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, 1997
------------------------
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 May 14,
1997: 100 shares (all shares held by an affiliate of the registrant).
<TABLE>
TABLE OF CONTENTS
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)
Three Months Ended
March 31,
-----------------------------
1997 1996
---------- ---------
<S> <C> <C>
OPERATING REVENUES
Electric revenues $236,077 $156,769
Equity in income from energy projects 23,325 20,070
Equity in income from oil and gas 16,735 4,761
Operation and maintenance services 8,873 9,050
---------- ----------
Total operating revenues 285,010 190,650
---------- ----------
OPERATING EXPENSES
Fuel 55,617 31,486
Plant operations 34,708 30,415
Operation and maintenance services 6,253 6,174
Depreciation and amortization 30,034 18,238
Administrative and general 24,793 19,091
---------- ----------
Total operating expenses 151,405 105,404
---------- ----------
Income from operations 133,605 85,246
---------- ----------
OTHER INCOME (EXPENSE)
Interest and other income 5,794 4,898
Interest expense (52,894) (34,393)
Dividends on preferred securities (3,263) (3,279)
Minority interest (27,973) (13,733)
---------- ----------
Total other income (expense) (78,336) (46,507)
---------- ----------
Income before income taxes 55,269 38,739
Provision for income taxes 22,685 16,736
---------- ----------
NET INCOME $ 32,584 $ 22,003
========== ==========
<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,
1997 1996
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 339,196 $ 383,634
Accounts receivable - trade 72,672 71,046
Accounts receivable - affiliates 19,427 10,798
Prepaid expenses and other 11,537 13,747
---------- ----------
Total current assets 442,832 479,225
---------- ----------
INVESTMENTS
Energy projects 838,579 794,646
Oil and gas 135,660 121,237
---------- ----------
Total investments 974,239 915,883
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 3,339,458 3,401,006
Less accumulated depreciation and amortization 172,321 152,458
---------- ----------
Net property, plant and equipment 3,167,137 3,248,548
---------- ----------
OTHER ASSETS
Long-term receivables 90,421 91,567
Goodwill 319,223 334,481
Deferred financing costs and other 71,080 82,768
---------- ----------
Total other assets 480,724 508,816
---------- ----------
TOTAL ASSETS $5,064,932 $5,152,472
========== ==========
<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,
1997 1996
----------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ 15,731 $ 35,996
Accounts payable and accrued liabilities 165,111 118,824
Interest payable 25,568 35,076
Current maturities of long-term obligations 78,577 80,994
---------- ----------
Total current liabilities 284,987 270,890
---------- ----------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 2,334,885 2,419,890
---------- ----------
LONG-TERM DEFERRED LIABILITIES
Deferred taxes and tax credits 535,672 545,449
Other 40,734 39,049
---------- ----------
Total long-term deferred liabilities 576,406 584,498
---------- ----------
Total liabilities 3,196,278 3,275,278
---------- ----------
MINORITY INTERESTS 692,949 707,289
---------- ----------
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 629,406 629,289
Retained earnings 295,178 262,594
Cumulative translation adjustments 36,991 63,892
---------- ----------
Total shareholder's equity 1,025,705 1,019,905
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $5,064,932 $5,152,472
========== ==========
<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,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 32,584 $ 22,003
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income from energy projects (23,325) (20,070)
Equity in income from oil and gas (16,735) (4,761)
Distributions from energy projects 20,552 15,002
Dividends from oil and gas - 300
Depreciation and amortization 30,034 18,238
Deferred tax provision 6,247 1,889
(Increase) decrease in accounts receivable (10,254) 55,429
Decrease in prepaid expenses and other 2,209 5,869
(Decrease) increase in interest payable (9,202) 15,334
Increase (decrease) in accounts payable and accrued liabilities 26,139 (24,612)
Other, net (4,341) 4,561
---------- ----------
Net cash provided by operating activities 53,908 89,182
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term obligations 5,677 32,384
Payments on long-term obligations (45,087) (619,945)
Issuance of guaranteed secured bonds - 603,840
---------- ----------
Net cash (used in) provided by financing activities (39,410) 16,279
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in energy projects (23,988) (9,528)
Loans to energy projects (10,333) (25,034)
Purchase of common stock of acquired companies - (29,745)
Capital expenditures (5,276) (47,574)
Other, net (10,648) 5,565
---------- ----------
Net cash used in investing activities (50,245) (106,316)
---------- ----------
Effect of exchange rate changes on cash (8,691) (1,749)
---------- ----------
Net decrease in cash and cash equivalents (44,438) (2,604)
Cash and cash equivalents at beginning of period 383,634 137,540
---------- ----------
Cash and cash equivalents at end of period $339,196 $134,936
========== ==========
<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, 1997
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, 1997, 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, 1996 and 1995, included in its 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 31, 1997. 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,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
ENERGY PROJECTS
Operating Revenues $377,194 $296,969
Income from Operations 76,196 73,875
Net Income 56,375 47,632
OIL AND GAS
Operating Revenues $ 97,419 $ 67,845
Income from Operations 39,182 19,746
Net Income 31,284 14,026
</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) 207
ISAB (ii) 244 billion Italian Lira 146
</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 integrated gasification combined cycle 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.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities. Management has no reason to believe that these events of default
will occur to require acceleration of the firm commitments.
<TABLE>
CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS U.S. ($ IN MILLIONS)
- -------- --------------------
<S> <C>
Brooklyn Navy Yard (i) 294
Paiton (ii) 141
All Other 28
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in
Brooklyn, New York. A wholly owned subsidiary of the Company owns 50% of the
project, but funded all of the required equity during construction and will be
required to fund the remaining costs of the project facility until the close of
non-recourse financing. Estimated total cost is $492 million of which $450
million has been spent through March 31, 1997. In December 1995, a tax-exempt
bond financing for the project in the amount of $254 million was obtained
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
February 1997, the contractor asserted general monetary claims under the turnkey
agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) and has
served a Complaint for damages in the amount of $136.8 million against BNY. BNY
has asserted general monetary claims against the contractor. The Company
believes that the outcome of this litigation will not have a material adverse
effect on its consolidated 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's 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, 1997, if payment were required, would be $251 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.
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 U.S. and foreign regulatory authorities with
jurisdiction over projects located outside the U.S. 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 position 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, 1997. 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
- --------------------------
On May 8, 1997, the Company completed the acquisition of the remaining 49%
interest in the Loy Yang B Power Station held by the State Electricity
Commission of Victoria (SECV). Therefore, the Company is now the sole owner of
the 1,000-MW station located near Melbourne, Australia. The Company acquired
51% of Loy Yang B from the SECV in 1992. The Loy Yang B Power Station
consisting of two 500-MW units fired by brown coal, generates approximately 18%
of the State of Victoria's electricity. In addition, the Company closed
refinancing of 1.27 billion Australian dollars, of which the proceeds will be
used to fund the cash portion of the purchase price (84 million Australian
dollars), related closing costs and repay the current debt outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q includes certain forward-looking
statements, the realization of which may be affected by certain important
factors discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" thereunder and elsewhere herein.
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 investments include 55 projects totaling
9,471 megawatts (MW) of generation capacity, of which 7,549 are in operation and
1,922 are under construction.
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
five international entities. Equity in income from energy projects primarily
relates to the Company's ownership interest of 50% or less in 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 $94.4 million for the first
quarter of 1997, compared with the first quarter of 1996, resulting primarily
from increases in electric revenues. Electric revenues were higher in the first
quarter of 1997 primarily due to the start of commercial operation of Loy Yang B
Unit 2 and the Kwinana project in the fourth quarter of 1996, and as a result
there were no comparable electric revenues in the first quarter of 1996.
Revenues from the First Hydro project increased $17.5 million attributable to
higher energy revenues as a result of higher pool prices and increased
utilization, partially offset by lower capacity prices due to mild winter
conditions and high plant availability levels. First Hydro's electric revenues
are normally higher in the winter season (first and fourth quarters) when demand
is greater.
Equity in income from oil and gas investments increased $12 million in the
first quarter of 1997, compared with the same prior year period. The
significant increase was principally due to higher oil and gas prices.
OPERATING EXPENSES Operating expenses increased $46 million in the first
quarter of 1997, compared with the corresponding period in 1996. The
substantial increase in operating expenses was principally due to higher fuel
expense of $24.1 million and depreciation and amortization of $11.8 million,
both resulting from commencement of commercial operations of Loy Yang B Unit 2
and Kwinana in the fourth quarter of 1996. First Hydro's fuel expense increased
$8 million resulting from increased generation and higher prices.
Administrative and general expenses increased $5.7 million primarily related to
an increase in compensation expense as a result of charges associated with the
Company's phantom stock plan.
OTHER INCOME (EXPENSE) Interest expense, net of capitalized interest,
increased $18.5 million in the first quarter of 1997, compared with the
corresponding period in 1996 due primarily to a decrease in capitalized interest
of $12.1 million. Capitalized interest decreased in 1997 due to the completion
of construction and resultant commercial operation of Loy Yang B Unit 2 in
October 1996 at which time the Company discontinued recording capitalized
interest related to this project.
Minority interest expense increased $14.2 million in the first quarter of
1997, compared to the first quarter of 1996. The 1997 increase is due to Loy
Yang B Unit 2 commencing commercial operation in October 1996.
PROVISION FOR INCOME TAXES The Company recorded an effective tax provision
rate of 41% for the three-month period ended March 31, 1997, compared with 43%
for the same prior year period. The decrease in the 1997 effective tax rate was
primarily due to a larger dividends received deduction in 1997. The dividends
received deduction represents dividend income from unconsolidated entities that
is not subject to tax because taxes have already been provided at the entity
level.
LIQUIDITY AND CAPITAL RESOURCES For the three months ended March 31, 1997,
net cash provided by operating activities decreased to $53.9 million from $89.2
million for the three months ended March 31, 1996. The decline primarily
reflects an increase in working capital requirements, partially offset by higher
distributions from energy projects.
Net cash used in financing activities totaled $39.4 million during the first
three months of 1997, compared to net cash provided by financing activities of
$16.3 million during the same period in 1996. This change resulted primarily
from (1) a reduction in borrowings from Loy Yang B Unit 2 and the Kwinana
project due to the completion of construction of both projects in the fourth
quarter of 1996 and (2) higher debt payments in 1997, excluding the 1996
repayment of the 400 million pounds sterling (U.S. $603.8 million) credit
facility entered into by First Hydro Finance Plc in December 1995 with the net
proceeds received from the issuance of 400 million pounds sterling 9%
Guaranteed Secured Bonds in January 1996. The higher debt payments relate
principally to Kwinana's construction loan repayment made in January 1997.
Net cash used in investing activities decreased $56.1 million for the first
three months of 1997, compared with the same prior year period, primarily due to
a reduction in capital expenditures in 1997 principally related to the
completion of construction of Loy Yang B Unit 2 and the Kwinana project in
1996. The purchase of common stock of acquired companies primarily related to
the acquisition of the remaining equity stake in Iberian Hy-Power in January
1996, also contributed to the decline in 1997.
At March 31, 1997, the Company had cash and cash equivalents of $339.2
million and had available $432 million of borrowing capacity under a $500
million revolving credit facility that expires in 2001. This borrowing capacity
under the revolving credit facility will be reduced by borrowings for firm
commitments to contribute project equity and to fund capital expenditures of its
project facilities.
<TABLE>
FIRM COMMITMENTS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS LOCAL CURRENCY U.S. ($ IN MILLIONS)
- -------- -------------- --------------------
<S> <C> <C>
Paiton (i) 207
ISAB (ii) 244 billion Italian Lira 146
</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 integrated gasification combined cycle 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.
Firm commitments to contribute project equity could be accelerated due to
certain events of default as defined in the non-recourse project financing
facilities. Management has no reason to believe that these events of default
will occur to require acceleration of the firm commitments.
<TABLE>
CONTINGENT OBLIGATIONS TO CONTRIBUTE PROJECT EQUITY
<CAPTION>
PROJECTS U.S. ($ IN MILLIONS)
- -------- --------------------
<S> <C>
Brooklyn Navy Yard (i) 294
Paiton (ii) 141
All Other 28
</TABLE>
(i) Brooklyn Navy Yard is a 286-MW gas-fired cogeneration power plant in
Brooklyn, New York. A wholly owned subsidiary of the Company owns 50% of the
project, but funded all of the required equity during construction and will be
required to fund the remaining costs of the project facility until the close of
non-recourse financing. Estimated total cost is $492 million of which $450
million has been spent through March 31, 1997. In December 1995, a tax-exempt
bond financing for the project in the amount of $254 million was obtained
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
February 1997, the contractor asserted general monetary claims under the turnkey
agreement against Brooklyn Navy Yard Cogeneration Partners, L.P. (BNY) and has
served a Complaint for damages in the amount of $136.8 million against BNY. BNY
has asserted general monetary claims against the contractor. The Company
believes that the outcome of this litigation will not have a material adverse
effect on its consolidated 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's 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, 1997, if payment were required, would be $251 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.
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, FOREIGN
CURRENCY FLUCTUATIONS AND OTHER CONTRACTUAL OBLIGATIONS Changes in interest
rates, changes in electricity pool pricing in the U.K., 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 included $2.6 million and
$1.9 million for the three months ended March 31, 1997 and 1996, respectively,
as a result of interest rate swap agreements. 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
its 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") for electrical energy. 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), related to either the selling or purchasing price of power,
whereby a contract specifies a price at which the electricity will be traded,
and the parties to the agreement make payments, calculated based on the
difference between the price in the contract and the half-hourly pool clearing
price for the element of power under contract. These contracts can be sold in
two structures: one-way contracts, the most commonly used by First Hydro, where
a specified monthly amount is received in advance and difference payments are
made when the pool price is above the price specified in the contract, and two-
way contracts, where the counter party pays First Hydro when the pool price is
below that in the contract instead of a specified monthly amount. These
contracts act as a means of stabilizing production revenues or purchasing costs
by removing an element of First Hydro's net exposure to pool price volatility.
First Hydro electric revenues were increased by $15.2 million for the three-
month period ended March 31, 1997, compared to a decrease of $4.3 million for
the corresponding period in 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. At times, the Company has hedged a portion of its current exposure to
fluctuations in foreign exchange rates where it deems appropriate through
financial derivatives, 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. In addition,
the Company has used statistical forecasting techniques to help assess foreign
exchange risk and the probabilities of various outcomes. There can be no
assurance, however, that fluctuations in exchange rates will be fully offset by
hedges or that currency movements and the relationship between certain macro
economic variables will behave in a manner consistent with historical or
forecasted relationships.
The electric power generated by the Company's operating projects that are
generally sold to a limited number of electric utilities pursuant to long-term
(typically, 15 to 30 year) power sales contracts are expected to result in
consistent cash flow under a wide range of economic and operating circumstances.
To accomplish this, the Company structures its long-term contracts so that
fluctuations in fuel costs will produce similar fluctuations in electric and/or
steam revenues and by entering into long-term fuel supply and transportation
agreements.
ENVIRONMENTAL MATTERS
The Company is subject to environmental regulation by federal, state and
local authorities in the U.S. and foreign regulatory authorities with
jurisdiction over projects located outside the U.S. 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 position 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, 1997. 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.
RECENT DEVELOPMENTS
In April 1997, the Company completed a sale of its ownership interest in
B.C. Star Partners (B.C. Star) to Remington Energy Ltd. for total cash proceeds
of approximately $71 million. B.C. Star, an oil and gas partnership between
Texaco Canada Petroleum Inc. and Mission Energy Canada Corporation, a wholly
owned subsidiary of the Company, owns 11 producing properties in British
Columbia, Canada, with current production of approximately 60 million cubic feet
per day of natural gas and 1,000 barrels per day of oil and natural gas liquids.
The Company recorded an after-tax gain of approximately $14 million on the sale
in April 1997.
In April 1997, a subsidiary of the Company completed a $182 million
financing and commenced construction for a 180-MW gas-fired power plant near
Istanbul, Turkey. In connection with the financing of the Doga Enerji A.S.
project, the Company (80% ownership) has guaranteed equity contributions and
subordinated debt totaling $58 million. Equity contributions are currently being
made and will continue until commercial operation, which is currently scheduled
for late 1998.
On May 8, 1997, the Company completed the acquisition of the remaining 49%
interest in the Loy Yang B Power Station held by the State Electricity
Commission of Victoria (SECV). Therefore, the Company is now the sole owner of
the 1,000-MW station located near Melbourne, Australia. The Company acquired
51% of Loy Yang B from the SECV in 1992. The Loy Yang B Power Station
consisting of two 500-MW units fired by brown coal, generates approximately 18%
of the State of Victoria's electricity. In addition, the Company closed
refinancing of 1.27 billion Australian dollars, of which the proceeds will be
used to fund the cash portion of the purchase price (84 million Australian
dollars), related closing costs and repay the current debt outstanding.
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 March 31,
1997.
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 14, 1997 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 339,196
<SECURITIES> 0
<RECEIVABLES> 72,672
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 442,832
<PP&E> 3,339,458
<DEPRECIATION> 172,321
<TOTAL-ASSETS> 5,064,932
<CURRENT-LIABILITIES> 284,987
<BONDS> 2,334,885
150,000
0
<COMMON> 64,130
<OTHER-SE> 961,575
<TOTAL-LIABILITY-AND-EQUITY> 5,064,932
<SALES> 0
<TOTAL-REVENUES> 244,950
<CGS> 0
<TOTAL-COSTS> 96,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,157
<INCOME-PRETAX> 55,269
<INCOME-TAX> 22,685
<INCOME-CONTINUING> 32,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,584
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
