UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT #1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 1, 1996
Commission File Number 033-73160
CALPINE CORPORATION
(A California Corporation)
I.R.S. Employer Identification No. 77-0031605
50 WEST SAN FERNANDO STREET
SAN JOSE, CALIFORNIA 95113
TELEPHONE: (408) 995-5115
This report on Form 8-K/A, including all exhibits, contains 24 pages.
The exhibit index is located on page 3 of this report.
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- ------------------------------------------------------
The King City cogeneration facility (the "Facility") is a 120 megawatt natural
gas-fired combined cycle facility located in King City, California. On May 1,
1996 Calpine Corporation ("Calpine" or the "Company"), through its wholly owned
subsidiary Calpine King City Cogen, LLC, completed the transaction to enter into
an operating lease for the Facility with BAF Energy, A California Limited
Partnership ("BAF" or the "Lessor"). Under the terms of the operating lease,
Calpine will make semi-annual lease payments to BAF, a portion of which is
supported by a $100.7 million collateral fund, owned by the Company. The
collateral fund consists of a portfolio of investment grade and U.S. Treasury
Securities that will mature serially in amounts equal to a portion of the lease
payments.
The Company financed the collateral fund and other transaction costs through a
$45.0 million loan provided by the Bank of Nova Scotia, $50.0 million of
proceeds from the issuance of preferred stock to Electrowatt, the parent company
of Calpine, and $13.3 million of borrowings under the Company's credit facility
with Credit Suisse.
The Facility generates electricity for sale to Pacific Gas & Electric Company
pursuant to a long term power sales agreement, which terminates in 2019. Natural
gas for the Facility is currently supplied pursuant to a contract with Chevron
USA Inc., which expires June 30, 1997.
Calpine intends to continue to operate the Facility in the same business
following the transaction.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
- -----------------------------------------------------------------------
(a) Financial Statements of Business Acquired
The following financial statements of the Facility are
attached hereto and incorporated herein by reference:
1. Audited Balance Sheets, as of October 31, 1995 and
1994, and the related statements of income, partners'
equity and cash flows for each of the three years
ended October 31, 1995, 1994 and 1993, together with
the report thereon by Arthur Andersen LLP,
independent accountants for the Lessor. Condensed
unaudited Balance Sheets, as of January 31, 1996 and
October 31, 1995, and the related condensed unaudited
statements of income and cash flows for each of the
three month periods ended January 31, 1996 and 1995.
(b) Pro Forma Financial Information
Pro forma financial information for the transaction described
in Item 2, consisting of a Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1995, a Pro Forma Condensed
Consolidated Statement of Operations for the three month period ended March 31,
1996, and a Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996,
together with notes thereto, are attached hereto and incorporated herein by
reference.
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<PAGE>
(c) Exhibits
2.1. Lease dated as of April 24, 1996, between BAF Energy A
California Limited Partnership, Lessor, and Calpine King
City Cogen, LLC, Lessee.
-3-
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------------
PRO FORMA
RECENT FOR THE RECENT KING CITY
TRANSACTION TRANSACTION TRANSACTION
ACTUAL ADJUSTMENTS(1) ADJUSTMENTS ADJUSTMENTS(2) PRO FORMA
------ ----------- ----------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales ........ $ 127,799 $ 9,292 $ 137,091 $ 43,836 $ 180,927
Service contract revenue ........... 7,153 250 7,403 -- 7,403
Income (loss) from unconsolidated
investments in power projects ... (2,854) -- (2,854) -- (2,854)
Interest income on loans to power ..
projects ........................ -- 2,564 2,564 -- 2,564
--------- --------- --------- --------- ---------
Total revenue ................... 132,098 12,106 144,204 43,836 188,040
Cost of revenue ....................... 77,388 12,346 89,734 33,259 122,993
--------- --------- --------- --------- ---------
Gross profit .......................... 54,710 (240) 54,470 10,577 65,047
Project development expenses .......... 3,087 -- 3,087 -- 3,087
General and administrative expenses ... 8,937 -- 8,937 -- 8,937
--------- --------- --------- --------- ---------
Income from operations .......... 42,686 (240) 42,446 10,577 53,023
Interest expense ...................... 32,154 2,853 35,007 4,172 39,179
Other income, net ..................... (1,895) (105) (2,000) (7,158) (9,158)
--------- --------- --------- --------- ---------
Income before provison for income
taxes ....................... 12,427 (2,988) 9,439 13,563 23,002
Provision for income taxes ............ 5,049 (1,214) 3,835 5,509 9,344
--------- --------- --------- --------- ---------
Net income .................. $ 7,378 $ (1,774) $ 5,604 $ 8,054 $ 13,658
========= ========= ========= ========= =========
Earnings per share:
Net income per share ........ $ 3.33 $ 6.17
========= =========
</TABLE>
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<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------
KING CITY
TRANSACTION
ACTUAL ADJUSTMENTS(3) PRO FORMA
------ ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales .................... $ 25,775 $ 4,957 $30,732
Service contract revenue ....................... 2,586 -- 2,586
Income (loss) from unconsolidated investments in
power projects .............................. 1,415 -- 1,415
Interest income on loans to power projects ..... 1,897 -- 1,897
------- ------- -------
Total revenue ............................... 31,673 4,957 36,630
Cost of revenue ................................... 21,329 7,009 28,338
------- ------- -------
Gross profit ...................................... 10,344 (2,052) 8,292
Project development expenses ...................... 516 -- 516
General and administrative expenses ............... 2,640 -- 2,640
------- ------- -------
Income from operations ...................... 7,188 (2,052) 5,136
Interest expense .................................. 8,219 1,043 9,262
Other income, net ................................. (533) (1,790) (2,323)
------- ------- -------
Income before provison for income taxes ..... (498) (1,305) (1,803)
Provision for (benefit from) income taxes ......... (204) (535) (739)
------- ------- -------
Net income (loss) ....................... $ (294) $ (770) $(1,064)
======= ======= =======
Earnings per share:
Net income per share ........................ $ (0.15) $ (0.53)
======= =======
</TABLE>
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<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(1) The recent transaction adjustments, presented in the Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1995,
give effect to the following transactions as if such transactions had
occurred on January 1, 1995; (i) the acquisition by the Company of the
Greenleaf 1 and 2 Facilities, which actually occurred on April 21, 1995;
(ii) the acquisition by the Company of the lease for the Watsonville
Facility, which actually occurred on June 29, 1995; and (iii) the entry by
the Company into the agreements in respect to the Cerro Prieto Steam
Fields, which actually occurred on November 17, 1995.
<TABLE>
<CAPTION>
Greenleaf
1 and 2 Watsonville Cerro Prieto
Facilities Facility Steam Fields Total
---------- -------- ------------ -----
(in thousands)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Electricity and steam sales ..... $ 5,314 $ 3,978 $ -- $ 9,292
Service contract revenue ........ -- -- 250 250
Income (loss) from unconsolidated
investments in power projects -- -- -- --
Interest income on loans to power
projects .................... -- -- 2,564 2,564
------- ------- ------- -------
Total revenue ............... 5,314 3,978 2,814 12,106
Cost of revenue .................... 7,756 4,590 -- 12,346
------- ------- ------- -------
Gross profit ....................... (2,442) (612) 2,814 (240)
Project development expenses ....... -- -- -- --
General and administrative expenses -- -- -- --
------- ------- ------- -------
Income from operations ...... (2,442) (612) 2,814 (240)
Interest expense ................... 1,921 -- 932 2,853
Other income, net .................. (105) -- -- (105)
------- ------- ------- -------
Income before provision for
income taxes ............. (4,258) (612) 1,882 (2,988)
Provision for (benefit from) income
taxes ........................... (1,730) (249) 765 (1,214)
------- ------- ------- -------
Net income (loss) ........ $ (2,528) $ (363) $ 1,117 $ (1,774)
======= ======= ======= =======
</TABLE>
(2) The King City Transaction Adjustments presented give effect to the King
City transaction as if it had occurred on January 1, 1995.
(3) The King City Transaction Adjustments, presented in the Pro Forma
Condensed Consolidated Statement of Operations for the three months ended
March 31, 1996, give effect to the King City transaction as if it had
occurred on January 1, 1996.
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<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
AS OF MARCH 31, 1996
------------------------------------------
KING CITY
TRANSACTION
ACTUAL ADJUSTMENTS PRO FORMA
------ ----------- ---------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 68,647 $ (50,000)(1) $ 18,647
Accounts receivable ............................ 17,522 782 (2) 18,304
Other current assets ........................... 13,014 -- 13,014
-------- -------- -------
Total current assets ....................... 99,183 (49,218) 49,965
Property, plant & equipment, net .................. 448,261 82,090 (3) 530,351
Investment in power projects ...................... 12,206 -- 12,206
Notes receivable .................................. 31,270 -- 31,270
Restricted marketable securities .................. -- 100,700 (4) 100,700
Other assets ...................................... 14,429 7,260 (5) 21,689
-------- -------- -------
Total assets ............................... $ 605,349 $ 140,832 $746,181
======== ======== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of non-recourse project ........
financing .................................. $ 83,846 $ 45,000 (6) $ 128,846
Other current liabilities ...................... 16,348 461 (7) 16,809
-------- -------- --------
Total current liabilities .................. 100,194 45,461 145,655
Long-term credit facility ......................... 32,151 13,281 (8) 45,432
Non-recourse long-term project financing, less
current portion ................................ 185,798 -- 185,798
Notes payable ..................................... 6,473 -- 6,473
Senior Notes Due 2004 ............................. 105,000 -- 105,000
Deferred lease incentive .......................... -- 82,090 (9) 82,090
Deferred income taxes, net ........................ 97,164 -- 97,164
Other liabilities ................................. 3,636 -- 3,636
-------- -------- --------
Total liabilities .......................... 530,416 140,832 671,248
-------- -------- --------
Shareholder's equity:
Preferred stock ................................ 50,000 -- 50,000
Common stock ................................... 6,224 -- 6,224
Retained earnings .............................. 18,709 -- 18,709
-------- -------- --------
Total shareholder's equity ................. 74,933 -- 74,933
-------- -------- --------
Total liabilities and shareholder's equity $ 605,349 $ 140,832 $ 746,181
======== ======== ========
</TABLE>
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<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the cash required to finance, in part, the King City
transaction.
(2) Represents the accounts receivable in the King City transaction.
(3) Represents the value of the power sales agreement rights assumed with the
lease associated with the King City transaction
(4) Reflects the collateral fund of investment grade securities owned by the
Company to support a portion of the annual operating lease payments
associated with the King City transaction.
(5) Includes $1.3 million required to fund reserve accounts, $2.0 million to
terminate the existing operating and maintenance agreement, $6.4 million
of prepaid expenses, $1.8 million of transaction costs that are
capitalized and written off over the life of the lease reduced by a $4.2
million adjustment associated with the King City transaction to account
for differences between the effective date and the closing date.
(6) Represents the $45 million Bank of Nova Scotia loan required to finance,
in part, the King City transaction.
(7) Represents the accounts payable in the King City transaction.
(8) Reflects additional borrowings under the Credit Suisse Credit Facility
required to finance, in part, the King City transaction.
(9) Represents the deferred lease incentive to reflect the value of the power
sales agreement assumed in the King City transaction.
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<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 hereunto duly authorized.
Dated: June 3, 1996
By: /s/ Ann B. Curtis
-------------------------------
Name: Ann B. Curtis
Title: Senior Vice President
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the General Partner of
BAF Energy, A California Limited Partnership:
We have audited the accompanying balance sheets of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the related statements
of income, partners' equity and cash flows for each of the three years ended
October 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAF Energy, A California
Limited Partnership, as of October 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years ended October 31,
1995, 1994 and 1993 in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective November 1,
1994, the Company changed its method of accounting for investments.
As discussed in Note 8 to the financial statements, subsequent to October
31, 1995, the Partnership signed a letter agreement with a third party to lease
substantially all of its property, plant and equipment and assign all related
contracts to a third party.
ARTHUR ANDERSEN LLP
San Francisco, California
December 6, 1995
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<PAGE>
<TABLE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
OCTOBER 31, 1995 AND 1994
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS.............. $ 3,757,921 $ 5,363,057
AVAILABLE FOR SALE SECURITIES.......... 1,919,184 --
RESTRICTED AVAILABLE-FOR-SALE SECURITIES 7,241,305 12,332,244
ACCOUNTS RECEIVABLE -- TRADE........... 10,916,919 5,277,413
SUPPLIES INVENTORY..................... 2,153,129 2,060,935
PREPAID INSURANCE...................... 288,383 251,375
----------- ----------
TOTAL CURRENT ASSETS........... 26,276,841 25,285,024
----------- ----------
PROPERTY, PLANT AND EQUIPMENT.......... 100,258,434 100,210,960
ACCUMULATED DEPRECIATION AND AMORTIZATION (24,387,912) (20,854,389)
----------- ----------
75,870,522 79,356,571
----------- ----------
TOTAL ASSETS................... $102,147,363 $104,641,595
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE....................... $ 1,598,177 $2,824,110
INTEREST PAYABLE....................... 1,309,566 1,396,495
PAYABLE TO AFFILIATE................... 166,569 615,881
CURRENT PORTION OF LONG-TERM LIABILITIES 5,444,386 5,283,785
----------- ----------
TOTAL CURRENT LIABILITIES...... 8,518,698 10,120,271
----------- ----------
LONG-TERM LIABILITIES.................... 66,804,704 71,157,714
----------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
PARTNERS' EQUITY:
CONTRIBUTED EQUITY..................... 9,901,600 9,901,600
UNDISTRIBUTED EARNINGS................. 16,922,361 13,462,010
----------- -----------
TOTAL PARTNERS' EQUITY......... 26,823,961 23,363,610
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $102,147,363 $104,641,595
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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<PAGE>
<TABLE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES................. $43,835,619 $47,955,622 $49,738,504
OPERATING EXPENSES:
FUEL............................. 9,193,490 14,079,684 16,449,118
DEPRECIATION AND AMORTIZATION.... 3,578,572 3,575,442 3,576,710
LABOR, SUPPLIES AND OTHER........ 6,614,543 6,959,891 6,343,755
---------- ---------- ----------
TOTAL OPERATING EXPENSES. 19,386,605 24,615,017 26,369,583
---------- ---------- ----------
OPERATING INCOME......... 24,449,014 23,340,605 23,368,921
---------- ---------- ----------
OTHER INCOME AND EXPENSE:
INTEREST INCOME AND OTHER........ 955,299 477,666 448,961
GENERAL AND ADMINISTRATIVE....... (773,610) (784,401) (653,373)
INTEREST EXPENSE................. (8,165,273) (8,654,453) (9,091,695)
---------- ---------- ----------
TOTAL OTHER INCOME AND EXPENSE (7,983,584) (8,961,188) (9,296,107)
---------- ---------- ----------
PARTNERSHIP INCOME................. $16,465,430 $14,379,417 $14,072,814
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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<PAGE>
<TABLE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<CAPTION>
GENERAL LIMITED UNREALIZED TOTAL
PARTNERS' PARTNERS' UNDISTRIBUTED LOSSES ON PARTNERS'
EQUITY EQUITY EARNINGS SECURITIES EQUITY
------ ------ -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1992.... $100 $9,901,500 $13,509,779 $ -- $23,411,379
NET INCOME................. -- -- 14,072,814 -- 14,072,814
CASH DISTRIBUTIONS......... -- -- (15,000,000) -- (15,000,000)
--- ---------- ----------- --------- -----------
BALANCE, OCTOBER 31, 1993.... 100 9,901,500 12,582,593 -- 22,484,193
NET INCOME................. -- -- 14,379,417 -- 14,379,417
CASH DISTRIBUTIONS......... -- -- (13,500,000) -- (13,500,000)
--- ---------- ----------- --------- -----------
BALANCE, OCTOBER 31, 1994.... 100 9,901,500 13,462,010 -- 23,363,610
NET INCOME................. -- -- 16,465,430 -- 16,465,430
CASH DISTRIBUTIONS......... -- -- (13,000,000) -- (13,000,000)
CHANGE IN UNREALIZED LOSSES ON
AVAILABLE-FOR-SALE
SECURITIES.............. -- -- -- (5,079) (5,079)
--- ---------- ----------- --------- -----------
BALANCE, OCTOBER 31, 1995.... $100 $9,901,500 $16,927,440 $ (5,079) $26,823,961
==== ========== =========== ========= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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<PAGE>
<TABLE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
PARTNERSHIP INCOME....................... $16,465,430 $14,379,417 $14,072,814
ADJUSTMENTS TO RECONCILE PARTNERSHIP INCOME TO
NET CASH PROVIDED FROM OPERATING
ACTIVITIES --
DEPRECIATION AND AMORTIZATION....... 3,578,572 3,575,442 3,576,710
REALIZED (GAINS) LOSSES ON SALES OF
AVAILABLE-FOR-SALE SECURITIES, NET (465) 10,189 (22,701)
CHANGE IN OPERATING ASSETS &
LIABILITIES --
ACCOUNTS RECEIVABLE -- TRADE..... (5,639,506) 7,560,768 (6,403,581)
SUPPLIES INVENTORY............... (92,194) (301,309) (11,406)
PREPAID INSURANCE................ (37,008) (69,663) 4,270
ACCOUNTS PAYABLE................. (1,225,933) (1,375,739) 1,516,130
INTEREST PAYABLE................. (86,929) (77,740) (69,540)
PAYABLE TO AFFILIATE............. (449,312) 463,194 (1,130,695)
OTHER, NET....................... (45,049) -- --
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.................. 12,467,606 24,164,559 11,532,001
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF AVAILABLE-FOR-SALE SECURITIES (34,628,300) (25,334,642) (16,319,709)
PROCEEDS FROM SALES AND MATURITIES OF
AVAILABLE-FOR-SALE SECURITIES......... 37,795,441 20,232,824 20,074,603
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT,
NET................................... (47,474) (21,066) (131,924)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES........ 3,119,667 (5,122,884) 3,622,970
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
REDUCTIONS OF LONG-TERM LIABILITIES, NET. (4,192,409) (3,587,576) (3,250,397)
CASH DISTRIBUTIONS TO PARTNERS........... (13,000,000) (13,500,000) (15,000,000)
----------- ----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES.................. (17,192,409) (17,087,576) (18,250,397)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (1,605,136) 1,954,099 (3,095,426)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,363,057 3,408,958 6,504,384
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR..... $3,757,921 $5,363,057 $3,408,958
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
UNREALIZED HOLDING LOSSES, NET, ON
AVAILABLE-FOR-SALE SECURITIES, RECORDED AS
ADDITIONS TO UNDISTRIBUTED EARNINGS... $ (5,079) $ -- $ --
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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<PAGE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Basic American, Inc. (BAI) formed BAF Energy, A California Limited
Partnership (BAF Energy or the Partnership) on March 25, 1986, for the purpose
of developing, constructing and operating a cogeneration facility. The term of
the Partnership is through December 2020 unless terminated earlier in accordance
with the Partnership Agreement. The facility produces and sells electricity and
steam. On December 6, 1995, the Partnership signed a letter agreement with a
third party to lease substantially all of the Partnership's property, plant and
equipment and to assign all related contracts. The third party lessee will
operate the cogeneration facility through April, 2019 (see Note 8).
BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of BAI. As of
October 31, 1995, BAI also owned approximately 51 percent of the Limited
Partnership units of BAF Energy then outstanding.
Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to be consistent with the current year presentation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on deposit with banks, money market funds, and commercial paper. Cash paid for
interest during the years ended October 31, 1995, 1994 and 1993 was $8,252,202,
$8,732,052 and $9,161,241, respectively.
Available-for-Sale Securities
Effective November 1, 1994, the Partnership adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115). The Partnership has classified its investments as
available-for-sale securities and as restricted available-for-sale securities
and has recorded all securities holdings at fair value. Unrealized gains and
losses are reported as a separate component of partners' equity until realized.
Premiums and discounts are amortized over the life of the related security
as an adjustment to interest income using the effective interest method.
Interest income is recognized when earned. Realized gains and losses on
securities transactions are included in net income and are derived using the
specific identification method for determining the cost of securities sold.
Prior to the November 1, 1994 adoption of SFAS 115, the Partnership's
short-term investments were included in cash and short-term investments and were
valued at the lower of aggregate cost or market. Such securities have been
reclassified as available-for-sale securities to conform with SFAS 115
presentation requirements.
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<PAGE>
The effect of adopting SFAS 115 was to recognize net unrealized holding
losses of $32,599 as a decrease in partners' equity as of November 1, 1994. At
October 31, 1995, net unrealized holding losses were $5,079.
Restricted securities are required under the term loans described in Note 4.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of property, plant
and equipment are computed on a straight-line method principally over the
following estimated useful lives:
Years
-----
Buildings and improvements 30
Machinery and equipment.. 5 to 30
Major Maintenance Accruals
The Partnership accrues for the estimated future costs of major overhauls
and equipment replacement based upon engineering studies.
Income Taxes
Federal and state income tax regulations provide that no income taxes are
levied on a partnership. Instead, each partners' share of partnership profit or
loss is reported on his or her separate income tax return. Accordingly, no
partnership income taxes are provided for in the accompanying financial
statements.
(2) AVAILABLE-FOR-SALE SECURITIES
As of October 31, 1995, the amortized cost and estimated fair values of the
Partnership's investments in tax-exempt municipal securities are summarized as
follows:
Restricted
Available- Available-
for-sale for-sale
Securities Securities Total
---------- ---------- -----
Amortized cost....... $1,919,184 $7,246,384 $9,165,568
Gross unrealized losses -- (5,079) (5,079)
---------- ---------- ----------
Estimated fair value. $1,919,184 $7,241,305 $9,160,489
========== ========== ==========
The amortized cost and estimated fair value of tax-exempt municipal
securities by contractual maturity are shown below.
Amortized Estimated
Due in fiscal year ending October31 Cost Fair Value
----------------------------------- --------- ----------
1996 $2,137,292 $2,134,000
1997-2000 7,028,276 7,026,489
---------- ----------
Total $9,165,568 $9,160,489
========== ==========
-16-
<PAGE>
Proceeds from sales of investments for the year ended October 31, 1995 are as
follow:
Gross proceeds... $26,099,037
Gross gains...... $ 4,404
Gross losses..... $ 3,939
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation and amortization
consist of:
1995 1994
---- ----
Cost
Buildings and improvements.......... $ 1,410,873 $ 1,313,304
Machinery and equipment............. 98,847,561 98,897,656
------------ ------------
100,258,434 100,210,960
Accumulated depreciation and amortization (24,387,912) (20,854,389)
------------ ------------
$ 75,870,522 $ 79,356,571
============ ============
On December 6, 1995, the Partnership signed a letter agreement with a third
party to lease substantially all of the Partnership's property, plant and
equipment (see Note 8).
(4) LONG-TERM LIABILITIES
Long-term liabilities are summarized as follows:
1995 1994
---- ----
Term loan at 10.88%, due in equal installments through
March 2004, non-recourse to the Partnership, secured
by the facility and associated contracts........... $60,514,066 $64,678,085
Term loan at 15.65%, due in equal installments through
March 2004, with recourse to BEI, secured by the
facility and associated contracts............... 8,137,159 8,575,025
Major maintenance accruals........................ 3,597,865 3,188,389
----------- -----------
72,249,090 76,441,499
Less -- Current maturities........................ 5,444,386 5,283,785
----------- -----------
$66,804,704 $71,157,714
=========== ===========
Annual Maturities,
Annual maturities of long-term liabilities at October 31, 1995 are
summarized as follows:
YEAR ENDING OCTOBER 31 Amount
---------------------- ------
1996 $5,444,386
1997 6,121,107
1998 6,716,700
1999 7,224,887
2000 10,541,918
Thereafter 36,200,092
----------
$72,249,090
===========
-17-
<PAGE>
(5) RELATED PARTY TRANSACTIONS
The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $146,596, $139,613 and $132,966 for the
years ended October 31, 1995, 1994 and 1993, respectively.
The Partnership has entered into a ground lease with a remaining term of 23
years with BAI for the land on which the facility is located. The lease includes
options to extend the lease term up to an additional 30 years. Rent was
$146,572, $139,593 and $132,946 for the years ended October 31, 1995, 1994 and
1993, respectively. Rents will escalate at the rate of 5% each year. In fiscal
1996, this lease will be assigned to a third party lessee pursuant to a letter
agreement discussed at Note 8.
The Partnership negotiated a steam sales contract with a remaining term of
23 years with Basic Vegetable Products, LP (BVP, LP). The General Partner of
BVP, LP is BVP. Under the contract, the Partnership supplies steam to BVP, LP's
King City, California food processing plant. Revenues recorded under the
contract totaled $669,341, $840,959 and $1,068,141 in 1995, 1994 and 1993,
respectively. In fiscal 1996, this contract will also be assigned (see Note 8).
(6) COMMITMENTS AND CONTINGENCIES
Facilities
The Partnership executed an Operations and Maintenance (O & M) Agreement
with Bechtel North American Power Corporation (Bechtel) in which Bechtel is
required to operate and maintain the facility for a term of five years from May
1989. The Partnership reimburses Bechtel for all costs incurred in the
performance of the service. O & M expenses paid totaled $3,665,168, $3,884,943
and $4,556,321 in 1995, 1994 and 1993, respectively, including a payment of base
fees of $275,000, $387,456 and $500,000 per year, respectively, and a payment of
earned fees of $380,000, $306,803 and $902,430 per year, respectively. The
agreement also provided for a "high performance" bonus fee dependent on meeting
certain performance standards. In April 1994, the O & M Agreement was
renegotiated and extended through October 1998. The renegotiated terms include
payment of base fees of $275,000 and elimination of the high performance bonus
fee. The bonus paid in 1994 and 1995 totaled $3,107 and $175,327, respectively.
In connection with the anticipated transaction described at Note 8, the
Partnership will sever its O & M Agreement with Bechtel. The severance payment
will be made with funds directly contributed by the third party lessee.
Financing
Calcorp Group, Inc. (CGI), a limited partner, has a put option to sell its
23 percent investment in the Partnership back to the Partnership at fair market
value in certain circumstances. The put is subject to a subordination agreement
with the Partnership's lenders. CGI has entered into a technical support
agreement with the Partnership, wherein CGI is reimbursed for services rendered
based upon time and expenses incurred.
(7) REVENUE RECOGNITION
BEI has an exclusive Power Purchase Agreement with Pacific Gas and Electric
(PG&E) under which PG&E pays capacity payments, as defined in the agreement, and
purchases all available energy, except for amounts sold to BVP, LP (see Note 5).
The Partnership receives substantially all of its capacity payments from PG&E
during May through October, and receives payment for energy sales to PG&E during
May through January. In fiscal 1996, this agreement will be assigned to a third
party lessee pursuant to a letter agreement discussed at Note 8.
-18-
<PAGE>
(8) SIGNIFICANT LEASE TRANSACTION
On December 6, 1995, BAF Energy signed a letter agreement with a third party
to enter into a 23-year lease of the cogeneration property, plant and equipment
and to assign all related contracts. Under the terms of the lease, the lessee
will assume all rights and responsibilities related to the ground lease (see
Note 5), the BVP, LP steam sales contract (see Note 5), and the PG&E Power
Purchase Agreement (see Note 7). BAF Energy expects to sign the lease in early
1996.
-19-
<PAGE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
JANUARY 31, OCTOBER 31,
1996 1995
---- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS............ $2,211,511 $3,757,921
AVAILABLE FOR SALE SECURITIES........ -- 1,919,184
RESTRICTED AVAILABLE-FOR-SALE SECURITIES 10,953,152 7,241,305
ACCOUNTS RECEIVABLE -- TRADE......... 2,703,251 10,916,919
SUPPLIES INVENTORY................... 2,128,361 2,153,129
PREPAID INSURANCE.................... 144,633 288,383
TOTAL CURRENT ASSETS......... 18,140,908 26,276,841
----------- -----------
PROPERTY, PLANT AND EQUIPMENT.......... 100,258,434 100,258,434
ACCUMULATED DEPRECIATION AND AMORTIZATION (25,280,413) (24,387,912)
----------- -----------
74,978,021 75,870,522
----------- -----------
$93,118,929 $102,147,363
=========== ============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE..................... $811,919 $1,598,177
INTEREST PAYABLE..................... 3,273,915 1,309,566
PAYABLE TO AFFILIATE................. 38,428 166,569
CURRENT PORTION OF LONG-TERM LIABILITIES 5,546,361 5,444,386
----------- -----------
TOTAL CURRENT LIABILITIES.... 9,670,623 8,518,698
----------- -----------
LONG-TERM LIABILITIES.................. 66,702,729 66,804,704
----------- -----------
COMMITMENTS AND CONTINGENCIES.......... -- --
PARTNERS' EQUITY:
CONTRIBUTED EQUITY................... 9,901,600 9,901,600
UNDISTRIBUTED EARNINGS............... 6,843,977 16,922,361
----------- -----------
TOTAL PARTNERS' EQUITY....... 16,745,577 26,823,961
----------- -----------
$93,118,929 $102,147,363
=========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-20-
<PAGE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
1996 1995
---- ----
OPERATING REVENUES................. $4,957,368 $7,941,577
OPERATING EXPENSES:
FUEL............................. 1,479,116 3,408,912
DEPRECIATION AND AMORTIZATION.... 892,500 1,072,028
LABOR, SUPPLIES AND OTHER........ 1,066,580 1,431,321
---------- ----------
TOTAL OPERATING EXPENSES. 3,438,196 5,912,261
---------- ----------
OPERATING INCOME....... 1,519,172 2,029,316
---------- ----------
OTHER INCOME AND EXPENSE:
INTEREST INCOME AND OTHER........ 154,073 130,313
GENERAL AND ADMINISTRATIVE....... (290,763) (201,340)
INTEREST EXPENSE................. (1,965,945) (2,094,761)
---------- ----------
TOTAL OTHER INCOME AND EXPENSE (2,102,635) (2,165,788)
---------- ----------
PARTNERSHIP LOSS................... $(583,463) $(136,472)
========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-21-
<PAGE>
<TABLE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1996 1995
---- ----
<S> <C> <C>
Net Cash Provided by Operating Activities................... $9,779,417 $2,298,789
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF AVAILABLE-FOR-SALE SECURITIES................ (25,170,795) (12,290,102)
PROCEEDS FROM SALES AND REDEMPTIONS OF AVAILABLE-FOR-SALE
SECURITIES............................................ 23,344,968 12,841,335
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT, NET.......... -- (20,189)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,825,827) 531,044
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
INCREASE IN LONG-TERM LIABILITIES, NET..................... -- 307,110
CASH DISTRIBUTIONS TO PARTNERS............................. (9,500,000) (8,500,000)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES.............. (9,500,000) (8,192,890)
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................... (1,546,410) (5,363,057)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 3,757,921 5,363,057
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $2,211,511 $ --
========== ==========
SUPPLEMENTARY INFORMATION:
UNREALIZED HOLDING GAINS/LOSSES, NET, ON AVAILABLE-FOR-SALE
SECURITIES, RECORDED AS ADDITIONS TO UNDISTRIBUTED
EARNINGS............................................... $5,079 $--
CASH PAID DURING THE PERIOD FOR INTEREST.................. $ -- $--
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
-22-
<PAGE>
BAF ENERGY,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1996
(UNAUDITED)
(1) GENERAL
Organization
BAF Energy, A California Limited Partnership (BAF Energy or the Partnership)
was founded in 1986 and is engaged in the development, construction and
operation of a cogeneration facility. The term of the Partnership is through
December 2020 unless terminated earlier in accordance with the Partnership
Agreement. The facility produces and sells electricity and steam.
BAF Energy, Inc. (BEI) is the general partner of the Partnership and has an
ownership interest of 1 percent. BEI is a wholly owned subsidiary of Basic
Vegetable Products, Inc. (BVP). BVP is a wholly owned subsidiary of Basic
American, Inc. (BAI). As of January 31, 1996, BAI also owned approximately 51
percent of the limited partnership units of BAF Energy then outstanding.
Distributions and profit and loss are allocated 99 percent to the limited
partners, based on their proportionate share of limited partnership units, and 1
percent to the general partner.
Basis of Interim Presentation
The accompanying interim condensed financial statements of the Partnership
have been prepared by the Partnership, without audit by independent public
accountants, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the condensed consolidated
financial statements include all normal recurring adjustments necessary to
present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
financial statements of the Partnership for the year ended October 31, 1995.
Consistent with the operating schedule of the cogeneration facility, the
Partnership receives a majority of its operating revenue between May and
September. Therefore, the results of operations for the three months ended
January 31, 1996 and 1995 are not indicative of the results for the entire year.
(2) RELATED PARTY TRANSACTIONS
The Partnership Agreement requires that the Partnership pay BEI a monthly
administrative fee. This fee amounted to $37,558 and $35,770 for the quarters
ended January 31, 1996 and 1995, respectively.
The Partnership has entered into a ground lease with BAI for the land on
which the facility is located. Rent was $37,554 and $35,764 for the quarters
ended January 31, 1996 and 1995, respectively.
The Partnership negotiated a steam sales contract with Basic Vegetable
Products, LP (BVP, LP). The General Partner of BVP, LP is BVP. Under the
contract, the Partnership supplies steam to BVP, LP's food processing plant.
Revenues recorded under the contract totaled $38,333 and $55,788 for the
quarters ended January 31, 1996 and 1995, respectively.
-23-
<PAGE>
(3) PARTNERS' EQUITY:
The Partnership made distributions of $9,500,000 and $8,500,000 for the
quarters ended January 31, 1996 and 1995, respectively.
(4) SIGNIFICANT LEASE TRANSACTION:
In April 1996, the Partnership signed an agreement with a third party to
enter into a 23-year lease of the cogeneration property, plant and equipment and
to assign all related contracts. Under the terms of the lease, the lessee will
assume all rights and responsibilities related to the ground lease with BAI (see
Note 2), the BVP, LP steam sales contract (see Note 2) and a Pacific Gas &
Electric (PG&E) Power Purchase Agreement. The ground lease has a remaining term
of 23 years with BAI for the land on which the facility is located. This lease
includes options to extend the lease term up to an additional 30 years. The BVP,
LP steam sales contract has a remaining term of 23 years. The PG&E Power
Purchase Agreement states that PG&E pays capacity payments, as defined in the
agreement, and purchases all available energy, except for amounts sold to BVP,
LP.
-24-
