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 September 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 September 30, 1996.
SALTON SEA FUNDING CORPORATION
Form 10-Q
September 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 Reports 4-5
Balance Sheets, September 30, 1996
and December 31, 1995 6
Statements of Operations for the Three and Nine Months Ended
September 30, 1996 and from June 20, 1995 (Inception Date) through
September 30, 1995 7
Statements of Cash Flows for the Nine Months Ended September 30,
1996 and from June 20, 1995 (Inception Date) through September 30,
1995 8
Notes to Financial Statements 9
SALTON SEA GUARANTORS
Independent Accountants Report 10
Combined Balance Sheets, September 30, 1996
and December 31, 1995 11
Combined Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995 12
Combined Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 13
Notes to Combined Financial Statements 14
PARTNERSHIP GUARANTORS
Independent Accountants Report 16
Combined Balance Sheets, September 30, 1996
and December 31, 1995 17
Combined Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995 18
Combined Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 19
Notes to Combined Financial Statements 20
SALTON SEA ROYALTY COMPANY
Independent Accountants Report 22
Balance Sheets, September 30, 1996
and December 31, 1995 23
Statements of Operations for the Three and
Nine Months Ended September 30, 1996 and 1995 24
Statements of Cash Flows for the
Nine Months Ended September 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 34
Item 2. Changes in Securities 34
Item 3. Defaults on Senior Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
Signatures 35
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 September 30, 1996, and the related
statements of operations for the three and nine month periods
ended September 30, 1996 and cash flows for the nine months ended
September 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
October 22, 1996
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have audited the accompanying statements of operations and
cash flows of Salton Sea Funding Corporation (the "Company") for
the period from June 20, 1995 through September 30, 1995. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentations. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the results of operations and cash flows of
Salton Sea Funding Corporation for the period from June 20, 1995
through September 30, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 4, 1996
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
September 30, December 31,
1996 1995
-------------------------------------
- -
(unaudited)
ASSETS
Cash $ 49,396 $ 4,393
Restricted cash and short-term
investments 15,138 57,256
Prepaid expenses and other assets 13,164 3,070
Notes receivables from affiliates 563,035 452,088
Investment in 1% of net assets of
Guarantors 6,116 5,714
------------- -------------
$646,849 $522,521
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 13,044 $ 3,889
Due to affiliates 62,597 59,594
Senior secured notes and bonds 563,035 452,088
------------- -------------
Total liabilities 638,676 515,571
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares - -
Additional paid-in capital 5,308 5,443
Retained earnings 2,865 1,507
------------- -------------
Total stockholder's equity 8,173 6,950
------------- -------------
$646,849 $522,521
======= =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
-------------------------------------------------------
Three Months Nine MonthsFrom June 20, 1995
Ended Ended (Inception Date)
September 30, September 30, through
1996 1996 September 30, 1995
-------------------------------------------------------------------
(unaudited) (unaudited)
Revenues:
Interest income $10,844 $28,504 7,414
Equity in earnings
of Guarantors 303 537 185
----------- ----------- ---------
Total revenues 11,147 29,041 7,599
----------- ----------- ---------
Expenses:
General and
administrative expenses 241 467 -
Interest expense 10,339 26,272 6,586
----------- ----------- ---------
Total expenses 10,580 26,739 6,586
----------- ----------- ---------
Income before income taxes 567 2,302 1,013
Provision for income taxes 232 944 339
----------- ----------- ---------
Net income $ 335 $ 1,358 $ 674
====== ====== =====
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
-------------------------------------------------------
From June 20, 1995
Nine Months (Inception Date)
Ended through
September 30, 1996 September 30, 1995
------------------ ------------------
(unaudited)
Cash flows from operating activities:
Net income $ 1,358 $ 674
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of guarantors (537) (185)
Changes in assets and liabilities:
Prepaid expenses and other assets (10,094) (6,793)
Accrued liabilities 9,155 6,925
----------- -----------
Net cash flows from operating activities (118) 621
----------- -----------
Cash flows from investing activities:
Decrease (increase) in restricted cash and
short-term investments 42,118 (73,522)
Secured project notes of Guarantors (135,000) (475,000)
Decrease in notes receivable from affiliates 24,053 -
----------- -----------
Net cash flows from investing activities (68,829) (548,522)
----------- -----------
Cash flows from financing activities:
Due to affiliates 3,003 95,568
Proceeds from offering of senior
project notes and bonds 135,000 475,000
Repayment on loans payable (24,053) -
----------- -----------
Net cash flows from financing activities 113,950 570,568
----------- -----------
Net change in cash 45,003 22,667
Cash at the beginning of period 4,393 -
----------- -----------
Cash at the end of period $49,396 $ 22,667
====== =======
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ (135) $ 2,000
====== =======
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 September 30, 1996
and the results of operations for the three and nine months ended
September 30, 1996 and from June 20, 1995 (inception date)
through September 30, 1995 and cash flows for the nine months
ended September 30, 1996 and from June 20, 1995 (inception date)
through September 30, 1995.
The results of operations for the three and nine months ended
September 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 September 30, 1996, and the related
combined statements of operations for the three and nine month
periods ended September 30, 1996 and 1995 and cash flows for the
nine months ended September 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
October 22, 1996
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
ASSETS
Cash $ 65 $ 454
Accounts receivable 22,070 10,436
Prepaid expenses and other assets 18,978 20,129
Property, plant, contracts and
equipment, net 470,059 417,287
Goodwill, net 51,116 52,094
------------- -------------
$562,288 $500,400
======= =======
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 177 $ 939
Accrued liabilities 13,523 4,043
Due to affiliates 40,046 4,319
Senior secured project note 310,670 321,500
------------- -------------
Total liabilities 364,416 330,801
Total Guarantors' equity 197,872 169,599
------------- -------------
$562,288 $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 Nine Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
---------- ------ --------- -------
Revenues:
Sales of electricity $33,413 $23,724 $68,646 $55,807
Interest and other income 3 186 131 595
---------------------------------------------
Total revenues 33,416 23,910 68,777 56,402
--------------------------------------------
Expenses:
Operating, general and
administration 7,576 8,055 19,302 21,038
Depreciation and amortization 3,973 1,553 9,859 7,953
Interest expense 6,205 6,449 18,724 19,139
Less capitalized interest (1,174) (3,061) (7,381) (6,480)
--------------------------------------------
Total expenses 16,580 12,996 40,504 41,650
--------------------------------------------
Income before minority
interest 16,836 10,914 28,273 14,752
Minority interest - - - 1,393
--------------------------------------------
Net income $16,836 $ 10,914 $28,273 $ 13,359
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Nine Months Ended
September 30,
-----------------------
1996 1995
-----------------------
Cash flows from operating activities:
Net income $28,273 $ 13,359
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,393
Depreciation and amortization 9,859 7,953
Changes in assets and liabilities:
Accounts receivable (11,634) (5,203)
Prepaid expenses and other assets 1,151 (3,664)
Due to (from) affiliates 35,727 (32,734)
Accounts payable and accrued
liabilities 8,718 4,225
-------------------------
Net cash flows from operating activities 72,094 (14,671)
-------------------------
Cash flows from investing activities:
Purchase of Guarantors by CalEnergy,
net of cash - (171,964)
Capital expenditures (61,653) (48,221)
Net decrease in marketable securities - 4,988
Decrease in restricted cash - 3,400
-------------------------
Net cash flows from investing activities (61,653) (211,797)
-------------------------
Cash flows from financing activities:
Repayments on loans payable (10,830) (298,672)
Loan proceeds - 509,364
Contributions from parent - 29,176
Deferred financing costs - (8,400)
Distributions to parent - (5,000)
-------------------------
Net cash flows from financing activities (10,830) 226,468
-------------------------
Net change in cash (389) -
Cash at beginning of period 454 -
------------------------
Cash at end of period $ 65 $ -
======= =======
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 September 30, 1996 and the results of operations for the three
and nine months ended September 30, 1996 and 1995 and cash flows
for the nine months ended September 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 nine months ended
September 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.
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the
following:
September 30, December 31,
1996 1995
------------- -----------
Plant and equipment $339,042 $173,509
Salton Sea Unit 4 construction
in progress - 108,632
Power sale agreements 64,609 64,609
Mineral extraction 63,990 60,577
Exploration and development costs 19,132 17,793
------------- -------------
486,773 425,120
Less accumulated depreciation
and amortization (16,714) (7,833)
------------- -------------
$470,059 $417,287
======= =======
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
-------------------------------------------------------
4. Purchase of Magma Power Company:
On January 10, 1995, CalEnergy Company, Inc. ("CECI") 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
nine months ended September 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
$56,402 and $13,869, 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 September 30, 1996, and the related
combined statements of operations for the three and nine month
periods ended September 30, 1996 and 1995 and cash flows for the
nine months ended September 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
October 22, 1996
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
ASSETS
Cash $ - $ 11,146
Restricted cash and short-term
investments - 9,859
Accounts receivable 30,586 11,841
Due from affiliates 91,309 54,949
Prepaid expenses and other assets 24,588 9,651
Property, plant, contracts and
equipment, net 369,646 298,956
Management fee 66,768 63,520
Goodwill, net 139,577 142,250
-------- --------
$722,474 $602,172
======= =======
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 4,542 $ 3,566
Accrued liabilities 22,675 19,995
Loans payable - 43,766
Senior secured project notes 189,955 62,706
Deferred income taxes 105,799 98,407
------------ -------------
Total liabilities 322,971 228,440
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 362,737 359,092
Retained earnings 36,763 14,637
------------- -------------
Total Guarantors' equity 399,503 373,732
------------- -------------
$722,474 $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 Nine Months Ended
September 30, September 30,
--------------------- ------------------
1996 1995 1996 1995
---------------------- ------------------
Revenues:
Sales of electricity $46,031 $23,205 $98,186 $59,294
Interest and other income 2,608 5,359 6,757 8,029
---------------------------------------------
Total revenues 48,639 28,564 104,943 67,323
---------------------------------------------
Expenses:
Operating, general and
administration 17,016 8,333 41,426 23,792
Depreciation and amortization 9,870 8,787 24,159 14,040
Interest expense 4,193 6,767 9,455 14,162
Less capitalized interest (2,168) (5,914) (6,637) (5,914)
--------------------------------------------
Total expenses 28,911 17,973 68,403 46,080
--------------------------------------------
Income before income taxes 19,728 10,591 36,540 21,243
Provision for income taxes 7,702 3,885 14,414 8,125
--------------------------------------------
Income before minority
interest 12,026 6,706 22,126 13,118
Minority interest - - - 1,427
--------------------------------------------
Net income $12,026 $ 6,706 $22,126 $11,691
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Nine Months Ended
September 30,
-----------------------
1996 1995
------------------------
Cash flows from operating activities:
Net income $ 22,126 $ 11,691
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,427
Depreciation and amortization 24,159 14,040
Changes in assets and liabilities:
Accounts receivable (4,268) (5,388)
Due from affiliates (37,279) (2,320)
Prepaid expenses and other assets (9,735) 1,340
Accounts payable and accrued liabilities 503 11,070
Deferred income taxes 4,192 -
Other, net - (7,005)
-------------------------
Net cash flows from operating activities (302) 24,855
-------------------------
Cash flows from investing activities:
Purchase of Guarantors by CalEnergy,
net of cash - (197,810)
Capital expenditures (14,723) (1,977)
Net decrease in marketable securities - 7,457
Management fee - (29,423)
Decrease (increase) in restricted cash
and short-term investments 23,085 (1,134)
-------------------------
Net cash flows from investing activities 8,362 (222,887)
-------------------------
Cash flows from financing activities:
Repayments on loans payable (99,809) (221,877)
Deferred finance costs - (9,714)
Loan proceeds 135,000 288,185
Distributions to parent (54,397) 143,505
-------------------------
Net cash flows from financing activities (19,206) 200,099
-------------------------
Net change in cash (11,146) 2,067
Cash at beginning of period 11,146 -
-------------------------
Cash at end of period $ 0 $ 2,067
======= =======
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 COMBINED 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 September 30, 1996 and the results of operations
for the three and nine months ended September 30, 1996 and 1995
and cash flows for the nine months ended September 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 nine months ended
September 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.
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the
following:
September 30, December 31,
1996 1995
------------- -----------
Plant and equipment $ 62,449 $ 58,532
Power sale agreements 122,997 44,966
Process license 46,290 46,290
Mineral extraction 118,987 112,350
Exploration and development costs 56,673 53,449
------------ -------------
407,396 315,587
Less accumulated depreciation
and amortization (37,750) (16,631)
------------ -------------
$369,646 $298,956
======= =======
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
-------------------------------------------------------
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 CECI 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 CECI, currently
operates these facilities and directly or indirectly owns 100%
interest in these facilities. Magma's direct ownership interest
related to Del Ranch, Leathers, Elmore and Vulcan is assigned to
the Partnership Guarantors.
Unaudited proforma combined revenue and net income of the
Guarantors on a purchase, push down basis of accounting, for the
nine months ended September 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
$123,582 and $23,259, respectively compared with revenue and net
income of $137,953 and $24,245, respectively for the nine months
ended September 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 September 30, 1996, and the related
statements of operations for the three and nine month periods
ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 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
October 22, 1996
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
September 30, December 31,
1996 1995
-------------- ------------
(unaudited)
ASSETS
Due from affiliates $17,214 $ 25,110
Royalty stream, net 46,715 53,744
Goodwill, net 35,231 35,912
Prepaid expenses and other assets 1,909 2,575
------------- -------------
$101,069 $117,341
======= =======
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 11,238 $ 5,948
Senior secured project note 62,409 67,882
Deferred income taxes 13,152 15,460
-------------- -------------
Total liabilities 86,799 89,290
Equity:
Common stock - -
Additional paid-in capital 7,440 24,541
Retained earnings 6,830 3,510
------------- -------------
Total equity 14,270 28,051
------------- -------------
$101,069 $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 Nine Months Ended
September 30, September 30,
------------------- -------------------
1996 1995 1996 1995
------------------- -------------------
Revenues:
Royalty income $ 7,784 $ 7,097 $22,422 $21,164
Expenses:
Operating, general and
administrative expenses 1,894 1,756 5,446 5,069
Amortization of royalty
stream and goodwill 2,570 5,047 7,710 8,163
Interest expense 1,290 (568) 3,989 3,168
------------------------------------------
Total expenses 5,754 6,235 17,145 16,400
------------------------------------------
Income before income taxes 2,030 862 5,277 4,764
Provision for income taxes 592 (50) 1,957 1,210
------------------------------------------
Income before minority
interest 1,438 912 3,320 3,554
Minority interest - - - 1,092
------------------------------------------
Net income $ 1,438 $ 912 $ 3,320 $ 2,462
===== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Nine Months Ended
September 30,
----------------------
1996 1995
----------------------
Cash flows from operating activities:
Net income $3,320 $2,462
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest - 1,092
Amortization of royalty stream and
goodwill 7,710 8,163
Changes in assets and liabilities:
Prepaid expenses and other assets 666 481
Accrued liabilities and deferred
income taxes 2,982 2,250
----------------------
Net cash flows from operating activities 14,678 14,448
----------------------
Net cash flows from investing activities:
Purchase of Company by CECI, net of cash - (38,603)
----------------------
Net cash flows from investing activities - (38,603)
----------------------
Net cash flows from financing activities:
Proceeds from issuance of debt - 115,446
Deferred financing costs - (3,499)
Capital contributions - 1,647
Decrease (increase) in due from affiliates 7,896 (32,898)
Payment of debt (5,473) (40,446)
Distribution to parent (17,101) (16,095)
----------------------
Net cash flows from financing activities (14,678) 24,155
----------------------
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 September 30, 1996 and the results of operations for the three
and nine months ended September 30, 1996 and 1995 and cash flows
for the nine months ended September 30, 1996 and 1995.
The results of operations for the three and nine months ended
September 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 nine months
ended September 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 $21,164 and
$2,705, 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 Guarantors' 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 Company
("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 the capacity payments 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 rates range
from 12.7 cents per kWh in 1996 to 15.6 cents per kWh in 1999. The fixed
energy price period on the Vulcan Partnership SO4 Agreement
expired in February 1996.
The Salton Sea I Project sells electricity to Edison pursuant to
a 30-year negotiated power purchase agreement, as amended (the
"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 nine months ended September
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 on May 24, 1996.
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 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 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 September 30, 2017, the
original termination date of the Salton Sea I PPA.
For the nine months ended September 30, 1996, Edison's average
Avoided Cost of Energy was 2.3 cents per kWh which is
substantially below the contract energy prices earned for the
nine months ended September 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 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 the combined Operating Capacity
Factors and electricity production of Salton Sea Units I, II, III
and IV:
Three Months Ended Nine Months Ended
September 30 September 30
-----------------------------------------
1996 1995 1996 1995
------------------------------------------
- --
Operating Capacity Factor 97.9% 93.8% 89.6% 86.3%
Contract Capacity (NMW)
(weighted average)* 119.4 79.8 97.4 79.8
kWh Produced
(in thousands) 258,000 165,400 573,900 451,400
* Weighted average for the commencement of operations at the
Salton Sea Unit IV.
The following data includes combined Operating Capacity Factors
and electricity production of Vulcan, Del Ranch, Elmore and
Leathers:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------------
1996 1995 1996 1995
------------------------------------------
Operating Capacity Factor 106.4% 108.0% 106.5% 106.0%
Contract Capacity (NMW) 148.0 148.0 148.0 148.0
Produced (in thousands) 347,700 353,000 1,016,300 1,027,600
The Salton Sea Guarantors' sales of electricity increased to
$33,413 for the three months ended September 30, 1996 from
$23,724 for the same period of 1995, a 40.8% increase. For the
nine month period ended September 30, 1996, sales of electricity
increased to $68,646 from $55,807 in 1995, a 23.0% 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
$46,031 for the three months ended September 30, 1996 from
$23,205 for the same period in 1995, a 98.4% increase. For the
nine month period ended September 30, 1996, sales of electricity
increased to $98,186 from $59,294 in 1995, a 65.6% 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 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 Guarantor revenue increased to $7,784 for the three
months ended September 30, 1996 from $7,097 for the same period
last year. For the nine month period ended September 30, 1996,
revenue increased to $22,422 from $21,164 in 1995, a 5.9%
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 $7,576, for the three months ended September 30,
1996 from $8,055 for the same period in 1995. For the nine month
period ended September 30, 1996, operating expenses decreased to
$19,302 from $21,038 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 $17,016 for the three months ended September 30,
1996 from $8,333 for the same period in 1995. For the nine month
period ended September 30, 1996, operating expenses increased to
$41,426 from $23,792 in 1995. These increases were primarily due
to the Edison Mission Energy acquisition.
The Royalty Guarantors' operating expenses increased to $1,894
for the three months ended September 30, 1996 from $1,756 for the
same period in 1995, a 7.9% increase. For the nine month period
ended September 30, 1996, operating expenses increased to $5,446
from $5,069 in 1995, a 7.4% 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
increased to $3,973 for the three months ended September 30, 1996
from $1,553 for the same period of 1995, a 155.8% increase. For
the nine month period ended September 30, 1996, depreciation and
amortization increased to $9,859 from $7,953 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 Partnership Guarantors' depreciation and amortization
increased to $9,870 for the three months ended September 30, 1996
from $8,787 for the same period in 1995, a 12.3% increase. For
the nine month period ended September 30, 1996, depreciation and
amortization increased to $24,159 from $14,040 in 1995, a 72.1%
increase. These increases were due primarily to the final push
down allocation of purchase accounting adjustments related to the
first quarter 1995 acquisition of Magma and the Edison Mission
Energy Partnership Interest Acquisition.
The Royalty Guarantors' amortization decreased to $2,570 for the
three months ended September 30, 1996 from $5,047 for the same
period of 1995, a 49.1% decrease. For the nine month period
ended September 30, 1996, amortization decreased to $7,710 from
$8,163 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 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 Guarantors' interest expense, net of capitalized
amounts, increased to $5,031 for the three months ended September
30, 1996 from $3,388 for the same period in 1995, a 48.5%
increase. For the nine month period ended September 30, 1996,
interest expense, net of capitalized amounts, decreased to
$11,343 from $12,659 in 1995. These changes 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
offset 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, increased to $2,025 for the three months ended September
30, 1996 from $853 for the same period in 1995 as the result of
additional indebtedness. For the nine month period ended
September 30, 1996, interest expense, net of capitalized amounts,
decreased to $2,818 from $8,248 in 1995. This increase were a
result of lower indebtedness for the period and capitalization of
interest to the mineral reserve project.
The Royalty Guarantors' interest expense increased to $1,290 for
the three months ended September 30, 1996 from ($568) from the
same period in 1995. For the nine month period ended September
30, 1996, interest expense increased to $3,989 from $3,168 in
1995. The increase was the result of an adjustment in 1995 due
to a reallocation of debt from the purchase accounting.
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 Partnership Guarantors income tax provision increased to
$7,702 for the three months ended September 30, 1996 from $3,885
for the same period in 1995, a 98.2% increase. For the nine
month period ended September 30, 1996, the provision for income
taxes increased to $14,414 from $8,125 in 1995, a 77.4% 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 $592 for the
three months ended September 30, 1996 compared to ($50) for the
same period in 1995. For the nine month period ended September
30, 1996, the income tax provision was $1,957 compared to $1,210
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 increase was the result of an adjustment
in 1995 due to a reallocation of debt from the purchase
accounting.
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 Funding Corporation's net income for the three
months ended September 30, 1996 was $335 and $1,358 for the nine
month period ended September 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. Net income from June 20, 1995 (inception date)
through September 30, 1995 was $674.
The Salton Sea Guarantors' net income increased to $16,836 for
the three months ended September 30, 1996 compared to $10,914 for
the same period of 1995. For the nine month period ended
September 30, 1996, net income increased to $28,273 compared to
$13,359 in 1995.
The Partnership Guarantors' net income increased to $12,026 for
the three months ended September 30, 1996 compared to $6,706 for
the same period of 1995. For the nine month period ended
September 30, 1996, net income increased to $22,126 compared to
$11,691 in 1995.
The Royalty Guarantors' net income decreased to $1,438 for the
three months ended September 30, 1996 compared to $912 for the
same period of 1995. For the nine month period ended September
30, 1996, net income decreased to $3,320 compared to $2,462 in
1995.
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 CalEnergy Company, Inc., ("CECI") 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. CECI operates the facilities and sells power to
Southern California Edison ("Edison") under long-term SO4
contracts. Prior to this transaction, CECI indirectly owned 50%
of these facilities. The acquisition of Edison Mission Energy's
50% interest results in CECI owning an additional 74 net MW of
generating capacity.
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)
On June 20, 1996 the Salton Sea Funding Corporation, completed a
sale to institutional investors of $135,000 aggregate amount of
Senior Secured Series D Notes and Series E Bonds. 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.
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.
Not applicable.
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/Gregory E. Abel
Date: November 14, 1996 Gregory E. Abel
Executive Vice President and
Chief Accounting Officer
/s/John G. Sylvia
John G. Sylvia
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 37
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 50,934
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 646,849
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<BONDS> 563,035
0
0
<COMMON> 0
<OTHER-SE> 8,173
<TOTAL-LIABILITY-AND-EQUITY> 646,849
<SALES> 0
<TOTAL-REVENUES> 11,147
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 241
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