SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
Commission File No. 33-95538
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
47-0790493
(IRS Employer
Identification No.)
Salton Sea Brine Processing L.P. California 33-0601721
Salton Sea Power Generation L.P. California 33-0567411
Fish Lake Power Company Delaware 33-0453364
Vulcan Power Company Nevada 95-3992087
CalEnergy Operating Company Delaware 33-0268085
Salton Sea Royalty Company Delaware 47-0790492
(Exact name of Registrants (State or other (I.R.S. Employer
as specified in their charters) jurisdiction of Identification No.)
incorporation or
organization)
302 S. 36th Street, Suite 400-A, Omaha, NE 68131
(Address of principal executive offices and Zip Code of Salton Sea
Funding Corporation)
Salton Sea Funding Corporation's telephone number, including area
code: (402) 231-1641
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
All common stock of Salton Sea Funding Corporation is indirectly
held by Magma Power Company.
100 shares of Common Stock were outstanding on June 30, 1996.
SALTON SEA FUNDING CORPORATION
Form 10-Q
June 30, 1996
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Page
SALTON SEA FUNDING CORPORATION
Independent Accountants Report 4
Balance Sheets, June 30, 1996
and December 31, 1995 5
Statements of Operations for the Three and
Six Months Ended June 30, 1996 6
Statement of Cash Flows for the
Six Months Ended June 30, 1996 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants Report 9
Combined Balance Sheets, June 30, 1996
and December 31, 1995 10
Combined Statements of Operations for the Three
and Six Months Ended June 30, 1996 and 1995 11
Combined Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 12
Notes to Combined Financial Statements 13
PARTNERSHIP GUARANTORS
Independent Accountants Report 15
Combined Balance Sheets, June 30, 1996
and December 31, 1995 16
Combined Statements of Operations for the Three
and Six Months Ended June 30, 1996 and 1995 17
Combined Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 18
Notes to Combined Financial Statements 19
SALTON SEA ROYALTY COMPANY
Independent Accountants Report 22
Balance Sheets, June 30, 1996
and December 31, 1995 23
Statements of Operations for the Three and
Six Months Ended June 30, 1996 and 1995 24
Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1995 25
Notes to Financial Statements 26
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 27
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 36
Item 2. Changes in Securities 36
Item 3. Defaults on Senior Securities 36
Item 4. Submission of Matters to a Vote of
Security Holders 36
Item 5. Other Information 37
Item 6. Exhibits and Reports on Form 8-K 37
Signatures 38
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Funding Corporation as of June 30, 1996, and the related statements
of operations for the three and six month periods ended June 30,
1996 and cash flows for the six months ended June 30, 1996. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Salton Sea Funding
Corporation as of December 31, 1995, and the related statements of
operations, stockholders' equity, and cash flows for the period from
June 20, 1995 (inception date) through December 31, 1995 (not
presented herein); and in our report dated January 26, 1996, we
expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance
sheet as of December 31, 1995 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 17, 1996
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1996 1995
---------- ------------
(unaudited)
ASSETS
Cash $ 29,040 $ 4,393
Restricted cash and short-term
investments 19,450 57,256
Prepaid expenses and other assets 2,651 3,070
Notes receivables from affiliates 563,035 452,088
Investment in 1% of net assets of
Guarantors 6,504 5,714
------- -------
$620,680 $522,521
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 2,616 $ 3,889
Due to affiliates 46,500 59,594
Senior secured notes and bonds 563,035 452,088
------- -------
Total liabilities 612,151 515,571
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares - -
Additional paid-in capital 5,999 5,443
Retained earnings 2,530 1,507
------- -------
Total stockholder's equity 8,529 6,950
------- -------
$620,680 $522,521
======= =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
June 30, 1996
(Dollars in Thousands)
(Unaudited)
Three Months Six Months
Ended Ended
Revenues: ------------ ----------
Interest income $8,707 $17,660
Equity in earnings of Guarantors 146 234
------ -------
8,853 17,894
Expenses:
General and administrative expenses 45 226
Interest expense 7,943 15,933
------ -------
Total expenses 7,988 16,159
------ -------
Income before income taxes 865 1,735
Provision for income taxes 355 712
------ -------
Net income $ 510 $ 1,023
====== =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
June 30, 1996
(Dollars in Thousands)
(Unaudited)
Cash flows from operating activities:
Net income $ 1,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of guarantors (234)
Changes in assets and liabilities:
Prepaid expenses and other assets 419
Accrued liabilities (1,273)
--------
Net cash flows from operating activities (65)
--------
Cash flows from investing activities:
Restricted cash 37,806
--------
Net cash flows from investing activities 37,806
--------
Cash flows from financing activities:
Due to affiliates (13,094)
--------
Net cash flows from financing activities (13,094)
--------
Net change in cash 24,647
Cash at the beginning of period 4,393
--------
Cash at the end of period $ 29,040
========
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ 556
========
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
_____________________
1. General:
In the opinion of management of the Salton Sea Funding Corporation
(the "Funding Corporation"), the accompanying unaudited financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1996 and the results of operations for the
three and six months ended June 30, 1996 and cash flows for the six
months ended June 30, 1996.
The results of operations for the three and six months ended June
30, 1996 are not necessarily indicative of the results to be
expected for the full year.
The Funding Corporation was formed on June 20, 1995 for the sole
purpose of acting as issuer of senior secured notes and bonds.
2. Other Footnote Information:
Reference is made to the Funding Corporation's most recently issued
annual report on Form 10-K that included information necessary or
useful to the understanding of the Funding Corporation's business
and financial statement presentations. In particular, the
significant accounting policies and practices were presented as Note
2 to the Funding Corporation financial statements included in that
filing.
3. Debt Offering:
On June 20, 1996, the Funding Corporation issued $135,000 of Senior
Secured Notes and Bonds, consisting of $70,000, 7.02% Senior Secured
Series D Notes, due May 30, 2000, and $65,000, 8.30% Senior Secured
Series E Bonds, due May 30, 2011, with maturities of $25,850,
$32,000, $22,728, $5,500, $1,000 and $47,922 for 1997, 1998, 1999,
2000, 2001 and thereafter, respectively.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Salton Sea Guarantors as of June 30, 1996, and the related combined
statements of operations for the three and six month periods ended
June 30, 1996 and 1995 and the cash flows for the six months ended
June 30, 1996 and 1995. These financial statements are the
responsibility of the Guarantors' management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such combined financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Salton Sea
Guarantors as of December 31, 1995, and the related combined
statements of operations, Guarantors' equity, and cash flows for the
year then ended (not presented herein); and in our report dated
January 26, 1996, we expressed an unqualified opinion on those
combined financial statements. In our opinion, the information set
forth in the accompanying combined balance sheet as of December 31,
1995 is fairly stated, in all material respects, in relation to the
combined balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 17, 1996
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1996 1995
--------- ------------
(unaudited)
ASSETS
Cash $ 398 $ 454
Accounts receivable 15,825 10,436
Prepaid expenses and other assets 21,252 20,129
Property, plant, contracts and
equipment, net 464,483 417,287
Goodwill, net 51,442 52,094
-------- --------
$553,400 $500,400
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 643 $ 939
Accrued liabilities 6,461 4,043
Due to affiliates 54,590 4,319
Senior secured project note 310,670 321,500
-------- --------
Total liabilities 372,364 330,801
Total Guarantors' equity 181,036 169,599
-------- --------
$553,400 $500,400
======== ========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1996 1995 1996 1995
-------- ------- ------- -------
Revenues:
Sales of electricity $19,012 $16,472 $35,233 $32,083
Interest and other income 60 93 128 409
-------- -------- -------- -------
Total revenues 19,072 16,565 35,361 32,492
-------- -------- -------- --------
Expenses:
Operating, general and
and administration 5,937 7,179 11,726 12,983
Depreciation and
amortization 3,204 3,357 5,886 6,400
Interest expense 6,262 8,434 12,519 12,690
Less capitalized interest (2,907) (3,419) (6,207) (3,419)
-------- -------- -------- --------
Total expenses 12,496 15,551 23,924 28,654
-------- -------- -------- --------
Income before minority
interest 6,576 1,014 11,437 3,838
Minority interest - - - 1,393
-------- -------- -------- --------
Net income $ 6,576 $ 1,014 $11,437 $ 2,445
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
------------------
1996 1995
-------- -------
Cash flows from operating activities:
Net income $11,437 $ 2,445
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,393
Depreciation and amortization 5,886 6,400
Changes in assets and liabilities:
Accounts receivable (5,389) (7,919)
Prepaid expenses and other assets (1,123) (8,561)
Due to (from) affiliates 50,271 399
Accounts payable and accrued
liabilities 2,122 2,984
-------- ---------
Net cash flows from operating activities 63,204 (2,859)
-------- ---------
Cash flows from investing activities:
Purchase of Guarantors by CalEnergy,
net of cash - (167,240)
Capital expenditures (52,430) (24,967)
Net increase in marketable securities - 4,988
Restricted cash - 2,501
-------- ---------
Net cash flows from investing activities (52,430) (184,718)
-------- ---------
Cash flows from financing activities:
Repayments on loans payable (10,830) (15,410)
Loan proceeds - 179,640
Contributions from parent - 29,091
Distributions to parent - (5,000)
-------- ---------
Net cash flows from financing activities (10,830) 188,321
-------- ---------
Net change in cash (56) 744
Cash at beginning of period 454 -
-------- ---------
Cash at end of period $ 398 $ 744
======== =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Guarantors (the
"Guarantors"), the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as of
June 30, 1996 and the results of operations for the three and six
months ended June 30, 1996 and 1995 and cash flows for the six
months ended June 30, 1996 and 1995.
The combined financial statements include the accounts of the
partnerships in which the Guarantors have a 100% interest.
The results of operations for the three and six months ended June
30, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included information
necessary or useful to the understanding of the Guarantors' business
and financial statement presentations. In particular, the
Guarantors' significant accounting policies and practices were
presented as Note 2 to the Guarantors' combined financial statements
included in that filing.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the following:
June 30, December 31,
1996 1995
--------- ------------
Plant and equipment $174,622 $173,509
Salton Sea Unit 4 156,464 108,632
Power sale agreements 64,609 64,609
Mineral extraction 62,817 60,577
Exploration and development costs 19,038 17,793
-------- --------
477,550 425,120
Less accumulated depreciation
and amortization (13,067) (7,833)
-------- --------
$464,483 $417,287
======== ========
4. Purchase of Magma Power Company:
On January 10, 1995, CalEnergy Company, Inc. acquired approximately
51% of outstanding shares of common stock of Magma Power Company
(the "Magma Common Stock") through a cash tender offer and completed
the Magma acquisition on February 24, 1995 by acquiring
approximately 49% of the outstanding shares of Magma Common Stock
not owned by CECI through a merger. The transaction was accounted
for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the
Guarantors on a purchase, push down basis of accounting, for the six
months ended June 30, 1995, as if the acquisition had occurred at
the beginning of the period after giving effect to certain pro forma
adjustments related to the acquisition were $32,492 and $2,779
respectively.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Partnership Guarantors as of June 30, 1996, and the related combined
statements of operations for the three and six month periods ended
June 30, 1996 and 1995 and cash flows for the six months ended June
30, 1996 and 1995. These financial statements are the
responsibility of the Guarantors' management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such combined financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Partnership
Guarantors as of December 31, 1995, and the related combined
statements of operations, Guarantors' equity, and cash flows for the
year then ended (not presented herein); and in our report dated
January 26, 1996, we expressed an unqualified opinion on those
combined financial statements. In our opinion, the information set
forth in the accompanying combined balance sheet as of December 31,
1995 is fairly stated, in all material respects, in relation to the
combined balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 17, 1996
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1996 1995
--------- ------------
(unaudited)
ASSETS
Cash $ 26 $ 11,146
Restricted cash and short-term
investments - 9,859
Accounts receivable 26,040 11,841
Due from affiliates 91,100 54,949
Prepaid expenses and other assets 20,811 9,651
Property, plant, contracts and
equipment, net 374,969 298,956
Management fee 65,021 63,520
Goodwill, net 140,468 142,250
-------- --------
$718,435 $602,172
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 5,222 $ 3,566
Accrued liabilities 13,357 19,995
Loans payable - 43,766
Senior secured project notes 189,955 62,706
Deferred income taxes 102,481 98,407
-------- --------
Total liabilities 311,015 228,440
Guarantors' equity:
Common Stock 3 3
Additional paid-in capital 382,680 359,092
Retained earnings 24,737 14,637
-------- --------
Total Guarantors' equity 407,420 373,732
-------- --------
$718,435 $602,172
======== ========
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1996 1995 1996 1995
-------- ------- ------- -------
Revenues:
Sales of electricity $36,996 $19,372 $52,155 $36,089
Interest and other income 1,929 1,354 4,149 2,670
-------- ------- -------- -------
Total revenues 38,925 20,726 56,304 38,759
-------- ------- -------- -------
Expenses:
Operating, general and
and administration 16,798 7,857 24,410 15,459
Depreciation and
amortization 9,916 2,815 14,289 5,253
Interest expense 3,255 4,186 5,262 7,395
Less capitalized interest (2,462) - (4,469) -
-------- ------- -------- -------
Total expenses 27,507 14,858 39,492 28,107
-------- ------- -------- -------
Income before income taxes 11,418 5,868 16,812 10,652
Provision for income taxes 4,463 2,355 6,712 4,240
-------- ------- -------- -------
Income before minority
interest 6,955 3,513 10,100 6,412
Minority interest - - - 1,427
-------- ------- -------- -------
Net income $ 6,955 $ 3,513 $10,100 $ 4,985
======== ======= ======== =======
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------
1996 1995
--------- --------
Cash flows from operating activities:
Net income $ 10,100 $ 4,985
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,427
Depreciation and amortization 14,289 5,253
Changes in assets and liabilities:
Accounts receivable 278 (3,633)
Amount due from affiliates (37,071) (3,027)
Prepaid expenses and other assets (3,841) (2,361)
Accounts payable and accrued
liabilities (7,260) 9,327
Other, net - (334)
-------- ---------
Net cash flows from operating activities (23,505) 11,637
-------- ---------
Cash flows from investing activities:
Purchase of Guarantors by CalEnergy,
net of cash - (116,290)
Capital expenditures (11,434) (1,977)
Net decrease in marketable securities - 7,457
Restricted cash 23,085 (170)
-------- ---------
Net cash flows from investing activities 11,651 (110,980)
-------- ---------
Cash flows from financing activities:
Repayments on loans payable (99,809) (6,417)
Loan proceeds 135,000 127,773
Distributions to parent (34,457) (10,555)
-------- ---------
Net cash flows from financing activities 734 110,801
-------- ---------
Net change in cash (11,120) 11,458
Cash at beginning of period 11,146 -
-------- ---------
Cash at end of period $ 26 $ 11,458
========= =========
During 1996, CalEnergy Company, Inc. contributed $71,000 of net assets acquired
from Mission Edison, of which $12,956 was cash, to the Partnership Guarantors.
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Partnership Guarantors (the
"Guarantors"), the accompanying unaudited combined financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1996 and the results of operations for the
three and six months ended June 30, 1996 and 1995 and cash flows for
the six months ended June 30, 1996 and 1995.
The combined financial statements include the proportionate share
of the accounts of the partnerships in which the Guarantors have an
interest.
The results of operations for the three and six months ended June
30, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included information
necessary or useful to the understanding of the Guarantors' business
and financial statement presentations. In particular, the
Guarantors' significant accounting policies and practices were
presented as Note 2 to the Guarantors' combined financial statements
included in that filing.
PARTNERSHIP GUARANTORS
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the following:
June 30, December 31,
1996 1995
-------- ------------
Plant and equipment $ 62,429 $ 58,532
Power sale agreements 122,829 44,966
Process license 46,290 46,290
Mineral extraction 116,819 112,350
Exploration and development costs 55,740 53,449
--------- -----------
404,107 315,587
Less accumulated depreciation
and amortization (29,138) (16,631)
--------- -----------
$374,969 $298,956
========= ===========
4. Purchase of Magma Power Company
On January 10, 1995, CalEnergy Company, Inc. ("CECI") acquired
approximately 51% of the outstanding shares of common stock of Magma
Power Company (the "Magma Common Stock") through a cash tender offer
and completed the Magma acquisition on February 24, 1995 by
acquiring approximately 49% of the outstanding shares of Magma
Common Stock not owned by CECI through a merger. The transaction
was accounted for as a purchase business combination.
5. Purchase of Edison Mission Energy's Partnership Interests
On April 17, 1996 CalEnergy Company, Inc. (CalEnergy) completed the indirect
acquisition of Edison Mission Energy's partnership interests in the
Vulcan, Hoch (Del Ranch), Leathers and Elmore geothermal operating
facilities. Magma Power Company, a wholly-owned subsidiary of
CalEnergy, currently operates these facilities and directly or indirectly
owns 100% of the interest in these facilities. Magma's direct ownership
interest related to Del Ranch, Leathers, Elmore and to Vulcan is assigned
to the Partnership Guarantors.
PARTNERSHIP GUARANTORS
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
5. Purchase of Edison Mission Energy's Partnership Interests -
(continued)
Unaudited proforma combined revenue and net income of the Guarantors
on a purchase, push down basis of accounting, for the six months
ended June 30, 1996, as if both acquisitions had occurred at the
beginning of the period after giving effect to certain pro forma
adjustments related to the acquisitions were $74,943 and $11,233,
respectively compared with revenue and net income of 82,120 and
11,424, respectively for the six months ended June 30, 1995.
6. Debt Offering
On June 20, 1996, the Guarantors issued $135,000 of Senior Secured
Project Notes consisting of $70,000, 7.02% Senior Secured Notes, due
May 30, 2000 and $65,000, 8.30% Senior Secured Notes, due May 30,
2011, with maturities of $25,850, $32,000, $22,728, $5,500, $1,000,
and $47,922, for 1997, 1998, 1999, 2000, 2001 and thereafter,
respectively.
Proceeds from these Senior Secured Project Notes were used to repay
approximately $96,000 in existing project level loans of the
Guarantors, provide approximately $15,000 to fund the Capital
Expenditures Fund and provide approximately $23,000 of the cost of
the acquisition of Edison Mission Energy's partnership interests
described above.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Royalty Company as of June 30, 1996, and the related statements of
operations for the three and six month periods ended June 30, 1996
and 1995 and cash flows for the six months ended June 30, 1996 and
1995. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of the Salton Sea Royalty
Company as of December 31, 1995, and the related statements of
operations, equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 26, 1996, we
expressed an unqualified opinion on those financial statements. In
our opinion, the information set forth in the accompanying balance
sheet as of December 31, 1995 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been
derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 17, 1996
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1996 1995
---------- ------------
(unaudited)
ASSETS
Due from affiliates $17,214 $ 25,110
Royalty stream, net 49,058 53,744
Goodwill, net 35,458 35,912
Prepaid expenses and other assets 2,130 2,575
-------- --------
$103,860 $117,341
======== ========
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 8,651 $ 5,948
Senior secured project note 62,409 67,882
Deferred income taxes 14,078 15,460
-------- --------
Total liabilities 85,138 89,290
Equity:
Common stock - -
Additional paid-in capital 13,330 24,541
Retained earnings 5,392 3,510
-------- --------
Total equity 18,722 28,051
-------- --------
$103,860 $117,341
======== ========
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1996 1995 1996 1995
-------- ------- ------- -------
Revenues:
Royalty income $ 7,697 $ 7,316 $14,638 $14,067
Expenses:
Operating, general and
administrative expenses 1,845 1,719 3,552 3,313
Amortization of royalty
stream and goodwill 2,570 1,884 5,140 3,116
Interest expense 1,341 2,196 2,699 3,736
-------- ------- -------- -------
Total expenses 5,756 5,799 11,391 10,165
-------- ------- -------- -------
Income before income taxes 1,941 1,517 3,247 3,902
Provision for income taxes 887 430 1,365 1,260
-------- ------- -------- -------
Income before minority
interest 1,054 1,087 1,882 2,642
Minority interest - - - 1,092
-------- ------- -------- -------
Net income $ 1,054 $ 1,087 $ 1,882 $ 1,550
======== ======= ======== =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income $1,882 $1,550
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,092
Amortization of royalty stream and
goodwill 5,140 3,116
Changes in assets and liabilities:
Prepaid expenses and other assets 445 (3,044)
Accrued liabilities 1,321 2,514
-------- --------
Net cash flows from operating activities 8,788 5,228
-------- --------
Net cash flows from investing activities:
Purchase of Company by CECI, net of cash - (79,239)
-------- --------
Net cash flows from investing activities - (79,239)
-------- --------
Net cash flows from investing activities:
Proceeds from issuance of debt - 83,022
Capital Contributions - 3,071
Decrease in due from affiliates 7,896 -
Payment of debt (5,473) (1,328)
Distribution to parent (11,211) (10,754)
-------- --------
Net cash flows from financing activities (8,788) 74,011
-------- --------
Net change in cash - -
Cash at beginning of period - -
-------- --------
Cash at end of period $ - $ -
======== ========
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Royalty Company (the
"Company"), the accompanying unaudited financial statements contain
all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position as of June 30,
1996 and the results of operations for the three and six months
ended June 30, 1996 and 1995 and cash flows for the six months ended
June 30, 1996 and 1995.
The results of operations for the three and six months ended June
30, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included information
necessary or useful to the understanding of the Guarantor's business
and financial statement presentations. In particular, the
Guarantor's significant accounting policies and practices were
presented in Note 2 to the Company's financial statements included
in that report.
3. Purchase of Magma Power Company
On January 10, 1995, CalEnergy Company, Inc. ("CECI") acquired
approximately 51% of the outstanding shares of common stock of Magma
Power Company (the "Magma Common Stock") through a cash tender offer
and completed the Magma acquisition on February 24, 1995 by
acquiring approximately 49% of the outstanding shares of Magma
Common Stock not owned by CECI through a merger. The transaction
was accounted for as a purchase business combination.
Unaudited proforma combined revenue and net income of the Company
on a purchase, push down basis of accounting, for the six months
ended June 30, 1995, as if the acquisition had occurred at the
beginning of the period after giving effect to certain pro forma
adjustments related to the acquisition were $14,067 and $1,911,
respectively.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Funding Corporation's
and Guarantor's financial condition and results of operations during
the periods included in the accompanying statements of operations.
Funding Corporation was organized for the sole purpose of acting as
issuer of senior secured notes and bonds (the "Securities"). The
Securities are payable from the proceeds of payments made of
principal and interest on the senior secured project notes by the
Guarantors, as defined, to the Funding Corporation. The Securities
are guaranteed on a joint and several basis by the Guarantors. The
guarantees of the Partnership Guarantors and Salton Sea Royalty
Company are limited to available cash flow. The Funding Corporation
does not conduct any operations apart from the Securities.
The Partnership Projects sell all electricity generated by the
respective plants pursuant to four long-term SO4 Agreements between
the projects and Southern California Edison ("Edison"). These SO4
Agreements provide for capacity payments, capacity bonus payments
and energy payments. Edison makes fixed annual capacity bonus
payments to the projects, and to the extent that capacity factors
exceed certain benchmarks is required to make capacity bonus
payments. The price for capacity and capacity bonus payments is
fixed for the life of the SO4 Agreements and are significantly
higher in the months of June through September. Energy is sold at
increasing fixed rates for the first ten years of each contract and
thereafter at Edison's Avoided Cost of Energy.
The fixed energy price periods of the Partnership Project SO4
Agreements extend until December 1998, December 1998, and December
1999 for each of the Hoch (Del Ranch), Elmore and Leathers
Partnerships, respectively. The fixed energy price period on the
Vulcan Partnership SO4 Agreement expired in February 1996.
The Partnership Project's receiving fixed energy rates, SO4
Agreements provide for energy rates ranging from 12.7 cents per kWh in
1996 to 15.6 cents per kWh in 1999.
The Salton Sea I Project sells electricity to Edison pursuant to a
30-year negotiated power purchase agreement, as amended (the
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
"Salton Sea I PPA"), which provides for capacity and energy
payments. The initial contract capacity and contract nameplate are
each 10 MW. The energy payment is calculated using a Base Price
which is subject to quarterly adjustments based on a basket of
indices. The time period weighted average energy payment for Unit
1 was 5.07 cents per kWh during the six months ended June 30, 1996. As
the Salton Sea I PPA is not an SO4 Agreement, the energy payments do
not revert to Edison's Avoided Cost of Energy. The Salton Sea IV
project also sells electricity to Edison pursuant to a 30-year
negotiated power purchase agreement. The Salton Sea Unit IV
contract also provides for fixed price capacity payments for the
life of the contract. Approximately 56% of the kWhs are sold under
the Salton Sea Unit IV PPA at a fixed energy price, which is subject
to quarterly adjustments by reference to various inflation-related
indices, through June 20, 2017 (and at SCE's Avoided Cost of Energy
thereafter), while the remaining 44% of the Salton Sea Unit IV kWhs
are sold according to a 10-year fixed price schedule followed by
payments based on a modified Avoided Cost of Energy for the
succeeding 5 years and at SCE's Avoided cost of Energy thereafter.
The Salton Sea Unit IV project was operational and began recording
revenue on May 24, 1996.
The Salton Sea II and Salton Sea III Projects sell electricity to
Edison pursuant to 30-year modified SO4 Agreements. The contract
capacities and contract nameplates are 15 MW and 20 MW for Salton
Sea II and 47.5 MW and 49.8 MW for Salton Sea III, respectively.
The contracts require Edison to make capacity payments, capacity
bonus payments and energy payments. The price for contract capacity
and contract capacity bonus payments is fixed for the life of the
modified SO4 Agreements. The energy payments for the first ten year
period, which period expires April 4, 2000 for Salton Sea II and
February 13, 1999 for Salton Sea III, are levelized at a time period
weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton
Sea II and Salton Sea III, respectively. Thereafter, the monthly energy
payments will be at Edison's Avoided Cost of Energy. For Salton
Sea II only, Edison is entitled to receive, at no cost, 5% of all
energy delivered in excess of 80% of contract capacity for the
period April 1, 1994 through March 31, 2004.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Salton Sea IV Project sells electricity to Edison pursuant to
a modified SO4 agreement which provides for contract capacity
payments on 34 MW of capacity at two different rates based on the
respective contract capacities deemed attributable to the original
Salton Sea PPA option (20 MW) and to the original Fish Lake PPA (14
MW). The capacity payment price for the 20 MW portion adjusts
quarterly based upon specified indicies and the capacity payment
price for the 14 MW portion is a fixed levelized rate. The energy
payment (for deliveries up to a rate of 39.6 MW) is at a fixed price
for 55.6% of the total energy delivered by Salton Sea IV and is
based on an energy payment schedule for 44.4% of the total energy
delivered by Salton Sea IV. The contract has a 30-year term but
Edison is not required to purchase the 20 MW of capacity and energy
originally attributable to the Salton Sea I PPA option after June
30, 2017, the original termination date of the Salton Sea I PPA.
For the six months ended June 30, 1996, Edison's average Avoided
Cost of Energy was 2.2 cents per kWh which is substantially below
the contract energy prices earned for the six months ended June 30,
1996. Estimates of Edison's future Avoided Cost of Energy vary
substantially from year to year. The Company cannot predict the
likely level of Avoided Cost of Energy prices under the SO4
Agreements and the modified SO4 Agreements at the expiration of the
scheduled payment periods. The energy revenues generated by each of
the projects operating under such Agreements could decline
significantly after the expiration of the respective scheduled
payment periods.
The following data includes the combined Operating Capacity Factors
and electricity production of Salton Sea Units I, II, III and IV:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Operating Capacity Factor 78.7% 78.3% 83.8% 82.5%
Contract Capacity (NMW)
(weighted average)* 92.9 79.8 86.3 79.8
kWh Produced
(in thousands) 159,700 136,400 315,900 286,000
* Weighted average for the commencement of operations at the Salton Sea Unit IV.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The following data includes combined Operating Capacity Factors and
electricity production of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Operating Capacity Factor 109.2% 107.5% 103.4% 104.9%
Contract Capacity (NMW) 148.0 148.0 148.0 148.0 kWh
Produced (in thousands) 353,000 347,500 668,600 674,650
The Salton Sea Guarantors' sales of electricity increased to $19,012
for the three months ended June 30, 1996 from $16,472 for the same
period of 1995, a 15.4% increase. For the six month period ended
June 30, 1996, sales of electricity increased to $35,233 from
$32,083 in 1995, an 9.8% increase. These increases were primarily
due to the addition of Unit 4 production on June 1, 1996 and
increased electric production at the other plants.
The Partnership Guarantors' sales of electricity increased to
$36,996 for the three months ended June 30, 1996 from $19,372 for
the same period in 1995, a 91.0% increase. For the six month period
ended June 30, 1996, sales of electricity increased to $52,155 from
$36,089 in 1995, a 44.5% increase. These increases were primarily
due to the purchase of Edison Mission Energy's 50% partnership
interest in the four geothermal operating facilities in April 1996.
This was partially offset by a decreased price per kWh for the
Vulcan project as a result of the expiration of the scheduled price
period.
The Royalty Guarantor revenue increased to $7,697 for the three
months ended June 30, 1996 from $7,316 for the same period last
year. For the six month period ended June 30, 1996, revenue
increased to $14,638 from $14,067 in 1995, a 4.1% increase. These
increases were due primarily to higher energy sales at Del Ranch,
Elmore and Leathers compared to the same periods of 1995.
The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $5,937, for the three months ended June 30, 1996 from
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
$7,179 for the same period in 1995. For the six month period ended
June 30, 1996, operating expenses decreased to $11,726 from $12,983
in 1995. These decreases were primarily due to higher plant
maintenance expenditures in 1995 and continuing work force
efficiencies as a result of CECI's acquisition of the facilities,
which were partially offset by the start up of the Salton Sea Unit
IV plants operations in June 1996.
The Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
increased to $16,798 for the three months ended June 30, 1996 from
$7,857 for the same period in 1995. For the six month period ended
June 30, 1996, operating expenses increased to $24,410 from $15,459
in 1995. These increases were primarily due to the Edison Mission
Energy acquisition.
The Royalty Guarantors' operating expenses increased to $1,845 for
the three months ended June 30, 1996 from $1,719 for the same period
in 1995, a 7.3% increase. For the six month period ended
June 30, 1996, operating expenses increased to $3,552 from $3,313
in 1995, a 7.2% increase. These increases were due to a scheduled
increase in third party lessor royalties related to the increase in
the Partnership Projects' sales of electricity.
The Salton Sea Guarantors' depreciation and amortization decreased
to $3,204 for the three months ended June 30, 1996 from $3,357 for
the same period of 1995, a 4.6% decrease. For the six month period
ended June 30, 1996, depreciation and amortization decrease to
$5,886 from $6,400 in 1995. These decreases were due primarily to
the final push down allocation of purchase accounting adjustments
related to the first quarter 1995 acquisition of Magma.
The Partnership Guarantors' depreciation and amortization increased
to $9,916 for the three months ended June 30, 1996 from $2,815 for
the same period in 1995, a 252.3% increase. For the six month
period ended June 30, 1996, depreciation and amortization increased
to $14,289 from $5,253 in 1995, a 172.0% increase. These increases
were due primarily to the final push down allocation of purchase
accounting related to the first quarter 1995 acquisition of Magma
and the Edison Mission Energy acquisition.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Royalty Guarantors' amortization increased to $2,570 for the
three months ended June 30, 1996 from $1,884 for the same period of
1995, a 36.4% increase. For the six month period ended June 30,
1996, depreciation and amortization increased to $5,140 from $3,116
in 1995. These increases were due primarily to the final push down
allocation of purchase accounting adjustments related to the first
quarter 1995 acquisition of Magma.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, decreased to $3,355 for the three months ended June 30,
1996 from $5,015 for the same period in 1995 a 33.1% decrease. For
the six month period ended June 30, 1996, interest expense, net of
capitalized amounts, decreased to $6,312 from $9,271 in 1995. These
decreases were due primarily to the capitalization of interest
related to the Salton Sea Unit IV expansion, during the construction
period, the mineral reserve project and the timing of current year
debt payments partially off set by increased indebtedness from the
issuance of the senior secured project notes in July of 1995.
The Partnership Guarantors' interest expense, net of capitalized
amounts, decreased to $793 for the three months ended June 30, 1996
from $4,186 for the same period in 1995. For the six month period
ended June 30, 1996, interest expense, net of capitalized amounts,
decreased to $793 from $7,395 in 1995. These decreases were a
result of reduced indebtedness and capitalization of interest to the
mineral reserve project.
The Royalty Guarantors' interest expense decreased to $1,341 for the
three months ended June 30, 1996 from $2,196 from the same period in
1995. For the six month period ended June 30, 1996, interest
expense decreased to $2,699 from $3,736 in 1995. These decreases
were a result of reduced indebtedness.
The Salton Sea Guarantors are comprised of partnerships and one
company which has a partial interest in the Salton Sea expansion.
Income taxes are the responsibility of the partners and Salton Sea
Guarantors have no obligation to provide funds to the partners for
payment of any tax liabilities. Accordingly, the Salton Sea
Guarantors have no tax obligations.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Partnership Guarantors income tax provision increased to $4,463
for the three months ended June 30, 1996 from $2,355 for the same
period in 1995 a 89.5% increase. For the six month period ended
June 30, 1996, the provision for income taxes increased to $6,712
from $4,240 in 1995, a 58.3% increase. These increases were
primarily due to an increase in income before income taxes resulting
from the Edison Mission Energy acquisition. Income taxes will be
paid by the parent of the Guarantors from distributions to the
parent company by the Guarantors which occur after operating
expenses and debt service.
The Royalty Guarantor's income tax provision was $887 for the three
months ended June 30, 1996 compared to $430 for the same period in
1995. For the six month period ended June 30, 1996, the income tax
provision was $1,365 compared to $1,260 for the same period in 1995.
These increases were due primarily to increased earnings in the
current year. Tax obligations of the Royalty Guarantor will be
remitted to the parent company only to the extent of cash flows
available after operating expenses and debt service.
The Salton Sea Funding Corporation's net income for the three months
ended June 30, 1996 was $510 and $1,023 for the six month period
ended June 30, 1996, which primarily represented interest income and
expense, net of applicable tax, and the Salton Sea Funding
Corporation's 1% equity in earnings of the Guarantors. The Funding
Corporation was formed on June 20, 1995 for the sole purpose of
acting as issuer of senior secured notes and bonds.
The Salton Sea Guarantors' net income increased to $6,576 for the
three months ended June 30, 1996 compared to $1,014 for the same
period of 1995. For the six month period ended June 30, 1996, net
income increased to $11,437 compared to $2,445 in 1995.
The Partnership Guarantors' net income increased to $6,955 for the
three months ended June 30, 1996 compared to $3,513 for the same
period of 1995. For the six month period ended June 30, 1996, net
income increased to $10,100 compared to $4,985 in 1995.
The Royalty Guarantors' net income decreased to $1,054 for the three
months ended June 30, 1996 compared to $1,087 for the same period of
1995. For the six month period ended June 30, 1996, net increased
to $1,882 compared to $1,550 in 1995.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources:
The Salton Sea Guarantors' only source of revenue is payments
received pursuant to long term power sales agreements with Edison,
other than interest earned on funds on deposit. The Partnership
Guarantors' primary source of revenue is payments received pursuant
to long term power sales agreements with Edison. The Partnership
Guarantors' also receive a special distribution. The Royalty
Guarantor receives Royalties pursuant to resource lease agreements
with the Partnership Projects and the East Mesa Project. These
payments, for each of the Guarantors, are expected to be sufficient
to fund operating and maintenance expenses, payments of interest and
principal on the Securities, projected capital expenditures and debt
service reserve fund requirements.
On April 17, 1996 the Company completed the acquisition of Edison
Mission Energy's partnership interests in four geothermal operating
facilities in California for a cash purchase price of $70,000. The
acquisition has been accounted for as a purchase.
The Four projects, Vulcan, Hoch (Del Ranch), Leathers and Elmore,
are located in the Imperial Valley of California. The Company
operates the facilities and sells power to Southern California
Edison ("Edison") under long-term SO4 contracts. Prior to this
transaction, the Company was a 50% owner of these facilities. The
acquisition of Edison Mission Energy's 50% interest results in
CalEnergy owning an additional 74 net MW of generating capacity.
On June 20, 1996 the Salton Sea Funding Corporation, a wholly owned
indirect subsidiary of the Company, (the "Funding Corporation"),
completed a sale to institutional investors of $135,000 aggregate
amount of Senior Secured Series D Notes and Series E Bonds which are
nonrecourse to CECI.
The Funding Corporation Series D Notes and Series E Bonds which
mature in May 2000 and May 2011 respectively, bear an interest rate
of 7.02% and 8.30% respectively.
The proceeds of the offering were used to refinance $96,584 of
existing project level indebtedness, to fund a portion of the
purchase price of the Edison Mission Energy acquisition and for
certain capital improvements at the Imperial Valley Project.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources: (continued)
The Salton Sea Guarantors commenced construction of an additional
40 net MW electric generating facility (the "Salton Sea Expansion")
in 1995 pursuant to an amended and restated 30 year power purchase
agreement with Edison. The Salton Sea Expansion project was
operational and began recording revenue on May 24, 1996.
SALTON SEA FUNDING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
The Salton Sea Funding Corporation is not a party to any
material legal matters.
Item 2 - Changes in Securities.
The Salton Sea Funding Corporation exchanged (i) $232,750,000
aggregate principal amount of Series A Senior Secured Notes for an
equal principal amount of New Series A Securities, (ii) $133,000,000
aggregate principal amount of Series B Secured Bonds for an equal
principal amount of New Series B Securities, and (iii) $109,250,000
aggregate principal amount of Series C Senior Secured Bonds, for an
equal principal amount of New Series C Securities. The Series A
Senior Secured Notes, the Series B Senior Secured Bonds, and the
Series C Senior Secured Bonds are sometimes referred to herein as
the "Old Securities", and the New Series A Securities, New Series B
Securities, and the New Series C Securities are sometimes referred
to herein as the "New Securities". The New Securities are
obligations of the Salton Sea Funding Corporation evidencing the
same indebtedness as the Old Securities and will be entitled to the
benefits of the Indenture, which governs both the Old Securities and
the New Securities. The form and terms (including principal amount,
interest rate, maturity and ranking) of the New Securities are the
same as the form and terms of the Old Securities, except that the
New Securities have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer
applicable to the Old Securities and will not be entitled to
registration rights.
The Salton Sea Funding Corporation received no proceeds from the
exchange pursuant to the Exchange Offer.
Item 3 - Default on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K:
Not applicable.
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.
SALTON SEA FUNDING CORPORATION
/s/ John G. Sylvia
Date: August 14, 1996
John G. Sylvia
Senior Vice President and
Chief Financial Officer
/s/ Gregory E. Abel
Gregory E. Abel
Senior Vice President, Controller
and Chief Accounting Officer<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 40
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 48,490
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 620,680
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<BONDS> 563,035
0
0
<COMMON> 0
<OTHER-SE> 2,530
<TOTAL-LIABILITY-AND-EQUITY> 620,680
<SALES> 0
<TOTAL-REVENUES> 8,853
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,943
<INCOME-PRETAX> 865
<INCOME-TAX> 355
<INCOME-CONTINUING> 510
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<CHANGES> 0
<NET-INCOME> 510
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