following operating data represents the aggregate capacity and electricity
production of the Gas Plants:
Three Months Ended
March 31
1997 1996
Overall capacity factor 89.3% 91.3%
kWh produced (in thousands) 1,098,950 1,136,420
Installed capacity NMW 570 570
The capacity factor of the Gas Plants reflects certain contractual
curtailments. The capacity factors adjusted for these contractual curtailments
are 98.2% for the three months ended March 31, 1997 and 100.1% for the three
months ended March 31, 1996.
Interest and other income increased in the first quarter of 1997 to $23,387
from $14,412 for the same period in 1996, a 62.3% increase. This increase is
primarily due to interest earned by Northern and equity earnings from Saranac.
Cost of sales in the first quarter of 1997 relates to Northern, which is
primarily composed of purchases of electricity for resale.
Operating expense increased in the first quarter of 1997 to $77,086 from
$18,956 for the same period in 1996, a 306.7% increase. This increase is
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 first quarter of 1997 to
$13,487 from $4,179 for the same period in 1996, a 222.7% increase. This
increase is primarily due to the general and administrative costs of 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 Months Ended March 31, 1997 and 1996:
(continued)
Royalty costs increased in the first quarter of 1997 to $6,525 from $4,375 for
the same period in 1996, a 49.1% increase. This increase is primarily due to
the acquisition of the Partnership Interest and the commencement of operations
at Salton Sea IV.
Depreciation and amortization increased in the first quarter of 1997 to $67,456
from $18,053 for the same period in 1996, a 273.7% increase. This increase in
the case of amortization is primarily due to the amortization of the allocated
purchase price and goodwill related to the acquisitions of Northern, Falcon
Seaboard, and the Partnership Interest, and in the case of depreciation to the
commencement of operations at the Philippine projects and Salton Sea IV.
Loss on equity investment in Casecnan reflects the Company's interim
construction period share of interest expense in excess of capitalized interest
and interest income at the Casecnan project, which is currently in
construction.
Interest expense, less amounts capitalized, increased in the first quarter of
1997 to $61,500 from $22,873 for the same period in 1996, a 168.9% increase.
This increase is 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 first quarter of 1997 to
$22,249 from $6,497 for the same period in 1996, a 242.5% increase. This
increase is 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 first quarter of
1997 to $27,448 or $.42 per share from $14,461 or $.27 per share for the same
period in 1996.
Liquidity and Capital Resources:
The Company's cash and cash equivalents were $328,606 at March 31, 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
March 31, 1997 and December 31, 1996 was $46,895 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 agreement by the partners. The Company recorded separately
restricted cash of $82,228 and
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)
$107,143 at March 31, 1997 and December 31, 1996, respectively. The restricted
cash balance as of March 31, 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, and the Company's
proportionate share of the Coso Project, the Power Resources Project, the Upper
Mahiao Project and the Malitbog Project cash reserves for debt service reserve
funds. Also, the Company had $6,742 and $4,921 of short term investments as of
March 31, 1997 and December 31, 1996, respectively.
As of March 31, 1997 the Company holds 203 shares of treasury stock at a cost
of $5,933 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 February 26, 1997 CalEnergy Capital Trust II, a special purpose Delaware
business trust organized by the Company (the "Trust II"), pursuant to the
Amended and Restated Declaration of Trust (the "Declaration") dated as of
February 26, 1997, 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.
As of March 31, 1997, the Company and PKS had 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 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 into with Credit Suisse on October
28, 1996 (the "CalEnergy Credit Facility"). The Company has repaid the entire
CalEnergy Credit Facility through the use of proceeds of the $150,000 Trust
Securities offering. Th
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)
remaining funds necessary to consummate the Tender Offer will be provided from
a 560,000 pounds ($921,480) Term Loan and Revolving Facility Agreement, dated
as of October 28, 1996 (the "U.K. Credit Facility") obtained by CE Electric.
The Company has not guaranteed, nor is it otherwise subject to recourse for,
amounts borrowed under the U.K. Credit Facility. As of March 31, 1997, CE
Electric had borrowed approximately 385,000 pounds ($633,518) under the U.K.
Credit Facility to pay for Northern ordinary and preference shares purchased to
date.
In November 1995, a partially owned indirect subsidiary of the Company, CE
Casecnan Water and Energy Company, Inc., a Philippine corporation ("CE
Casecnan"), 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 is presently indirectly owned as to approximately 35% of its
equity by the Company and approximately 35% indirectly owned by PKS. 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 and entered into
a new engineering, procurement and construction contract to complete the
construction of the Casecnan Project. The Hanbo Contract has been terminated
because of events of default under the contract including the fact that both
HECC and Hanbo are insolvent and have filed for court receivership protection
in the Republic of Korea. In connection with the Hanbo Contract termination,
CE Casecnan made a draw under the irrevocable standby letter of credit issued
by Korea First Bank ("KFB") as security under the Hanbo Contract to pay for
certain transition costs and other presently ascertainable damages under the
Hanbo Contract. If KFB were to fail to honor its obligations under the
Casecnan letter of credit, such action could have a material adverse effect on
the Casecnan Project and CE Casecnan.
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)
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
Pizzarotti & C. Spa.
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 March 31,
1997 the Company's proportionate share of draws on the construction loan
totaled $77,520 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 is targeted for service in July 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 will be built, owned and operated by CE Luzon Geothermal Power Company,
a Philippine corporation, that is expected to be owned post-completion as
follows: 45% by the Company, 45% by PKS, and up to 10% by another industrial
company. The turnkey contractor consortium consists of Kiewit Construction
Group, Inc. (with an 80% interest) and CE Holt Co., a wholly owned subsidiary
of the Company (with a 20% interest).
In December 1994, financing was closed and construction commenced on the
Malitbog Project, a 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
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)
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. During deemed completion, PNOC-EDC is required to pay, and has
been paying (with respect to Unit I which has been deemed completed), 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 of which is supported by political risk insurance from OPIC. As
of March 31, 1997, draws on the construction loan totaled $155,541, and equity
investments made by subsidiaries of the Company totaled $70,000 and advances by
subsidiaries of the Company totaled $2,395. The advances will be repaid by
draws on the construction loan. 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.
Units II and III of the Malitbog Project are being constructed by Sumitomo
Corporation pursuant to a fixed-price, date-certain, turnkey supply and
construction contract. Commercial operation of Units II and III are scheduled
to commence in July 1997.
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
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)
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 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
power projects utilizing geothermal and other technologies, both domestically
and internationally, the completion of any of which is subject to substantial
risk. The Company has in development or under construction, projects
representing an aggregate generating capacity in excess of the generating
capacity of those currently in operation. 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 electric power 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.
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 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 Exchange Commission.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
As of March 31, 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.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K:
From December 31, 1996 through May 14, 1997, the Company filed the following:
(i) Form 8-K/A dated February 18, 1997 amending Form 8-K dated
December 24, 1996 and includes the financial statements thereto.
(ii) Form 8-K dated February 25, 1997 describing cautionary
statements and the Casecnan Project.
(iii) Form 8-K dated February 26, 1997 announcing CalEnergy Capital
Trust II completion of $150 million of 6 1/4% Trust Convertible
Preferred Securities.
(iv) Form 8-K dated March 28, 1997 reporting Hanbo Engineering and
Construction Co. Ltd. filed to seek court receivership
protection.
(v) 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.
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: May 14, 1997 /s/ Gregory E. Abel
Gregory E. Abel
President and Chief Operating Officer,
CalEnergy Europe and
Chief Accounting Officer, CalEnergy Company, Inc.
/s/ John G. Sylvia
John G. Sylvia
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 30
15 Awareness Letter of Independent Accountants 31
27 Financial Data Schedule 32
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
March 31
1997 1996
Actual weighted average shares
outstanding for the period 63,510,533 51,159,667
Dilutive stock options and warrants
using average market prices 2,136,860 2,954,670
Primary shares outstanding 65,647,393 54,114,337
Additional dilutive stock options
using ending market price and
assuming conversion of convertible
debt, convertible subordinated
debenture and convertible preferred
securities of subsidiary trusts 5,067,551 9,113,564
Fully dilutive shares outstanding 70,714,943 63,227,901
Net income available for common
stockholders $ 27,448 $ 14,461
Primary earnings per share $ .42 $ .27
Fully diluted earnings per share
based on SEC interpretive release
No. 34-9083* $ .41 $ .26
*Net income available for common stockholders for the three months ended March
31, 1997 was increased by dividends on convertible preferred securities of
subsidiary trusts, net of tax effect, of $1,666. Net income available for
common stockholders for the three months ended March 31, 1996 was increased by
the interest expense associated with the convertible debt and convertible
subordinated debentures, net of tax effect, of $1,698.
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 month periods ended March
31, 1997 and 1996 as indicated in our report dated April 29, 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 March 31, 1997, is
incorporated by reference in Registration Statements No. 33-41152 and No. 33-
52147 on Form S-8 and Registration Statement No. 35-51363 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of a Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 14, 1997
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 457,729
<SECURITIES> 6,742
<RECEIVABLES> 347,594
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,913,619
<DEPRECIATION> 332,179
<TOTAL-ASSETS> 6,138,050
<CURRENT-LIABILITIES> 0
<BONDS> 3,228,619
283,930
89,040
<COMMON> 4,303
<OTHER-SE> 885,450
<TOTAL-LIABILITY-AND-EQUITY> 6,138,050
<SALES> 542,589
<TOTAL-REVENUES> 565,976
<CGS> 277,382
<TOTAL-COSTS> 77,086
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