SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
June 30, 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
60,032,677 shares of Common Stock, $0.0675 par value were
outstanding as of June 30, 1998.
<PAGE>
CALENERGY COMPANY, INC.
Form 10-Q
June 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, June 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 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 30
Item 2. Changes in Securities 30
Item 3. Defaults on Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
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 June 30, 1998, and
the related consolidated statements of operations for the three
and six month periods ended June 30, 1998 and 1997 and the
related consolidated statements of cash flows for the six month
periods ended June 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
July 23, 1998
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
June 30 December 31
1998 1997
(unaudited)
ASSETS
Cash and cash equivalents $ 265,543 $ 1,445,338
Joint venture cash and investments 6,903 6,072
Restricted cash and investments 407,289 223,636
Accounts receivable 479,704 376,745
Properties, plants, contracts
and equipment, net 4,358,649 3,528,910
Excess of cost over fair value
of net assets acquired, net 1,449,972 1,312,788
Equity investments 128,110 238,025
Deferred charges and other assets 385,711 356,112
Total assets $ 7,481,881 $ 7,487,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 192,172 $ 173,610
Other accrued liabilities 1,134,383 1,106,641
Parent company debt 1,303,875 1,303,845
Subsidiary and project debt 2,850,240 2,189,007
Deferred income taxes 550,644 509,059
Total liabilities 6,031,314 5,282,162
Deferred income 50,979 40,837
Company-obligated mandatorily redeemable
convertible preferred securities of
subsidiary trusts 553,930 553,930
Preferred securities of subsidiary 66,054 56,181
Minority interest - 134,454
Common stock and options subject to
redemption (Note 3) - 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 60,033 and 81,322
at June 30, 1998 and December 31, 1997,
respectively 5,602 5,602
Additional paid in capital 1,236,851 1,261,081
Retained earnings 273,254 213,493
Common stock and options subject to
redemption (Note 3) - (654,736)
Treasury stock - 22,947 and 1,658 common
shares at June 30, 1998 and December 31,
1997, respectively, at cost (740,843) (56,525)
Accumulated other comprehensive income 4,740 (3,589)
Total stockholders' equity 779,604 765,326
Total liabilities and stockholders'
equity $ 7,481,881 $ 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 Six Months Ended
June 30 June 30
1998 1997 1998 1997
Revenues:
Operating revenue $ 590,589 $ 505,922 $ 1,212,440 $ 1,048,511
Interest and other income 29,929 19,072 52,389 42,459
Total revenues 620,518 524,994 1,264,829 1,090,970
Costs and expenses:
Cost of sales 269,768 241,548 582,413 512,495
Operating expense 111,131 76,880 213,778 166,926
General and administration 10,814 12,005 22,858 25,492
Depreciation and amortization 85,659 70,456 165,584 137,912
Loss on equity investment in
Casecnan - 1,289 - 3,957
Interest expense 93,648 71,644 188,206 142,266
Less interest capitalized (15,059) (13,638) (28,477) (22,760)
Total costs and expenses 555,961 460,184 1,144,362 966,288
Income before provision for
income taxes 64,557 64,810 120,467 124,682
Provision for income taxes 21,952 24,342 40,483 46,591
Income before minority interest 42,605 40,468 79,984 78,091
Minority interest 10,139 9,579 20,223 19,754
Net income available to
common stockholders $ 32,466 $ 30,889 $ 59,761 $ 58,337
Net income per share - basic $ .54 $ .49 $ .99 $ .92
Basic common shares outstanding 60,235 63,531 60,658 63,521
Net income per share - diluted $ .51 $ .46 $ .95 $ .88
Diluted shares outstanding 74,346 72,759 74,641 71,357
The accompanying notes are an integral part of these financial statements.
<PAGE>
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30
1998 1997
Cash flows from operating activities:
Net income $59,761 $58,337
Adjustments to reconcile net cash flow from operating activities:
Depreciation and amortization 143,598 124,437
Amortization of excess of cost over fair value of
net assets acquired 21,986 13,475
Amortization of deferred financing and other costs 8,458 21,047
Provision for deferred income taxes 21,316 23,418
Income on equity investments (4,023) (4,676)
Income applicable to minority interest 2,242 12,600
Changes in other items:
Accounts receivable (86,712) (2,219)
Accounts payable and accrued liabilities (12,319) (83,447)
Deferred income 10,142 (5,998)
Net cash flows from operating activities 164,449 156,974
Cash flows from investing activities:
Purchase of Kiewit Interests and Northern Electric,
net of cash acquired (502,916) (629,094)
Distributions from equity investments 7,120 13,219
Acquisition of gas assets (35,677) -
Philippine construction (61,002) (32,946)
Indonesian construction (71,800) (40,652)
Exploration and other development costs (15,046) (7,426)
Capital expenditures relating to operations (120,615) (101,166)
Decrease (increase) in short-term investments 1,256 (1,983)
Decrease in restricted cash and investments 160,850 22,503
Decrease (increase) in other assets (26,596) 71,301
Net cash flows from investing activities (664,426) (706,244)
Cash flows from financing activities:
Proceeds from subsidiary and project debt 107,234 598,280
Repayments of subsidiary and project debt (103,402) (71,602)
Proceeds from exercise of options 2,357 4,983
Decrease in amounts due from joint ventures 16,861 10,732
Deferred charges relating to debt financing (20,094) (11,813)
Purchase of treasury stock (689,592) (1,875)
Purchase of stock options from Kiewit (21,313) -
Other 20,633 -
Proceeds from issuance of convertible preferred
securities of subsidiary trust - 180,000
Repayment of parent company debt - (195,000)
Net cash flows from financing activities (687,316) 513,705
Effect of exchange rate changes, net 8,329 (26,705)
Net decrease in cash and cash equivalents (1,178,964) (62,270)
Cash and cash equivalents at beginning of period 1,451,410 472,583
Cash and cash equivalents at end of period $ 272,446 $ 410,313
Supplemental disclosures:
Interest paid, net of amount capitalized $ 139,395 $ 123,802
Income taxes paid $ 29,417 $ 22,629
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 June 30, 1998 and the results of operations for
the three and six months ended June 30, 1998 and 1997, and cash
flows for the six months ended June 30, 1998 and 1997. The
results of operations for the three and six months ended June 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. Subsequent Event:
On August 12, 1998, the Company announced that it had 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
billion, including $1.4 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. Closing of the
transaction is subject to the approval of the shareholders of
both companies and the obtaining of certain regulatory approvals.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
3. Properties, Plants, Contracts and Equipment:
Properties, plants, contracts and equipment comprise the
following:
June 30, December 31,
1998 1997
(unaudited)
Operating assets:
Distribution system $1,292,035 $1,237,743
Power plants 1,865,892 1,464,885
Wells and resource development 451,494 395,314
Power sales agreements 268,212 227,535
Other assets 278,357 254,973
Total operating assets 4,155,990 3,580,450
Less accumulated depreciation
and amortization (642,298) (497,832)
Net operating assets 3,513,692 3,082,618
Mineral and gas reserves and
exploration assets, net 361,492 297,048
Construction in progress:
Casecnan 224,213 -
Dieng 96,994 94,666
Patuha 149,954 49,612
Bali and other development 12,304 4,966
Total $ 4,358,649 $ 3,528,910
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
4. 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 and the Company is awaiting final
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, was not materially
different from historical amounts.
5. 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 at
a variable interest rate based on LIBOR, maturing in 2007.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
6. Commitments and Contingencies:
Casecnan
On April 17, 1998, CE Casecnan Water and Energy Company, Inc., a
Philippine Corporation ("CE Casecnan") which is currently
approximately 70% indirectly owned by the Company, announced that
it and Hanbo Corporation, Hanbo Engineering and Construction Co.,
Ltd., Hanbo Steel Company, Ltd. and Korea First Bank ("KFB") had
reached a settlement with regard to certain disputed terminated
contracts and standby letter of credit issues. Under the
settlement, KFB agreed to pay CE Casecnan $90,000 and the parties
have discontinued with prejudice the pending arbitration and
litigation proceedings and released each other from all claims
arising out of the litigation and arbitration. In accordance
with the terms of such settlement, CE Casecnan received $10,000
from KFB on April 17, 1998 and the remaining $80,000, including
interest, on July 3, 1998.
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
attempt to require the Government of Indonesia to honor its
contractual obligations; however, subsequent actions by the
Government of Indonesia and continued economic problems in
Indonesia have created further uncertainty as to whether the
contracts for such projects will be abrogated by the Indonesian
government and accordingly have created significant risks to the
completion of these projects.
The Company believes it has fully reserved for the Indonesian
exposure as part of the $87,000 1997 fourth quarter asset
valuation impairment charge.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
6. Commitments and Contingencies (continued):
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 Partners and Coso Energy
Developers as a result of alleged improper venting of certain
noncondensible gases at the Coso geothermal energy project
located in California (partnerships in which CalEnergy holds an
approximate 50% ownership interest, collectively the "Coso
Partnerships").
In the complaint Edison seeks unspecified damages, including the
refund of certain amounts previously paid under the SO4
Agreements, and termination of the SO4 Agreements. 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 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,
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
6. Commitments and Contingencies (continued):
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.
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 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.
7. 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 for the three months ended
June 30, 1998 and 1997 was $29,948 and $36,209, respectively.
Comprehensive income for the six months ended June 30, 1998 and
1997 was $68,090 and $31,632, respectively. Comprehensive income
differs from net income due to foreign currency translation
adjustments.
8. 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.
The Company has not yet determined the impact of this accounting
pronouncement.
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. The Company has not yet
determined the impact of this accounting pronouncement.
<PAGE>
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
8. Accounting Pronouncements (continued):
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 this accounting pronouncement.
<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), the 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.
Northern's supply business primarily involves the bulk purchase
of electricity, through a central pool, and subsequent resale to
individual customers. Currently Northern is the exclusive
supplier of electricity to premises in its authorized area,
except where the maximum demand of a customer is greater than
100kW. The supply business generally is a high volume business
which tends to
<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)
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. In 1998, liberalization of the entire market is
due to commence in stages beginning in October with complete
liberalization achieved by June 1999.
Northern also competes to supply gas inside and outside its
authorized area. Northern continues to expand its 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.
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.
<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 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 5.3 cents
per kWh during the six months ended June 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 six months ended June 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 six months ended June 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
<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)
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 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.
<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 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
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 Six Months Ended June 30,
1998 and 1997:
Operating revenue increased in the second quarter of 1998 to
$590,589 from $505,922 for the same period in 1997, a 16.7%
increase. For the six month period ended June 30, 1998,
operating revenue increased to $1,212,440 from $1,048,511 for the
same period in 1997, a 15.6% increase. Northern's operating
revenue increased to $412,410 and $872,629, respectively, for the
three and six months ended June 30, 1998 compared to $355,578 and
$756,074, 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.
The following data represents the supply and distribution
operations in the U.K.:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Electricity Supplied (GWh) 3,554 3,299 7,315 7,155
Electricity Distributed (GWh) 3,783 3,738 7,954 7,934
Gas Supplied (Therms in
millions) 64.2 8.9 152.5 25.5
The increase in electricity supplied and distributed for the
three months ended June 30, 1998 from the three months ended June
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 six months ended June 30, 1998
from the six months ended June 30, 1997 is due primarily to lower
temperatures in the U.K. during the second quarter of 1998,
partially offset by milder weather in
<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 Six Months Ended June 30,
1998 and 1997 (continued):
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. begins to open up to competition as a
result of regulatory changes and successful dual fuel marketing
campaign.
The following operating data represents the aggregate capacity
and electricity production of the domestic geothermal projects:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Overall capacity factor 96.4% 99.6% 95.1% 101.3%
kWh produced (in thousands)1,068,200 1,103,600 2,096,200 2,233,300
Capacity NMW 507.4 507.4 507.4 507.4
The capacity factor for the three months ended June 30, 1998
decreased compared to the same period in 1997, due to decreasing
production at Coso. The capacity factor decreased for the six
months ended June 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Overall capacity factor 81.8% 85.5% 78.8% 87.4%
kWh produced (in thousands)1,018,540 1,064,200 1,950,040 2,163,150
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 92.4% and 89.2% for
the three and six months ended June 30, 1998, compared with 98.0%
and 98.1% 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.
<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 Six Months Ended June 30,
1998 and 1997 (Continued):
Interest and other income increased in the second quarter of 1998
to $29,929 from $19,072 for the same period in 1997, a 56.9%
increase. For the six months ended June 30, 1998, interest and
other income increased to $52,389 from $42,459 for the same
period in 1997, a 23.4% increase. The increases are primarily
due to interest earned by Casecnan on cash held for construction
and our dividend from our investment in Teesside partially offset
by lower income from Saranac which is consolidated on an equity
basis.
Cost of sales increased in the second quarter of 1998 to $269,768
from $241,548 for the same period in 1997, an 11.7% increase.
For the six months ended June 30, 1998, cost of sales increased
to $582,413 from $512,495 for the same period in 1997, a 13.6%
increase. The increases are primarily due to higher volumes of
gas supplied and electricity costs.
Operating expense increased in the second quarter of 1998 to
$111,131 from $76,880 for the same period in 1997, a 44.6%
increase. For the six months ended June 30, 1998, operating
expense increased to $213,778 from $166,926 for the same period
in 1997, a 28.1% increase. The increases are primarily due to an
increase in Northern's customer acquisition costs associated with
the opening of the competitive gas supply market.
General and administration costs decreased in the second quarter
of 1998 to $10,814 from $12,005 for the same period in 1997, a
9.9% decrease. For the six months ended June 30, 1998, general
and administration costs have decreased to $22,858 from $25,492
for the same period in 1997, a 10.3% decrease. The decrease is
primarily due to the continuing integration of Northern's
corporate costs.
Depreciation and amortization increased in the second quarter of
1998 to $85,659 from $70,456 for the same period in 1997, a 21.6%
increase. For the six months ended June 30, 1998, depreciation
and amortization increased to $165,584 from $137,912 for the same
period in 1997, a 20.1% increase. The increases are primarily
due to the commencement of operations at Mahanagdong and Units II
and III at Malitbog.
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
second quarter of 1998 to $78,589 from $58,006 for the same
period in 1997, a 35.5% increase. For the six months ended June
30, 1998, interest expense, less amounts capitalized, increased
to $159,729 from $119,506 for the same period in 1997, a 33.7%
increase. The increases are primarily due to the consolidation
of Casecnan resulting from the KDG Acquisition, 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 Six Months Ended June 30,
1998 and 1997 (Continued):
The provision for income taxes decreased in the second quarter of
1998 to $21,952 from $24,342 for the same period in 1997, a 9.8%
decrease. For the six months ended June 30, 1998, provision for
income taxes decreased to $40,483 from $46,591 for the same
period in 1997, a 13.1% decrease. The decreases are due to lower
pretax book income which resulted from increased dividends on
convertible preferred securities of subsidiary trusts.
Minority interest increased in the second quarter to $10,139 from
$9,579 for the same period in 1997, a 5.8% increase. For the six
months ended June 30, 1998, minority interest increased to
$20,223 from $19,754 for the same period in 1997, a 2.4%
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.
Net income available for common stockholders increased in the
first quarter of 1998 to $32,466 or $.54 per share, from $30,889
or $.49 per share for the same period in 1997. For the six
months ended June 30, 1998, net income increased to $59,761 or
$.99 per share from $58,337 or $.92 per share for the same period
in 1997.
Liquidity and Capital Resources:
The Company's cash and cash equivalents were $265,543 at June 30,
1998 as compared to $1,445,338 at December 31, 1997. The
majority of this decrease was due to the cash used in the KDG
Acquisition. The Company's share of joint venture cash and
investments retained in project control accounts at June 30, 1998
and December 31, 1997 was $6,903 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 $407,289 and $223,636 at June 30, 1998 and December 31, 1997,
respectively. The restricted cash balance as of June 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 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 June 30, 1998, the Company holds 22,947 shares of treasury
stock at a cost of $740,843 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.
<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 August 12, 1998, the Company announced that it had 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
billion, including $1.4 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. Closing of the
transaction is subject to the approval of the shareholders of
both companies and the obtaining of certain regulatory approvals.
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 proceeds of
the equity offering and the debt offering completed in October
1997.
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 at
a variable interest rate based on LIBOR, maturing in 2007.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
In November 1995, CE Casecnan Water and Energy Company, Inc., a
Philippine Corporation ("CE Casecnan") which is currently
approximately 70% 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.
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 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").
On August 6, 1997, CE Casecnan announced that it had issued a
notice to proceed to the Replacement Contractor. The Replacement
Contractor was already on site and had fully mobilized and
commenced engineering, procurement and construction work on the
Casecnan Project.
On April 17, 1998, CE Casecnan announced that it and Hanbo, HECC,
Hanbo Steel Company, Ltd. and KFB had reached a settlement with
regard to certain disputed terminated contract and standby letter
of credit issues. Under the settlement, KFB agreed to pay CE
Casecnan $90,000 and the parties have discontinued with prejudice
the pending arbitration and litigation proceedings and released
each other from all claims arising out of the litigation and
arbitration. In accordance with the terms of such agreement, CE
Casecnan received $10,000 from KFB on April 17, 1998 and the
remaining $80,000, including interest, on July 3, 1998. Based on
this settlement and anticipated expenditures, 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 should 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
<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)
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 attempt to
require the Government of Indonesia to honor its contractual
obligations; however, subsequent actions by the Government of
Indonesia and continued economic problems in Indonesia have
created further uncertainty as to whether the contracts for such
projects will be abrogated by the Indonesian government and
accordingly have created significant risks to the completion of
these projects.
On December 2, 1994, a subsidiary of the Company, Himpurna
California Energy Ltd. ("HCE") executed a joint operation
contract (the "Dieng JOC") for the development of the geothermal
steam field and geothermal power facilities at the Dieng
geothermal field, located in Central Java (the "Dieng Project")
with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
("Pertamina"), the Indonesian national oil company, and executed
a "take-or-pay" energy sales contract (the "Dieng ESC") with both
Pertamina and P.T. PLN (Persero) ("PLN"), the Indonesian national
electric utility. HCE was formed pursuant to a joint development
agreement with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its
Indonesian partner, which is a subsidiary of Himpurna, an
association of Indonesian military veterans, whereby the Company
and P.T. HEA have agreed to work together on an exclusive basis
to develop the Dieng Project (the "Dieng Joint Venture"). The
Dieng Joint Venture is structured with subsidiaries of the
Company holding an approximate 94% interest (including certain
assignments of dividend rights representing an economic interest
of 4%) and P.T. HEA holding a 6% interest in the Dieng Project.
Financial closing and first disbursement of construction loan
funds occurred on October 3, 1996.
Pursuant to the Dieng JOC and ESC, Pertamina has granted to HCE
the geothermal field and the wells and other facilities presently
located thereon and HCE may build, own and operate power
production units with an aggregate capacity of up to 400 MW. HCE
will accept the field operation responsibility for developing and
supplying the geothermal steam and fluids required to operate the
plant. The Dieng JOC is structured as a build own operate
transfer agreement and will expire (subject to extension by
mutual agreement) on the date which is the later of (i) 42 years
following effectiveness of the Dieng JOC and (ii) 30 years
following the date of commencement of commercial generation of
the final unit. Upon the expiration of the proposed Dieng JOC,
all facilities will be transferred to Pertamina at no cost.
HCE began well testing in the fourth quarter of 1995 and issued a
notice to proceed for the construction and supply of an initial
55 net MW unit ("Dieng Unit I") in the first quarter of 1996. PT
Kiewit/Holt Indonesia, a consortium consisting of Kiewit
Construction Group, Inc., a subsidiary of PKS ("KCG") constructed
Dieng Unit I pursuant to a fixed price, date certain, turnkey
construction contract ("Construction Contract"). Affiliates of
KCG provided the engineered supply with respect to Dieng Unit I
pursuant to a fixed price, date certain, turnkey supply contract
("Supply Contract"). The Construction Contract and Supply
Contract are sometimes referred to herein as the "Dieng EPC" and
KCG and their affiliates party to the Construction Contract and
Supply Contract are sometimes referred to herein, collectively,
as the "Construction Consortium." The obligations of the
Construction Consortium under the
<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)
Construction and Supply Contracts are supported by a guaranty of
KCG. KCG is the lead member of the Construction Consortium, with
a 60% interest. HCE will be responsible for operating and
managing the Dieng Project. Construction of Dieng Unit I was
completed in March 1998.
In the fourth quarter of 1997, HCE issued a notice to proceed for
the construction and supply of the Dieng Unit II 80 net MW
project. The same construction consortium as described above for
Dieng Unit I has contracted to construct Dieng Unit II under
similar terms. The Company has contributed the necessary equity
for the completion of Dieng Unit II and the construction loan of
$109,000 was arranged under the June 1997 CE Indonesia Funding
Corp. facility. However, pending resolution of the current
uncertainties associated with Indonesia, construction activities
on this project have been significantly reduced.
Patuha Power, Ltd. ("Patuha Power") is developing a geothermal
power plant in the Patuha geothermal field in Java, Indonesia
(the "Patuha Project"). On December 2, 1994, Patuha Power
executed both a joint operation contract and an energy sales
contract, each of which contains terms substantially similar to
those described above for the Dieng Project. Patuha Power began
well testing and exploration in the fourth quarter of 1995 and in
the third quarter of 1997, issued a notice to proceed for the
construction and supply of the Patuha Unit I 80 net MW project.
The same construction consortium as described above for Dieng
Unit I has contracted to construct Patuha Unit I under similar
terms. The Company has contributed the necessary equity for the
completion of Patuha Unit I and the construction loan of $150,000
was arranged under the June 1997 CE Indonesia Funding Corp.
facility. However, pending resolution of the current
uncertainties associated with Indonesia, construction activities
on this project have been significantly reduced.
The Company and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint
venture to pursue the development of geothermal resources in Bali
(the "Bali Project"). The PT Panutan Group is entitled to
contribute up to 40% of the total equity and obtain up to 40% of
the net profit of the Bali Project. The project company
developing the Bali Project, Bali Energy Ltd. ("Bali Energy"),
has executed both a joint operation contract and an energy sales
contract with terms similar to those at Dieng and Patuha.
However, pending resolution of the current uncertainties
associated with Indonesia, infrastructure construction and
drilling activities on this project have been significantly
reduced.
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.
The initial phase of the project would require delivery of 49 net
MW of power. A pilot plant has successfully produced commercial
quality zinc at the Company's Imperial Valley Project. Zinc is
primarily used in galvanizing steel for use in the automobile
industry. The Company intends to sequentially develop manganese,
silver, gold, lead, boron,
<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)
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.
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.
<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 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 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.
The Company has commenced, for all of its information systems, a
year 2000 date conversion project to address all necessary code
changes, testing and implementation. The "Year 2000 Computer
Problem" creates risk for the Company from unforeseen problems in
its own computer systems and from third parties with whom the
Company deals on financial transactions worldwide. Such 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, and especially to process and account for the transfer
of funds electronically. Management believes it will
substantially complete the year 2000 implementation before
January 1, 2000 and that the related costs and potential effect
should not have a material financial impact on the Company.
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
<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)
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 June 30, 1998, there are no material outstanding
lawsuits against the Company; however see Note 6,
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.
(a) The Company's Annual Meeting of Stockholders was held on May 21, 1998.
(b) Directors elected at the Company's Annual Meeting of Stockholders on
May 21, 1998 are named below as follows:
Walter Scott, Jr. (Class III)
John R. Shiner (Class III)
Edgar D. Aronson (Class III)
Bernard W. Reznicek (Class III)
Directors whose term of office as a Director continued after the
meeting are named below as follows:
Judith E. Ayres
David H. Dewhurst
Richard R. Jaros
David R. Morris
David L. Sokol
Sir Neville G. Trotter
David E. Wit
(c) The meeting proposals were voted on at the annual meeting:
(i) Proposal 1 - Election of Directors (with terms expiring at the
2001 annual meeting,)
<PAGE>
Withholding
Nominees For Authority
Walter Scott Jr. 50,263,003 2,027,635
John R. Shiner 50,261,241 2,029,397
Edgar D. Aronson 50,232,562 2,058,076
Bernard W. Reznicek 50,273,275 2,017,363
(ii) Proposal 2 - Ratification of an amendment of the Company's
Stock Option Plan to increase the aggregate number of option
shares that are available for grant under the plan by 1,000,000.
Such proposal passed with 44,296,021 affirmative votes.
7,666,237 votes were cast against such proposal with 202,918
shares abstaining.
(iii) Proposal 3 - Ratification of the appointment of Deloitte &
Touche LLP as independent auditors for the fiscal year 1998.
Such proposal passed with 52,100,110 affirmative votes.
114,172 votes were cast against such proposal with 76,356 shares
abstaining.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K:
During the quarter ended June 30, 1998 the Company filed
the following:
(i) Form 8-K dated April 8, 1998 reporting the New York
Appellate Court order for Korea First Bank to honor
draws on an irrevocable standby letter of credit
issued by Korea First Bank for the Casecnan Project.
(ii)Form 8-K dated April 17, 1998 reporting CE
Casecnan's settlement with Korea First Bank, Hanbo
Corporation, Hanbo Engineering & Construction
Company, Ltd. and Hanbo Steel Company, Ltd.
<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: August 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 Six Months Ended
June 30 June 30
1998 1997 1998 1997
Actual weighted average shares
outstanding for the period 60,234,895 63,531,050 60,658,253 63,520,792
Dilutive stock options and warrants
using average market prices 784,037 1,554,586 655,885 1,461,491
Additional dilutive stock options
assuming conversion of convertible
preferred securities of subsidiary
trusts 13,326,683 7,672,883 13,326,683 6,374,735
Diluted shares outstanding 74,345,615 72,758,519 74,640,821 71,357,018
Net income available to common
stockholders $ 32,466 $ 30,889 $ 59,761 $ 58,337
Net income per share $ .54 $ .49 $ .99 $ .92
Diluted income per share based
on SEC interpretive release
No. 34-9083 (1) $ .51 $ .46 $ .95 $ .88
(1)-Net income available to common stockholders for the three and
six months ended June 30, 1998 was increased by dividends on
convertible preferred securities of subsidiary trusts, net of tax
effect, of $5,471 and $10,942, respectively. Net income
available to common stockholders for the three and six months
ended June 30, 1997 was increased by dividends on convertible
preferred securities of subsidiary trusts, net of tax effect, of
$2,751 and $4,416, respectively.
<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 six month periods ended June 30, 1998 and
1997 as indicated in our report dated July 23, 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 June
30, 1998, is incorporated by reference in Registration Statements
No. 33-41152, No. 33-52147 and No. 333-30395 on Form S-8 and
Registration Statements No. 33-51363 and No. 333-32821 on Form S-
3.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act 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
August 13, 1998
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 679,735
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553,930
66,054
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<TOTAL-LIABILITY-AND-EQUITY> 7,481,881
<SALES> 1,212,440
<TOTAL-REVENUES> 1,264,829
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