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 June 30, 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 92612
(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 August
14, 1996: 100 shares (all shares held by an affiliate of the registrant).
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Item Page
- ---- ----
<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) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Electric revenues $ 133,760 $ 63,702 $ 290,529 $126,458
Equity in income from energy projects 36,526 31,408 56,596 48,024
Equity in income from oil and gas 4,331 3,223 9,092 7,036
Operation and maintenance services 9,718 9,860 18,768 17,063
--------- -------- --------- --------
Total operating revenue 184,335 108,193 374,985 198,581
------- ------- ------- -------
OPERATING EXPENSES
Fuel 32,840 18,432 64,326 35,924
Plant operations 33,826 8,973 59,656 17,474
Operation and maintenance services 7,424 7,545 13,598 13,078
Depreciation and amortization 20,158 10,444 38,396 20,325
Administrative and general 16,813 15,184 40,489 27,566
------- -------- ------- -------
Total operating expenses 111,061 60,578 216,465 114,367
-------- -------- -------- --------
Income from operations 73,274 47,615 158,520 84,214
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest and other income 7,517 7,752 12,415 13,170
Gain on sale of assets 19,986 - 19,986 -
Interest expense (31,306) (19,324) (65,699) (38,549)
Dividends on preferred securities (3,269) (2,005) (6,548) (3,990)
Minority interest (14,153) (11,637) (27,886) (23,486)
-------- -------- -------- --------
Total other income (expense) (21,225) (25,214) (67,732) (52,855)
-------- -------- -------- --------
Income before income taxes 52,049 22,401 90,788 31,359
Provision for income taxes 21,047 7,946 37,783 9,375
-------- -------- -------- --------
NET INCOME $ 31,002 $ 14,455 $ 53,005 $ 21,984
======== ======== ======== ========
<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)
June 30, December 31,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 147,051 $ 137,540
Accounts receivable - trade 52,822 88,988
Accounts receivable - affiliates 7,456 10,348
Prepaid expenses and other 7,955 13,268
----------- -----------
Total current assets 215,284 250,144
----------- -----------
INVESTMENTS
Energy projects 749,702 723,935
Oil and gas 137,371 156,905
----------- -----------
Total investments 887,073 880,840
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 3,149,543 2,845,422
Less accumulated depreciation and amortization 108,588 83,275
----------- -----------
Net property, plant and equipment 3,040,955 2,762,147
----------- -----------
OTHER ASSETS
Long-term receivables 86,077 86,030
Goodwill 307,257 311,942
Deferred financing costs and other 150,764 82,933
----------- -----------
Total other assets 544,098 480,905
----------- -----------
TOTAL ASSETS $ 4,687,410 $ 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)
June 30, December 31,
1996 1995
----------- ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 58,077 $ 11,500
Accounts payable and accrued liabilities 113,710 137,623
Interest payable 36,267 13,641
Current maturities of long-term obligations 48,690 37,009
----------- -----------
Total current liabilities 256,744 199,773
----------- -----------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 2,011,524 1,839,003
----------- -----------
LONG-TERM DEFERRED LIABILITIES
Deferred taxes and tax credits 473,657 502,611
Other 25,799 23,958
----------- -----------
Total long-term deferred liabilities 499,456 526,569
----------- -----------
Total liabilities 2,767,724 2,565,345
----------- -----------
MINORITY INTERESTS 688,658 630,154
----------- -----------
COMPANY - OBLIGATED MANDATORILY REDEEMABLE
SECURITY OF PARTNERSHIP HOLDING SOLELY PARENT
DEBENTURES 150,000 150,000
----------- -----------
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 373,534 320,529
Cumulative translation adjustments 14,075 14,589
----------- -----------
Total shareholder's equity 1,081,028 1,028,537
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 4,687,410 $ 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)
Six Months Ended
June 30,
------------------------------
1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 53,005 $ 21,984
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income from energy projects (56,596) (48,024)
Equity in income from oil and gas (9,092) (7,036)
Distributions from energy projects 32,541 45,972
Dividends from oil and gas 17,598 15,786
Depreciation and amortization 38,396 20,325
Deferred tax credit (29,264) (2,034)
Gain on sale of assets (19,986) -
Decrease in accounts receivable 52,924 11,571
Decrease (increase) in prepaid expenses and other 5,312 (4,088)
Increase (decrease) in interest payable 18,755 (2,367)
Increase (decrease) in accounts payable and accrued liabilities 22,843 (6,619)
Other, net 11,990 7,917
-------- --------
Net cash provided by operating activities 138,426 53,387
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term obligations 72,663 412,132
Payments on long-term obligations (696,447) (166,931)
Issuance of guaranteed secured bonds 603,840 -
-------- --------
Net cash provided by (used in) financing activities (19,944) 245,201
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in energy projects (26,658) (80,911)
Loans to energy projects (35,741) (124,753)
Purchase of common stock of acquired companies (29,745) -
Proceeds from sale of assets 70,000 -
Capital expenditures (91,606) (96,751)
Other, net 4,998 (12,762)
--------- --------
Net cash used in investing activities (108,752) (315,177)
--------- --------
Effect of exchange rate changes on cash (219) (42)
--------- --------
Net increase (decrease) in cash and cash equivalents 9,511 (16,631)
Cash and cash equivalents at beginning of period 137,540 64,145
--------- --------
Cash and cash equivalents at end of period $147,051 $ 47,514
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six months ended June 30, 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) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ENERGY PROJECTS
Operating Revenue $213,003 $252,238 $509,972 $491,569
Income from Operations 89,382 84,052 163,257 152,027
Net Income 77,079 62,258 124,711 93,404
OIL AND GAS
Operating Revenue $ 71,796 $ 60,305 $139,641 $113,805
Income from Operations 15,477 13,941 35,223 26,405
Net Income 9,836 8,059 23,862 16,939
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
<TABLE>
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Paiton (i) 250
ISAB (ii) 244 billion Italian Lira 159
Kwinana (iii) 28 million Australian $ 22
</TABLE>
(i) Paiton is a 1,230-MW coal-fired power plant under construction in east Java,
Indonesia. A wholly owned subsidiary of the Company owns a 40% interest.
Equity contributions are currently being made and will continue until commercial
operation which is currently scheduled for early 1999.
(ii) ISAB is a 512-MW gas-fired (gasification technology) power plant under
construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of the
Company owns a 49% interest. Equity will be contributed at commercial operation
which is currently scheduled for late 1999.
(iii) Kwinana is a 116-MW gas-fired cogeneration power plant under construction
near Perth, Australia. Two wholly owned subsidiaries of the Company own a 100%
interest. Equity will be contributed at commercial operation which is currently
scheduled for the fourth quarter of 1996.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities.
<TABLE>
CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Brooklyn Navy Yard (i) 294
Paiton (ii) 141
Kwinana 7 million Australian $ 5
Loy Yang B 5 million Australian $ 4
All Other 13
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant under
construction in Brooklyn, New York. A wholly owned subsidiary of the Company
owns 50%, but is funding all of the required equity during construction. Total
estimated capital cost is $485 million of which $386 million has been spent
through June 30, 1996. Commercial operation is currently scheduled for the
fourth quarter of 1996. In December 1995, the Company obtained a tax-exempt
bond financing for the project in the amount of $254 million through the New
York City Industrial Development Agency (NYCIDA). The Company has guaranteed
the obligations of the project pursuant to the financing as well as an indemnity
agreement on behalf of NYCIDA in the amount of $40 million. 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. The Company has been
advised that the contractor intends to assert general monetary claims under the
Construction Turnkey Agreement against Brooklyn Navy Yard. None of such claims
is expected to have a material adverse effect on the Company.
(ii) Contingent obligations to contribute additional project equity to the
Paiton project would be based on events principally related to capital cost
overruns during the plant construction.
Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.
OTHER COMMITMENTS AND CONTINGENCIES
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
June 30, 1996, if required, would be $240 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.
Certain Company subsidiaries are required to fund construction costs of
project facilities, which are estimated to be $113 million at June 30, 1996
(principally related to the Brooklyn Navy Yard project).
LITIGATION
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 Company's 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 foreign 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 June 30, 1996. The
implementation of Clean Air Act Amendments is expected to result in increased
operating expenses; however, these increased operating expenses, as well as any
other potential environmental liability increase, are not expected to have a
material impact on the Company's financial position or results of operations.
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 $76.1 million and $176.4
million for the second quarter and six months ended June 30, 1996, respectively,
compared with the corresponding periods of 1995. Increases in both periods
resulted primarily from higher electric revenues 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 minority 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 included in the six-month period
ended June 30, 1995.
OPERATING EXPENSES Operating expenses increased $50.5 million in the second
quarter of 1996, compared to the second quarter of 1995. For the six months
ended June 30, 1996, operating expenses increased $102.1 million, compared with
the corresponding period in 1995. The increases for both periods were
principally due to higher fuel expense, plant operations and depreciation and
amortization expense, resulting from the addition of operations related to First
Hydro and Iberian Hy-Power. There were no comparable expenses for these projects
included in the six-month period ended June 30, 1995. Administrative and
general expenses increased in the first six months of 1996, compared to the
first six months of 1995 as a result of continued worldwide development and
charges related to a voluntary retirement offer for non-union employees.
OTHER INCOME (EXPENSE) The Company recognized a pre-tax gain of $20 million
related to the sale in April 1996 of four 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 recognizing earnings from these projects in the third
quarter of 1993.
Interest expense, net of capitalized interest, increased $12 million in the
second quarter of 1996, compared with the corresponding period in 1995. For the
six months ended June 30, 1996, interest expense, net of capitalized interest,
increased $27.2 million compared with the same prior year period. The increases
for both periods were due primarily to the additional debt related to the First
Hydro acquisition.
Dividends on preferred securities increased $1.3 million and $2.6 million
for the second quarter and six months ended June 30, 1996, respectively,
compared with the corresponding periods in 1995. Increases in both periods were
due to the issuance of Series B preferred securities during the third quarter of
1995.
PROVISION FOR INCOME TAXES The Company recorded an effective tax provision
rate of 42% for the six-month period ended June 30, 1996, compared with 30% 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.
LIQUIDITY AND CAPITAL RESOURCES For the six months ended June 30, 1996, net
cash provided by operating activities increased to $138.4 million from $53.4
million for the six months ended June 30, 1995. The improvement primarily
reflects higher net income and improved accounts receivable collections
primarily attributable to First Hydro.
Net cash used in financing activities totaled $19.9 million during the first
six months of June 30, 1996, compared to net cash provided by financing
activities of $245.2 million during the same period in 1995. This change
resulted primarily from a reduction in net issuances under the Company's $400
million revolving credit facility in 1996. In addition, the Company issued 400
million pounds sterling of 9% Guaranteed Secured Bonds (U.S. $603.8 million) in
January 1996. 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.
Net cash used in investing activities decreased for the first six months of
1996, compared with the same prior year period primarily due to the proceeds of
$70 million received from the sale of four of the Company's operating geothermal
facilities in April 1996 and a reduction in the amount of loans and
contributions made to energy projects under development, partially offset by
purchases of common stock of acquired companies of $29.7 million, primarily the
remaining equity stake of Iberian Hy-Power. The Company invested $91.6 million
in new plant and equipment during the six months ended June 30, 1996, compared
to $96.8 million during the same period in 1995.
At June 30, 1996, the Company had cash and cash equivalents of $147.1
million and had available $345 million of borrowing capacity under a $400
million revolving credit facility that expires in 1999. This borrowing capacity
under the revolving credit facility will be reduced by borrowings for firm
commitments to contribute project equity and to fund construction costs of its
project facilities.
<TABLE>
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Paiton (i) 250
ISAB (ii) 244 billion Italian Lira 159
Kwinana (iii) 28 million Australian $ 22
</TABLE>
(i) Paiton is a 1,230-MW coal-fired power plant under construction in east Java,
Indonesia. A wholly owned subsidiary of the Company owns a 40% interest.
Equity contributions are currently being made and will continue until commercial
operation which is currently scheduled for early 1999.
(ii) ISAB is a 512-MW gas-fired (gasification technology) power plant under
construction near Siracusa in Sicily, Italy. A wholly owned subsidiary of the
Company owns a 49% interest. Equity will be contributed at commercial operation
which is currently scheduled for late 1999.
(iii) Kwinana is a 116-MW gas-fired cogeneration power plant under construction
near Perth, Australia. Two wholly owned subsidiaries of the Company own a 100%
interest. Equity will be contributed at commercial operation which is currently
scheduled for the fourth quarter of 1996.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities.
<TABLE>
CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Brooklyn Navy Yard (i) 294
Paiton (ii) 141
Kwinana 7 million Australian $ 5
Loy Yang B 5 million Australian $ 4
All Other 13
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant under
construction in Brooklyn, New York. A wholly owned subsidiary of the Company
owns 50%, but is funding all of the required equity during construction. Total
estimated capital cost is $485 million of which $386 million has been spent
through June 30, 1996. Commercial operation is currently scheduled for the
fourth quarter of 1996. In December 1995, the Company obtained a tax-exempt
bond financing for the project in the amount of $254 million through the New
York City Industrial Development Agency (NYCIDA). The Company has guaranteed
the obligations of the project pursuant to the financing as well as an indemnity
agreement on behalf of NYCIDA in the amount of $40 million. 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. The Company has been
advised that the contractor intends to assert general monetary claims under the
Construction Turnkey Agreement against Brooklyn Navy Yard. None of such claims
is expected to have a material adverse effect on the Company.
(ii) Contingent obligations to contribute additional project equity to the
Paiton project would be based on events principally related to capital cost
overruns during the plant construction.
Management has no reason to believe that these contingent obligations or any
other contingent obligations to contribute project equity will be required.
OTHER COMMITMENTS AND CONTINGENCIES
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
June 30, 1996, if required, would be $240 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.
Certain company subsidiaries are required to fund construction costs of
project facilities, which are estimated to be $113 million at June 30, 1996
(principally related to the Brooklyn Navy Yard project).
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 $3.7 million and $3.4 million for the six months ended
June 30, 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 believe that interest rate fluctuations
will have a materially adverse effect on financial position or results of
operations.
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 $1.9 million for the six-month period ended June 30, 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 MATTERS OR REGULATIONS The Company is subject to environmental
regulation by federal, state and local authorities in the United States and
foreign 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 June 30, 1996. The
implementation of Clean Air Act Amendments is expected to result in increased
operating expenses; however, these increased operating expenses, as well as any
other potential environmental 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
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
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: August 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 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 147,051
<SECURITIES> 0
<RECEIVABLES> 52,822
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 215,284
<PP&E> 3,149,543
<DEPRECIATION> 108,588
<TOTAL-ASSETS> 4,687,410
<CURRENT-LIABILITIES> 256,744
<BONDS> 2,011,524
150,000
0
<COMMON> 64,130
<OTHER-SE> 1,016,898
<TOTAL-LIABILITY-AND-EQUITY> 4,687,410
<SALES> 0
<TOTAL-REVENUES> 309,297
<CGS> 0
<TOTAL-COSTS> 137,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,247
<INCOME-PRETAX> 90,788
<INCOME-TAX> 37,783
<INCOME-CONTINUING> 53,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,005
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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