SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
September 30, 1998
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
59,544,931 shares of Common Stock, $0.0675 par value were
outstanding as of September 30, 1998.
<PAGE>
CALENERGY COMPANY, INC.
Form 10-Q
September 30, 1998
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Independent Accountants' Report 3
Consolidated Balance Sheets, September 30, 1998 and December 31,1997 4
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 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 31
Item 2. Changes in Securities 31
Item 3. Defaults on Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 33
Exhibit Index 34
<PAGE>
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 September 30,
1998, and the related consolidated statements of operations for
the three and nine month periods ended September 30, 1998 and
1997 and the related consolidated statements of cash flows for
the nine month periods ended September 30, 1998 and 1997. 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, 1997, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended (not presented
herein), and in our report dated February 12, 1998, 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, 1997
is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 22, 1998
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
September 30 December 31
1998 1997
(unaudited)
ASSETS
Cash and cash equivalents $ 1,749,138 $ 1,445,338
Joint venture cash and investments 29,116 6,072
Restricted cash and investments 472,675 223,636
Accounts receivable 452,880 376,745
Properties, plants, contracts and
equipment, net 4,374,473 3,528,910
Excess of cost over fair value of
net assets acquired, net 1,455,900 1,312,788
Equity investments 126,387 238,025
Deferred charges and other assets 436,050 356,112
Total assets $ 9,096,619 $ 7,487,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 250,158 $ 173,610
Other accrued liabilities 1,206,231 1,106,641
Parent company debt 2,703,890 1,303,845
Subsidiary and project debt 2,860,995 2,189,007
Deferred income taxes 575,832 509,059
Total liabilities 7,597,106 5,282,162
Deferred income 56,719 40,837
Company-obligated mandatorily redeemable
convertible preferred securities
of subsidiary trusts 553,930 553,930
Preferred securities of subsidiary 66,043 56,181
Minority interest - 134,454
Common stock and options subject to redemption - 654,736
Stockholders' equity:
Preferred stock - authorized
2,000 shares, no par value - -
Common stock - par value $0.0675 per share,
authorized 180,000 shares, issued 82,980
shares, outstanding 59,545 and 81,322
at September 30, 1998 and December 31,
1997, respectively 5,602 5,602
Additional paid in capital 1,236,137 1,261,081
Retained earnings 320,877 213,493
Common stock and options subject to redemption - (654,736)
Treasury stock - 23,435 and 1,658 common
shares at September 30, 1998 and December 31,
1997, respectively, at cost (754,392) (56,525)
Accumulated other comprehensive income 14,597 (3,589)
Total stockholders' equity 822,821 765,326
Total liabilities and stockholders'
equity $ 9,096,619 $ 7,487,626
The accompanying notes are an integral part of these financial
statements.
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
____________(unaudited)___________
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Revenues:
Operating revenue $ 600,862 $ 527,896 $ 1,813,302 $ 1,576,407
Interest and other income 26,885 23,997 79,274 66,456
Total revenues 627,747 551,893 1,892,576 1,642,863
Costs and expenses:
Cost of sales 265,605 239,081 848,018 746,626
Operating expense 99,052 82,513 312,830 254,389
General and administration 10,085 12,068 32,943 37,560
Depreciation and amortization 81,449 69,877 247,033 207,789
Loss on equity investment
in Casecnan - 1,364 - 5,321
Interest expense 95,750 73,840 283,956 216,106
Less interest capitalized (14,464) (10,843) (42,941) (33,603)
Total costs and expenses 537,477 467,900 1,681,839 1,434,188
Income before provision for
income taxes 90,270 83,993 210,737 208,675
Provision for income taxes 32,112 27,929 72,595 74,520
Income before minority interest 58,158 56,064 138,142 134,155
Minority interest 10,535 9,656 30,758 29,410
Income before extraordinary item 47,623 46,408 107,384 104,745
Extraordinary item, net of minority
interest of $58,222 - (135,850) - (135,850)
Net income (loss) available to
common stockholders $ 47,623 $ (89,442) $ 107,384 $ (31,105)
Net income per share before
extraordinary item $ .80 $ .73 $ 1.78 $ 1.65
Extraordinary item - (2.14) - (2.14)
Net income (loss) per share-basic $ .80 $ (1.41) $ 1.78 $ (.49)
Basic common shares outstanding 59,674 63,380 60,330 63,474
Net income per share before
extraordinary item-diluted $ .72 $ .67 $ 1.67 $ 1.56
Extraordinary item - (1.80) - (1.87)
Net income (loss)
per share-diluted $ .72 $ (1.13) $ 1.67 $ (.31)
Diluted shares outstanding 73,540 75,555 74,274 72,758
The accompanying notes are an integral part of these financial statements.
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30
1998 1997
Cash flows from operating activities:
Net income (loss) $107,384 $(31,105)
Adjustments to reconcile net cash flow from operating activities:
Depreciation and amortization 213,325 187,813
Amortization of excess of cost over fair value of
net assets acquired 33,708 19,976
Amortization of deferred financing and other costs 13,922 26,858
Provision for deferred income taxes 46,504 46,502
Income on equity investments (8,635) (9,774)
Income (loss) applicable to minority interest 3,392 (42,767)
Changes in other items:
Accounts receivable (59,888) 8,608
Accounts payable and accrued liabilities 41,365 112,356
Deferred income 15,882 (7,704)
Net cash flows from operating activities 406,959 310,763
Cash flows from investing activities:
Purchase of Kiewit Interests and Northern Electric,
net of cash acquired (502,916) (631,808)
Distributions from equity investments 13,455 18,793
Acquisition of gas assets (35,677) -
Philippine construction (85,663) (21,351)
Indonesian construction (77,832) (87,742)
Exploration and other development costs (23,246) (9,757)
Capital expenditures relating to operations (184,787) (116,130)
Decrease in short-term investments 1,256 2,494
Decrease (increase) in restricted cash and investments 185,464 (18,565)
Decrease (increase) in other assets (25,599) 67,144
Net cash flows from investing activities (735,545) (796,922)
Cash flows from financing activities:
Proceeds from issuance of convertible preferred
securities of subsidiary trust - 450,000
Proceeds from issuance of parent company debt 1,400,000 -
Repayment of parent company debt - (195,000)
Proceeds from subsidiary and project debt 107,234 603,392
Repayments of subsidiary and project debt (112,594) (74,409)
Deferred charges relating to debt financing (56,881) (21,589)
Purchase of treasury stock (703,478) (23,767)
Purchase of stock options from Kiewit (21,313) -
Other 24,276 29,200
Net cash flows from financing activities 637,244 767,827
Effect of exchange rate changes, net 18,186 (39,030)
Net increase in cash and cash equivalents 326,844 242,638
Cash and cash equivalents at beginning of period 1,451,410 472,264
Cash and cash equivalents at end of period $1,778,254 $ 714,902
Supplemental disclosures:
Interest paid, net of amount capitalized $ 197,680 $ 211,318
Income taxes paid $ 53,319 $ 27,990
The accompanying notes are an integral part of these financial
statements.
<PAGE>
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 September 30, 1998 and the results of operations
for the three and nine months ended September 30, 1998 and 1997,
and cash flows for the nine months ended September 30, 1998 and
1997. The results of operations for the three and nine months
ended September 30, 1998 and 1997 are not necessarily indicative
of the results to be expected for the full year.
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.
Certain amounts in the 1997 financial statements and supporting
footnote disclosures have been reclassified to conform to the
1998 presentation. Such reclassification did not impact
previously reported net income or retained earnings.
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.
2. MidAmerican Merger:
On August 11, 1998, the Company entered into an Agreement and
Plan of Merger with MidAmerican Energy Holdings Company
("MidAmerican"), pursuant to which the Company agreed (i) to pay
$27.15 in cash for each outstanding share of MidAmerican common
stock (valuing MidAmerican at approximately $4.2 billion,
including $1.6 billion of debt and preferred stock which will
remain outstanding at MidAmerican) in a merger, pursuant to which
MidAmerican will become a wholly owned subsidiary of the Company,
and (ii) to reincorporate in the State of Iowa and be renamed
MidAmerican Energy Holdings Company.
Our shareholders and the MidAmerican shareholders approved the
MidAmerican Merger on October 30, 1998. The waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, expired on October 10, 1998. The consummation of the
MidAmerican Merger remains conditioned upon receipt of approvals
of the Nuclear Regulatory Commission, the Federal Energy
Regulatory Commission, the Iowa Utilities Board, certain other
state certifications and regulatory filings. In addition, the
disposition of partial interests in certain of our power
generating facilities will be required prior to the consummation
of the MidAmerican Merger in order to maintain the qualifying
facilities status of such independent power generating
facilities.
Closing of the MidAmerican Merger is expected to occur by the end
of the first quarter of 1999.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
3. Debt Offering:
On September 22, 1998 the Company issued $1,400,000 of Senior
Notes and Bonds. The securities are made up of $215,000 of 6.96%
Senior Notes due 2003, $260,000 of 7.23% Senior Notes due 2005,
$450,000 of 7.52% Senior Notes due 2008 and $475,000 of 8.48%
Senior Bonds due 2028. Interest is payable semi-annually on
March 15 and September 15, commencing on March 15, 1999. The
securities are subject to optional redemption at any time at par
plus payment of a make whole premium. The proceeds from
the offering are expected to be used in part to complete the
MidAmerican Merger and to refinance the Company's 10.25% Senior
Discount Notes.
4. Properties, Plants, Contracts and Equipment:
Properties, plants, contracts and equipment comprise the
following:
September 30, December 31,
1998 1997
(unaudited)
Operating assets:
Distribution system $1,332,038 $1,237,743
Power plants 1,865,892 1,464,885
Wells and resource development 464,000 395,314
Power sales agreements 268,212 227,535
Other assets 279,942 254,973
Total operating assets 4,202,492 3,580,450
Less accumulated depreciation and
amortization (711,001) (497,832)
Net operating assets 3,491,491 3,082,618
Mineral and gas reserves and exploration
assets, net 382,880 297,048
Construction in progress:
Casecnan 233,874 -
Dieng 100,308 94,666
Patuha 152,435 49,612
Bali and other development 13,485 4,966
Total $ 4,374,473 $ 3,528,910
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
5. KDG Acquisition:
On September 11, 1997, the Company signed a definitive agreement
with Kiewit Diversified Group ("KDG"), a wholly owned subsidiary
of Peter Kiewit Sons', Inc. ("PKS"), for the Company to purchase
KDG's ownership interest in various project partnerships and
CalEnergy common shares (the "KDG Acquisition").
KDG's ownership interest in CalEnergy comprised approximately
20,231 shares of common stock (assuming exercise by KDG of one
million options to purchase CalEnergy shares), the 30% interest
in Northern Electric, as well as the following minority project
interests: Mahanagdong (45%), Casecnan (35%), Dieng (47%), Patuha
(44%) and Bali (30%) and other interests in international
development stage projects.
CalEnergy paid $1,159,215 for the KDG Acquisition and final
closing of the transaction occurred in January 1998. CalEnergy
funded this acquisition with available cash and the net proceeds
of the equity offering and the debt offering completed in October
1997. The KDG Acquisition is being accounted for under the
purchase method of accounting. The purchase price has been
allocated to assets acquired and liabilities assumed based on
preliminary valuations. The assets acquired will be amortized
over their estimated useful life and goodwill over a period of
ten to forty years.
Pro forma revenue and net income, as if the acquisition occurred
at the beginning of the period presented, is not materially
different from historical amounts.
6. Conversion of Philippine Term Loans:
On April 8, 1998, the Company converted the construction project
financing for its Malitbog geothermal power project to term loans
of $170,726. The Overseas Private Investment Corporation
("OPIC") is providing term loan financing of $60,904 that was
fixed as of June 15, 1998 at an interest rate of 9.176%, maturing
in 2005. A syndicate of international commercial banks is
providing the remaining $109,822 of term loan financing at a
variable interest rate based on LIBOR, maturing in 2005.
On May 5, 1998, the Company converted the construction project
financing for its Upper Mahiao geothermal power project to term
loans of $155,517. Export-Import Bank of the United States ("Ex-
Im Bank") is providing term loan financing of $145,517 at a fixed
interest rate of 5.95%, maturing in 2006. United Coconut Planters
Bank of the Philippines is providing the remaining $10,000 of
term loan financing at a variable interest rate based on LIBOR,
maturing in 2003.
On June 18, 1998, the Company converted the construction project
financing for its Mahanagdong geothermal power project to term
loans of $220,378. Ex-Im Bank is providing term loan financing
of $180,378 at a fixed interest rate of 6.92%, maturing in 2007.
OPIC is providing the remaining $40,000 of term loan financing
that was fixed as of September 30, 1998 at an interest rate of
7.6%, maturing in 2007.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
7. Commitments and Contingencies:
Indonesia
On September 20, 1997, a Presidential Decree (the "Decree") was
issued in Indonesia, providing for government action to the
effect that, in order to address certain recent fluctuations in
the value of the Indonesian currency, the start-up dates for a
number of private power projects would be: (i) continued
according to their initial schedule (because construction was
underway); (ii) postponed as to their start-up dates (because
they were not yet under construction) until economic conditions
recover; or (iii) reviewed with a view to being continued,
postponed or rescheduled, depending on the status of those
projects. In the Decree, Dieng Units 1, 2 and 3 were approved to
continue according to their initial schedule; Patuha Unit 1 and
Bali Units 1 and 2 were to receive further review to determine
whether or not they would be continued in accordance with their
initial schedule; and Bali Units 3 and 4, Patuha Units 2, 3 and 4
and Dieng Unit 4 were postponed for an unspecified period. In
this regard, the Company notes that its contracts and government
undertakings for the Dieng, Patuha and Bali projects do not by
their terms permit such categorization or delays by the
government and that the Company has obtained political risk
insurance coverage for its Dieng and Patuha projects.
Moreover, the Company intends to continue to take actions to
require the Government of Indonesia to honor its contractual
obligations; however, actions by the Government of Indonesia have
created significant risks to the completion of these projects.
Dieng Unit I was operationally and contractually completed in
March 1998 when the "take-or-pay" obligations under its contract
with PLN commenced. However, PLN has dispatched Dieng Unit I to
zero MW and has defaulted on the contractually required and
sovereign guaranteed "take-or-pay" payment obligations.
Accordingly, HCE has commenced arbitration proceedings to resolve
the dispute before an international arbitration panel, as
provided under its contract with PLN. The arbitration involves
both PLN and the Government of Indonesia and is scheduled to
conclude in the third quarter of 1999.
The Company believes it has fully reserved for the Indonesian
exposure as part of the $87,000 1997 fourth quarter asset
valuation impairment charge.
Edison
On June 9, 1997, Edison filed a complaint alleging breach of the
power purchase agreements ("SO4 Agreements") between Edison and
Coso Finance Partners, Coso Power Developers 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").
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
7. Commitments and Contingencies (continued):
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. In September
1997, the Coso Partnerships and the Company filed a cross-
complaint against Edison and its affiliates, The Mission Group
and Mission Power Engineering Company alleging, among other
things, that Edison's lawsuit violates the 1993 settlement
agreement which settled
certain litigation arising from the construction of certain units
at the Coso geothermal project by Edison affiliates. In
addition, the Coso Partnerships filed a separate complaint
against Edison alleging breach of the SO4 Agreements, unfair
business practices, slander and various other tort and contract
claims. The actions were effectively consolidated in December
1997. As a result of certain procedural actions by the parties
and a November 1997 court order, Edison filed an amended
complaint on December 16, 1997 and the Coso Partnerships amended
their cross-complaint. In addition, the Court has struck
Edison's request to terminate the SO4 Agreements and obtain a
refund of all funds paid to the Coso Partnerships. The
litigation is in its early procedural stages and the pleadings
have not been settled. The Coso Partnerships believe that their
claims and defenses are meritorious and that they will prevail if
the matter is ultimately heard on its merits. The Coso
Partnerships intend to vigorously defend this action and
prosecute all available counterclaims against Edison.
NYSEG
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 (a partnership in which
CalEnergy holds an approximate 45% economic interest) 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 "Court of
Appeals") for review of FERC's April 12, 1995 order. FERC moved
to dismiss NYSEG's petition for review on July 28, 1995. On
October 30, 1996, all parties filed final briefs and the Court of
Appeals heard oral arguments on December 2, 1996. On July 11,
1997, the Court of Appeals dismissed NYSEG's appeal from FERC's
denial of the petition on jurisdictional grounds.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
7. 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. Saranac and other parties have filed motions to
dismiss and oral arguments on those motions which were heard on
March 2, 1998. Saranac believes that NYSEG's claims are without
merit for the same reasons described in the FERC's orders.
8. Subsequent Events:
During October 1998 the Company repurchased and retired $155,994
of 10.25% Senior Discount Notes at an average price of 106.188%
plus accrued interest. The Senior Discount Notes become callable
on January 15, 1999.
On October 13, 1998 the Salton Sea Funding Corporation, a wholly
owned subsidiary of the Company, completed a sale to
institutional investors of $285,000 aggregate amount of 7.475%
Senior Secured Series F Bonds due November 30, 2018, which are
nonrecourse to the Company. The proceeds from the offering will
be used to partially fund construction of two new geothermal
projects at the Salton Sea, the costs of construction of the Zinc
Recovery Project and other capital improvements at existing
Salton Sea projects.
On November 13, 1998, the Company issued $100,000 of 7.52% Series
B Senior Notes due 2008. Interest is payable semi-annually on
March 15 and September 15 commencing on March 15, 1999. The
securities are subject to optional redemption at any time at par
plus a make whole premium. The proceeds from the offering are
expected to be used in part to complete the MidAmerican Merger.
9. Comprehensive Income:
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", which established
standards for reporting and display of comprehensive income and
its components. Comprehensive income (loss) for the three months
ended September 30, 1998 and 1997 was $57,480 and ($92,732),
respectively. Comprehensive income (loss) for the nine months
ended September 30, 1998 and 1997 was $125,570 and $(61,100),
respectively. Comprehensive income differs from net income due
to foreign currency translation adjustments and unrealized gains
on investments.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
10. Accounting Pronouncements:
In March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position ("SOP") No. 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP is effective for financial
statements for fiscal years beginning after December 15, 1998.
In April 1998, the AcSEC issued SOP No. 98-5, "Reporting on the
Costs of Start-Up Activities", which requires that costs of start-
up activities and organization costs be expensed as incurred. The
SOP is effective for financial statements for fiscal years
beginning after December 15, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which established
accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
The Company has not yet determined the impact of these accounting
pronouncements.
<PAGE>
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.
Acquisitions:
On September 11, 1997, the Company signed a definitive agreement
with Kiewit Diversified Group ("KDG"), a wholly owned subsidiary
of Peter Kiewit Sons', Inc. ("PKS"), for the Company to purchase
KDG's ownership interest in various project partnerships and
CalEnergy common shares (the "KDG Acquisition").
KDG's ownership interest in CalEnergy comprised approximately
20,231 shares of common stock (assuming exercise by KDG of one
million options to purchase CalEnergy shares), a 30% interest in
Northern Electric plc ("Northern"), as well as the following
minority project interests: Mahanagdong (45%), Casecnan (35%),
Dieng (47%), Patuha (44%) and Bali (30%) and other interests in
international development stage projects.
CalEnergy paid $1,159,215 for the KDG Acquisition and final
closing of the transaction occurred in January 1998. CalEnergy
funded this acquisition with available cash and the proceeds of
the equity offering and the debt offering completed in October
1997.
Business of Northern:
A significant portion of the Company's results of operations are
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 it to customers' 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 it is
supplied by Northern's own supply business or by other suppliers,
thus providing Northern with distribution volume that is stable
from year to year. Northern charges 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.
<PAGE>
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)
Northern's supply business primarily involves the bulk purchase
of electricity, through a central pool, and subsequent resale to
individual customers. The supply business generally is a high
volume business which tends to operate at lower profitability
levels than the distribution business. Prior to November 4, 1998,
Northern was the exclusive supplier of electricity to premises in
its authorized area, except where the maximum demand of a
customer is greater than 100kW and the income received by the
supply business from customers with demand under 100kW was
controlled by a prescribed formula, while income received from
other customers was not regulated. Beginning November 4, 1998,
liberalization of the entire market in Northern's area has
commenced in stages with complete liberalization expected to be
achieved by June, 1999.
Northern also competes to supply gas inside and outside its
authorized area. Northern continues to expand its electricity
and gas supply customer base through the Dual Fuel marketing
program.
Power Generation Projects:
For purposes of consistent 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
and capacity bonus payments to the projects to the extent that
capacity factors exceed certain benchmarks. 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.
<PAGE>
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 Coso Project SO4
Agreements extended until at least August 1997 for each of the
units operated by the Navy I Partnership and extend until at
least March 1999 and January 2000 for each of the units operated
by the BLM and Navy II Partnerships, respectively.
The scheduled energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan
Partnership and extend until December 1998 for the Hoch (Del
Ranch) and Elmore Partnerships, and December 1999 for the
Leathers Partnership.
Excluding Navy I and Vulcan, which are receiving Edison's Avoided
Cost of Energy, the Company's SO4 Agreements provide for energy
rates ranging from 14.6 cents per kWh in 1998 to 15.6 cents per kWh in 1999
and at least 15.6 cents in 2000.
Salton Sea I 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 5.4 cents
per kWh during the nine months ended September 30, 1998. As the
Salton Sea I PPA is not an SO4 Agreement, the energy payments do
not revert to Edison's Avoided Cost of Energy.
Salton Sea II and Salton Sea III 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
in April 2000 for Salton Sea II and February 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 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 September 30, 2004.
Salton Sea IV 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.
<PAGE>
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 nine months ended September 30, 1998, Edison's average
Avoided Cost of Energy was 3.0 cents per kWh which is substantially
below the contract energy prices earned for the nine months ended
September 30, 1998. 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 and 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 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).
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.
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.
Unit I of the Malitbog Project (the "Malitbog Project") was
deemed complete in July 1996 and Units II and III in July 1997 at
which times such units commenced receiving capacity payments
under the Malitbog ECA. 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,
<PAGE>
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 Malitbog Project is structured as a ten year BOOT, in which
the Company is responsible 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 Mahanagdong Project (the "Mahanagdong Project") was deemed
complete in July 1997 and began receiving capacity payments
pursuant to the Mahanagdong ECA in August of 1997. The
Mahanagdong Project is owned and operated by CE Luzon Geothermal
Power Company, Inc., a Philippine corporation, that is indirectly
owned by the Company with a minority partner participation. The
electricity generated by the Mahanagdong Project is 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 approximately 97%of total revenues at the design capacity
levels and the energy fees are 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 1998 total 2.3 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 6.7 cents per kWh in 1998, 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 1998 are $3,138 per month and 3.03 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.
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 qualifying facility contracts in
an effort to restructure NIMO's purchased power obligations to
meet the challenge of industry deregulation and avoid what NIMO
<PAGE>
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)
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.
Results of Operations for Three and Nine Months Ended September
30, 1998 and 1997:
Operating revenue increased in the third quarter of 1998 to
$600,862 from $527,896 for the same period in 1997, a 13.8%
increase. For the nine month period ended September 30, 1998,
operating revenue increased to $1,813,302 from $1,576,407 for the
same period in 1997, a 15.0% increase. Northern's operating
revenue increased to $393,866 and $1,266,495, respectively, for
the three and nine months ended September 30, 1998 compared to
$343,923 and $1,099,997, respectively, for the same periods in
1997 primarily due to higher volumes of gas supplied as well as
higher electricity revenues. Operating revenue also increased
due to the commencement of earnings at Mahanagdong and Units II
and III at Malitbog on July 25, 1997.
The following data represents the supply and distribution
operations in the U.K.:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Electricity Supplied (GWh) 3,516 3,165 10,831 10,320
Electricity Distributed (GWh) 3,657 3,573 11,611 11,507
Gas Supplied
(Therms in millions) 41.1 6.1 193.6 31.6
The increase in electricity supplied and distributed for the
three months ended September 30, 1998 from the three months ended
September 30, 1997 is due primarily to lower temperatures in the
U.K. and changes in the customer mix. The increase in the
electricity supplied and distributed for the nine months ended
September 30, 1998 from the nine months ended September 30, 1997
is due primarily to lower temperatures in the U.K. during the
second and third quarters of 1998, partially offset by milder
weather in the U.K. during the first quarter of 1998. The
increase in gas supplied in 1998 from 1997 reflects the increased
volume as the gas business in the U.K. opens up to competition as
a result of regulatory changes and the successful dual fuel
marketing campaign.
<PAGE>
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 Nine Months Ended September
30, 1998 and 1997 (continued):
The following operating data represents the aggregate capacity
and electricity production of the domestic geothermal projects:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Overall capacity factor 105.1% 102.6% 98.5% 101.8%
kWh produced
(in thousands) 1,177,500 1,149,600 3,273,700 3,382,900
Capacity NMW 507.4 507.4 507.4 507.4
The capacity factor for the three months ended September 30, 1998
increased compared to the same period in 1997, due to increasing
production at the Coso Project and Salton Sea Project. The
capacity factor decreased for the nine months ended September 30,
1998 compared to the same periods in 1997 due to marginally
decreasing production at the Coso Project and scheduled turbine
overhauls at BLM, Elmore, Leathers and Salton Sea.
The following operating data represents the aggregate capacity
and electricity production of the Gas Plants:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Overall capacity factor 81.0% 82.4% 79.5% 85.7%
kWh produced (in thousands) 1,019,800 1,036,780 2,969,840 3,199,930
Capacity NMW 570 570 570 570
The capacity factor of the Gas Plants reflects certain
contractual curtailments. Excluding these contractual
curtailments, the capacity factors would be 96.2% and 91.6% for
the three and nine months ended September 30, 1998, compared with
97.2% and 97.8% for the same periods in 1997. The decreases from
the prior periods were primarily due to the severe winter snow
and ice storms which caused transmission curtailments at Saranac,
as well as a turbine overhaul at PRI.
Interest and other income increased in the third quarter of 1998
to $26,885 from $23,997 for the same period in 1997, a 12.0%
increase. For the nine months ended September 30, 1998, interest
and other income increased to $79,274 from $66,456 for the same
period in 1997, a 19.3% increase. The increases are primarily
due to interest earned by Casecnan on cash held for construction
and the dividend received from our investment in Teesside
partially offset by lower
<PAGE>
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 Nine Months Ended September
30, 1998 and 1997 (continued):
income from Saranac due to the severe winter snow and ice storms
which caused transmission curtailments at Saranac.
Cost of sales increased in the third quarter of 1998 to $265,605
from $239,081 for the same period in 1997, an 11.1% increase.
For the nine months ended September 30, 1998, cost of sales
increased to $848,018 from $746,626 for the same period in 1997,
a 13.6% increase. The increases are primarily due to higher
volumes of gas and electricity supplied.
Operating expense increased in the third quarter of 1998 to
$99,052 from $82,513 for the same period in 1997, a 20.0%
increase. For the nine months ended September 30, 1998, operating
expense increased to $312,830 from $254,389 for the same period
in 1997, a 23.0% increase. The increases are primarily due to an
increase in Northern's customer acquisition costs, including
primarily commissions and opening meter reads, associated with
the opening of the competitive gas supply market.
General and administration costs decreased in the third quarter
of 1998 to $10,085 from $12,068 for the same period in 1997, a
16.4% decrease. For the nine months ended September 30, 1998,
general and administration costs have decreased to $32,943 from
$37,560 for the same period in 1997, a 12.3% decrease. The
decrease is primarily due to the continuing integration of
Northern's corporate costs.
Depreciation and amortization increased in the third quarter of
1998 to $81,449 from $69,877 for the same period in 1997, a 16.6%
increase. For the nine months ended September 30, 1998,
depreciation and amortization increased to $247,033 from $207,789
for the same period in 1997, an 18.9% increase. The increases
are primarily due to the commencement of operations at
Mahanagdong and Units II and III at Malitbog and amortization of
the allocated purchase price and goodwill related to the KDG
Acquisition.
As a result of the KDG Acquisition, Casecnan is fully
consolidated into the Company's financial statements and is no
longer recorded as an equity investment.
Interest expense, less amounts capitalized, increased in the
third quarter of 1998 to $81,286 from $62,997 for the same period
in 1997, a 29.0% increase. For the nine months ended September
30, 1998, interest expense, less amounts capitalized, increased
to $241,015 from $182,503 for the same period in 1997, a 32.1%
increase. The increases are primarily due to the consolidation
of Casecnan resulting from the KDG Acquisition, the greater
average outstanding debt, the discontinued capitalization of
interest due to commencement of operations at Mahanagdong and
Units II and III at Malitbog and the discontinued capitalization
of interest in Indonesia as a result of the suspension of
construction activity.
<PAGE>
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 Nine Months Ended September
30, 1998 and 1997 (continued):
The provision for income taxes increased in the third quarter of
1998 to $32,112 from $27,929 for the same period in 1997, a 15.0%
increase. The increase is due to higher pretax income during the
third quarter of 1998. For the nine months ended September 30,
1998, provision for income taxes decreased to $72,595 from
$74,520 for the same period in 1997, a 2.6% decrease. The
decrease is due to lower pretax book income which resulted from
increased dividends on convertible preferred securities of
subsidiary trusts.
Minority interest increased in the third quarter to $10,535 from
$9,656 for the same period in 1997, a 9.1% increase. For the
nine months ended September 30, 1998, minority interest increased
to $30,758 from $29,410 for the same period in 1997, a 4.6%
increase. The increases are primarily due to increased dividends
on convertible preferred securities of subsidiary trusts
partially offset by the purchase of Northern and KDG's minority
interests.
Income before extraordinary item increased in the third quarter
of 1998 to $47,623 or $.80 per share, from $46,408 or $.73 per
share for the same period in 1997. For the nine months ended
September 30, 1998, income before extraordinary item increased to
$107,384 or $1.78 per share from $104,745 or $1.65 per share for
the same period in 1997.
On July 31, 1997, the Finance Act in the United Kingdom was
passed by Parliament and included the introduction of a one time
so-called "windfall tax" equal to 23% of the difference between
the price paid for Northern upon privatization and the Labour
government's assessed "value" of Northern as calculated by
reference to a formula set forth in the July 1997 budget. This
amounted to $135,850, net of minority interest of $58,222, which
was recorded as an extraordinary item. The first installment was
paid on December 1, 1997 and the remainder is payable before
December 1, 1998.
Liquidity and Capital Resources:
The Company's cash and cash equivalents were $1,749,138 at
September 30, 1998 as compared to $1,445,338 at December 31,
1997. The majority of this increase was due to the issuance of
the $1,400,000 of senior notes and bonds, partially offset by
cash used in the KDG Acquisition. The Company's share of joint
venture cash and investments retained in project control accounts
at September 30, 1998 and December 31, 1997 was $29,116 and
$6,072, 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 and investments
of $472,675 and $223,636 at September 30, 1998 and December 31,
1997, respectively. The restricted cash balance as of September
30, 1998 is comprised primarily of amounts deposited in
restricted accounts from which the Company will fund the
construction of the Casecnan Project, the Dieng Project and the
Patuha Project. The restricted cash balance also includes the
Coso Project royalty payment and
<PAGE>
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 cash reserves for debt service reserve funds for the Power
Resources Project, the Upper Mahiao Project, the Mahanagdong
Project and the Malitbog Project.
As of September 30, 1998, the Company holds 23,435 shares of
treasury stock at a cost of $754,392 primarily as a result of the
KDG Acquisition, in which the Company purchased 19,231 shares of
treasury stock. These treasury shares will provide shares for
issuance under the Company's employee stock option and share
purchase plan and future conversion of outstanding convertible
securities.
On August 11, 1998, the Company entered into an Agreement and
Plan of Merger with MidAmerican Energy Holdings Company
("MidAmerican"), pursuant to which the Company agreed (i) to pay
$27.15 in cash for each outstanding share of MidAmerican common
stock (valuing MidAmerican at approximately $4.2 billion,
including $1.6 billion of debt and preferred stock which will
remain outstanding at MidAmerican) in a merger, pursuant to which
MidAmerican will become a wholly owned subsidiary of the Company,
and (ii) to reincorporate in the State of Iowa and be renamed
MidAmerican Energy Holdings Company.
Our shareholders and the MidAmerican shareholders approved the
MidAmerican Merger on October 30, 1998. The waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, expired on October 10, 1998. The consummation of the
MidAmerican Merger remains conditioned upon receipt of approvals
of the Nuclear Regulatory Commission, the Federal Energy
Regulatory Commission, the Iowa Utilities Board, certain other
state certifications and regulatory filings. In addition, the
disposition of partial interests in certain of our power
generating facilities will be required prior to the consummation
of the MidAmerican Merger in order to maintain the qualifying
facilities status of such independent power generating
facilities.
Closing of the MidAmerican Merger is expected to occur by the end
of the first quarter of 1999.
On September 22, 1998 the Company issued $1,400,000 of Senior
Notes and Bonds. The securities are made up of $215,000 of 6.96%
Senior Notes due 2003, $260,000 of 7.23% Senior Notes due 2005,
$450,000 of 7.52% Senior Notes due 2008 and $475,000 of 8.48%
Senior Bonds due 2028. Interest is payable semi-annually on
March 15 and September 15, commencing on March 15, 1999. The
securities are subject to optional redemption at any time at par
plus payment of a make-whole premium. The proceeds from the
offering will be used in part to complete the MidAmerican Merger
and to refinance the Company's 10.25% Senior Discount Notes.
On November 13, 1998, the Company issued $100,000 of 7.52% Series
B Senior Notes due 2008. Interest is payable semi-annually on
March 15 and September 15 commencing on March 15, 1999. The
securities are subject to optional redemption at any time at par
plus a make whole premium. The proceeds from the offering are
expected to be used in part to complete the MidAmerican Merger.
<PAGE>
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):
During October 1998 the Company repurchased and retired $155,994
of 10.25% Senior Discount Notes at an average price of 106.188%
plus accrued interest. The Senior Discount Notes become callable
on January 15, 1999.
The Company developed and owns the rights to a proprietary
process for the extraction of minerals from elements in solution
in the geothermal brine and fluids utilized at its Imperial
Valley plants (the "Salton Sea Extraction Project") as well as
the production of power to be used in the extraction process. A
pilot plant has successfully produced commercial quality zinc at
the Company's Imperial Valley Project. The Company intends to
sequentially develop manganese, silver, gold, lead, boron,
lithium and other products as it further develops the extraction
technology. The Company is also investigating producing silica
from the solids precipitated out of the geothermal power process.
Silica is used as a filler for such products as paint, plastics
and high temperature cement. If successfully developed, the
mineral extraction process will provide an environmentally
responsible and low cost minerals recovery methodology.
Minerals LLC, an indirect wholly-owned subsidiary of the Company
is constructing the Zinc Recovery Project which will recover zinc
from the geothermal brine that has been extracted from the ground
for use in the Imperial Valley Projects (the "Zinc Recovery
Project"). The Zinc Recovery Project will utilize geothermal
brine after the brine has been used by the Imperial Valley
Projects but before the brine is re-injected into the ground.
Four facilities will be installed near Imperial Valley Project
sites to extract a zinc chloride solution from the brine through
an ion exchange process. This solution will be transported to a
central processing plant where zinc ingots will be produced
through solvent extraction, electrowinning and casting processes.
The Zinc Recovery Project is designed to have a capacity of
approximately 30,000 metric tonnes per year and is scheduled to
commence commercial operation in mid-2000. The zinc produced by
the Zinc Recovery Project is expected to be sold primarily to
U.S. West Coast customers such as steel companies, alloyers and
galvanizers.
The Zinc Recovery Project will be constructed by Kvaerner U.S.
Inc. ("Kvaerner") pursuant to a date certain, fixed-price,
turnkey engineering, procurement and construction contract (the
"Zinc Recovery Project EPC Contract"). Kvaerner is a wholly-
owned indirect subsidiary of Kvaerner ASA, an internationally
recognized engineering and construction firm experienced in the
metals, mining and processing industries. Total project costs of
the Zinc Recovery Project are expected to be approximately
$200,925.
Power LLC, an indirect wholly owned subsidiary of the Company,
proposes to construct Salton Sea Unit V. Salton Sea Unit V will
be a 49 net MW geothermal power plant which will sell
approximately one-third of its net output to the Zinc Recovery
Project. The remainder will be sold through the California Power
Exchange ("PX").
<PAGE>
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):
Salton Sea Unit V will be constructed pursuant to a date certain,
fixed price, turnkey engineering, procurement and construction
contract (the "Salton Sea Unit V EPC Contract") by Stone &
Webster Engineering Corporation ("SWEC"). SWEC is one of the
world's leading engineering and construction firms for the
construction of electric power plants and, in particular,
geothermal power plants. SWEC provided the engineering for the
construction of Salton Sea Unit III and has completed
engineering, procurement, construction or other related work on
twenty-seven other geothermal power plants over the past five
years. Salton Sea Unit V is scheduled to commence commercial
operation in mid-2000. Total project costs of Salton Sea Unit V
are expected to be approximately $119,067.
Turbo LLC, an indirect wholly-owned subsidiary of the Company,
proposes to construct the TurboExpander Project. The
TurboExpander Project is designed to generate electricity from
excess geothermal energy produced from the wells in the Salton
Sea wellfield. The TurboExpander Project will have a capacity of
10 net MW. The net output of the TurboExpander Project will be
sold to the Zinc Recovery Project or sold through the PX.
The Partnership Projects propose to upgrade the geothermal brine
processing facilities at the Vulcan and Del Ranch Projects with
the Region 2 Brine Facilities Construction. In addition to
incorporating the pH Modification Process, which has reduced
operating costs at the Salton Sea Projects, the new, more
efficient facilities will achieve economies through improved
brine processing systems and the utilization of more modern
equipment. The Partnership Projects expect these improvements to
reduce brine-handling operating costs at the Vulcan Project and
the Del Ranch Project.
The TurboExpander Project and the Region 2 Brine Facilities
Construction will be constructed by SWEC pursuant to a date
certain, fixed price, turnkey engineering, procurement and
construction contract (the "Region 2 Upgrade EPC Contract"). The
obligations of SWEC will be guaranteed by Stone & Webster,
Incorporated. The TurboExpander Project is scheduled to commence
initial operations in mid-2000 and the Region 2 Brine Facilities
Construction is scheduled to be completed in early-2000. Total
project costs for both the TurboExpander Project and the Region 2
Brine Facilities Construction are expected to be approximately
$63,747.
On October 13, 1998 the Salton Sea Funding Corporation, a wholly
owned subsidiary of the Company, completed a sale to
institutional investors of $285,000 aggregate amount of 7.475%
Senior Secured Series F Bonds due November 30, 2018, which are
nonrecourse to the Company. The proceeds from the offering will
be used to fund construction of the Zinc Recovery Project, Salton
Sea Unit V, the TurboExpander Project, the Region 2 Brine
Facilities Construction, additional capital improvements and
financing costs. Total equity funding for these projects is
expected to be approximately $122,513.
<PAGE>
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):
On September 11, 1997, the Company signed a definitive agreement
with Kiewit Diversified Group ("KDG"), a wholly owned subsidiary
of Peter Kiewit Sons', Inc. ("PKS"), for the Company to purchase
KDG's ownership interest in various project partnerships and
CalEnergy common shares (the "KDG Acquisition").
KDG's ownership interest in CalEnergy comprised approximately
20,231 shares of common stock (assuming exercise by KDG of one
million options to purchase CalEnergy shares), a 30% interest in
Northern Electric, as well as the following minority project
interests: Mahanagdong (45%), Casecnan (35%), Dieng (47%),
Patuha (44%) and Bali (30%) and other interests in international
development stage projects.
CalEnergy paid $1,159,215 for the KDG Acquisition and final
closing of the transaction occurred in January 1998. CalEnergy
funded this acquisition with available cash and the proceeds of
the equity offering and the debt offering completed in October
1997.
On June 18, 1998, the Company converted the construction project
financing for its Mahanagdong geothermal power project to term
loans of $220,378. Ex-Im Bank is providing term loan financing
of $180,378 at a fixed interest rate of 6.92%, maturing in 2007.
OPIC is providing the remaining $40,000 of term loan financing
that was fixed as of September 30, 1998 at an interest rate of
7.6%, maturing in 2007.
On May 5, 1998, the Company converted the construction project
financing for its Upper Mahiao geothermal power project to term
loans of $155,517. Export-Import Bank of the United States ("Ex-
Im Bank") is providing term loan financing of $145,517 at a fixed
interest rate of 5.95%, maturing in 2006. United Coconut Planters
Bank of the Philippines is providing the remaining $10,000 of
term loan financing at a variable interest rate based on LIBOR,
maturing in 2003.
On April 8, 1998, the Company converted the construction project
financing for its Malitbog geothermal power project to term loans
of $170,726. The Overseas Private Investment Corporation
("OPIC") is providing term loan financing of $60,904 that was
fixed as of June 15, 1998 at an interest rate of 9.176%, maturing
in 2005. A syndicate of international commercial banks is
providing the remaining $109,822 of term loan financing at a
variable interest rate based on LIBOR, maturing in 2005.
In November 1995, CE Casecnan Water and Energy Company, Inc., a
Philippine Corporation ("CE Casecnan") which is currently
approximately 85% indirectly owned by 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.
<PAGE>
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 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. On May 7, 1997, CE Casecnan entered into a new fixed-
price, date certain, turnkey engineering, procurement and
construction contract to complete the construction of the
Casecnan Project (the "Replacement Contract").
The work under the Replacement Contract is being conducted by a
consortium consisting of Cooperativa Muratori Cementisti CMC di
Ravenna and Impresa Pizzarotti & C. Spa working together with
Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power
Engineering Ltd. (collectively, the "Replacement Contractor").
Construction of the Casecnan Project is expected to be completed
in 2000. No further equity funding is expected.
On September 20, 1997, a Presidential Decree (the "Decree") was
issued in Indonesia, providing for government action to the
effect that, in order to address certain recent fluctuations in
the value of the Indonesian currency, the start-up dates for a
number of private power projects would be: (i) continued
according to their initial schedule (because construction was
underway); (ii) postponed as to their start-up dates (because
they were not yet under construction) until economic conditions
recover; or (iii) reviewed with a view to being continued,
postponed or rescheduled, depending on the status of those
projects. In the Decree, Dieng Units 1, 2 and 3 were approved to
continue according to their initial schedule; Patuha Unit 1 and
Bali Units 1 and 2 were to receive further review to determine
whether or not they would be continued in accordance with their
initial schedule; and Bali Units 3 and 4, Patuha Units 2, 3 and 4
and Dieng Unit 4 were postponed for an unspecified period. In
this regard, the Company notes that its contracts and government
undertakings for the Dieng, Patuha and Bali projects do not by
their terms permit such categorization or delays by the
government and that the Company has obtained political risk
insurance coverage for its Dieng and Patuha projects.
Moreover, the Company intends to continue to take actions to
require the Government of Indonesia to honor its contractual
obligations; however, actions by the Government of Indonesia have
created significant risks to the completion of these projects.
Dieng Unit I was operationally and contractually completed in
March 1998 when the "take-or-pay" obligations under its contract
with PLN commenced. However, PLN has dispatched Dieng Unit I to
zero MW and has defaulted on the contractually required and
sovereign guaranteed "take-or-pay" payment obligations.
Accordingly, HCE has commenced arbitration proceedings to resolve
the dispute before an international arbitration panel, as
provided under its contract with PLN. The arbitration involves
both PLN and the Government of Indonesia and is scheduled to
conclude in the third quarter of 1999.
<PAGE>
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):
Subsidiaries of Magma, a subsidiary of the Company, 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. In February 23, 1995 the Federal Energy
Regulatory Commission ("FERC") issued an advisory opinion 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 or
that any such projects will be completed. In light of these
developments, the Company executed 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.
There can be no assurance that development efforts on any
particular project, or the Company's development efforts
generally, will be successful.
The Company has various projects under construction outside the
United States, a number of projects under award outside the
United States and a number of operating projects doing business
outside the United States. The operation, 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, changes in law or regulation, changes in government
policy, political instability, civil unrest, contract abrogation
and expropriation) and other risk/structuring issues that have
the potential to cause substantial delays
<PAGE>
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 material impairment of the value of 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 is developing and 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
delayed, suspended or terminated by the applicable government or
may be subject to risks of contract abrogation or other
uncertainties relating to changes in government policy or
personnel or changes in general economic conditions affecting the
country. Projects in operation, construction and development are
subject to a number of uncertainties more specifically described
in the Company's Form 8-K, dated March 6, 1998, filed with the
Securities and Exchange Commission.
What is generally known as the year 2000 ("Y2K") computer issue
arose because many existing computer programs and embedded
systems use only the last two digits to refer to a year.
Therefore, those computer programs do not properly distinguish
between a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create
erroneous results. The failure to correct a material Y2K item
could result in an interruption in, or a failure of, certain
normal business activities or operations including the generation,
distribution, and supply of electricity. Such failures could
materially and adversely affect the Company's results of
operations, liquidity and financial condition.
The Y2K issue creates uncertainty for the Company from
potential issues with its own computer systems and from third
parties with whom the Company deals on transactions worldwide.
The Company's operations utilize systems and equipment provided
by other organizations. As a result, Y2K readiness of suppliers,
vendors, service providers or customers could impact the
Company's operations. The Company is assessing the readiness of
such constituent entities and the impacts on those entities that
rely upon the Company's services. The Company is unable to
determine at this time whether the consequences of Y2K failures
of third parties will have a material impact on the Company's
results of operations, liquidity or financial condition.
The Company has commenced, for all of its information systems, a
Y2K date conversion project to address all necessary code
changes, testing and implementation in order to resolve the Y2K
issue. The Company created a worldwide Y2K project team to
identify, assess and correct all of its information technology
(IT) and non-IT systems, as well as, identify and assess third
party systems. The Company has identified and assessed
substantially all of its IT and non-IT systems and is currently
in process of repairing or replacing those systems which are not
year 2000 compliant. Through September, the Company is
approximately 68% complete in repairing or replacing those
systems. The Company expects to be 90% complete by December 31,
1998 and 100% complete of correcting, testing, and compliance by
October 1999.
<PAGE>
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):
Total Y2K expenditures, for both repairing or replacing non-
compliant systems, are expected to total approximately $8.7
million. Through September 30, 1998, the Company has incurred
approximately $2.5 million of Y2K expenditures. The Company is
not aware of any additional material costs needed to be incurred
to bring all of its systems into compliance however, there is no
assurance that additional costs will not be incurred.
Although management believes that the Y2K project will be
substantially complete before January 1, 2000, any unforeseen
failures of the Company's and/or third parties' computer systems
could have a material impact on the Company's ability to conduct
its business. Accordingly, the Company is developing a formal
contingency plan that is expected to be completed by mid year
1999 to mitigate any potential business interruption.
Certain information included in this report contains forward-
looking statements made pursuant to the Private Securities
Litigation Reform Act of 1995 ("Reform Act"). Such statements
are based on current expectations and involve a number of known
and unknown risks and uncertainties that could cause the actual
results and performance of the Company to differ materially from
any expected future results or performance, expressed or implied,
by the forward-looking statements. In connection with the safe
harbor provisions of the Reform Act, the Company has identified
important factors that could cause actual results to differ
materially from such expectations, including development
uncertainty, operating uncertainty, acquisition uncertainty,
uncertainties relating to doing business outside of the United
States, uncertainties relating to geothermal resources,
uncertainties relating to domestic and international (and in
particular, Indonesian) economic and political conditions and
uncertainties regarding the impact of regulations, changes in
government policy, industry deregulation and competition.
Reference is made to all of the Company's SEC filings, including
the Company's Report on Form 8-K dated March 6, 1998,
incorporated herein by reference, for a description of such
factors. The Company assumes no responsibility to update forward-
looking information contained herein.
<PAGE>
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
As of September 30, 1998, there are no material
outstanding lawsuits against the Company; however see Note
7, Commitments and Contingencies regarding litigation
involving the Company's projects.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K:
During the quarter ended September 30, 1998 the Company
filed the following:
(i) Form 8-K dated August 11, 1998 reporting the
Company's Agreement and Plan of Merger with
MidAmerican Energy Holdings Company.
(ii)Form 8-K dated September 9, 1998 to incorporate
financial statements and exhibits into the Company's
Registration Statements.
(iii) Form 8-K dated September 15, 1998 reporting
intent to refinance the 10.25% Senior Discount Notes
due 2004.
(iv)Form 8-K dated September 17, 1998 announcing the
pricing of offering of $1.4 billion aggregate
principal amount of Senior Notes and Bonds.
(v) Form 8-K dated September 17, 1998 announcing the
arrangement for the sale of $1.4 billion aggregate
principal amount of Senior Notes and Bonds.
<PAGE>
(vi)Form 8-K dated September 22, 1998 announcing the
close of the sale of $1.4 billion aggregate
principal amount of Senior Notes and Bonds.
(vii) Form 8-K dated September 28, 1998 announcing
the special shareholders meetings for the Company
and MidAmerican Energy Holdings Company in order to
seek approval of their proposed merger.
<PAGE>
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: November 13, 1998 /s/ Craig M. Hammett
Craig M. Hammett
Senior Vice President and
Chief Financial Officer
/s/ Patrick J. Goodman
Patrick J. Goodman
Vice President, Chief Accounting
Officer and Controller
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 35
15 Awareness Letter of Independent Accountants 36
27 Financial Data Schedule 37
<PAGE>
Exhibit 11
CALENERGY COMPANY, INC.
CALCULATION OF EARNINGS PER SHARE
(dollars in thousands, except per share amounts)
___________________
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Actual weighted average shares
outstanding for the period 59,673,981 63,379,832 60,330,157 63,473,805
Dilutive stock options and warrants
using average market prices 539,438 1,423,923 616,726 1,457,423
Additional dilutive stock options
assuming conversion of convertible
preferred securities of subsidiary
trusts 13,326,683 10,751,063 13,326,683 7,826,991
Diluted shares outstanding 73,540,102 75,554,818 74,273,566 72,758,219
Net income per share before
extraordinary item $ 47,623 $ 46,408 $ 107,384 $ 104,745
Extraordinary item - (135,850) - (135,850)
Net income (loss) available to
common stockholders $ 47,623 $ (89,442) $ 107,384 $ (31,105)
Net income per share before
extraordinary item $ .80 $ .73 $ 1.78 $ 1.65
Extraordinary item - (2.14) - (2.14)
Net income (loss) per share $ .80 $ (1.41) $ 1.78 $ (.49)
Diluted income per share before
extraordinary item(1) $ .72 $ .67 $ 1.67 $ 1.56
Diluted income (loss) per share based
on SEC interpretive release
No. 34-9083(1) $ .72 $ (1.13) $ 1.67 $ (.31)
(1)-Net income available to common stockholders for the three and
nine months ended September 30, 1998 was increased by dividends
on convertible preferred securities of subsidiary trusts, net of
tax effect, of $5,471 and $16,412, respectively. Net income
available to common stockholders for the three and nine months
ended September 30, 1997 was increased by dividends on
convertible preferred securities of subsidiary trusts, net of tax
effect, of $4,232 and $8,648, respectively.
<PAGE>
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 nine month periods ended September 30,
1998 and 1997 as indicated in our report dated October 22, 1998;
because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which is included
in your Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is incorporated by reference in Registration
Statements No. 33-38431, No. 33-41152, No. 33-44934, No. 33-
52147, No. 33-64897 and No. 333-30395 on Form S-8 and
Registration Statements No. 33-51363, No. 333-32821 and No. 333-
62697 on Form S-3.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, 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
November 12, 1998
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,250,929
<SECURITIES> 0
<RECEIVABLES> 452,880
<ALLOWANCES> 0
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<TOTAL-ASSETS> 9,096,619
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<BONDS> 5,564,885
553,930
66,043
<COMMON> 5,602
<OTHER-SE> 817,219
<TOTAL-LIABILITY-AND-EQUITY> 9,096,619
<SALES> 1,813,302
<TOTAL-REVENUES> 1,892,576
<CGS> 848,018
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