SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission File Number 1-13434
EDISON MISSION ENERGY
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4031807
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18101 VON KARMAN AVENUE
IRVINE, CALIFORNIA 92715
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 752-5588
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
--- ---
Number of shares outstanding of the registrant's Common Stock as of May
14, 1996: 100 shares (all shares held by an affiliate
of the registrant).
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Item Page
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<S> <C>
PART I - FINANCIAL INFORMATION
1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
PART III
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUE
Electric revenues $156,769 $62,756
Equity in income from energy projects 20,070 16,617
Equity in income from oil and gas 4,761 3,812
Operation and maintenance services 9,050 7,203
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Total operating revenue 190,650 90,388
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OPERATING EXPENSES
Fuel 31,486 17,492
Plant operations 25,830 8,501
Operation and maintenance services 6,174 5,533
Depreciation and amortization 18,238 9,881
Administrative and general 23,676 12,382
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Total operating expenses 105,404 53,789
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Income from operations 85,246 36,599
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OTHER INCOME (EXPENSE)
Interest and other income 4,898 5,418
Interest expense (34,393) (19,226)
Dividends on preferred securities (3,279) (1,985)
Minority interest (13,733) (11,848)
-------- --------
Total other income (expense) (46,507) (27,641)
-------- --------
Income before income taxes 38,739 8,958
Provision for income taxes 16,736 1,429
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NET INCOME $ 22,003 $ 7,529
========= ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 134,936 $ 137,540
Accounts receivable - trade 48,751 88,988
Accounts receivable - affiliates 7,503 10,348
Prepaid expenses and other 8,917 13,268
---------- ----------
Total current assets 200,107 250,144
---------- ----------
INVESTMENTS
Energy projects 755,537 723,935
Oil and gas 151,533 156,905
---------- ----------
Total investments 907,070 880,840
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 3,100,624 2,845,422
Less accumulated depreciation and amortization 128,234 83,275
---------- ----------
Net property, plant and equipment 2,972,390 2,762,147
---------- ----------
OTHER ASSETS
Long-term receivables 86,106 86,030
Goodwill 303,897 311,942
Deferred financing costs and other 161,137 82,933
---------- ----------
Total other assets 551,140 480,905
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TOTAL ASSETS $4,630,707 $4,374,036
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 14,272 $ 11,500
Accounts payable and accrued liabilities 110,061 137,623
Interest payable 32,845 13,641
Current maturities of long-term obligations 48,120 37,009
---------- ----------
Total current liabilities 205,298 199,773
---------- ----------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 2,035,771 1,839,003
---------- ----------
LONG-TERM DEFERRED LIABILITIES
Deferred taxes and tax credits 499,293 502,611
Other 24,211 23,958
---------- ----------
Total long-term deferred liabilities 523,504 526,569
---------- ----------
Total liabilities 2,764,573 2,565,345
---------- ----------
MINORITY INTERESTS 673,642 630,154
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COMPANY - OBLIGATED MANDATORILY REDEEMABLE
SECURITY OF PARTNERSHIP HOLDING SOLELY PARENT
DEBENTURES 150,000 150,000
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COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDER'S EQUITY
Common stock, no par value; 10,000 shares authorized;
100 shares issued and outstanding 64,130 64,130
Additional paid-in capital 629,289 629,289
Retained earnings 342,532 320,529
Cumulative translation adjustments 6,541 14,589
---------- ----------
Total shareholder's equity 1,042,492 1,028,537
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,630,707 $4,374,036
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
----------------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 22,003 $ 7,529
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income from energy projects (20,070) (16,617)
Equity in income from oil and gas (4,761) (3,812)
Distributions from energy projects 15,002 26,428
Dividends from oil and gas 300 9,541
Depreciation and amortization 18,238 9,881
Deferred tax provision 1,889 2,964
Decrease in accounts receivable 55,429 10,216
Decrease (increase) in prepaid expenses and other 5,869 (4,628)
Increase in interest payable 15,334 5,118
Decrease in accounts payable and accrued liabilities (24,612) (33,818)
Other, net 4,561 1,097
--------- ---------
Net cash provided by operating activities 89,182 13,899
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CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term obligations 32,384 132,292
Payments on long-term obligations (619,945) (6,457)
Issuance of guaranteed secured bonds 603,840 -
--------- ---------
Net cash provided by financing activities 16,279 125,835
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CASH FLOWS FROM INVESTING ACTIVITIES
Investments in energy projects (9,528) (20,534)
Loans to energy projects (25,034) (74,084)
Purchase of common stock of acquired companies (29,745) -
Capital expenditures (47,574) (46,679)
Other, net 5,565 (745)
--------- ---------
Net cash used in investing activities (106,316) (142,042)
--------- ---------
Effect of exchange rate changes on cash (1,749) 454
--------- ---------
Net decrease in cash and cash equivalents (2,604) (1,854)
Cash and cash equivalents at beginning of period 137,540 64,145
--------- ---------
Cash and cash equivalents at end of period $134,936 $62,291
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. GENERAL
- - ---------------
All adjustments, including recurring accruals, have been made that are
necessary to present fairly the consolidated financial position and results of
operations for the periods covered by this report. The results of operations
for the three months ended March 31, 1996, are not necessarily indicative of the
operating results for the full year.
Edison Mission Energy's (the "Company") significant accounting policies are
described in Note 2 to the Company's Consolidated Financial Statements as of
December 31, 1995 and 1994, included in its 1995 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on April 1, 1996. The Company
follows the same accounting policies for interim reporting purposes. This
quarterly report should be read in connection with such financial statements.
Certain prior period amounts have been reclassified to conform to the current
period financial statement presentation.
NOTE 2. INVESTMENTS
- - --------------------
The following table presents summarized financial information with respect to
the energy projects and oil and gas investments, accounted for by the equity
method:
<TABLE>
<CAPTION>
(In thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ENERGY PROJECTS
Operating Revenue $296,969 $239,331
Income from Operations 73,875 67,975
Net Income 47,632 31,146
OIL AND GAS
Operating Revenue $ 67,845 $ 53,500
Income from Operations 19,746 12,464
Net Income 14,026 8,880
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
- - --------------------------------------
Certain Company subsidiaries are required to fund the construction costs of
project facilities, which are estimated to be $145.5 million at March 31, 1996.
Present financing agreements will provide for $37.1 million of these funding
requirements.
The Company obtained certain tax-exempt bond financing for the Brooklyn Navy
Yard Project in the amount of $254 million through the New York City Industrial
Development Agency (NYCIDA) during December 1995. In connection with the
financing, Brooklyn Navy Yard entered into two reimbursement agreements with two
banks (collectively, the "co-arrangers") for two letters of credit issued by the
co-arrangers (i) to secure payment of bonds issued pursuant to the financing
($254 million) and (ii) to secure Brooklyn Navy Yard's indemnity to the NYCIDA
in connection with actions taken by or on behalf of the NYCIDA with respect to
the Brooklyn Navy Yard Project and financing in the amount of $40 million
(collectively, the "Reimbursement Agreements"). As a condition of the issuance
of the letters of credit, the Company guaranteed the obligations of Brooklyn
Navy Yard pursuant to the Reimbursement Agreements. Consolidated Edison Company
of New York (Consolidated Edison), which has contracted to buy most of the
project's power, raised concerns regarding the timing of certain milestones and
whether the plant's configuration and related performance comply with the terms
of the contracts. The Company believes the project has complied with the terms
of the contracts; however, the Company and its project partner are attempting to
resolve these issues in a manner satisfactory to the project and Consolidated
Edison through negotiations among the Company, its project partner and
Consolidated Edison. Moreover, although the Company, its project partner and
Consolidated Edison are continuing to evaluate various options with respect to
the ongoing development and future operation of the project, the Company
believes that its anticipated returns with respect to the project will be
substantially less than it had originally estimated.
In January 1996, the Company purchased an additional 7.5% interest in the
Paiton project, a 1,230-MW coal-fired power plant project under construction in
east Java, Indonesia. The Company has firm commitments to make the remaining
equity contributions and contingent obligations to make additional equity
contributions to fund the project in the approximate amounts of $265 million and
$141 million, respectively. Equity contributions are currently being made by
the Company and its partners and will continue to be made over the expected
four-year construction period.
Two wholly owned subsidiaries of the Company own a 100% interest in a 116-MW
cogeneration power plant project under construction near Perth, Australia. The
Company has committed to provide an equity contribution of 35 million Australian
dollars (U.S. $27 million) at the commercial operation date, which is currently
scheduled for late 1996.
A wholly owned subsidiary of the Company is a 49% shareholder of an Italian
corporation formed to develop, own and operate a 507-MW power plant near
Siracusa, Sicily. Pursuant to certain agreements, the Company's subsidiary has
indemnified the Italian corporation with respect to 49% of its liabilities to
the power purchaser under the power-purchase agreement, up to a maximum of 12
billion Italian lira (U.S. $7.7 million). In April 1996, the Company and its
partner, ISAB S.p.A., completed a 1.9 trillion Italian lira (approximately U.S.
$1.2 billion) financing for the power project. Initial funding, which is
scheduled for June 1996, is subject to certain conditions. In connection with
the financing, the Company has guaranteed equity contributions and subordinated
debt totaling 244 billion Italian lira (U.S. $156 million) at the earlier of:
(i) 56 months after signing the loan documents; (ii) conversion of the debt into
a term loan; or (iii) upon acceleration of the debt.
A wholly owned subsidiary of the Company had entered into various agreements
related to the Loy Yang B project in Australia, whereby the Company potentially
could have been required to provide additional equity and/or a debt service
fund. This potential obligation was terminated in March 1996 in connection with
the restructure of the existing debt facility. Under a Project Facilities
Agreement (Agreement), the Company is obligated to secure the obligations and
performance of its subsidiary, which operates the Loy Yang B project in
Australia in an amount up to 5 million Australian dollars (U.S. $3.9 million) in
any year until all obligations have been fulfilled under the Agreement.
The Company has certain obligations and commitments related to an energy
project in California. Among those obligations is a reimbursement commitment
under a letter of credit (LOC). The LOC provides security for the maintenance
of a $5 million debt service reserve required under a financing agreement. At
March 31, 1996, the LOC has not been drawn upon nor has a fund been established
by the project company for debt service and, as of such date, no liability has
been recorded on the Company's financial statements.
A limited partnership, in which a subsidiary of the Company holds a 25%
partnership interest, entered into a long-term gas-purchase agreement in 1989.
Pursuant to the agreement, the partnership is required to pay certain potential
gas payment deficiencies upon the expiration of the gas-purchase agreement. The
Company entered into an agreement in favor of the gas supplier to guarantee 25%
of the partnership obligation no earlier than 1997 and not exceeding $2.5
million.
Certain of the Company subsidiaries entered into indemnification agreements
whereby the subsidiaries agreed to repay capacity payments to the projects'
power purchasers, in the event the projects unilaterally terminate their
performance or reduce their electric power producing capability during the term
of the power contract. Obligations under these indemnification agreements as of
March 31, 1996, if required, would be $236 million. Management has no reason to
believe that the projects will either terminate their performance or reduce
their electric power producing capability during the term of the power
contracts.
At March 31, 1996, the Company had other contingent obligations to make
additional contributions to its projects of approximately $5 million.
Management has no reason to believe that these obligations will not be
fulfilled. The Company is routinely involved in litigation arising in the normal
course of business. While the results of such litigation cannot be predicted
with certainty, management, based on advice of counsel, does not believe that
the final outcome of any pending litigation will have a material adverse effect
on the consolidated financial position and results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to environmental regulation by federal, state and
local authorities in the United States and regulatory authorities with
jurisdiction over projects located outside the United States. The Company
believes that it is in substantial compliance with environmental regulatory
requirements and that maintaining compliance with current requirements will not
materially affect its financial condition or results of operations. The Company
completed a review of some of its sites in 1995 and does not believe that a
material liability exists as of March 31, 1996. The implementation of Clean Air
Act Amendments is also expected to result in increased operating expenses.
These increased operating expenses, as well as any potential liability increase,
are not expected to have a material impact on the Company's financial position
or results of operations.
In connection with the financing of a project located near Henderson, Nevada,
the project lenders required an indemnity from the Company relating to pre-
existing environmental conditions at the plant site. A $5 million environmental
fund with a balance of $4.6 million at March 31, 1996, is being established with
15% of all cash distributions from the project. In the event that the Company
is required to make a payment to the project lenders pursuant to the
environmental indemnity, the Company has the right to recover those amounts from
the project. In connection with the financing of the project, the Company was
required by the project lenders to indemnify them in the event that, as a result
of a total destruction of the project and a decision not to rebuild the
facility, the lessor of the project site successfully asserts rights to certain
of the insurance proceeds, which then causes a shortfall to the lenders. The
Company's liability is limited to the amount of insurance proceeds that would be
paid to the project lessor. The project is required to maintain insurance
coverage in an amount that is the greater of the outstanding debt or the
replacement cost of the project.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
- - -------
The Company is one of the leading independent producers of electricity
worldwide. Through its subsidiaries, the Company is engaged in the business of
developing, acquiring, owning and operating independent electric power
generation facilities.
The Company's operating revenues are derived primarily from electric
revenues and equity in income from energy projects. Operating revenues also
include equity in income from oil and gas investments and revenue attributable
to operation and maintenance services.
Electric revenues are derived from consolidated results of operations of
four international energy projects. Equity in income from energy projects
primarily relates to the Company's ownership interest of 50% or less in domestic
projects. The equity method of accounting is generally used to account for the
operating results of entities over which a company has a significant influence
but in which it does not have a controlling interest. With respect to entities
accounted for under the equity method, the Company recognizes its proportional
share of the income or loss of such entities.
RESULTS OF OPERATIONS
- - ---------------------
OPERATING REVENUES Operating revenues increased $100.3 million for the first
quarter of 1996, compared with the first quarter of 1995, resulting primarily
from increases in electric revenues. Electric revenues were higher in the first
quarter of 1996 mainly due to the acquisition of First Hydro in December 1995.
In addition, Iberian Hy-Power contributed additional electric revenues as a
result of the Company increasing its ownership percentage to 100% in January
1996. Both First Hydro and Iberian Hy-Power provide for higher electric
revenues during the winter months. There were no comparable electric revenues
for these projects in the first quarter of 1995.
OPERATING EXPENSES Operating expenses increased $51.6 million in the first
quarter of 1996, compared with the corresponding period in 1995. The
substantial increase in operating expenses was principally due to higher fuel
and plant operating expenses, resulting from the addition of operations related
to First Hydro and Iberian Hy-Power. There were no comparable expenses for these
projects in the first quarter of 1995.
OTHER INCOME (EXPENSE) Interest expense, net of capitalized interest,
increased $15.2 million in the first quarter of 1996, compared with the
corresponding period in 1995 due primarily to the additional debt related to the
First Hydro acquisition.
Dividends on preferred securities were $3.3 million and $2.0 million in the
first quarter of 1996 and 1995, respectively. The increase during the first
quarter of 1996 is due to the issuance of Series B preferred securities issued
during the third quarter of 1995.
PROVISION FOR INCOME TAXES The Company recorded an effective tax provision
rate of 43% for the three-month period ended March 31, 1996, compared with 16%
for the same prior year period. The increase in the 1996 effective tax rate was
primarily due to the acquisition of First Hydro. Earnings generated from the
First Hydro project are subject to a higher effective tax rate than the federal
statutory rate.
SALE OF GEOTHERMAL FACILITIES In April 1996, the Company completed a sale of
four of its operating geothermal facilities in the Imperial Valley, California,
for a cash price of $70 million. CalEnergy Company, Inc., the Company's partner
in these projects, purchased all the stock of four wholly owned subsidiaries of
the Company, which hold 50% interests in the Vulcan (34-MW), Andy Hoch (38-MW),
Elmore (38-MW) and Leathers (38-MW) projects. There will be no impact on the
Company's future revenues as the Company discontinued recording earnings from
these projects in the third quarter of 1993. The Company recorded an after-tax
gain of approximately $15.5 million on the sale in April 1996.
LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1996,
net cash provided by operating activities amounted to $89.2 million, primarily
attributable to increased net income, distributions from energy projects of $15
million and higher First Hydro accounts receivable collections. In addition,
the Company issued 400 million pounds sterling of 9% Guaranteed Secured Bonds
(U.S. $603.8 million). The net proceeds received were used to repay the
borrowings under the 400 million pound sterling (U.S. $603.8 million) credit
facility entered into by First Hydro Finance in December 1995 in connection with
the First Hydro acquisition. Upon repayment of all outstanding principal and
accrued interest in January 1996, the 400 million pound sterling credit facility
was canceled. Other cash generated was used to fund construction expenditures
of $47.6 million, fund loans and contributions to energy projects under
development of $34.6 million and purchase common stock of acquired companies of
$29.7 million, primarily the remaining equity stake of Iberian Hy-Power.
At March 31, 1996, the Company had cash and cash equivalents of $134.9
million and had available $291 million of borrowing capacity under a $400
million revolving credit facility that expires in 1999. This borrowing capacity
under the revolving credit facility will be reduced by borrowings for additional
funding of the Brooklyn Navy Yard project in 1996. Although the Company owns
50% of the Brooklyn Navy Yard project, it is funding all of the required equity
for the project. The project is under construction and has an estimated capital
cost of approximately $460 million, of which approximately $360 million has been
spent through March 31, 1996. In December 1995, the Company obtained a tax-
exempt bond financing for the Brooklyn Navy Yard Project in the amount of $254
million through the New York City Industrial Development Agency (NYCIDA). In
connection with the financing, Brooklyn Navy Yard entered into two reimbursement
agreements with two banks (collectively, the "co-arrangers") for two letters of
credit issued by the co-arrangers (i) to secure payment of bonds issued pursuant
to the financing ($254 million) and (ii) to secure Brooklyn Navy Yard's
indemnity to the NYCIDA in connection with actions taken by or on behalf of the
NYCIDA with respect to the Brooklyn Navy Yard Project and financing in the
amount of $40 million (collectively, the "Reimbursement Agreements"). As a
condition of the issuance of the letters of credit, the Company guaranteed the
obligations of Brooklyn Navy Yard pursuant to the Reimbursement Agreements.
Consolidated Edison Company of New York (Consolidated Edison), which has
contracted to buy most of the project's power, raised concerns regarding the
timing of certain milestones and whether the plant's configuration and related
performance comply with the terms of the contracts. The Company believes the
project has complied with the terms of the contracts; however, the Company and
its project partner are attempting to resolve these issues in a manner
satisfactory to the project and Consolidated Edison through negotiations among
the Company, its project partner and Consolidated Edison. Moreover, although
the Company, its project partner and Consolidated Edison are continuing to
evaluate various options with respect to the ongoing development and future
operation of the project, the Company believes that its anticipated returns with
respect to the project will be substantially less than it had originally
estimated.
At March 31, 1996, the Company had firm commitments to make equity and other
contributions to its projects and contingent obligations to make additional
contributions to its projects in the amount of $287 million and $454 million,
respectively. Included in contingent obligations are the Company's guarantees
related to the Brooklyn Navy Yard project totaling $294 million, discussed
above. The majority of the remaining amounts relate to the Paiton project, a
1,230-MW coal-fired power plant under construction in east Java, Indonesia. In
April 1995, the Company and its partners completed a $1.82 billion financing for
the Paiton project in which the Company has firm commitments to make the
remaining equity contributions and contingent obligations to make additional
equity contributions to fund the project, under certain circumstances. The firm
equity contributions currently are being made by the Company and its partners
and will continue to be made over the expected four-year construction period.
In January 1996, the Company purchased an additional 7.5% interest in the Paiton
project, thereby increasing its ownership percentage to 40%.
In April 1996, the Company and its partner, ISAB S.p.A., completed a 1.9
trillion Italian lira (approximately U.S. $1.2 billion) financing for the 507-MW
ISAB power project located near Siracusa, Sicily, Italy. Initial funding, which
is scheduled for June 1996, is subject to certain conditions. The project will
employ gasification technology to convert heavy oil residues from the ISAB
refinery in Priolo Gargallo into clean-burning syngas that will be used to
generate electricity in a combustion turbine. The Company will own 49% of the
project, which is expected to enter into commercial operation in 1999. In
connection with the financing, the Company has guaranteed equity contributions
and subordinated debt totaling 244 billion Italian lira (U.S. $156 million) at
the earlier of: (i) 56 months after signing the loan documents; (ii) conversion
of the debt into a term loan; or (iii) upon acceleration of the debt.
The Company and its subsidiaries may incur additional obligations to make
equity and other contributions to projects in the future. The Company believes
that it will have sufficient liquidity on both a short and long-term basis to
fund pre-financing project development costs, make equity contributions to
partnerships, pay corporate debt obligations and pay other administrative and
general expenses as they are incurred from (1) distributions from energy
projects and dividends from investments in oil and gas, (2) proceeds from the
repayment of loans to energy projects, (3) funds available from the Company's
revolving credit facility and (4) additional corporate borrowings.
CHANGES IN INTEREST RATES, CHANGES IN ELECTRICITY POOL PRICING, AND FOREIGN
CURRENCY FLUCTUATIONS Changes in interest rates, changes in electricity pool
pricing, and fluctuations in foreign currency exchange rates can have a
significant impact on the Company's results of operations. Interest rate
changes affect the cost of capital needed to construct and finance projects.
The Company has mitigated the risk of interest rate fluctuations by arranging
for fixed rate financing or variable rate financing with interest rate swaps or
other hedging mechanisms for the majority of its project financings. Interest
expense was increased by $1.9 million and $2.1 million for the three months
ended March 31, 1996 and 1995, respectively, as a result of interest rate
hedging mechanisms. The Company has entered into several interest rate swap
agreements whereby the maturity date of the swaps occurs prior to the final
maturity of the underlying debt. The Company does not anticipate a materially
adverse effect on financial position or results of operations as a result of
interest rate fluctuations.
Projects in the U.K. sell their electrical energy and capacity through a
centralized electricity pool, which establishes a half-hourly clearing price
(also referred to as the "pool price"). The half-hourly pool price is extremely
volatile and can vary by as much as a factor of 10 or more over the course of a
few hours, due to the large differentials in demand according to the time of
day. First Hydro mitigates a portion of the market risk of the pool by entering
into contracts for differences (electricity rate swap agreements), whereby First
Hydro receives specified contracted amounts in exchange for making payments when
pool selling prices rise above the prices specified in the contracts. These
contracts act as a means of stabilizing production revenues by removing an
element of net exposure to pool price volatility. First Hydro electric revenues
were decreased by $4.3 million for the three-month period ended March 31, 1996,
as a result of electricity rate swap agreements.
Fluctuations in foreign currency exchange rates can affect, on a U.S. dollar
equivalent basis, the amount of the Company's equity contributions to, and
distributions from, its foreign projects. As the Company continues to expand
into foreign markets, fluctuations in foreign currency exchange rates can be
expected to have a greater impact on the Company's results of operations in the
future. The Company has hedged a portion of its current exposure to fluctuations
in foreign exchange rates where it deems appropriate through offsetting
obligations denominated in foreign currencies and indexing underlying project
agreements to U.S. dollars or other indices reasonably expected to correlate
with foreign exchange movements.
ENVIRONMENTAL PROTECTION The Company is subject to environmental regulation by
federal, state and local authorities in the United States and regulatory
authorities with jurisdiction over projects located outside the United States.
The Company believes that it is in substantial compliance with environmental
regulatory requirements and that maintaining compliance with current
requirements will not materially affect its financial condition or results of
operations. The Company completed a review of some of its sites in 1995 and
does not believe that a material liability exists as of March 31, 1996. The
implementation of Clean Air Act Amendments is also expected to result in
increased operating expenses. These increased operating expenses, as well as
any potential liability increase, are not expected to have a material impact on
the Company's financial position or results of operations.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The registrant filed the following reports on Form 8-K during the
quarter ended March 31,1996.
Date of Report Date Filed Item Reported(s)
-------------- ---------- ----------------
December 21, 1995 January 4, 1996 2,7
December 21, 1995 January 30, 1996 2,7
December 21, 1995 March 4, 1996 7
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.
EDISON MISSION ENERGY
---------------------
(Registrant)
Date: May 13, 1996 JAMES V. IACO, JR.
-------------------------
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EDISON
MISSION ENERGY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 134,936
<SECURITIES> 0
<RECEIVABLES> 48,751
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 200,107
<PP&E> 3,100,624
<DEPRECIATION> 128,234
<TOTAL-ASSETS> 4,630,707
<CURRENT-LIABILITIES> 205,298
<BONDS> 2,035,771
150,000
0
<COMMON> 64,130
<OTHER-SE> 978,362
<TOTAL-LIABILITY-AND-EQUITY> 4,630,707
<SALES> 0
<TOTAL-REVENUES> 165,819
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<INTEREST-EXPENSE> 37,672
<INCOME-PRETAX> 38,739
<INCOME-TAX> 16,736
<INCOME-CONTINUING> 22,003
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