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 September 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 November
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 . . . . . . . . . . . . . . . . . . . . 15
PART III
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</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 Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Electric revenues $ 137,933 $ 64,559 $ 428,462 $ 191,017
Equity in income from energy projects 60,506 71,010 117,102 119,034
Equity in income from oil and gas 4,958 2,783 14,050 9,819
Operation and maintenance services 8,587 8,933 27,355 25,996
--------- -------- --------- ---------
Total operating revenue 211,984 147,285 586,969 345,866
------- ------- ------- -------
OPERATING EXPENSES
Fuel 28,822 17,292 93,148 53,216
Plant operations 31,374 10,616 91,030 28,090
Operation and maintenance services 6,268 6,715 19,866 19,793
Depreciation and amortization 19,327 11,002 57,723 31,327
Administrative and general 18,740 15,389 59,229 42,955
------- ------- ------- -------
Total operating expenses 104,531 61,014 320,996 175,381
------- ------- ------- -------
Income from operations 107,453 86,271 265,973 170,485
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest and other income 3,444 9,351 15,859 22,521
Gain on sale of assets - - 19,986 -
Interest expense (32,445) (20,221) (98,144) (58,770)
Dividends on preferred securities (3,282) (2,779) (9,830) (6,769)
Minority interest (12,821) (11,472) (40,707) (34,958)
--------- --------- --------- ---------
Total other income (expense) (45,104) (25,121) (112,836) (77,976)
--------- --------- --------- ---------
Income before income taxes 62,349 61,150 153,137 92,509
Provision for income taxes 31,320 22,228 69,103 31,603
------- ------- ------- -------
NET INCOME $ 31,029 $ 38,922 $ 84,034 $ 60,906
========= ========= ========= =========
<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)
September 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 258,445 $ 137,540
Accounts receivable - trade 44,723 88,988
Accounts receivable - affiliates 8,164 10,348
Prepaid expenses and other 13,265 13,268
------------ ------------
Total current assets 324,597 250,144
------------ ------------
INVESTMENTS
Energy projects 776,100 723,935
Oil and gas 141,544 156,905
------------ ------------
Total investments 917,644 880,840
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 3,235,957 2,845,422
Less accumulated depreciation and amortization 123,483 83,275
------------ ------------
Net property, plant and equipment 3,112,474 2,762,147
------------ ------------
OTHER ASSETS
Long-term receivables 92,697 86,030
Goodwill 307,738 311,942
Deferred financing costs and other 116,133 82,933
------------ ------------
Total other assets 516,568 480,905
------------ ------------
TOTAL ASSETS $4,871,283 $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)
September 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 69,009 $ 11,500
Accounts payable and accrued liabilities 97,001 137,623
Interest payable 25,507 13,641
Current maturities of long-term obligations 49,936 37,009
------------ ------------
Total current liabilities 241,453 199,773
------------ ------------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 2,142,807 1,839,003
------------ ------------
LONG-TERM DEFERRED LIABILITIES
Deferred taxes and tax credits 485,116 502,611
Other 32,805 23,958
------------ ------------
Total long-term deferred liabilities 517,921 526,569
------------ ------------
Total liabilities 2,902,181 2,565,345
------------ ------------
MINORITY INTERESTS 701,147 630,154
------------ ------------
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 404,563 320,529
Cumulative translation adjustments 19,973 14,589
----------- -----------
Total shareholder's equity 1,117,955 1,028,537
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,871,283 $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)
(Unaudited)
Nine Months Ended
September 30,
---------------------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 84,034 $ 60,906
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income from energy projects (117,102) (119,034)
Equity in income from oil and gas (14,050) (9,819)
Distributions from energy projects 86,685 101,302
Dividends from oil and gas 21,340 16,731
Depreciation and amortization 57,723 31,327
Deferred tax credit (20,514) (156)
Gain on sale of assets (19,986) -
Decrease in accounts receivable 60,314 9,823
Decrease in prepaid expenses and other 4,674 5,725
Increase in interest payable 7,995 3,392
Increase in accounts payable and accrued liabilities 18,849 186
Other, net 23,388 10,722
--------- ---------
Net cash provided by operating activities 193,350 111,105
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term obligations 181,991 270,527
Payments on long-term obligations (683,351) (30,853)
Issuance of preferred securities - 62,500
Issuance of guaranteed secured bonds 603,840 -
----------- ----------
Net cash provided by financing activities 102,480 302,174
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in energy projects (52,668) (77,389)
Loans to energy projects (45,517) (164,734)
Purchase of common stock of acquired companies (34,640) (25,347)
Proceeds from sale of assets 70,000 -
Capital expenditures (115,639) (138,378)
Other, net 3,075 (5,799)
---------- ----------
Net cash used in investing activities (175,389) (411,647)
---------- ----------
Effect of exchange rate changes on cash 464 8
---------- ----------
Net increase in cash and cash equivalents 120,905 1,640
Cash and cash equivalents at beginning of period 137,540 64,145
---------- ----------
Cash and cash equivalents at end of period $258,445 $ 65,785
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
EDISON MISSION ENERGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ENERGY PROJECTS
Operating Revenue $418,068 $368,580 $1,032,145 $860,149
Income from Operations 154,251 178,117 329,842 330,144
Net Income 132,139 145,044 267,740 238,448
OIL AND GAS
Operating Revenue $ 71,589 $ 35,811 $211,230 $149,616
Income from Operations 17,239 6,853 52,462 33,258
Net Income 10,655 4,881 34,517 21,820
</TABLE>
NOTE 3. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
<TABLE>
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Paiton (i) 239
ISAB (ii) 244 billion Italian Lira 160
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 20
</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 $483 million of which $409 million has been spent
through September 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. In November 1996,
the Company executed a new Energy Sales Agreement with Consolidated Edison
Company of New York (Consolidated Edison), which has contracted to buy most of
the project's power and steam, and began selling power and steam under that
Agreement on November 1. The Company continues to believe 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. The Company may assert claims against the
contractor. None of such claims is expected to have a material adverse effect
on the Company's financial position or results of operations.
(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
September 30, 1996, if required, would be $244 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 $75 million at September 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 or 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 September 30, 1996. The
implementation of Clean Air Act Amendments is expected to result in increased
operating expenses; however, these increased operating expenses are not expected
to have a material impact on the Company's financial position or results of
operations.
NOTE 4. SUBSEQUENT EVENTS
- --------------------------
In October 1996, the Company made a cash dividend of $150 million to its
parent company, The Mission Group, a wholly owned non-utility subsidiary of
Edison International, in order to allow Edison International to repay amounts
borrowed and contributed to the Company in connection with the acquisition of
First Hydro in 1995.
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 the 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 $64.7 million and $241.1
million for the third quarter and nine months ended September 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
three-month and nine-month periods ended September 30, 1995.
A significant number of the Company's domestic energy projects are located
on the West Coast. These projects generally have power sales contracts that
provide for higher payments during the summer months. Accordingly, the
Company's third quarter revenues from energy projects are materially higher than
other quarters of the year. In addition, First Hydro has experienced higher
energy sales due to higher capacity prices resulting from an increased number of
competing plants out of service for maintenance during the summer months.
On October 1, 1996, the Company announced that Unit 2 of the 1,000-MW coal-
fired Loy Yang B power plant near Melbourne, Australia, began commercial
operation. Unit 1 began commercial operation in September 1993. The Company
operates the plant and has a 51% ownership interest. Loy Yang B sells its
electricity to the State Electricity Commission of Victoria which owns the other
49% of the plant.
Equity in income from energy projects decreased in the third quarter of
1996, compared with the third quarter of 1995 resulting primarily from a
$11 million (pre-tax) write-down of the Company's investment in a geothermal
project. The write-down is principally the result of the transition from fixed
to variable pricing. The variable pricing reflects lower gas price forecasts
than were realized during the fixed pricing term of the contract.
OPERATING EXPENSES Operating expenses increased $43.5 million in the third
quarter of 1996, compared to the third quarter of 1995. For the nine months
ended September 30, 1996, operating expenses increased $145.6 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 three-month and nine-month periods ended September 30, 1995.
Administrative and general expenses increased in the first nine months of 1996,
compared to the first nine 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) Interest and other income decreased $5.9 million and
$6.7 million for the third quarter and the nine months ended September 30, 1996,
respectively, compared with the corresponding periods in 1995. Decreases in
both periods were primarily due to income recognized in August 1995 for
reimbursement of certain 1994 development expenses and earnings not previously
recognized in settlement of the Company's remaining investment in Minera
Carbonifera Rio Escondido.
The Company recognized a pre-tax gain of $20 million during the second
quarter of 1996 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 $12.2 million in
the third quarter of 1996, compared with the corresponding period in 1995. For
the nine months ended September 30, 1996, interest expense, net of capitalized
interest, increased $39.4 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 $3.1 million for the nine-month
period ended September 30, 1996, compared with the corresponding period in 1995
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 45% for the nine-month period ended September 30, 1996, compared with
34% 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 nine months ended September 30, 1996,
net cash provided by operating activities increased to $193.4 million from
$111.1 million for the nine months ended September 30, 1995. The improvement
primarily reflects higher net income and improved accounts receivable
collections primarily attributable to First Hydro.
Net cash provided by financing activities significantly decreased during the
first nine months of September 30, 1996, compared with the corresponding period
in 1995 primarily due to a reduction in net issuances under the Company's $400
million revolving credit facility in 1996 and proceeds of $62.5 million received
in 1995 from the issuance of Series B Preferred Securities. 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 pounds 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 nine months of
1996, compared with the same prior year period primarily due to a reduction in
the amount of loans made to energy projects under development and the proceeds
of $70 million received from the sale of four of the Company's operating
geothermal facilities in April 1996, partially offset by an increase in the
amount of purchases of common stock of acquired companies primarily related to
the acquisition of the remaining equity stake of Iberian Hy-Power. The Company
invested $115.6 million in new plant and equipment during the nine months ended
September 30, 1996, principally related to Loy Yang B Unit 2 and the Kwinana
project, compared to $138.4 million during the same period in 1995.
At September 30, 1996, the Company had cash and cash equivalents of $258.4
million and had available $314 million of borrowing capacity under a $400
million revolving credit facility. On October 11, 1996, the Company amended its
$400 million revolving credit facility by increasing the total amount of the
facility to $500 million and extending the original maturity date of November
17, 1999 to October 10, 2001. The amended agreement provides credit available
in the form of cash advances or letters of credit, and bears interest on
advances under the facility at the London Interbank Offered Rate plus the
applicable margin as determined by the Company's long-term debt ratings, the
Base Rate, or on a competitive auction basis. This borrowing capacity under the
revolving credit facility will be reduced by borrowings for firm commitments to
contribute project equity and to fund construction costs of its project
facilities.
<TABLE>
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Paiton (i) 239
ISAB (ii) 244 billion Italian Lira 160
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 20
</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 $483 million of which $409 million has been spent
through September 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. In November 1996,
the Company executed a new Energy Sales Agreement with Consolidated Edison
Company of New York (Consolidated Edison), which has contracted to buy most of
the project's power and steam, and began selling power and steam under that
Agreement on November 1. The Company continues to believe 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. The Company may assert claims against the
contractor. None of such claims is expected to have a material adverse effect
on the Company's financial position or results of operations.
(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
September 30, 1996, if required, would be $244 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 $75 million at September 30, 1996
(principally related to the Brooklyn Navy Yard project).
In October 1996, the Company made a cash dividend of $150 million to its
parent company, The Mission Group, a wholly owned non-utility subsidiary of
Edison International, in order to allow Edison International to repay amounts
borrowed and contributed to the Company in connection with the acquisition of
First Hydro in 1995.
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 $5.6 million and $5.3 million for the nine months ended
September 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 $4 million for the nine-month period ended September 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 September 30, 1996. The
implementation of Clean Air Act Amendments is expected to result in increased
operating expenses; however, these increased operating expenses 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 September
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: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 258,445
<SECURITIES> 0
<RECEIVABLES> 44,723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 324,597
<PP&E> 3,235,957
<DEPRECIATION> 123,483
<TOTAL-ASSETS> 4,871,283
<CURRENT-LIABILITIES> 241,453
<BONDS> 2,142,807
150,000
0
<COMMON> 64,130
<OTHER-SE> 1,053,825
<TOTAL-LIABILITY-AND-EQUITY> 4,871,283
<SALES> 0
<TOTAL-REVENUES> 455,817
<CGS> 0
<TOTAL-COSTS> 204,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,974
<INCOME-PRETAX> 153,137
<INCOME-TAX> 69,103
<INCOME-CONTINUING> 84,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,034
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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