SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File No.
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
Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
All common stock of Salton Sea Funding Corporation is indirectly held
by Magma Power Company.
100 shares of Common Stock were outstanding on March 31, 1996.
Documents incorporated by reference: N/A
PART 1
ITEM 1. Business
Salton Sea Funding Corporation ("Funding Corporation") is a special
purpose Delaware corporation and a wholly owned subsidiary of Magma Power
Company ("Magma") formed for the sole purpose of issuing securities in its
individual capacity as principal and as agent acting on behalf of the
Guarantors (as defined below). The principal executive office of the Funding
Corporation is located at 302 South 36th Street, Suite 400-A, Omaha, Nebraska
68131 and its telephone number is (402) 231-1641.
Salton Sea Brine Processing L.P. ("SSBP"), Salton Sea Power Generation
L.P. ("SSPG") and Fish Lake Power Company ("Fish Lake") (collectively, the
"Salton Sea Guarantors") own four geothermal power plants located in Imperial
Valley, California known as Salton Sea Unit I, Salton Sea Unit II, Salton Sea
Unit III and Salton Sea Unit IV (which is presently expected to be completed
by mid-year 1996) (collectively, the "Salton Sea Projects"). Vulcan Power
Company ("VPC") owns a 50% interest in the geothermal power plant located in
Imperial Valley, California known as the Vulcan Project. CalEnergy Operating
Company ("CEOC" and, together with VPC, the "Partnership Guarantors") owns a
40% interest in three geothermal power plants located in Imperial Valley,
California known as the Elmore Project, the Leathers Project and the Del
Ranch Project (such plants, collectively with the Vulcan Project, the
"Partnership Projects"). CEOC is entitled to receive from Magma, as payment
for certain data and services provided by CEOC, the partnership distributions
Magma receives with respect to its 10% ownership interests in each of the
Elmore Project, the Leathers Project and the Del Ranch Project and the
special distributions equal to 4.5% of total energy revenues from the
Leathers Project. Salton Sea Royalty Company ("SSRC" or the "Royalty
Guarantor") has received an assignment of certain fees and royalties
("Royalties") paid by three Partnership Projects, Elmore, Leathers and Del
Ranch. In addition, the Royalty Guarantor has received an assignment of
certain Royalties payable by the geothermal power plant located in Imperial
Valley, California which is owned by an unaffiliated third party (the "East
Mesa Project", and together with the Salton Sea Projects and the Partnership
Projects, the "Projects"). Such Royalties are subject to netting and
reduction from time to time to reflect various operating costs, as reflected
in the financial statements herein. The principal executive offices of the
Salton Sea Guarantors are located at 302 South 36th Street, Suite 400-B,
Omaha, Nebraska 68131. The principal executive offices of the Partnership
Guarantors is 302 South 36th Street, Suite 400-C, Omaha, Nebraska 68131. The
principal executive office of the Royalty Guarantor is 302 South 36th Street,
Suite 400-D, Omaha, Nebraska 68131. The Salton Sea Guarantors, Partnership
Guarantors and the Royalty Guarantor are sometimes referred to collectively
herein as the "Guarantors". Each Guarantor is an indirect wholly owned
subsidiary of CalEnergy Company, Inc. ("CalEnergy").
Magma directly or indirectly owns all of the capital stock of or
partnership interests in the Funding Corporation and the Guarantors. CEOC, a
subsidiary in which Magma owns a 99% interest and the Funding Corporation
owns a 1% interest, currently operates each of the Salton Sea Projects and
the Partnership Projects. Affiliates of Magma control, through a variety of
fee, leasehold, and royalty interests, rights to geothermal resources in the
Salton Sea Known Geothermal Resource Area ("SSKGRA").
The Exchange Offer
The 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 Senior 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 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 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 (i) 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, and (ii) the New Securities will not
provide for any increase in the interest rate thereon. Capitalized terms not
otherwise defined herein shall have the meaning set forth in the Indenture
between Chemical Trust Company of California and Funding Corporation dated
July 21, 1995.
The Funding Corporation received no proceeds from the exchange pursuant
to the Exchange Offer. The net proceeds received by the Funding Corporation
from the issuance of the Old Securities to the Initial Purchasers in the
Initial Offering (after deduction of certain transaction costs) was
approximately $470 million and was used for the following purposes: (a)
approximately $253 million to repay certain non-recourse indebtedness of
CalEnergy incurred in connection with the Magma Acquisition; (b)
approximately $102 million to refinance existing indebtedness of the Salton
Sea Projects; and (c) approximately $115 million to finance the Salton Sea
Expansion.
There is no existing trading market for the New Securities and there can
be no assurance regarding the future development of such a market for the New
Securities or the ability of holders of the New Securities to sell their New
Securities or the price at which such holders may be able to sell their New
Securities. If such a market were to develop, future trading prices will
depend on many factors, including, among other things, prevailing interest
rates, the operating results of the Funding Corporation and the Guarantors,
and the market for similar securities. The Funding Corporation does not
intend to apply for listing or quotation of the New Securities on any
securities exchange or stock market.
Structure of and Collateral for the Securities
The New Securities and any additional securities issued pursuant to the
Indenture (the "Securities") will be payable from the proceeds of payments
made in respect of principal of and interest on the Project Notes by the
Guarantors to the Funding Corporation. The Securities are secured by the
capital stock of the Funding Corporation and guaranteed by the Guarantors.
The Guarantees (which are unlimited in the case of the Salton Sea Guarantors
and which are limited to Available Cash Flow, in the case of the Partnership
Guarantors and the Royalty Guarantor, respectively) are secured:
(i) in the case of the Salton Sea Guarantee, by a senior first priority
lien on substantially all of the assets of the Salton Sea Guarantors,
a pledge of the equity interests in the Salton Sea Guarantors and an
assignment of the cost overrun funding commitment provided by
CalEnergy to the Salton Sea Guarantors in connection with the
substantial completion of the Salton Sea Expansion (the "Cost
Overrun Commitment");
(ii) in the case of the Partnership Guarantee, by a senior first priority
lien on the Equity Cash Flows and Royalties of the Partnership
Guarantors and a pledge of the capital stock of the Partnership
Guarantors; and
(iii) in the case of the Royalty Guarantee, by a senior first priority lien
on all Royalties paid to the Royalty Guarantor and a pledge of the
capital stock of the Royalty Guarantor.
The structure has been designed to cross-collateralize cash flows from
each Guarantor without cross- collateralizing all of the Guarantor's assets.
Therefore, if a Guarantor defaults on its Credit Agreement, Project Note or
its Guarantee, without causing a payment default on the Securities, then the
Trustee may direct the Collateral Agent to exercise remedies only with
respect to the Collateral securing such Credit Agreement, Project Note and
Guarantee. If, however, such default causes a payment default on the
Securities, then the Trustee may accelerate the Securities and direct the
Collateral Agent to exercise remedies against all such Collateral and the
Collateral from the Salton Sea Guarantors.
The Funding Corporation and the Guarantors are initially obligated to
maintain a Debt Service Reserve Fund and/or a Debt Service Reserve Fund
Letter of Credit in an aggregate initial amount equal to the maximum
remaining semiannual scheduled debt service on the Securities. After January
1, 2000, the Debt Service Reserve Fund Required Balance will increase to the
maximum remaining annual scheduled debt service on the Securities.
The Funding Corporation is a special purpose finance subsidiary of Magma.
Its ability to make payments on the Securities will be entirely dependent on
the Guarantors' performance of their obligations under the Project Notes and
the Guarantees. As is common in non-recourse, project finance structures, the
assets and cash flows of the Guarantors are the sole source of repayment of
the Project Notes and the Guarantees. The Salton Sea Guarantors conduct no
other business and own no other significant assets except those related to
the ownership or operation of the Salton Sea Projects. The Partnership
Guarantors conduct no business other than owning their respective ownership
interests in the Partnership Projects and providing operation, maintenance,
administrative and technical services for Magma, the Salton Sea Projects and
the Partnership Projects. The Royalty Guarantor has been organized solely to
receive royalty payments owed by the Partnership Projects and the East Mesa
Project and conducts no other business and owns no other assets. In the event
of a default by any Guarantor under a Project Note, Credit Agreement or
Guarantee, there is no assurance that the exercise of remedies under such
Project Note, Credit Agreement or Guarantee, including foreclosure on the
assets of such Guarantor, would provide sufficient funds to pay such
Guarantor's obligation under the Project Notes and the Guarantees. Moreover,
unless such default causes a payment default under the Indenture (in which
case remedies may be exercised against the defaulting Guarantor's and the
Salton Sea Guarantors' assets), remedies may be exercised only against the
assets of the defaulting Guarantors. No shareholders, partners or affiliates
of the Funding Corporation (other than the Guarantors) and no directors,
officers or employees of the Funding Corporation or the Guarantors will
guarantee or be in any way liable for the payment of the Securities, the
Project Notes or the Guarantees. In addition, the obligations of the
Partnership Guarantors and the Royalty Guarantor under the Guarantees are
limited to the Available Cash Flows of such Guarantors. As a result, payment
of amounts owed pursuant to the Project Notes, the Guarantees and the
Securities is dependent upon the availability of sufficient revenues and
royalty payments from the Guarantors' businesses or holdings, after the
payment of operating expenses and the satisfaction of certain other
obligations.
The Projects
Set forth below is a table describing certain characteristics of the
Salton Sea Projects and the Partnership Projects, and the Guarantors'
interest therein. All the Salton Sea Projects and Partnership Projects sell
power to Southern California Edison Company ("Edison").
The Salton Sea Projects and the Partnership Projects
<TABLE>
<CAPTION>
PROJECT FACILITY NET LOCATION DATE OF CONTRACT CONTRACT
CAPACITY OWNERSHIP COMMERCIAL EXPIRATION TYPE
(IN MW)(1) INTEREST OF OPERATION
GUARANTORS
(IN MW)(2)
<S>
Salton Sea Projects <C> <C> <C> <C> <C> <C>
Salton Sea Unit I 10.0 10.0 Imperial Valley, CA 7/1987 6/2017 Negotiated
Salton Sea Unit II 20.0 20.0 Imperial Valley, CA 4/1990 4/2020 SO4
Salton Sea Unit III 49.8 49.8 Imperial Valley, CA 2/1989 2/2019 SO4
Salton Sea Unit IV(3) 40.0 40.0 Imperial Valley, CA 1996(est.) 2026(est.) Negotiated
Subtotal 119.8 119.8
Partnership Projects
Vulcan 34.0 17.0 Imperial Valley, CA 2/1986 2/2016 SO4
Elmore 38.0 19.0 Imperial Valley, CA 1/1989 12/2018 SO4
Leathers 38.0 19.0 Imperial Valley, CA 1/1990 12/2019 SO4
Del Ranch 38.0 19.0 Imperial Valley, CA 1/1989 12/2018 SO4
Subtotal 148.0 74.0
Total 267.8 193.8
</TABLE>
(1) Facility Capacity does not necessarily reflect electric output
available for sale to Edison.
(2) CEOC owns a 40% interest in, and will receive the additional 10%
equity distribution payable to Magma
by, Elmore, Leathers and Del Ranch. VPC owns a 50% interest in Vulcan.
(3) Construction is expected to be complete and commercial operation
commence by mid-year 1996.
Transaction Structure
Salton Sea Projects
The Salton Sea Guarantors collectively own the three operating Salton Sea
Projects with an aggregate net generating capacity of approximately 79.8 MW.
The aggregate generating capacity of the Salton Sea Projects is being
increased through the construction of Salton Sea Unit IV, which is expected
to add a net generating capacity of approximately 40 MW. All of the Salton
Sea Projects have executed long term power purchase agreements, providing for
the sale of capacity and energy to Edison.
Salton Sea Unit II and Salton Sea Unit III have modified SO4 Agreements
with Edison. These contracts provide for fixed price capacity payments for
the life of the contract, and fixed price energy payments for the first 10
years. Thereafter, the energy payments paid by Edison will be based on
Edison's then-current, published short-run avoided cost of energy (the
"Avoided Cost of Energy"). The fixed price energy periods expire on April 4,
2000 and February 13, 1999 for Salton Sea Unit II and Salton Sea Unit III,
respectively.
Salton Sea Unit I and Salton Sea Unit IV have negotiated contracts with
Edison. The Salton Sea Unit I contract provides for a capacity payment and
energy payment for the life of the contract. Both payments are based upon an
initial value that is subject to quarterly adjustment by reference to various
inflation-related indices. 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 adjustment by reference to various
inflation-related indices, through June 20, 2017 (and at Edison'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 Edison's Avoided Cost of Energy thereafter.
All of the Salton Sea Projects, other than Salton Sea Unit IV, have been
operating for at least 5 years. The three operating Salton Sea Projects
operated at a combined Contract Capacity Factor of 91.3% in 1993, 90.8% in
1994 and 86.5% in 1995.
The Salton Sea Guarantors are currently in the process of expanding the
capacity of the Salton Sea Projects through the construction of Salton Sea
Unit IV adjacent to the site where Salton Sea Unit III is currently located.
Such construction and the installation of the pH modification process at
Salton Sea Units I and III is referred to herein as the "Salton Sea
Expansion". The pH Modification Process has been in use at Salton Sea Unit II
for over 5 years. The process lowers the pH of the geothermal resource
thereby significantly reducing the amount of solids in the geothermal fluid
which precipate out of solution. This is expected to result in significantly
lower operation and maintenance costs.
The construction of the Salton Sea Expansion is being designed and managed
on a cost reimbursable basis by Dow Engineering Company ("Dow"), a subsidiary
of The Dow Chemical Company. Dow provided similar services with respect to
the construction of the Partnership Projects. As of December 31, 1995, the
Salton Sea Expansion was approximately 75% complete. The turbine generator
and all other major equipment have been delivered to the site.
The Salton Sea Expansion is presently expected to be completed by mid-year
1996. The budget for the Salton Sea Expansion is $135 million (including a
$10 million contingency). CalEnergy is providing the Cost Overrun Commitment
to fund any costs of construction of the Salton Sea Expansion, which, if
applicable, may be required to be incurred in excess of the budgeted amount
of $135 million in order to cause substantial completion by January 1, 1998.
This commitment expires on the earlier of (i) January 1, 1998, (ii) the
mandatory redemption (if any) of Series B and Series C Securities having an
aggregate principal amount of at least $150 million principal amount of the
Securities or (iii) under certain circumstances involving a confirmation of
an Investment Grade Rating for the Securities.
The completion of the Salton Sea Expansion on time and within budget is
subject to customary uncertainties associated with the construction of power
plants which could result in delays or cost overruns. Any material unremedied
delay in or unsatisfactory completion of the Salton Sea Expansion could have
an adverse effect on the Salton Sea Guarantors' results of operations and on
the Salton Sea Guarantors' ability to make payments of principal of, premium,
if any, and interest on the Salton Sea Project Note which would, in turn,
adversely affect the Funding Corporation's ability to make payments of
principal of, premium, if any, and interest on the Securities. Failure to
complete the construction of Salton Sea Unit IV by June 12, 1998 could result
in the Salton Sea Unit IV PPA being terminated by Edison.
Partnership Projects
The Partnership Projects have an aggregate facility generating capacity
of 148 MW. The Partnership Guarantors own a 50% interest in the Vulcan
Project and a 40% interest in the Elmore, Leathers and Del Ranch Projects.
Magma owns a 10% interest in the Elmore, Leathers and Del Ranch Projects and
has agreed to pay to CEOC the partnership distributions it receives from such
interests in exchange for certain proprietary data and services provided by
CEOC. Magma has collaterally assigned to CEOC Magma's right to such payments.
Affiliates of Edison Mission Energy ("Mission"), an affiliate of Edison,
currently own the remaining 50% of each of the Partnership Projects. A
CalEnergy affiliate recently executed a definitive agreement to acquire
Mission's 50% interest subject to Hart-Scott-Rodino clearance.
All of the Partnership Projects have executed SO4 Agreements for the sale
of capacity and energy to Edison which contracts provide for fixed price
capacity payments for the life of the contract and fixed price energy
payments for the first 10 years. Thereafter, the energy payments paid by
Edison will be based on Edison's Avoided Cost of Energy. The fixed price
energy periods for the Partnership Projects expire on February 9, 1996 for
the Vulcan Project, December 31, 1998 for the Del Ranch and Elmore Projects,
and December 31, 1999 for the Leathers Project.
The Vulcan Project is unleveraged. At December 31, 1995, the other
Partnership Projects had outstanding project finance indebtedness in the
aggregate of approximately $109 million which is scheduled to be fully
amortized by September 2001 for the Del Ranch and Elmore Projects and
September 2002 for the Leathers Project. The Partnership Project credit
facilities and partnership agreements provide for limitations on
distributions, principally for defaults and maintenance of reserves.
All of the Partnership Projects have been operating for at least 5 years.
The Partnership Projects operated at a combined Contract Capacity Factor of
100.7% in 1993, 103.8% in 1994 and 105.9% in 1995.
The Partnership Guarantors are entitled to receive certain royalties from
the Partnership Projects which, in the case of the Partnership Projects with
outstanding debt, are payable prior to the payment of each such Partnership
Project's senior debt.
VPC is entitled to receive approximately 4.17% of Vulcan's energy revenues
in exchange for supplying brine to the Project, as well as reimbursement of
overhead costs, and actual and allocated costs incurred in providing certain
services. CEOC is entitled to receive approximately 5.67% of each of Del
Ranch's and Elmore's energy revenues, 3% of each such Partnership Project's
capacity revenues, as well as 7.5% of Leather's energy revenues and 3% of
Leather's capacity revenues. CEOC is also entitled to reimbursement of actual
and allocated costs incurred in providing operation and maintenance services
to the Elmore, Leathers and Del Ranch Projects.
Royalties and Royalty Projects
The Royalty Guarantor has received an assignment from Magma of certain
royalties ("Royalties") received from the Leathers, Del Ranch and Elmore
Projects and the East Mesa Project in exchange for the provision to those
projects of the rights to use certain geothermal resources, as well as the
assignment of a power purchase agreement. Substantially all of the assigned
Royalties are based on a percentage of energy and capacity revenues of the
respective projects. Pursuant to the assignment, the Royalty Guarantor is
entitled to receive the aggregate percentages of such project's energy and
capacity revenues as illustrated in the chart below. The Partnership
Guarantors are also entitled to receive Royalties from the Partnership
Projects as illustrated in the chart below. Royalties are subject to netting
and reduction from time to time to reflect various operating costs, as
reflected in the financial statements herein.
<TABLE>
<CAPTION>
ROYALTIES TO BE PAID TO ROYALTIES TO BE PAID TO
ROYALTY GUARANTOR PARTNERSHIP GUARANTORS(1)
PROJECT FACILITY % ENERGY % OF CAPACITY % ENERGY % CAPACITY
CAPACITY REVENUES REVENUES REVENUES REVENUES
<S> <C> <C> <C> <C> <C>
Del Ranch 38 23.33 1.00 5.67 3.00
Elmore 38 23.33 1.00 5.67 3.00
Leathers 38 21.50 0.00 7.50 3.00
Vulcan 34 0.00 0.00 4.17 0.00
East Mesa Sr.
Royalty(2) 37 4.00 4.00 0.00 0.00
Jr. Royalty -- 10.00 10.00 0.00 0.00
Total 185
</TABLE>
(1) CEOC is also entitled to receive Royalties as described above. Such
payments are made after the debt service of the respective Project's
project finance indebtedness.
(2) With the exception of the East Mesa Junior Royalties (which are due
but have not been paid to date), the Royalties received by the Royalty
Guarantor are senior to debt service of the Projects.
The East Mesa Project has executed a long term power sales agreement with
Edison providing for fixed price capacity payments for the life of the
agreement and fixed price energy payments for the first 10 years. Thereafter,
the energy payments will be based on Edison's Avoided Cost of Energy. The
fixed price energy period for the East Mesa Project expires on December 31,
1999. The East Mesa Project has been operating for over 4 years.
Reliance on Single Utility Customer
Each of the Projects relies on an agreement with Edison to generate 100%
of its operating revenues. The payments under these agreements have
constituted 100% of the operating revenues of each Project since its
inception, and are expected to continue to do so for the life of the
Securities. Any material failure of Edison to fulfill its contractual
obligations under the Power Purchase Agreements could have a material adverse
effect on the ability of the Funding Corporation to pay principal of and
interest on the Securities.
The power purchase agreements pursuant to which all of the Projects (other
than Salton Sea Unit I and Salton Sea Unit IV) sell electricity to Edison are
SO4 Agreements. The SO4 Agreements provide for both capacity payments and
energy payments for a term of 30 years. While the basis for the capacity
payment of each SO4 Agreement is fixed for the entire 30-year term, the price
of energy payments is fixed only for the first ten years of the term (the
"Fixed Price Period"). Thereafter, the required energy payment converts to
Edison's Avoided Cost of Energy, as determined by the California Public
Utility Commission ("CPUC"). The Fixed Price Period expires in 1996 for
Vulcan, in 1999 for Salton Sea Unit III, Del Ranch and Elmore and in 2000 for
Salton Sea Unit II, Leathers and East Mesa.
Estimates of Edison's future Avoided Cost of Energy vary substantially from
year to year. The Funding Corporation and the Guarantors cannot predict the
likely level of Avoided Cost of Energy prices under the SO4 Agreements with
Edison at the expiration of the Fixed Price Periods. Edison's Avoided Cost of
Energy as determined by the CPUC is currently substantially below the
scheduled energy prices for the Fixed Price Periods under the respective SO4
Agreements. For the year ended December 1995, the time period-weighted
average of Edison's Avoided Cost of Energy was 2.1 cents per kWh, compared to
the time period-weighted average for 1995 scheduled energy selling prices of
approximately 11.4 cents per kWh, for the combined Salton Sea and Partnership
Projects. Thus, the revenues generated by each of the Projects operating
under SO4 Agreements are likely to decline significantly after the expiration
of the relevant Fixed Price Period.
Terms of the New Securities and the Old Securities
The New Securities were issued as part of the Exchange Offer which applied
to the recapitalization of $475,000,000 aggregate principal amount of the Old
Securities. The New Securities are obligations of the 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 (i) 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, and (ii) the New Securities will not
provide for any increase in the interest rate thereon.
The Securities are issued by Salton Sea Funding Corporation. Payment of
the Securities is guaranteed by the Partnership Guarantors and the Royalty
Guarantor to the extent of their Available Cash Flow, and the Salton Sea
Guarantors. The Salton Sea Guarantors Interest Payment Dates for the
Securities are May 30 and November 30, commencing November 30, 1995.
The Old Securities were rated "Baa3" by Moody's Investors Service, Inc.
("Moody's") and "BBB-" by Standard & Poor's Ratings Group ("S&P"). The
initial average life of the Series A Securities was 2.42 years. The initial
average life of the Series B Securities was 6.89 years. The initial average
life of the Series C Securities was 12.36 years.
The $232,750,000 principal of the 6.69% Series A Securities due May 30,
2000 are payable in semiannual installments, commencing November 30, 1995, as
follows:
PAYMENT DATE PERCENTAGE OF
PRINCIPAL AMOUNT
PAYABLE
November 30, 1995 9.8440386681%
May 30, 1996 10.3342642320%
November 30, 1996 10.3342642320%
May 30, 1997 13.8298603652%
November 30, 1997 13.8298603652%
May 30, 1998 10.5087003222%
November 30, 1998 10.5087003222%
May 30, 1999 6.4240601504%
November 30, 1999 6.4240601504%
May 30, 2000 7.9621911923%
The $133,000,000 principal of the 7.37% Series B Securities due May 30,
2005 will be payable in semiannual installments, commencing May 30, 1998, as
follows:
PAYMENT DATE PERCENTAGE OF
PRINCIPAL AMOUNT
PAYABLE
May 30, 1998 9.7819548872%
November 30, 1998 9.7819548872%
May 30, 1999 1.9563909774%
November 30, 1999 1.9563909774%
May 30, 2000 0.3909774436%
November 30, 2000 0.3909774436%
May 30, 2001 8.0360902256%
November 30, 2001 8.0360902256%
May 30, 2002 8.5330827068%
November 30, 2002 8.5330827068%
May 30, 2003 5.6390977444%
November 30, 2003 5.6390977444%
May 30, 2004 7.5781954887%
November 30, 2004 7.5781954887%
May 30, 2005 16.1684210526%
The $109,250,000 principal of the 7.84% Series C Securities due May 30,
2010 will be payable in semiannual installments, commencing May 30, 2003, as
follows:
PAYMENT DATE PERCENTAGE OF
PRINCIPAL AMOUNT
PAYABLE
May 30, 2003 3.3116704805%
November 30, 2003 3.3116704805%
May 30, 2004 1.6558352403%
November 30, 2004 1.6558352403%
May 30, 2005 0.8283752860%
November 30, 2005 0.8283752860%
May 30, 2006 9.8572082380%
November 30, 2006 9.8572082380%
May 30, 2007 9.8425629291%
November 30, 2007 9.8425629291%
May 30, 2008 10.0851258581%
November 30, 2008 10.0851258581%
May 30, 2009 10.0118993135%
November 30, 2009 10.0118993135%
May 30, 2010 8.8146453090%
Priority of Payments
All revenues received by the Salton Sea Guarantors from the Salton Sea
Projects, all Equity Cash Flows and Royalties received by the Partnership
Guarantors and all Royalties received by the Royalty Guarantor shall be paid
into a Revenue Fund maintained by a Depositary. Amounts paid into the Revenue
Fund shall be distributed in the following order of priority: (a) to pay
Operating and Maintenance Costs of the Guarantors; (b) to pay certain
administrative costs of the agents for the secured parties under the
Financing Documents; (c) to pay principal of, premium (if any) and interest
on the Securities and the Debt Service Reserve Bonds, if any, and interest
and certain fees payable to the Debt Service Reserve LOC Provider; (d) to pay
principal of Debt Service Reserve LOC Loans and certain related fees and
charges; (e) to replenish any shortfall in the Debt Service Reserve Fund; (f)
to pay certain breakage costs in respect of Debt Service Reserve LOC Loans,
and indemnification expenses and other expenses to the Secured Parties, and
(g) to the Distribution Fund or Distribution Suspense Fund, as applicable.
Debt Service Reserve Fund
A Debt Service Reserve Fund for the benefit of the Security Holders was
established under the Depositary Agreement. The Funding Corporation provided
the Depositary with a letter of credit (the "Debt Service Reserve Letter of
Credit") in an initial approximate amount of $50,000,000 from a financial
institution rated at least "A" by S&P and "A2" by Moody's. Drawings on the
Debt Service Reserve Letter of Credit will be available to pay principal of
and interest on the Securities and interest on loans created by drawings on
such Debt Service Reserve Letter of Credit. The amounts available to be drawn
under the Debt Service Reserve Letter of Credit and all other amounts held in
the Debt Service Reserve Fund shall at all times (a) on or prior to December
31, 1999, be required to equal the remaining maximum semiannual scheduled
principal and interest payments on the Securities and (b) subsequent to
December 31, 1999, be required to equal the remaining maximum annual
scheduled principal and interest payments on the Securities.
Optional Redemption
The Series B and Series C Securities are subject to optional redemption,
in whole or in part, pro rata at par plus accrued interest to the Redemption
Date plus a premium calculated to "make whole" to comparable U.S. treasury
securities plus 50 basis points. The Series A Securities are not subject to
optional redemption.
Mandatory Redemption
The Securities are subject to mandatory redemption, pro rata within each
maturity, at par plus accrued interest to the Redemption Date, (a) if a
Permitted Power Contract Buy-Out occurs or if Debt is incurred by the
Partnership Project Companies the proceeds of which are distributed as an
equity distribution to the Partnership Guarantors, in each case, unless the
Rating Agencies confirm the then current Rating of the Securities; (b) upon
the acceleration of a Project Note in an amount equal to the principal amount
of such note plus accrued interest; (c) upon the occurrence of certain events
of loss, condemnation, title defects or similar events related to the Salton
Sea Projects or the Partnership Projects or (d) upon the foreclosure by the
Collateral Agent of Collateral securing the Guarantors' obligations under the
Partnership Guarantee or Royalty Guarantee. In addition, $150 million of
Series B and Series C Securities are subject to mandatory redemption, pro
rata within each maturity, at par plus accrued interest to the Redemption
Date if completion of the Salton Sea Expansion does not occur by January 1,
1998 or construction of such Project has been abandoned, unless the Funding
Corporation takes such actions as are required by the Rating Agencies to
confirm the Investment Grade Rating of the Securities.
Distributions
Distributions may be made only from and to the extent of monies on deposit
in the Distribution Fund. Such distributions are subject to the prior
satisfaction of the following conditions:
(a) the amounts contained in the Principal Fund and the Interest Fund shall
be equal to or greater than the aggregate scheduled principal and
interest payments next due on the Securities;
(b) no Default or Event of Default under the Indenture shall have occurred
and be continuing;
(c) the Debt Service Coverage Ratio for the preceding four fiscal quarters,
measured as one annual period (or, with respect to any proposed
distribution date prior to the first anniversary of the Closing Date,
using a combination of historical and projected results, as provided in
the Indenture), is equal to or greater than 1.4 to 1, if such distri-
bution date occurs prior to the year 2000, and, if in or subsequent
to the year 2000, is equal to or greater than 1.5 to 1, as certified by
an officer of the Funding Corporation;
(d) the projected Debt Service Coverage Ratio of the Securities for the
succeeding four fiscal quarters measured as one annual period is equal
to or greater than 1.4 to 1, if such distribution date occurs prior to
the year 2000, and, if such distribution date occurs in or subsequent to
the year 2000, is equal to or greater than 1.5 to 1, as certified by an
officer of the Funding Corporation;
(e) the Debt Service Reserve Fund shall have a balance equal to or greater
than the Debt Service Reserve Fund Required Balance or a Debt Service
Reserve Letter of Credit shall be equal to or greater than (collectively
with the balance, if any, in the Debt Service Reserve Fund) the Debt
Service Reserve Fund Required Balance;
(f) an officer of the Funding Corporation provides a certificate (based on
customary assumptions) that there are sufficient geothermal resources to
operate the Salton Sea Projects and the Partnership Projects at contract
capacity through the Final Maturity Date; and
(g) Substantial Completion of the Salton Sea Expansion has occurred on or
prior to January 1, 1997; provided that, if such condition is not
satisfied, no distributions shall be made unless and until (i)
Substantial Completion of the Salton Sea Expansion occurs prior to
January 1, 1998, or (ii) Series B and Series C Securities having an
aggregate principal amount of $150 million are redeemed or (iii) the
Funding Corporation and the Guarantors take such actions as the Rating
Agencies require to confirm the Investment Grade Rating of the
Securities; provided further, that this condition to distribution shall
only apply after January 1, 1997, unless the Salton Sea Guarantors have
previously notified the Trustee that the Salton Sea Expansion has been
abandoned.
Ranking and Security for the Securities
The Securities shall be senior debt of the Funding Corporation. Payment
of the Securities is provided for by payments to be made by the Guarantors
under their Project Notes, and are secured by a pledge to the Collateral
Agent of all of the outstanding capital stock of the Funding Corporation and
the Guarantees. At December 31, 1995, the Guarantors' proportionate share of
project level indebtedness was approximately $43.8 million, which
indebtedness is effectively senior to the New Securities (as defined below).
The Funding Corporation has not issued, and does not have any current firm
arrangements to issue, any significant indebtedness to which the New
Securities would be senior.
Recourse Only to the Funding Corporation and the Guarantors
The obligations to pay principal, premium, if any, and interest on the
Securities are obligations solely of the Funding Corporation, secured by a
pledge of the capital stock of the Funding Corporation and entitled to the
benefits of the Guarantees. None of CalEnergy or Magma (nor any stockholder,
officer, director or employee thereof or of the Funding Corporation, or of
the Guarantors nor any affiliate thereof other than the Guarantors pursuant
to their Guarantees) will guarantee the payment of the Securities or has any
obligation with respect to the payment of the Securities.
Cost Overrun Commitment
CalEnergy has committed to the Salton Sea Guarantors to fund any costs
of construction, if applicable, which may be incurred in connection with the
construction of the Salton Sea Expansion over and above the initial budgeted
amount of $135 million in the event that the initial budgeted amount is
insufficient to cause Substantial Completion of the Salton Sea Expansion to
occur by mid-year 1996 or, if not by that date, prior to January 1, 1998. The
Cost Overrun Commitment shall terminate on the earlier of January 1, 1998,
the mandatory redemption of the Series B and Series C Securities having an
aggregate principal amount of at least $150 million and the implementation of
other measures which may be required to maintain the Investment Grade Rating.
Incurrence of Additional Debt
The Funding Corporation shall not incur any Debt other than "Permitted
Debt." "Permitted Debt" means:
(a) The Securities;
(b) Debt incurred to refinance debt of the Partnership Project Companies or
acquire a Partnership Project or the East Mesa Project in whole or in
part; provided that no such Debt may be incurred unless at the time of
such incurrence (i) no Default or Event of Default has occurred and is
continuing and (ii) the Rating Agencies confirm that the incurrence of
such Debt will not result in a Rating Downgrade;
(c) Debt incurred to develop, construct, own, operate or acquire additional
Permitted Facilities in the Imperial Valley ("Additional Projects");
provided that no such debt may be incurred unless at the time of such
incurrence (i) no Default or Event of Default has occurred and is
continuing and (ii) the Rating Agencies confirm that the Securities will
maintain an Investment Grade Rating after giving effect to such Debt;
(d) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects
required to maintain compliance with applicable law or anticipated
changes therein; provided that no such Debt may be incurred unless at
the time of such incurrence an Independent Engineer confirms as reason-
able (i) a certification by the Funding Corporation (containing
customary qualifications) that the proposed capital improvements are
reasonably expected to enable such Project to comply with applicable or
anticipated legal requirements and (ii) the calculations of the Funding
Corporation that demonstrate, after giving effect to the incurrence of
such Debt, the minimum projected Debt Service Coverage Ratio (x) for the
next four consecutive fiscal quarters, commencing with the quarter in
which such Debt is incurred, taken as one annual period, and (y) for
each subsequent fiscal year through the Final Maturity Date, will not
be less than 1.2 to 1;
(e) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects not
required by applicable law so long as after giving effect to the
incurrence of such Debt (i) no Default or Event of Default has occurred
and is continuing, and (ii) (A) the Independent Engineer confirms as
reasonable (x) the calculations of the Funding Corporation that
demonstrate that the minimum projected Debt Service Coverage Ratio for
the next four consecutive quarters, taken as one annual period, and each
subsequent fiscal year, will not be less than 1.4 to 1, and (y) the
calculations of the Funding Corporation that demonstrate the average
projected Debt Service Coverage Ratio for all succeeding fiscal years
until the Final Maturity Date will not be less than 1.7 to 1 or (B) the
Rating Agencies confirm that the incurrence of such Debt will not result
in a Rating Downgrade;
(f) Working Capital Debt in an aggregate amount not to exceed $15,000,000;
(g) Debt incurred under the Debt Service Reserve LOC Reimbursement
Agreement;
(h) Debt incurred in connection with certain permitted interest rate swap
arrangements;
(i) Debt incurred by the Funding Corporation in an aggregate amount not to
exceed $30,000,000, in connection with the development, construction,
ownership, operation, maintenance or acquisition of Permitted
Facilities;
(j) Subordinated Debt from Affiliates in an aggregate amount not to exceed
$200,000,000 which shall be used to finance capital, operating or other
costs with respect to the Projects or Additional Projects; and
(k) Debt incurred to support a Working Capital Facility. All Permitted Debt
incurred by the Funding Corporation shall be loaned to the Guarantors
and guaranteed by the Guarantors.
Principal Covenants
Principal covenants under the Indenture require the Funding Corporation
to agree, subject to certain exceptions and qualifications, (a) not to
exercise any remedies or waive any defaults under the Credit Agreements and
the Project Notes, except as otherwise permitted under the Indenture; (b) not
to incur (i) any Debt except Permitted Debt or (ii) any Lien upon any of its
properties except Permitted Liens and (c) not to enter into any transaction
of merger or consolidation or change its form of organization or its
business.
The Project Notes
The Salton Sea Guarantors jointly and severally issued a Project Note in
an initial principal amount of $325,000,000; the Partnership Guarantors
jointly and severally issued a Project Note in an initial principal amount of
$75,000,000, and the Royalty Guarantor issued a Project Note in an initial
principal amount of $75,000,000.
The Guarantee and Project Note issued by the Salton Sea Guarantors are
senior secured Debt of the Salton Sea Guarantors. Security for payment of the
Guarantee and Project Note issued by the Salton Sea Guarantors includes: (a)
an assignment of all revenues received by the Salton Sea Guarantors from the
Salton Sea Projects which will be applied in accordance with the priorities
of payment established under the Depositary Agreement; (b) a Lien on the
geothermal property interests of each of the Salton Sea Guarantors and the
Salton Sea Projects; (c) a collateral assignment of certain material
contracts; (d) a pledge of the equity interests in the Salton Sea Guarantors;
and (e) a Lien on the Expansion Fund and any other funds of the Salton Sea
Guarantors on deposit under the Depositary Agreement. The assets described in
clauses (a) through (e) and any other assets securing the Guarantee and
Project Note issued by the Salton Sea Guarantors at any time are collectively
referred to herein as the "Salton Sea Collateral."
The Guarantee and Project Note issued by the Partnership Guarantors are
senior secured Debt of the Partnership Guarantors. Security for payment of
the Guarantee and Project Note issued by the Partnership Guarantors includes:
(a) an assignment of all available Equity Cash Flows and Royalties of the
Partnership Guarantors which will be applied in accordance with the
priorities of payment established under the Depositary Agreement; (b) a
pledge of the capital stock of the Partnership Guarantors; and (c) a Lien on
any funds of the Partnership Guarantors on deposit under the Depositary
Agreement. The assets described in clauses (a) through (c) and any other
assets securing the Guarantee and the Project Note issued by the Partnership
Guarantors at any time are collectively referred to herein as the
"Partnership Collateral."
The Guarantee and Project Note issued by the Royalty Guarantor are senior
secured Debt of the Royalty Guarantor. Security for the payment of the
Guarantee and Project Note issued by the Royalty Guarantor includes: (a) an
assignment of all Royalties paid to the Royalty Guarantor which will be
applied in accordance with the priorities of payment established under the
Depositary Agreement; (b) a pledge of the capital stock of the Royalty
Guarantor; and (c) a Lien on any funds of the Royalty Guarantor on deposit
under the Depositary Agreement. The assets described in clauses (a) through
(c) and any other assets securing the Guarantee and Project Note issued by
the Royalty Guarantor at any time are collectively referred to herein as the
"Royalty Collateral."
Principal covenants under the Credit Agreements require each Guarantor
to agree, subject to certain exceptions and qualifications, (a) not to enter
into any transaction of merger or consolidation, change its form of
organization, liquidate, wind-up or dissolve itself; (b) not to enter into
non-arm's length transactions or agreements with Affiliates; (c) not to incur
(i) any Debt except Permitted Guarantor Debt and (ii) any Liens except for
Permitted Liens; (d) not to engage in any business other than as contemplated
by the respective Credit Agreement; and (e) not to amend, terminate or
otherwise modify certain of the Project Documents to which they are a party
except as permitted under the respective Credit Agreements. In addition to
these principal covenants, in the Salton Sea Credit Agreement, the Salton Sea
Guarantors have agreed (a) not to sell, lease or transfer any property or
assets material to the Salton Sea Projects except in the ordinary course of
business; and (b) to maintain insurance as is generally carried by companies
engaged in similar businesses and owning similar properties.
Considerations Regarding Limitation on Remedies
A significant portion of the proceeds of the Initial Offering have been
distributed to CalEnergy to repay certain non-recourse indebtedness incurred
by CalEnergy in connection with the acquisition of Magma (including the
Guarantors). The Royalty Guarantor has purchased an assignment of the
Royalties from Magma pursuant to the Magma Assignment Agreement. Magma has
also agreed to make certain payments to CEOC pursuant to the Magma Services
Agreement and to secure such payment obligation with a collateral assignment
of certain cash flows. The Guarantors have executed Guarantees with respect
to the entire amount of Securities. Under certain circumstances (including a
proceeding under Title 11 of the United States Code or any similar
proceeding), it is possible that a creditor of a Guarantor or Magma could
make a claim, under federal or state fraudulent conveyance laws, that the
Funding Corporation's claims under the Credit Agreements, the Security
Holders' claims under the Guarantees, the Royalty Guarantor's interest
pursuant to the Magma Assignment Agreement or CEOC's rights under the Magma
Services Agreement should be subordinated or not enforced in accordance with
such instruments' terms or that payments thereunder (including payments to
the Holders of the Securities) should be recovered. In order to prevail on
such a claim, a claimant would have to demonstrate that the obligations
incurred under any Guarantor's Credit Agreement or Guarantee or the transfers
made under the Magma Assignment Agreement or the Magma Services Agreement
were not incurred in good faith or that any Guarantor or Magma did not
receive fair consideration in connection with such obligations and transfers,
and that any Guarantor or Magma is and was insolvent at the time of entering
into the Credit Agreement, Guarantee, the Magma Assignment Agreement and/or
the Magma Services Agreement or that it did not have and will not have
sufficient capital for carrying on its business or was not and will not be
able to pay its debts as they mature.
Uncertainties Relating to Exploration and Development of Geothermal Energy
Resources
Geothermal exploration, development and operations are subject to
uncertainties which vary among different geothermal reservoirs and are
similar to those typically associated with oil and gas exploration and
development, including dry holes and uncontrolled releases. Because of the
geological complexities of geothermal reservoirs, the geographic area and
sustainable output of geothermal reservoirs can only be estimated and cannot
be definitively established. There is, accordingly, a risk of an unexpected
decline in the capacity of geothermal wells and a risk of geothermal
reservoirs not being sufficient for sustained generation of the electrical
power capacity desired.
In addition, both the cost of operations and the operating performance
of geothermal power plants may be adversely affected by a variety of
operating factors. Production and injection wells can require frequent
maintenance or replacement. Corrosion caused by high-temperature and
high-salinity geothermal fluids may require the replacement or repair of
certain equipment, vessels or pipelines. New production and injection wells
may be required for the maintenance of current operating levels, thereby
requiring substantial capital expenditures.
Insurance
The Salton Sea Projects and the Partnership Projects currently possess
property, business interruption, catastrophic and general liability
insurance. Proceeds of insurance received in connection with the Salton Sea
Projects will be payable to the Depositary for the account of the Salton Sea
Guarantors and will be applied as required under the Financing Documents.
However, proceeds of insurance received in connection with the Partnership
Projects will be payable to or for the account of the Partnership Project
Companies and will not be payable to the Partnership Guarantors except in the
event that such proceeds are paid to the Partnership Guarantors as an equity
distribution. There can be no assurance that such comprehensive insurance
coverage will be available in the future at commercially reasonable costs or
terms or that the amounts for which the Salton Sea Guarantors and the
Partnership Guarantors are or will be insured will cover all potential
losses.
Because geothermally active areas such as the area in which the Projects
are located are subject to frequent low-level seismic disturbances, and
serious seismic disturbances are possible, the power generating plants and
other facilities at the Projects are designed and built to withstand
relatively significant levels of seismic disturbance. However, there is no
assurance that seismic disturbances of a nature and magnitude so as to cause
material damage to the Projects or gathering systems or a material change in
the nature of the geothermal resource will not occur, that insurance with
respect to seismic disturbances will be maintained by or on behalf of all of
the Projects, that insurance proceeds will be adequate to cover all potential
losses sustained, or that insurance will continue to be available in the
future in amounts adequate to insure against such seismic disturbances.
Regulatory and Environmental Matters
The Guarantors are subject to a number of environmental laws and
regulations affecting many aspects of their present and future operations,
including the disposal of various forms of materials resulting from
geothermal reservoir production, the construction of the Salton Sea Expansion
and the drilling and operation of new wells. Such laws and regulations
generally require the Guarantors to obtain and comply with a wide variety of
licenses, permits and other approvals. In addition, regulatory compliance for
the construction of new facilities is a costly and time-consuming process,
and intricate and rapidly changing environmental regulations may require
major expenditures for permitting and create the risk of expensive delays or
material impairment of project value if projects cannot function as planned
due to changing regulatory requirements or local opposition. The Guarantors
and the Projects also remain subject to a varied and complex body of
environmental and energy regulations that both public officials and private
individuals may seek to enforce. There can be no assurance that existing
regulations will not be revised or that new regulations will not be adopted
or become applicable to the Guarantors and the Projects which could have an
adverse impact on their operations. In particular, the independent power
market in the United States is dependent on the existing energy regulatory
structure, including the Public Utility Regulatory Policies Act ("PURPA") and
its implementation by utility commissions in the various states. The
structure of such federal and state energy regulations has in the past, and
may in the future, be the subject of various challenges and restructuring
proposals by utilities and other industry participants. The implementation of
regulatory changes in response to such challenges or restructuring proposals,
or otherwise imposing more comprehensive or stringent requirements on the
Guarantors and Projects, which would result in increased compliance costs
which could have a material adverse effect on the Guarantors' and the
Projects' results of operations.
Employees
Employees necessary for the operation of the Salton Sea Projects and the
Partnership Projects are provided by CEOC, under the operation and
maintenance agreements described below. As of December 31, 1995, CEOC
employed approximately 226 people at the Salton Sea Projects and the
Partnership Projects, collectively. CEOC employees are not covered by any
collective bargaining agreement. The Funding Corporation believes that
CEOC's employee relations are good.
CEOC maintains a qualified technical staff covering a broad range of
disciplines including geology, geophysics, geochemistry, hydrology,
volcanology, drilling technology, reservoir engineering, plant engineering,
construction management, maintenance services, production management and
electric power operation.
Administrative services for the Salton Sea Guarantors and the Partnership
Project Companies are provided pursuant to the administrative services
agreements described below. CalEnergy employees provide corporate level
managerial, financial, accounting, technical and other administrative
services and CEOC employees provide certain accounting, purchasing and
payroll services.
Item 2. Properties
The Funding Corporation does not separately own or lease office space
but has arranged for a separate suite at CalEnergy's offices in Omaha,
Nebraska.
Item 3. Legal Proceedings
The Funding Corporation is not a party to any material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder's
Matters
Not applicable.
Item 6. Selected Financial Data
(Dollars in Thousands)
<PAGE>
Salton Sea Funding Corporation
The following tables set forth selected historical financial and
operating data of the Salton Sea Funding Corporation. The data should be
read in conjunction with the financial statements and related notes and other
financial information appearing elsewhere in this Form 10-K.
From June 20, 1995 (Inception Date)
through December 31, 1995 (1)
-------------------------------------
Total revenues $17,577
Interest expense 15,022
Provision for income taxes 1,048
Total expenses 16,070
Net Income 1,507
<TABLE>
<CAPTION>
December 31, June 20,
1995 1995 (1)
----------------- ---------------
(Inception Date)
<S> <C> <C>
Notes receivables from affiliates $452,088 $ -
Total assets 522,521 3,267
Senior secured notes and bonds 452,088 -
Total liabilities 515,571 -
Stockholders' equity 6,950 3,267
</TABLE>
- ------------------------
(1) Salton Sea Funding Corporation was formed on June 20, 1995 for the sole
purpose of issuing $475,000 of senior secured notes and bonds.
Salton Sea Guarantors
The following tables set forth selected historical combined financial and
operating data of the Salton Sea Guarantors. The information contained
therein was extracted from certain historical information of Magma Power
Company and certain of its affiliates. The data should be read in
conjunction with the financial statements and related notes and other
financial information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, December 31,
In Thousands
-------------------------------- ------------------------
1995(1) 1994 1993 (2)
----------- ----------- ------------------------
<S> <C> <C>
Sales of electricity $ 71,605 $ 74,576 $ 60,158
Total revenues 71,605 74,998 60,158
Operating expenses 26,096 24,766 19,335
Depreciation and amortization 10,556 10,049 7,425
Interest expense, net of
capitalized interest 15,605 8,240 4,267
Total expenses 52,257 43,055 31,027
Net income 17,955 31,943 29,131
December 31,
------------------------------------
1995(1) 1994 1993 (2)
--------- ----------- -----------
Property, plant, contracts and
equipment, net $417,287 $204,329 $211,409
Total assets 500,400 232,914 223,066
Loans payable -- 114,308 140,000
Senior secured project note 321,500 -- --
Total liabilities 330,801 114,936 140,566
Guarantors equity 169,599 117,978 82,500
</TABLE>
- -----------------
(1) Information as of December 31, 1995 and for the year then ended reflects
adjustments which have been made to the net assets of the Salton Sea
Guarantors to reflect the effect of the acquisition of Magma accounted
for as a purchase business combination pushed down to the Salton Sea
Guarantors.
(2) On March 31,1993, the Salton Sea Guarantors consummated their acquisition
of Salton Sea Units I, II and III.
Partnership Guarantors
The following tables set forth selected historical combined financial and
operating data of the Partnership Guarantors. The information contained
therein was extracted from certain historical information of Magma Power
Company and certain of its affiliates. The data should be read in
conjunction with the financial statements and related notes, and other
financial information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year ended December 31,
In Thousands
------------------------------------------------
1995(1) 1994 1993 1992 1991
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales of electricity $76,909 $70,692 $65,579 $60,979 $61,056
Total revenues 87,483 76,050 70,057 65,523 61,056
Operating expenses 32,143 35,306 35,597 34,357 28,746
Depreciation and amortization 18,958 9,037 9,249 8,597 8,427
Interest expense, net of
capitalized interest 8,826 3,285 3,712 4,782 6,374
Total expenses 59,927 47,628 48,558 47,736 43,547
Provision for income taxes 11,492 11,284 8,405 6,973 3,082
Net income 14,637 17,138 13,094 6,620 14,428
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1995(1) 1994 1993 1992 1991
-------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Property, plant, contracts
and equipment, net $298,956 $137,265 $138,664 $145,060 $149,756
Total assets 602,172 180,443 178,894 183,899 186,720
Loans payable 43,766 52,340 60,119 67,365 74,326
Senior secured project note 62,706 - - - -
Total liabilities 228,440 74,048 75,507 78,192 79,832
Guarantors' equity 373,732 106,395 103,387 105,707 106,888
</TABLE>
- -----------------
(1) Information as of December 31, 1995 and for the year then ended reflects
adjustments which have been made to the net assets of the Partnership
Guarantors to reflect the effect of the acquisition of Magma accounted
for as a purchase business combination pushed down to the Partnership
Guarantors.
<PAGE>
Royalty Guarantor
The following tables set forth selected historical financial and
operating data of the Royalty Guarantor. The information contained therein
was extracted from certain historical information of Magma and certain of its
affiliates. The data should be read in conjunction with the financial
statements and related notes and other financial information appearing
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year ended December 31,
In Thousands
-----------------------------------------------
1995(2) 1994 (3) 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenues(1) $28,383 $29,410 $26,942 $29,355 $19,401
Operating expenses 6,822 20,753 5,710 5,203 4,524
Depreciation and
amortization 11,239 - - - -
Interest expense 4,757 - - - -
Provision for income taxes 963 N/A N/A N/A N/A
Total expenses(1) (3) 24,873 20,753 5,710 5,203 4,524
Net income(1) 3,510 8,657 21,232 24,152 14,877
</TABLE>
December 31,
1995 (2)
------------
Royalty stream, net $ 53,744
Total assets 117,341
Senior secured project note 67,882
Total liabilities 89,290
Guarantor's equity 28,051
- ------------------
(1) The historical summaries of revenues and related expenses for periods
prior to 1995, which were prepared on the basis described in the
financial statements appearing elsewhere herein, are not intended to be
complete presentation of the predecessor's assets, liabilities, revenues
and expenses.
(2) Information as of December 31, 1995 and for the year then ended reflects
adjustments which have been made to the net assets of the Royalty
Guarantor to reflect the effect of the acquisition of Magma accounted for
as a purchase business combination pushed down to the Royalty Guarantor.
(3) During 1994, the Royalty Guarantor charged off is entire outstanding
accrued Junior SO4 royalty receivable from GEO East Mesa. The charge
amounted to $14,502 and is included in operating expenses. Excluding the
one time charge, operating expenses would have been $6,251 and the excess
of revenues over expenses would have been $23,159.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Dollars in Thousands
Factors Affecting Results of Operations
Funding Corporation was organized for the sole purpose of acting as issuer
of the Securities. The Securities are payable from the proceeds of payments
made of principal and interest on the Senior Secured Notes and Bonds 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 issuing the Securities.
The periodic results of operations for the Guarantors are influenced to
varying degrees by a number of factors, principally the level of revenues
received under the power purchase agreements, project capacity utilization,
the level of operating expenses and capital expenditures requirements.
Power Purchase Agreements
Each of the Projects sells electricity to Edison pursuant to a separate
SO4 Agreement or a negotiated power purchase agreement. Each power purchase
agreement is independent of the others, and performance requirements
specified within one such agreement apply only to the Project which is
subject to that agreement. The power purchase agreements provide for three
basic types of payments: energy payments, capacity payments and, in certain
cases, capacity bonus payments. Edison makes fixed annual capacity 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 price periods of the Partnership Project SO4 Agreements extend
until February 1996, December 1998, December 1998, and December 1999 for each
of the Vulcan, Hoch (Del Ranch), Elmore and Leathers Partnerships,
respectively.
The Partnership Project SO4 Agreements provide for rates ranging from 11.4
cents per kWh in 1995 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 "Salton Sea I PPA"),
which provides for capacity and energy payments. 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 I was 4.99 cents per kWh during 1995. 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 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. The contract requires 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 in April 2000 and February 1999, 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 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.
Capacity Utilizations
Each Project's revenue is influenced to the extent it can utilize its
maximum electricity production capacity. A Project's annual "Operating
Capacity Factor" is calculated by dividing the actual number of kWhs sold
during the course of a year by the product of (1) the Project's rated
operating capacity (which is greater than the Contract Capacity for such
Project, as stated in its related SO4 Agreement) and (2) the number of hours
in the year. For consistency in stating Operating Capacity Factors in the
table that follows, the Projects have utilized a rated operating capacity
equal to each facility's contract nameplate capacity. Each Project
possesses an operating margin which periodically allows for production in
excess of the nameplate rating for such Project. Utilization of this
operating margin is based on a variety of factors and can be expected to vary
throughout the year under normal operation conditions.
The following data includes the combined Operating Capacity Factors and
electricity production of Salton Sea Units I and II and Salton Sea Unit III:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, December 31,
--------------------------------- -----------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
Operating Capacity Factor 86.5 % 90.9 % 94.2 %
Contract Capacity (NMW) 79.8 79.8 79.8
kWh Produced (in thousands) 604,300 634,890 495,900
</TABLE>
The following data includes combined Operating Capacity Factors and
electricity production of Vulcan, Del Ranch, Elmore and Leathers:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1995 1994 1993
--------------- ---------------- -----------------
<S> <C> <C> <C>
Operating Capacity Factor 105.9 % 103.8 % 100.7 %
Contract Capacity (NMW) 148 148.0 148.0
kWh Produced (in thousands) 1,373,310 1,346,000 1,305,700
</TABLE>
Results of Operations for the Years Ended December 31, 1995 and 1994
Revenues
The Salton Sea Guarantors' sales of electricity decreased to $71,605 for
the year ended December 31, 1995 from $74,576 for the same period last year,
a 4.0% decrease. This was due to a 4.8% decrease in electric kWh sales to
604.3 million kWh from 634.9 million kWh, which was a result of the scheduled
overhauls at Salton Sea Units I, II and III, partially offset by an increase
in the energy price for Salton Sea Unit I.
The Partnership Guarantors' sales of electricity increased to $76,909
for the year ended December 31, 1995 from $70,692 for the same period in
1994, an 8.8% increase. This was due to a 2.0% increase in electric kWh
sales to 1,373.3 million kwh from 1,346.0 million kWh and an increased price
per kWh in accordance with the SO4 Agreements.
The Royalty Guarantor revenue decreased to $28,383 for the year ended
December 31, 1995 from $29,410 for the same period last year. The decrease
in royalty revenue is the result of the Royalty Guarantor no longer recording
the earned but unpaid East Mesa Junior Royalties, which is a result of the
uncertainty related to the East Mesa Project obtaining the long-term
financing which is a prerequisite to the payment of these royalties. See -
"Results of Operations for the Years Ended December 31, 1994 and 1993" below
for additional analysis.
Interest and other income for the Partnership Guarantors increased to
$10,574 for the year ended December 31, 1995 from $5,358 for the same period
in 1994. The increase was attributable to higher cash balances and the Magma
Services Agreement which went into effect on July 20, 1995. Fee income
related to the Magma Services Agreement for the year ended December 31, 1995
was $4,457.
Operating Expenses
The Salton Sea Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, increased to $26,096, or
4.32 cents per kWh, for the year ended December 31, 1995, from $24,766 or
3.90 cents per kWh for the same period in 1994. The increase in expenses was
due to scheduled overhauls at Salton Sea Units I, II and III.
The Partnership Guarantor' operating expenses, which include royalty,
operating, and general and administrative expenses, decreased to $32,143, or
5.52 cents per kWh, for the year ended December 31, 1995, from $35,306 or
6.21 cents per kWh for the same period in 1994. The 10.4% decrease in costs
was primarily due to the implementation of certain cost savings measures at
the partnership level, including a reduction in labor costs at the time of
the Magma acquisition.
The Royalty Guarantor's operating expenses increased to $6,822 for the
year ended December 31, 1995 from $6,251 for the same period of 1994, a 9.1%
increase. This increase was due to a scheduled increase in third party
lessor royalties related to the increases in the Partnership Projects' sales
of electricity.
Depreciation and Amortization
The Salton Sea Guarantors' depreciation and amortization increased to
$10,556 for the year ended December 31, 1995 from $10,049 for the year ended
December 31, 1994, an increase of 5.0%. Depreciation and amortization for
the year ended December 31, 1995 was 1.75 cents per kWh compared to 1.58
cents per kWh in the year ended December 31, 1994.
The Partnership Guarantors' depreciation and amortization increased to
$18,958 for the year ended December 31, 1995 from $9,037 for the same period
in 1994, a 110% increase. This increase was due to the Magma Acquisition
purchase accounting effect which results in the allocation of goodwill,
including amortization, and the additional depreciation due to the excess of
fair market value assigned to assets over the previous book value.
The Royalty Guarantor's amortization totaled $11,239 for the year ended
December 31, 1995 and represented amortization of the royalty stream and
goodwill.
Interest Expense
The Salton Sea Guarantors' interest expense, net of capitalized amounts,
increased to $15,605 for the year ended December 31, 1995 from $8,240 for the
same period in 1994. The increase is a result of increased indebtedness from
the issuance of the Senior Secured Project Notes and the purchase accounting
allocation of the indebtedness incurred in conjunction with the Magma
Acquisition.
The Partnership Guarantors' interest expense, net of capitalized amounts,
increased to $8,826 for the year ended December 31, 1995 from $3,285 for the
same period in 1994. The increase is a result of increased indebtedness from
the issuance of the Senior Secured Project Notes and the purchase accounting
allocation of the indebtedness incurred in conjunction with the Magma
Acquisition.
The Royalty Guarantors' interest expense for the year ended December 31,
1995 was $4,757 which related to the issuance of the Senior Secured Project
Notes and the aforementioned allocation of indebtedness incurred in
conjunction with the Magma acquisition.
Income Tax Provision
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 Guarantor income tax provision increased to $11,492 for
the year ended December 31, 1995 from $11,284 for the same period in 1994.
The increase in the provision is a result of a slightly higher effective tax
rate. 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 $963 for the year ended
December 31, 1995. 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.
Net Income
The Salton Sea Funding Corporation's net income for the period June 20,
1995 (inception date) to December 31, 1995 was $1,507 which represented
interest income and expense, net of applicable tax, and the Salton Sea
Funding Corporation's 1% equity in earnings of the Guarantors.
The Salton Sea Guarantors' net income decreased to $17,955 for the year
ended December 31, 1995, compared to $31,943 for the year ended December 31,
1994 due primarily to increased interest expense and depreciation and
amortization resulting from the Magma Acquisition.
The Partnership Guarantors' net income decreased to $14,637 for the year
ended December 31, 1995, compared to $17,138 for the year ended December 31,
1994 due primarily to increased interest expense and depreciation and
amortization resulting from the Magma Acquisition.
The Royalty Guarantor's net income decreased to $3,510 for the year
ended December 31, 1995, compared to $8,657 for the year ended December 31,
1994 due primarily to increased interest expense and amortization resulting
from the Magma Acquisition.
Results of Operations for the Years Ended December 31, 1994 and 1993
Revenues
The Salton Sea Guarantors' sales of electricity increased to $74,576 for
the year ended December 31, 1994 from $60,158 in the year ended December 31,
1993, a 24.0% increase. This increase is due to an increase in electric kWh
sales to 634.9 million kWh in 1994 from the 1993 partial year level of 495.9
million kWh as the Salton Sea Projects were owned by the Guarantors for nine
months of 1993. The sales of electricity on a per kWh basis decreased in
1994 to 11.74 cents per kWh from 12.13 cents per kWh. The decrease was due
to the nine months operations in 1993 containing a proportionately larger
percentage of peak summer months, June through September, the period when the
Salton Sea Guarantors earn significantly higher capacity payments compared to
1994 in which the higher capacity payments were averaged over production for
a full twelve months.
The Partnership Guarantors' sales of electricity increased to $70,692 in
the year ended December 31, 1994 from $65,579 in the year ended December 31,
1993, a 7.8% increase. This increase was due to a 3.1% increase in electric
kWh sales to 1,346.0 million kWh from 1,305.7 million kWh and an increased
price per kWh in accordance with the SO4 Agreements. The increase in kWh
sales was primarily due to the completion of new production wells.
The Royalty Guarantor's revenues increased to $29,410 in 1994 from
$26,942 in 1993. Royalties included recognition of earned but unpaid East
Mesa Junior Royalties of $3,412 and $3,190 in 1994 and 1993, respectively.
In 1994, a reserve was established, and a related charge incurred, for the
then entire outstanding accrued Junior Royalties receivable. This charge
amounted to $14,502 and is included in "operating expenses." The charge was
deemed necessary due to the inability of the East Mesa Project to convert its
construction loans into term loans, which was expected to occur in 1994 and
is a prerequisite to the collection of the Junior Royalties. Since 1989,
Magma has received Senior Royalty payments from East Mesa on a current basis.
Had the Magma Services Agreement been in effect for 1994 and 1993, the
Partnership Guarantors' pro forma management fees would have been $1,956 and
$1,475 for 1994 and 1993, respectively. The increase reflect higher
management fees resulting from an increase in electricity revenues of the
Leathers partnership and the increase in each distribution from Leathers, Del
Ranch, and Elmore.
Interest and other income for the Salton Sea Projects was $422 for the
year ended December 31, 1994 and $0 for the year ended December 31, 1993.
During 1993, all excess cash flows were utilized to finance plant operations
and service debt financing requirements during the interim financing loan.
Interest and other income for the Partnership Guarantors increased for
the year ended December 31, 1994 to $5,358 from $4,478 for the year ended
December 31, 1993. This increase was primarily due to higher cash balances
as a result of stronger operating results.
Operating Expenses
The increase in the Salton Sea Guarantors' royalty, operating, and
general and administrative expenses to $24,766 for the year ended December
31, 1994 from $19,335 for the year ended December 31, 1993 was primarily due
to 1993 representing a nine month period of operation. These costs on a per
kWh basis were 3.0 cents for both periods.
The Partnership Guarantors' royalties, operating, and general and
administrative expenses decreased to $35,306 for the year ended December 31,
1994 from $35,597 for the year ended December 31, 1993. The Partnership
Projects' royalties, operating and general administrative expenses on a per
kWh basis decreased to 6.21 cents for the year ended December 31, 1994 from
6.45 cents for the year ended December 31, 1993.
The Royalty Guarantor's operating expenses increased to $20,753 for the
year end December 31, 1994 from $5,710 for the year ended 1993. The increase
is directly attributable to the aforementioned charge of $14,502 resulting
from the establishment of a reserve against previously recorded revenue for
the East Mesa Junior Royalty.
Depreciation and Amortization
The Salton Sea Guarantors' depreciation and amortization increased to
$10,049 for the year ended December 31, 1994 from $7,425 for the year ended
December 31, 1993. The 1993 amount represents nine months of operations. On
a per kWh basis, the Salton Sea Guarantors' depreciation expense and
amortization increased to 1.58 cents for the year ended December 31, 1994
from 1.50 cents for the year ended December 31, 1993. The increase is a
result of (i) depreciation related to capital expenditures incurred in 1994,
and (ii) lower average electrical production for the twelve months in 1994
versus the nine months in 1993.
The Partnership Guarantors' depreciation and amortization decreased to
$9,037 for the year ended December 31, 1994 from $9,249 for the year ended
December 31, 1993. The increase in 1993 depreciation and amortization can be
attributable to one time charges for replacing a production header at the
Elmore Project. The Partnership Guarantors' depreciation and amortization on
a per kWh basis for the years ended December 31, 1994 and 1993 was 1.59 cents
and 1.68 cents, respectively.
Interest Expense
The Salton Sea Guarantors' interest expense increased to $8,240 for the
year ended December 31, 1994 from $4,267 for the year ended December 31,
1993. This increase reflects higher interest rates on a greater loan
balance.
The Partnership Guarantors' interest expense decreased to $3,285 for the
year ended December 31, 1994 from $3,712 for the year ended December 31,
1993. The decrease was due to lower outstanding principal balances.
Income Taxes
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. Accordingly the Salton Sea Guarantors
have no tax obligations.
The Partnership Guarantors income tax provision was $11,284 and $8,405
for 1994 and 1993, respectively. The increase in the provision is a result
of the higher income before taxes. 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.
Net Income
The Salton Sea Guarantors' net income was $31,943 for the year ended
December 31, 1994 compared to $29,131 for the nine month period from date of
acquisition to December 31, 1993.
The Partnership Guarantors' net income was $17,138 for the year ended
December 31, 1994, compared to net income of $13,094 for 1993.
The Royalty Guarantor's net income was $8,657 and $21,232 for 1994 and
1993, respectively.
Capital Resources and Liquidity
CECI has acquired all of the outstanding equity interest in Magma in a
two-step transaction accounted for as a purchase according to the terms of a
merger agreement whereby on January 10, 1995, CECI acquired approximately 51%
of the outstanding shares of Magma common stock (the "Magma Common Stock")
through a cash tender offer (the "Magma Tender Offer") and on February 24,
1995 CECI acquired the remaining 49% of Magma Common Stock not owned by CECI
through a merger (the "Merger").
In July 1995 CECI recapitalized Magma and the debt required to complete
the Magma Acquisition ("the Merger Facilities") from proceeds received
through the issuance of notes and bonds as described below.
On July 21,1995 CECI issued $200,000 of 9 7/8% Limited Recourse Senior
Secured Notes Due 2003 (the "Notes"). The Notes are secured by an assignment
and pledge of 100% of the outstanding capital stock of Magma. On or prior to
June 30, 1998, CECI may, at its option, redeem up to an aggregate of 35% of
the principal amount of the Notes originally issued at a redemption price
equal to 109.875% of the principal amount thereof plus accrued interest to
the redemption date. The Notes are redeemable at the option of CECI, in
whole or in part, at the redemption prices of 104.9375%, 102.46875% and 100%,
on or after June 30, 2000, 2001 and 2002, respectively, plus accrued interest
to the date of redemption.
On July 21, 1995, CECI through Funding Corporation, completed a sale to
institutional buyers of $475,000 principal amount of Salton Sea Notes and
Bonds, which are nonrecourse to CECI. The Funding Corporation debt
securities were offered in three tranches as follows:
$232,750 6.69% Senior Secured Series A Notes
Due May 30, 2000
$133,000 7.37% Senior Secured Series B Bonds
Due May 30, 2005
$109,250 7.84% Senior Secured Series C Bonds
Due May 30, 2010
The net proceeds of the Notes and the Salton Sea Notes and Bonds were
used to (a) recapitalize Magma and the related Merger Facilities (b)
refinance approximately $102,000 of existing indebtedness of the Salton Sea
Project, and (c) finance the Salton Sea Unit IV in the amount of $115,000.
Pursuant to the Depositary Agreement, Funding Corporation established a debt
service reserve fund in the form of a letter of credit in the initial amount
of $50,000 from which scheduled interest and principal payments can be made.
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 Royalties from the
Partnership Projects. The Royalty Guarantor's only source of revenue is
Royalties received 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.
The Salton Sea Guarantors' cash and marketable securities were $454 and
$9,203 at December 31, 1995 and December 31, 1994, respectively. In addition
to these liquid instruments, the Salton Sea Guarantors recorded separately
restricted cash of $0 and $3,400 at December 30, 1995 and December 31, 1994,
respectively. All available cash of the Salton Sea Guarantors is transferred
to the Funding Corporation or affiliates. Cash of $61,649 of the Funding
Corporation is available to the Salton Sea Guarantors for the Salton Sea
Expansion.
The Partnership Guarantors' cash and marketable securities were $11,146
and $13,118 at December 31, 1995 and December 31, 1994, respectively. In
addition to these liquid instruments, the Partnership Guarantors recorded
separately restricted cash of $9,859 and $8,653 at December 31, 1995 and
December 31, 1994, respectively. Distributions out of the Partnerships'
project control accounts are made periodically for management fees, Royalties
and reimbursement of operating costs.
On February 28, 1994, the Salton Sea Guarantors secured a $130,000 non-
recourse project-level term loan which is collateralized by substantially all
of the assets of the Salton Sea Projects. Proceeds from the Securities were
utilized to repay the project loan.
The Salton Sea Guarantors have commenced construction of the Salton Sea
Expansion with a target completion date of mid-year 1996 at an expected
construction cost of $135 million. As of December 31, 1995, the Salton Sea
Guarantors have incurred $78,180 for the Salton Sea Expansion.
As of December 31, 1995 the Partnership Guarantors' share of the
Leathers, Del Ranch and Elmore project-level debt was $43,766.
Changing Prices and the Effect of Inflation
The capacity and bonus payments the Guarantors receive for electricity
sold are fixed under SO4 Agreements, and the energy payment is for
electricity for the Guarantors' continue to be based on. Inflation has not
had a significant impact on the Guarantors' operating revenue and costs;
scheduled rates during the fixed price period. As a result inflation has not
had a significant effect on the Guarantors' revenues.
Item 8. Financial Statements and Supplementary Data.
SALTON SEA FUNDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
SALTON SEA FUNDING CORPORATION
Independent Accountants' Report--Deloitte & Touche LLP. . . . . . . . . . .32
Balance sheets as of December 31, 1995 and June 20, 1995
(inception date). . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Statement of operations for the period from
June 20, 1995 (inception date) through December 31, 1995. . . . . . . . .34
Statement of stockholder's equity for the period from
June 20, 1995 (inception date) through December 31, 1995. . . . . . . . .35
Statement of cash flows for the period from June 20, 1995
(inception date) through December 31, 1995 . . . . . . . . . . . . . .36
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . .37
SALTON SEA GUARANTORS
Independent Accountants' Report--Deloitte & Touche LLP. . . . . . . . . . .39
Reports of Independent Accountants--Coopers & Lybrand L.L.P.. . . . . .40
Combined balance sheets as of December 31, 1995 (Successor)
and 1994 (Predecessor) . . . . . . . . . . . . . . . . . . . . . . . .41
Combined statements of operations for the years
ended December 31, 1995 (Successor) and 1994 and for the nine
month period from April 1, 1993 (date of acquisition) to
December 31, 1993 (Predecessor) . . . . . . . . . . . . . . . . . . .42
Combined statements of Guarantors' equity for the
years ended December 31, 1995 (Successor) and 1994 and for the nine
month period from April 1, 1993 (date of acquisition)
to December 31, 1993 (Predecessor). . . . . . . . . . . . . . . . . . .43
Combined statements of cash flows for the years ended
December 31, 1995 (Successor) and 1994, and for the nine months from
April 1, 1993 (date of acquisition) to December 31, 1993
(Predecessor) . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Notes to combined financial statements. . . . . . . . . . . . . . . . .45
PARTNERSHIP GUARANTORS
Independent Accountants' Report--Deloitte & Touche LLP. . . . . . . . . . .52
Reports of Independent Accountants--Coopers & Lybrand L.L.P.. . . . . . .53
Combined balance sheets as of December
31, 1995 (Successor) and 1994 (Predecessor) . . . . . . . . . . . . .54
Combined statements of operations for the years ended
December 31, 1995 (Successor), 1994 and 1993 (Predecessor). . . . . . .55
Combined statements of Guarantor's equity for the years
ended December 31, 1995 (Successor), 1994 and 1993
(Predecessor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Combined statements of cash flows for the years ended
December 31, 1995 (Successor), 1994 and 1993 (Predecessor). . . . .57
Notes to combined financial statements. . . . . . . . . . . . . . . . . . .58
SALTON SEA ROYALTY COMPANY--SUCCESSOR
Independent Accountants' Report--Deloitte & Touche LLP. . . . . . . . . . 70
Balance sheet as of December 31, 1995 . . . . . . . . . . . . . . . . . . .71
Statement of operations for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Statement of equity for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Statement of cash flows for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . .75
SALTON SEA ROYALTY COMPANY--PREDECESSOR
Report of Independent Accountants--Coopers & Lybrand L.L.P. . . . . . . .79
Predecessor summaries of revenues and related expenses for
the years ended December 31, 1994 and 1993. . . . . . . . . . . . . . .80
Notes to summaries of revenues and related expenses . . . . . . . . . . . .81
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have audited the accompanying balance sheets of Salton Sea Funding
Corporation (the "Company") as of December 31, 1995 and June 20, 1995
(inception date) and the related statements of operations, stockholder's
equity and cash flows for the period from June 20, 1995 through December 31,
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 audits.
We conducted our audits 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 presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Salton Sea Funding Corporation as of June
20, 1995 and December 31, 1995 and the results of its operations and its cash
flows for the period from June 20, 1995 through December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 20,
1995 1995
----------------- ------------------
(INCEPTION DATE)
<S> <C> <C>
ASSETS
Cash $ 4,393 $ -
Restricted cash and short-term investments 57,256 -
Prepaid expenses and other assets 3,070 -
Notes receivables from affiliates 452,088 -
Investment in 1% of net assets of
Guarantors 5,714 3,267
----------- -----------
$522,521 $ 3,267
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 3,889 $ -
Due to affiliates 59,594 -
Senior secured notes and bonds 452,088 -
----------- -----------
Total liabilities 515,571 -
Commitments and contingencies
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares - -
Additional paid-in capital 5,443 3,267
Retained earnings 1,507 -
----------- -----------
Total stockholder's equity 6,950 3,267
----------- -----------
$522,521 $ 3,267
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 20, 1995 (INCEPTION DATE)
THROUGH DECEMBER 31, 1995
(Dollars in Thousands)
Revenues:
Interest income $17,306
Equity in earnings of Guarantors 271
---------
17,577
Expenses:
Interest expense 15,022
---------
Total expenses 15,022
---------
Income before income taxes 2,555
Provision for income taxes 1,048
---------
Net income $ 1,507
=====
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JUNE 20, 1995 (INCEPTION DATE)
THROUGH DECEMBER 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Retained Total
Shares Amount Capital Earnings Equity
------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Issuance of $.01 par value
per share common stock 100 $ - $ - $ - $ -
Investment in 1% of net
assets of Guarantors
at inception - - 3,267 - 3,267
----- ------ -------- ------- ------
Balance, June 20, 1995
(inception date) 100 - 3,267 - 3,267
Adjustments resulting from
capital transactions of
Guarantors - - 2,176 - 2,176
Net income - - - 1,507 1,507
----- ------ ------- ------- ------
Balance, December 31, 1995 100 $ - $ 5,443 $ 1,507 $6,950
===== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 20, 1995 (INCEPTION DATE)
THROUGH DECEMBER 31, 1995
(Dollars in Thousands)
Cash flows from operating activities:
Net income $ 1,507
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of guarantors (271)
Changes in assets and liabilities:
Prepaid expenses and other assets (3,070)
Accrued liabilities 3,889
------------
Net cash flows from operating activities 2,055
------------
Cash flows from investing activities:
Restricted cash (57,256)
Secured project notes of Guarantors (475,000)
Principal repayments of secured project
notes of Guarantors 22,912
------------
Net cash flows from investing activities (509,344)
------------
Cash flows from financing activities:
Proceeds from offering of senior project notes
and bonds 475,000
Repayment of senior secured project notes and bonds (22,912)
Due to affiliates 59,594
------------
Net cash flows from financing activities 511,682
------------
Net change in cash 4,393
Cash at the beginning of period -
------------
Cash at the end of period $ 4,393
=======
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ 2,176
=======
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(FOR THE PERIOD FROM JUNE 20, 1995 (INCEPTION DATE) THROUGH DECEMBER 31,1995)
(Columnar Dollars in Footnotes are in Thousands)
1. THE PURPOSE AND BUSINESS OF SALTON SEA FUNDING CORPORATION
Salton Sea Funding Corporation (the "Company"), which was formed on June
20, 1995, is a special purpose Delaware corporation and a wholly-owned,
special purpose finance subsidiary of Magma Power Company, which in turn is
wholly-owned by CalEnergy Company, Inc. The Company was organized for the
sole purpose of acting as issuer of $475 million of Senior Secured Notes and
Bonds (collectively, the "Securities").
The Securities are payable from the proceeds of payments made of principal
and interest on the Senior Secured Notes and Bonds by the Guarantors, as
defined, to the Company. The Securities are guaranteed on a joint and
several basis by the Salton Sea Guarantors, the Partnership Guarantors and
Salton Sea Royalty Company (collectively the "Guarantors"). The guarantees
of the Partnership Guarantors and Salton Sea Royalty Company are limited to
available cash flow. The Company does not conduct any operations apart from
issuing the Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Guarantors
Since the Company has the ability to assert significant influence over the
operations of the Guarantors, it accounts for its one percent investment in
the Guarantors using the equity method of accounting.
Income Taxes
The Company will be included in the consolidated income tax returns with
its parent and affiliates. Income taxes are provided on a separate return
basis in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, however, tax obligations of the Company will be
remitted to the parent only to the extent of cash flows available after
operating expenses and debt service.
Fair Values of Financial Instruments
Fair values have been estimated based on quoted market prices for debt
issues listed on exchanges. Fair values of financial instruments that are
not actively traded are based on market prices of similar instruments and/or
valuation techniques using market assumptions. Unless otherwise noted, the
estimated fair value amounts do not differ significantly from recorded
values. Although management uses its best judgement in estimating the fair
value of these financial instruments, there are inherent limitations in any
estimation technique. Therefore, the fair value estimates presented herein
are not necessarily indicative of the amounts which the company could realize
in a current transaction.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. SENIOR SECURED NOTES AND BONDS
On July 21, 1995, the Company issued $475 million of Senior Secured Notes
and Bonds, consisting of $232,750,000, 6.69% Senior Secured Series A Notes,
due May 30, 2000, $133,000,000, 7.37% Senior Secured Series B Bonds, due May
30, 2005 and $109,250,000, 7.84% Senior Secured Series C Bonds, due May 30,
2010.
Principal maturities of the Senior Secured Notes and Bonds are as follows:
1996 $ 48,106
1997 64,378
1998 74,938
1999 35,108
2000 19,572
Thereafter 209,986
-----------
$452,088
=======
The estimated fair value of the Senior Secured Notes and Bonds was $459,629
at December 31, 1995.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Salton Sea Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Salton Sea Guarantors' 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 presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present
fairly, in all material respects, the financial position of the Salton Sea
Guarantors as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of
Salton Sea Guarantors (the "Guarantors") as of December 31, 1994 and the
related combined predecessor statements of operations, Guarantors' equity and
cash flows for the year ended December 31, 1994 and for the nine month period
from April 1, 1993 (date of acquisition) to December 31, 1993. These
financial statements are the responsibility of the Salton Sea Guarantors'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined predecessor financial statements referred
to above present fairly, in all material respects, the combined financial
position of Salton Sea Guarantors as of December 31, 1994 and the combined
results of its operations and its cash flows for the year ended December 31,
1994 and for the nine month period from April 1, 1993 (date of acquisition)
to December 31, 1993, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995, except as to the information presented in
Note 6, for which the date is July 21, 1995.
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
-------- -----------
(successor) (predecessor)
<S> <C> <C>
ASSETS
Cash $ 454 $ 4,215
Restricted cash and short-term investments - 3,400
Marketable securities - 4,988
Accounts receivable 10,436 10,605
Due from affiliates - 399
Prepaid expenses and other assets 20,129 4,978
Property, plant, contracts and equipment, net 417,287 204,329
Goodwill, net 52,094 -
-------- --------
$500,400 $232,914
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 939 $ 273
Accrued liabilities 4,043 355
Due to affiliates 4,319 -
Loans payable - 114,308
Senior secured project note 321,500 -
-------- --------
Total liabilities 330,801 114,936
Commitments and contingencies (Notes 2,3,6 and 7)
Total Guarantors' equity 169,599 117,978
-------- --------
$500,400 $232,914
======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
------ ------ -------------
1995 1994 1993
------ ------ -------------
(successor) (predecessor)
<S> <C> <C> <C>
Revenues:
Sales of electricity $71,605 $74,576 $ 60,158
Interest and other income - 422 -
------ ------ ------
71,605 74,998 60,158
------ ------ ------
Expenses:
Operating, general and
administrative expenses 26,096 24,766 19,335
Depreciation and amortization 10,556 10,049 7,425
Interest expense,net of
capitalized interest 15,605 8,240 4,267
------ ------ ------
Total expenses 52,257 43,055 31,027
------ ------ ------
Income before minority interest 19,348 31,943 29,131
Minority interest 1,393 - -
------ ------ ------
Net income $17,955 $31,943 $29,131
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
(Dollars in Thousands)
Predecessor:
Balance, April 1, 1993 (date of acquisition) $ -
Contributions 81,250
Distributions (27,881)
Net income 29,131
------------
Balance, December 31, 1993 82,500
Contributions 12,285
Distributions (8,750)
Net income 31,943
------------
Balance, December 31, 1994 117,978
Net income in 1995 prior to acquisition 1,393
Successor:
Contributions 10,606
Distributions (5,000)
Purchase accounting push-down adjustment, net 26,667
Net income 17,955
------------
Balance, December 31, 1995 $169,599
============
The accompanying notes are an integral part of the combined financial
statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, December 31,
----------------------------- -------------
1995 1994 1993
--------- --------- -------------
(successor) (predecessor)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 17,955 $ 31,943 $ 29,131
Adjustments to reconcile net
income to net
cash provided by operating activities:
Minority interest 1,393 - -
Depreciation and amortization 10,556 10,049 7,425
Changes in assets and liabilities:
Accounts receivable 169 (993) (9,613)
Prepaid expenses and other assets (19,236) (869) (2,044)
Due to (from) affiliates 4,718 (399) -
Accounts payable and accrued
liabilities 4,354 62 566
Other - (583) -
--------- --------- ------------
Net cash flows from operating activities 19,909 39,210 25,465
--------- --------- ------------
Cash flows from investing activities:
Acquisition of assets from Unocal - - (218,834)
Purchase of Guarantors by CalEnergy,
net of cash (171,964) - -
Capital expenditures (68,677) (4,493) -
Net decrease (increase) in marketable
securities 4,988 (4,945) -
Restricted cash 3,400 (3,400) -
--------- --------- ------------
Net cash flows from investing activities (232,253) (12,838) (218,834)
--------- --------- ------------
Cash flows from financing activities:
Repayments on loans payable (302,172) (155,692) -
Loan proceeds 509,364 130,000 140,000
Contributions from parent 10,606 12,285 81,250
Distributions to parent (5,000) (8,750) (27,881)
--------- --------- ------------
Net cash flows from financing activities 212,798 (22,157) 193,369
--------- --------- ------------
Net change in cash 454 4,215 -
Cash at beginning of period - - -
--------- --------- ------------
Cash at end of period $ 454 $ 4,215 $ -
========= ========= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Columnar Dollars in Footnotes are in Thousands)
1. ORGANIZATION AND OPERATIONS
Salton Sea Guarantors (the "Guarantors") (not a legal entity) is comprised
of 100% interests in three geothermal electric power generating plants
(Salton Sea Units I, II and III) and a fourth plant (Salton Sea Unit IV or
the Salton Sea Expansion) which is under construction (collectively, the
"Salton Sea Projects"). All three plants and the expansion facility are
located in the Imperial Valley of California. The Salton Sea Projects will
serve to guarantee loans from Salton Sea Funding Corporation, an indirect
wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI") (See Note 3).
The financial statements consist of the combination of (1) Salton Sea Brine
Processing, L.P., a California limited partnership between Magma Power
Company ("Magma"), as a 99% limited partner and Salton Sea Power Company
(SSPC), a wholly-owned subsidiary of Magma, as a 1% general partner, (2)
Salton Sea Power Generation, L.P., a California limited partnership between
Salton Sea Brine Processing, L.P., as a 99% limited partner, and Salton Sea
Power Company, as a 1% general partner and (3) assets and liabilities
attributable to Salton Sea Unit IV which are held 59% by Salton Sea Power
Generation, L.P. and 41% by Fish Lake Power Company (FLPC). Effective in
June of 1995, 1% interests in SSPC and FLPC were transferred to Funding
Corporation. All of the entities in the combination are affiliates of Magma.
Originally three partnerships were formed to hold the assets of the three
operating geothermal power plants acquired by Magma from Union Oil Company of
California ("Unocal") effective April 1, 1993 (see Note 8). Salton Sea Unit
IV was created upon combining and consolidating the Salton Sea Unit I power
purchase agreement and the Fish Lake modified SO4. Salton Sea Unit IV is
presently expected to be completed by mid-year 1996. Failure to complete the
construction of Salton Sea Unit IV by June 12, 1998 could result in the
Salton Sea Unit IV power purchase agreement being terminated by Southern
California Edison Company ("Edison"). Engineering and construction services
have been contracted to date on a cost reimbursable and time and materials
basis. CECI has provided a cost overrun commitment to fund any costs of
construction in excess of certain budgeted amounts.
During the year ended December 31, 1994, the three plants and the expansion
facility currently held by CECI were held, directly or indirectly by Magma.
In February 1995, CECI completed its acquisition of Magma, which is currently
a wholly-owned subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the combined accounts of the
Salton Sea Projects described above. All significant intercompany
transactions and accounts have been eliminated.
The December 31, 1995 successor financial statements reflect the acquisition
of Magma (see Note 3), the resulting push down to the Guarantors of the
accounting as a purchase business combination and minority interest for the
non-owned periods consisting of 100% for the period January 1-9, 1995 and 49%
for the period January 10, 1995-February 23, 1995.
Due to the restrictions on cash distributions resulting from the Secured
Credit Agreement (see Note 5), all amounts due to and from the partners as of
February 28, 1994 were offset to the respective Guarantors' equity account as
a net contribution from partners in the accompanying combined historical
statements of Guarantors' equity.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable with
respect to their three operating facilities from sales of electricity to
Southern California Edison ("Edison") on an accrual basis using stated
contract prices under its two Interim Standard Offer No. 4 power purchase
agreements ("ISO4s") for Salton Sea Units II and III and its negotiated
contract for Salton Sea Unit I. The ISO4s and the negotiated contract
provide for the payment of both capacity payments and energy payments for a
30-year term. Edison is the sole customer of the Guarantors.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract and are based on the plant's contract capacity, as specified
in the agreement. The Guarantors earn the maximum contract capacity payment
in each month of the year they are able, after excluding scheduled
maintenance hours, to deliver 80% of its contract capacity. In addition, the
Guarantors are eligible to earn a monthly bonus capacity payment if they
operate at levels in excess of capacity levels specified in their ISO4s.
Under the negotiated contract, the capacity payment adjusts quarterly based
on a basket of indices for the term of the agreement. For the period from
April 1, 1994 through March 31, 2004, Edison is entitled to receive, at no
cost, 5% of all energy delivered in excess of 80% of contract capacity on
Salton Sea Unit II.
The Guarantors earn energy payments based on kilowatt hours ("kWhs") of
energy provided to Edison. During the first 10 years, the Guarantors earn
payments for energy as scheduled in their ISO4s. After the 10-year scheduled
payment period has expired (in 1999 for Salton Sea Unit III and 2000 for
Salton Sea Unit II), the energy payment per kWh throughout the remainder of
the contract period will be at Edison's Avoided Cost of Energy. For the year
ended December 31, 1995, Edison's average Avoided Cost of Energy was 2.1
cents per kWh which is substantially below the contract energy prices earned
in 1995. Estimates of Edison's future Avoided Cost of Energy vary
substantially from year to year. The Guarantors cannot predict the likely
level of Avoided Cost of Energy prices under the ISO4s at the expiration of
the scheduled payment periods. The revenues generated by each of the units
operating under ISO4s could decline significantly after the expiration of the
relevant scheduled payment period. Under the negotiated contract, the energy
payment is calculated using a base price, as defined, which is subject to
quarterly adjustments based on a basket of indices for the term of the
agreement.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation and
amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets.
Depreciable lives for the periods through 1994 were as follows:
Plant and plant equipment 20 years
Office furniture and equipment 5-10 years
Other equipment 7-10 years
Exploration and development costs 20 years
Power purchase contracts were amortized on the straight line method over
20 years which is the lesser of the remaining life of the contract or the
remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See "Purchase Accounting" below and Note 4,
"Property, Plant, Contracts and Equipment."
When plant and equipment is sold or abandoned, the cost and related
accumulated depreciation/ amortization are removed from the accounts and the
resulting gain or loss is recognized.
On January 1, 1996, the Guarantor intends to adopt Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Management
anticipates that the adoption of SFAS 121 will not have a material effect on
the Guarantor's financial statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted for
on a push down basis by the Guarantors during the year ended December 31,
1995, all identifiable assets and liabilities are stated at fair value (see
Note 3).
The fair value of property and equipment, net of salvage value, and
exploration and development costs is depreciated on the straight line method
over the remaining portion (approximately 24 years) of the original 30 year
life.
Power sale agreements have been assigned values separately for each of (1)
the 5 year remaining portion of the scheduled price periods of the power
sales agreements and (2) the 20 year avoided cost periods of the power sales
agreements and are being amortized separately over such periods using the
straight line method; and (3) the 163 net MW BRPU Award for which the related
plants will either be constructed or the contract rights will be bought out;
amortization of such values has been deferred until the plants have been
constructed and production commences or the buyout proceeds have been applied
against such values.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. The fair value allocated to mineral extraction was based on the
estimated net cash flows generated from producing such minerals. The fair
value assigned to the mineral reserves will be amortized on the units of
production method upon commencement of commercial production.
Fair value has been assigned to a contract for which the plant is presently
under construction and energy production is not expected to commence before
1996. Accordingly, revenues, period operating costs, depreciation of future
costs to be incurred for the completion of such facility and amortization of
this allocation of acquisition costs are not presently included in the Salton
Sea Guarantor statements of operations.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40 year period using the straight line
method. Deferred finance costs are amortized using the level yield method
over the term of the related debt.
Income Taxes
The Guarantors are comprised of a combination of partnership interests and
one company. The income or loss of each partnership for income tax purposes,
along with any associated tax credits, is the responsibility of the
individual partners. The company is currently constructing its project and
has no tax obligations. Accordingly, no recognition has been given to
federal or state income taxes in the accompanying combined financial
statements.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of
Statements of Financial Accounting Standards No. 115 (SFAS No. 115)"
Accounting for Certain Investments in Debt and Equity Securities." Adoption
of SFAS No. 115 had no material effect on the Guarantor's financial position
or results of operation. In accordance with the provisions of SFAS No. 115,
debt securities that the Guarantors have the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost. As of December 31, 1995, all of the Guarantors'
investments were classified as held-to-maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires the
maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Statements of Cash Flows
For purposes of the statements of cash flows, the Guarantors consider
only demand deposits at banks to be cash. Cash paid for interest during the
year ended December 31, 1995 and 1994 and the period from April 1, 1993 (date
of acquisition) to December 31, 1993, was $4,716,000, $7,163,000 and
$4,265,000 respectively.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based
on market prices of similar instruments and/or valuation techniques using
market assumptions. Unless otherwise noted, the estimated fair value amounts
do not differ significantly from recorded values. Although management uses
its best judgement in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation technique.
Therefore, the fair value estimates presented herein are not necessarily
indicative of the amounts which the Guarantors could realize in a current
transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term is
defined as any item that matures, reprices, or represents a cash transaction
between willing parties within six months or less of the measurement date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma 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.
Magma is engaged in independent power operations similar to those of CECI.
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 year ended December 31,
1995, as if the acquisition had occurred on January 1, 1994 after giving
effect to certain pro forma adjustments related to the acquisition, were
$71,605,000 and $18,465,000, respectively, compared to $74,998,000 and
$21,281,000, respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Guarantors are as follows:
Property, plant, contracts and equipment $ 153,660
Goodwill 53,271
Deferred financing cost 6,412
Severance, relocation and litigation reserve (2,312)
Debt (184,364)
---------
Net increase in assets $ 26,667
=========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
----------- ------------
(successor) (predecessor)
<S> <C> <C>
Plant and equipment $173,509 $186,119
Salton Sea Unit 4 108,632 -
Power sale agreements 64,609 -
Mineral extraction 60,577 -
Exploration and development costs 17,793 35,649
----------- ------------
425,120 221,768
Less accumulated depreciation
and amortization (7,833) (17,439)
----------- ------------
$417,287 $204,329
======= =========
</TABLE>
5. LOANS PAYABLE
On April 1, 1993, the Guarantors entered into a one-year, $140,000,000 note
agreement with Magma (the "Magma Loan") to finance the acquisition of Salton
Sea Units I, II and III from Unocal. The interest terms of the note, LIBOR
plus .675%, are identical to the terms of a $140,000,000 secured credit
agreement between Magma and Morgan Guaranty Trust Company of New York dated
March 19, 1993.
In February 1994, the Guarantors replaced the Magma Loan with a
$130,000,000 non-recourse project-level term loan which is collateralized by
substantially all the assets of Salton Sea Units I, II and III. A secured
agreement (the "Secured Credit Agreement") with a group of international
banks, with Credit Suisse as the agent bank, provides for direct loans at
LIBOR plus 1.25%.
In June 1994, a cash distribution of $8,750,000 was made which represented
a portion of January and February 1994 electricity sales collected from
Edison subsequent to February 28, 1994. The cash
collected was for operational activity occurring prior to the consummation of
the Secured Credit Agreement and the distribution was approved by the
creditors.
The Guarantors repaid the loans with proceeds from the offering of
investment grade securities (see Note 6).
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3). On
July 21, 1995, CECI recapitalized Magma and the related Merger Facilities
from proceeds received through a $200 million high yield offering and a $475
million investment grade offering of the Salton Sea Funding Corporation.
Proceeds from the offering of Salton Sea Funding Corporation investment grade
securities were used to repay certain loans of the Guarantors. The
Guarantors issued a project note in the amount of $325 million payable to
Salton Sea Funding Corporation with interest rates ranging from 6.69% to
7.84%, and guaranteed the investment grade securities. The guarantee issued
is collateralized by a lien on substantially all the assets of and a pledge
of the equity interests in the Guarantors.
Principal maturities of the Senior Secured Project Note are as follows:
1996 $ 21,660
1997 33,632
1998 39,450
1999 16,076
2000 9,737
Thereafter 200,945
-------
$321,500
=======
The estimated fair value of the Senior Secured Projects Notes was
$326,337,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantor entered into the following agreements:
o Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated April 1, 1993, whereby the Guarantors acquired from Magma
Land I, a wholly-owned subsidiary of Magma, rights to extract geothermal
brine from the geothermal lease rights property which is necessary to
operate the Salton Sea Power Generation, L.P. facilities in return for 5%
of all electricity revenues received by the Guarantors. The amount
expensed for the years ended December 31, 1995 and 1994 was $3,579,000 and
$3,732,000, respectively, and $3,008,000 for the nine months ended December
31, 1993.
o Administrative Services Agreement dated April 1, 1993 with Magma, whereby
Magma will provide to the Guarantors administrative and management
services. Fees payable to Magma amount to 3% of total electricity revenues
per month. The amount expensed for the years ended December 31, 1995 and
1994 was $2,153,000 and $2,239,000, respectively, and $1,805,000 for the
nine months ended December 31, 1993.
o Operating and Maintenance Agreement dated April 1, 1993 with CalEnergy
Operating Company ("CEOC") (formerly Magma Operating Co.), whereby the
Guarantors retain CEOC to operate the Salton Sea facilities for a period
of 32 years. Payment is made to CEOC in the form of reimbursements of
expenses incurred. During 1995, 1994 and 1993, the Guarantors reimbursed
CEOC for expenses of $6,939,000, $5,973,000 and $4,474,000, respectively.
8. ACQUISITION
In December 1992, Magma signed a definitive agreement with Unocal to
purchase all of Unocal's geothermal interests in the Imperial Valley of
California, including Salton Sea Units, I, II and III and certain geothermal
leases. On March 31, 1993, the Guarantors consummated their acquisition of
the Imperial Valley geothermal interest. Total cost includes (i) payments to
Unocal consisting of the purchase price of $224,000,000, working capital of
$7,300,000 and an interest charge of $3,500,000, and (ii) advisory fees and
transaction costs totaling $3,400,000. The total cost of the acquisition
attributable to the Guarantors was allocated as follows:
Land $ 383
Property, plant and equipment 142,188
Exploration and development costs 46,514
Power purchase contracts 22,217
Transmission line credits 6,254
Other 1,278
-------
$218,834
=======
In addition to the initial acquisition price, the Company will make
payments to Unocal contingent on future development of new power generating
capacity.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined successor balance sheet of the
Partnership Guarantors as of December 31, 1995, and the related combined
successor statements of operations, Guarantors' equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Guarantors' 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 presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined successor financial statements present
fairly, in all material respects, the financial position of the Partnership
Guarantors as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined predecessor balance sheet of
Partnership Guarantors (the "Guarantors") as of December 31, 1994 and the
related predecessor statements of operations, Guarantors' equity and cash
flows for each of the two years in the period ended December 31, 1994. These
financial statements are the responsibility of the Partnership Guarantors'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined predecessor financial statements referred to
above present fairly, in all material respects, the historical financial
position of Partnership Guarantors as of December 31, 1994 and the historical
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995, except as to the information presented in
Note 6, for which the date is July 21, 1995
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1995 1994
------- -------
(successor) (predecessor)
<S> <C> <C>
ASSETS
Cash $ 11,146 $ 5,661
Restricted cash and short-term investments 9,859 8,653
Marketable securities - 7,457
Accounts receivable 11,841 10,848
Prepaid expenses and other assets 9,651 6,451
Due from affiliates 54,949 4,108
Property, plant, contracts and equipment, net 298,956 137,265
Management fee 63,520 -
Goodwill, net 142,250 -
------- -------
$602,172 $180,443
======= =======
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 3,566 $ 2,679
Accrued liabilities 19,995 5,522
Loans payable 43,766 52,340
Senior secured project note 62,706 -
Deferred income taxes 98,407 13,507
------- -------
Total liabilities 228,440 74,048
Commitments and contingencies (Notes 2,3,6 and 7)
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 359,092 106,392
Retained earnings 14,637 -
------- -------
Total Guarantors' equity 373,732 106,395
------- -------
$602,172 $180,443
======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
------- ------- --------
(successor) (predecessor)
<S> <C> <C> <C>
Revenues
Sales of electricity $76,909 $70,692 $65,579
Interest and other income 10,574 5,358 4,478
------- ------- --------
87,483 76,050 70,057
Costs and expenses:
Operating, general and
administrative costs 32,143 35,306 35,597
Depreciation and amortization 18,958 9,037 9,249
Interest expense, net of
capitalized interest 8,826 3,285 3,712
------- ------- --------
Total expenses 59,927 47,628 48,558
------- ------- --------
Income before income taxes 27,556 28,422 21,499
Provision for income taxes 11,492 11,284 8,405
------- ------- --------
Income before minority interest 16,064 17,138 13,094
Minority interest 1,427 - -
------- ------- --------
Net income 14,637 17,138 13,094
Pro forma adjustment to reflect
fee payable from affiliates,
net of income taxes N/A 1,956 1,475
------- ------- -------
Pro forma net income N/A $19,094 $14,569
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Retained Total
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Predecessor:
Balance, January 1, 1993 3 $ 3 $102,103 $ 3,597 $105,703
Cash distributions to Magma - - - (12,600) (12,600)
Other distributions - - (3,862) (4,091) (7,953)
Contribution for income taxes - - 5,143 - 5,143
Net income - - - 13,094 13,094
---- ---- -------- ------- --------
Balance, December 31, 1993 3 3 103,384 - 103,387
Cash distributions to Magma - - (1,062) (17,138) (18,200)
Other distributions - - (3,315) - (3,315)
Contribution for income taxes - - 7,385 - 7,385
Net income - - - 17,138 17,138
---- ---- -------- ------- --------
Balance, December 31, 1994 3 3 106,392 - 106,395
Net income in 1995 prior
to acquisition - - - 1,427 1,427
Successor:
Purchase accounting push-down
adjustment, net - - 68,617 (1,427) 67,190
Distributions - - (13,860) - (13,860)
Contributions - - 197,943 - 197,943
Net income - - - 14,637 14,637
---- ---- -------- ------- --------
Balance, December 31, 1995 3 $ 3 $359,092 $14,637 $373,732
==== ==== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1995 1994 1993
--------- -------- --------
(successor) (predecessor)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,637 $17,138 $13,094
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest 1,427 - -
Depreciation and amortization 18,958 9,037 9,249
Deferred taxes 1,011 3,899 3,262
Changes in assets and liabilities:
Accounts receivable (993) (3,103) 2,517
Amounts due from affiliates (50,841) 4,077 (5,066)
Prepaid expenses and other assets (5,779) 178 (508)
Accounts payable and accrued liabilities 12,047 2,421 1,275
Other, net - 8,251 417
-------- -------- --------
Net cash flows from operating activities (9,533) 41,898 24,240
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (4,066) (10,495) (4,852)
Purchase of Guarantors by CalEnergy,
net of cash (197,810) - -
Net (increase) decrease in marketable
securities 7,457 (4,826) (2,980)
Restricted cash (1,206) (3,058) 2,988
Management fee (30,485) - -
-------- -------- --------
Net cash flow from investing activities (226,110) (18,379) (4,844)
-------- -------- --------
Cash flows from financing activities:
Loan repayments (225,479) (7,779) (7,223)
Loan proceeds 288,185 - -
Contribution from parent 197,943 - -
Distribution to parent (13,860) (18,200) (12,600)
-------- -------- --------
Net cash flows from financing activities 246,789 (25,979) (19,823)
-------- -------- --------
Net increase (decrease) in cash 11,146 (2,460) (427)
Cash at beginning of period - 8,121 8,548
-------- -------- --------
Cash at the end of period $ 11,146 $ 5,661 $ 8,121
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Columnar Dollars in Footnotes are in Thousands)
1. ORGANIZATION AND OPERATIONS
Partnership Guarantors (the "Guarantors") (not a legal entity)
consists of the combination of Vulcan Power Company ("VPC") and CalEnergy
Operating Company ("CEOC"), both 99% owned by Magma Power Company ("Magma")
and 1% owned by Salton Sea Funding Corporation (the "Funding Corporation").
VPC's and CEOC's principal assets are interests in certain partnerships
which are engaged in the operation of geothermal power plants in the
Imperial Valley of California. The Guarantors will serve to guarantee
loans to such partnerships from Salton Sea Funding Corporation, a
wholly-owned subsidiary of CalEnergy Company, Inc. ("CECI"). VPC holds a
50% interest in Vulcan/BN Geothermal Power Company, a Nevada general
partnership, and CEOC holds a 40% general partner interest in Leathers,
L.P., a California limited partnership, Del Ranch, L.P., a California
limited partnership and Elmore, L.P. a California limited partnership
(collectively, the "Partnerships"). Magma owns a 10% limited partnership
interest in each of Leathers L.P., Elmore L.P. and Del Ranch L.P. and has
entered into an agreement to pay to the Guarantors the distributions it
receives related to such 10% interests, in addition to a special
distribution equal to 4.5% of total energy sales from the Leathers Project.
The remaining 50% interest in the Partnerships is owned indirectly by
Mission Energy Company ("Mission"). Mission is a wholly-owned subsidiary
of SCE Corporation ("SCEcorp"). Southern California Edison Company
("Edison") is the sole customer of the Partnerships and is an affiliate of
SCEcorp.
In February 1995, CECI completed its acquisition of Magma, which is
currently a wholly-owned subsidiary of CECI (see Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Guarantors present the
accounts of CEOC, VPC and their pro rata share of the accounts of the
Partnerships as described above on a combined basis. All significant
intercompany balances and transactions have been eliminated.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the
Guarantors of the accounting as a purchase business combination and
minority interest for the non-owned periods consisting of 100% for the
period January 1-9, 1995 and 49% for the period January 10, 1995--February
23, 1995.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from
sales of electricity on an accrual basis using stated contract prices under
their Interim Standard Offer No. 4 power purchase agreements ("ISO4s") with
Edison. The ISO4s provide for the payment of both capacity payments and
energy payments for a 30-year term.
The capacity payments for the ISO4s are a fixed amount for the entire
30-year contract period and are based on the plant's contract capacity, as
specified in the agreement. The Guarantors earn their maximum contract
capacity payment in each month of the year they are able, after excluding
scheduled maintenance hours, to deliver 80% of its contract capacity. In
addition, the Guarantors are eligible to earn a monthly bonus capacity
payment if they operate at levels in excess of capacity levels specified in
their ISO4s.
The Guarantors earn energy payments based on kilowatt hours ("kWhs")
of energy provided to Edison. During the first 10 years, the Guarantors
earn payments for energy as scheduled in their ISO4s. After the 10-year
scheduled payment period has expired (in 1996 for Vulcan, 1998 for Del
Ranch and Elmore and 1999 for Leathers), the energy payment per kWh
throughout the remainder of the contract period will be at Edison's Avoided
Cost of Energy. For the year ended December 31, 1995, Edison's average
Avoided Cost of Energy was 2.1 cents per kWh which is substantially below
the contract energy prices earned in 1995. Estimates of Edison's future
Avoided Cost of Energy vary substantially from year to year. The
Guarantors cannot predict the likely level of Avoided Cost of Energy prices
under the ISO4s at the expiration of the scheduled payment periods. The
revenues generated by each of the projects operating under ISO4s could
decline significantly after the expiration of the relevant scheduled
payment periods.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less
accumulated depreciation. The Guarantors follow the full cost method of
accounting for costs incurred in connection with the exploration and
development of geothermal resources. The Guarantors provide depreciation
and amortization of property, plants, contracts and equipment upon the
commencement of revenue production over the estimated useful life of the
assets.
Depreciable lives for the periods through 1994 were as follows:
Plant and plant equipment 20 years
Office furniture and equipment 5-10 years
Other equipment 7-10 years
Exploration and development costs 20 years
Power purchase contracts were amortized on the straight line method
over 20 years which is the lesser of the remaining life of the contract or
the remaining useful life of plant and plant equipment.
As a result of the purchase business combination, the assets and
liabilities were adjusted to fair value and are depreciated over the
remaining useful lives. See "Purchase Accounting" below and Note 4,
"Property, Plant, Contracts and Equipment". When plant and equipment are
sold or abandoned, the cost and related accumulated depreciation/
amortization are removed from the accounts and the resulting gain or loss
is recognized.
On January 1, 1996, the Guarantor intends to adopt Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". Management anticipates that the adoption of SFAS 121 will not have a
material effect on the Guarantor's financial statements.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Guarantors during the year ended December
31, 1995, all identifiable assets and liabilities are stated at fair value.
The fair value of property and equipment, net of salvage value, and
exploration and development costs are depreciated using the straight line
method over the remaining portion (approximately 24 years) of the original
30 year life.
Power sale agreements have been assigned values separately for each of
(1) the remaining portion (1 to 5 years) of the scheduled price periods of
the power sales agreements and (2) the 20 year avoided cost periods of the
power sales agreements and are amortized separately over such periods using
the straight line method.
The Salton Sea reservoir contains commercial quantities of extractable
minerals. Magma has entered into an agreement with one of the world's
largest mining companies to extract certain of these minerals from the
brine produced by the Guarantors' projects. The fair value allocated to
mineral extraction was based on the estimated net cash flows generated from
such production. The fair value assigned to the mineral reserves will be
amortized using the units of production method upon commencement of
commercial production.
A process license was allocated fair value which represents the economic
benefits expected to be realized from the installation of the license and
related technology at the Imperial Valley. The fair value assigned to the
process license is amortized using the straight-line method over the
remaining estimated useful life of the license. Deferred finance costs are
amortized using the level yield method over the term of the related debt.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40 year period using the straight line
method.
Income Taxes
The entities comprising the Guarantors will be included in consolidated
income tax returns with their parent and affiliates; however, income taxes
are provided on a separate return basis. Tax obligations of the Guarantors
will be remitted to the parent only to the extent of cash flows available
after operating expenses and debt service.
Restricted Cash, Short-term Investments and Marketable Securities
At December 31, 1994, the Guarantors adopted the provisions of
Statements of Financial Accounting Standards No. 115 (SFAS No. 115)"
Accounting for Certain Investments in Debt and Equity Securities."
Adoption of SFAS No. 115 had no material effect on the partnership's
financial position or results of operation. In accordance with the
provisions of SFAS No. 115, debt securities that the Guarantors have the
positive intent and ability to hold to maturity are classified as held-to-
maturity securities and reported at amortized cost. As of December 31,
1995, all of the Guarantors' investments were classified as held-to-
maturity.
The restricted cash and investments balance represents primarily a debt
reserve fund which is legally restricted as to its use and which requires
the maintenance of a specified minimum balance. The Guarantors invest in
commercial paper with a rating of A1 or better and generally having
maturities of three months or less.
Management Fee
Pursuant to the Magma Services Agreement Magma has agreed to pay CEOC
all equity cash flows and certain royalties payable by the Guarantors in
exchange for providing data and services to Magma. As security for the
obligations of Magma under the Magma Services Agreement, Magma has
collaterally assigned to CEOC its rights to such equity cash flows and
certain royalties.
Statements of Cash Flows
For purposes of the statement of cash flows, the Guarantors consider
only demand deposits at banks to be cash. Cash paid for interest during
1995, 1994 and 1993 was $3,235,000 $2,949,000 and $3,453,000, respectively.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. Although
management uses its best judgement in estimating the fair value of these
financial instruments, there are inherent limitations in any estimation
technique. Therefore, the fair value estimates presented herein are not
necessarily indicative of the amounts which the Guarantors could realize in
a current transaction.
The Guarantors assume that the carrying amount of short-term financial
instruments approximates their fair value. For these purposes, short-term
is defined as any item that matures, reprices, or represents a cash
transaction between willing parties within six months or less of the
measurement date.
Pro Forma Adjustments (Unaudited)
The accompanying combined predecessor statements of operations contain a
proforma adjustment to reflect a fee for data and services management to
CEOC from Magma under an agreement entered into in June 1995, equal to
distributions to Magma from its 10% interest in Leathers, Del Ranch and
Elmore and 4.5% of total energy sales from the Leathers Project as if such
agreement were in effect during all periods presented. (See Note 7).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma 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. Magma is
engaged in independent power operations similar to those of CECI. 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 year ended December 31,
1995, as if the acquisition had occurred on January 1, 1994 after giving
effect to certain pro forma adjustments related to the acquisition, were
$87,483,000 and $15,099,000, respectively, compared to $76,050,000 and
$2,312,000, respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Guarantors
to reflect the effect of the acquisition of Magma accounted for as a
purchase business combination pushed down to the Guarantors are as follows:
Property, plant, contracts and equipment $ 214,513
Goodwill 145,487
Deferred financing cost 9,714
Other assets (2,137)
Severance, relocation and litigation reserve (3,313)
Deferred income taxes (83,889)
Debt (213,185)
--------
Net increase in assets $ 67,190
========
4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ -----------
(successor) (predecessor)
<S> <C> <C>
Plant and equipment $ 58,532 $164,830
Power sale agreements 44,966 -
Process license 46,290 -
Mineral reserves 112,350 -
Exploration and development costs 53,449 44,276
----------- -----------
315,587 209,106
Less accumulated depreciation
and amortization (16,631) (71,841)
----------- -----------
$298,956 $137,265
======= =======
</TABLE>
5. LOANS PAYABLE
Loans payable at December 31, 1995 and 1994 included the Guarantors' pro
rata share of the debt of the Del Ranch, Elmore and Leathers partnerships
which is non-recourse, but collateralized by substantially all the assets
of these partnerships. A secured credit agreement with a group of
international banks provides for direct bank loans at specified premiums
over a choice of either the bank's prime rate, the London Interbank Offered
Rate ("LIBOR") or the CD Base rate.
As an alternative, each partnership may elect to issue commercial paper
and medium-term notes supported by letters of credit issued by Fuji Bank,
Limited, which are collateralized, in turn, by the project debt facility
with the banks. The fair value of the commercial paper and medium-term
notes approximates their carrying value.
The Partnerships had no direct bank borrowings at December 31, 1995 and
1994. The weighted average effective interest rates of the commercial
paper and medium-term notes outstanding at December 31 was 6.4% in 1995 and
6.6% in 1994. During 1995, 1994 and 1993, the Guarantors' pro rata share of
the Partnership's weighted average borrowings was $48,053,000, $55,039,000
and $62,093,000, respectively, with weighted average effective interest
rates of 6.3%, 6.3% and 5.6% for the corresponding periods.
The loans are reduced by 25 semi annual principal payments in March and
September of each year.
The Guarantors' annual maturities of project debt for the five years
beginning January 1, 1996, are as follows:
1996 $10,265
1997 10,678
1998 10,678
1999 6,862
Thereafter 5,283
------
$43,766
======
Provisions of the Guarantors' Secured Credit Agreements require the
maintenance of minimum working capital requirements of $720,000, $880,000
and $880,000 and specific debt reserves of $3,320,000, $2,660,000 and
$2,640,000, on Leathers, Del Ranch and Elmore respectively, that must be
maintained before cash distributions can be paid to the Partners.
6. SENIOR SECURED PROJECT NOTE
The Guarantors assumed their proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3).
On July 21, 1995, CECI recapitalized Magma and the related Merger
Facilities from proceeds received through a $200 million high yield
offering and a $475 million investment grade offering of Salton Sea Funding
Corporation. The Guarantors issued a project note in the amount of $75
million payable to Salton Sea Funding Corporation at an interest rate of
6.69%, and guaranteed, to the extent of available cash flow, the investment
grade securities. The guarantee is collateralized by a lien on the
available cash flow of and a pledge of stock in the Guarantors.
Principal maturities of the senior secured project note are as
follows:
1996 $15,502
1997 12,744
1998 19,762
1999 9,636
2000 5,062
--------
$62,706
========
The estimated fair value of the Senior Secured Project Note was
$64,348,000 at December 31, 1995.
7. RELATED PARTY TRANSACTIONS
The Guarantors are party to a 30-year brine supply agreement through
the Vulcan/BN Geothermal Power Company partnership and a technology license
agreement for the rights to use the technology necessary for the
construction and operation of the Vulcan Plant. Under the brine supply
agreement, the Guarantors will pay VPC 4.167% of the contract energy
component of the price of electricity provided by the Vulcan Plant. In
addition, VPC has been designated as operator of the Vulcan Plant and
receives agreed-upon compensation for such services.
Charges to the Guarantors related to the brine supply agreement and
operator's fees on a pro rata basis amounted to $745,000 and $620,000,
respectively, for the year ended December 31, 1995, $516,000 and $438,000,
respectively, for the year ended December 31, 1994, and $474,000 and
$408,000, respectively, for the year ended December 31, 1993.
In addition, the Guarantors entered into the following agreements:
o Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, whereby the Guarantors acquired from Magma rights to
extract geothermal brine from the geothermal lease rights property which
is necessary to operate the Leathers, Del Ranch and Elmore Plants in
return for 17.333%, on a pro rata basis, of all energy revenues received
by each plant. The Guarantors' share of amounts expensed under this
agreement for 1995, 1994 and 1993 were $8,115,000, $7,488,000 and
$6,806,000, respectively.
o Ground Leases dated March 15 and August 15, 1988 with Magma whereby the
Guarantors lease from Magma for 32 years the surface of the land as
described in the Imperial County Assessor's official records. Amounts
expensed under the ground leases were $30,000 in each of 1995, 1994 and
1993.
o Administrative Services Agreements whereby CEOC will provide to the
Partnerships administrative and management services for a period of 32
years through 2020. Fees payable to CEOC amount to the greater of 3% of
total electricity revenues or $67,000 per month. The minimum monthly
payments for years subsequent to 1989 are increased based on the
consumer price index of the Bureau of Labor and Statistics. Amounts
expensed related to these agreements for 1995, 1994 and 1993 amounted to
$1,687,000, $1,573,000, and $1,457,000, respectively.
o Operating and Maintenance Agreements whereby the Guarantors retain CEOC
to operate the plants for a period of 32 years through 2020. Payment is
made to CEOC in the form of reimbursements of expenses incurred and a
guaranteed capacity payment ranging from 10% to 25% of energy revenues
over stated amounts. The Guarantors in 1995, 1994 and 1993 reimbursed
CEOC for expenses of $4,471,000, $2,391,000 and $3,074,000,
respectively, and accrued a guaranteed capacity payment of $1,731,000,
$1,548,000 and $1,273,000 at December 31, 1995, 1994 and 1993,
respectively.
8. CONDENSED FINANCIAL INFORMATION
Condensed balance sheet information of the Guarantors' pro rata interest
in the respective entities as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Vulcan Vulcan Adjustments/ Combined
Power CEOC Elmore Del Ranch Leather BNG Eliminations Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
(successor)
Assets:
Cash and investments $ - $ - $ 7,060 $ 6,896 $ 6,772 $ 277 $ - $ 21,005
Accounts receivable
and other - 792 4,899 4,951 5,631 6,826 (1,607) 21,492
Due from affiliates (232) 71,976 (988) (763) (1,066) 116 (14,094) 54,949
Property, plant, contracts
and equipment, net 265 1,294 27,744 25,508 32,466 29,224 182,455 298,956
Management fee - - - - - - 63,520 63,520
Goodwill, net - - - - - - 142,250 142,250
Investments in
partnerships 36,074 73,455 - - - - (109,529) -
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $262,995 $602,172
Liabilities and Equity:
Accounts payable and
accrued liabilities $ 369 $ 8,557 $ 443 $ 794 $ 652 $ 369 $110,784 $121,968
Project loans - - 11,450 10,930 21,386 - - 43,766
Other debt - - - - - - 62,706 62,706
Total liabilities 369 8,557 11,893 11,724 22,038 369 173,490 228,440
Guarantors' equity 35,738 138,960 26,822 24,868 21,765 6,074 89,505 373,732
$36,107 $147,517 $38,715 $36,592 $43,803 $36,443 $262,995 $602,172
December 31, 1994
(predecessor)
Assets:
Cash and investments $ (4) $ (822) $ 6,566 $ 6,320 $ 8,677 $ 1,034 $ - $ 21,771
Accounts receivable and
other 16 2,001 3,989 4,130 4,097 3,675 (759) 17,299
Due from affiliates 55 5,995 - - - - (1,942) 4,108
Property, plant and
equipment, net 123 9,917 30,816 28,319 34,139 33,951 - 137,265
Investments in
partnerships 33,602 71,428 - - - (105,030) -
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
Liabilities and equity:
Accounts payable and
accrued liabilities $ 4,676 $14,907 $ 331 $ 345 $ 1,017 $ 432 $ - $ 21,708
Amounts due affiliate - - 158 671 764 349 (1,942) -
Loans payable - - 14,210 13,564 24,566 - - 52,340
Total liabilities 4,676 14,907 14,699 14,580 26,347 781 (1,942) 74,048
Guarantors' equity 29,266 73,612 26,672 24,189 20,566 37,879 (105,789) 106,395
$33,942 $88,519 $41,371 $38,769 $46,913 $38,660 $(107,731) $180,443
</TABLE>
Condensed combining statements of operations including information of the
Guarantors' pro rata interest in the respective entities for the years ended
December 31, 1995, 1994 and 1993 is as follows:
8. CONDENSED FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Vulcan Vulcan Adjustments/ Combined
Power CEOC Elmore Del Ranch Leathers BNG Eliminations Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
(SUCCESSOR)
Revenues $15,634 $24,121 $19,336 $18,941 $19,101 $20,878 $(30,528) $87,483
Expenses 1,547 - 12,866 12,523 14,161 7,974 23,775 72,846
Net income $14,087 $24,121 $ 6,470 $ 6,418 $ 4,940 $12,904 $(54,303) $14,637
December 31, 1994
(PREDECESSOR)
Revenues $10,423 $19,290 $17,611 $18,116 $17,538 $18,430 $(25,358) $76,050
Expenses 4,901 7,674 12,973 12,908 14,241 10,395 (4,180) 58,912
Net income $ 5,522 $11,616 $4,638 $ 5,208 $ 3,297 $ 8,035 $(21,178) $17,138
December 31, 1993
Revenues $ 8,298 $14,385 $16,689 $16,424 $15,987 $17,079 $(18,805) $70,057
Expenses 3,959 5,630 13,662 13,408 13,173 10,986 (3,855) 56,963
Net income $ 4,339 $ 8,755 $ 3,027 $ 3,016 $ 2,814 $ 6,093 $(14,950) $13,094
</TABLE>
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993 consisted of the following:
<TABLE>
<CAPTION>
Current Deferred Total
--------- ---------- ----------
<S> <C> <C> <C>
Successor:
1995
- --------------------
Federal $ 6,697 $ 2,264 $ 8,961
State 3,784 (1,253) 2,531
--------- --------- ----------
Total $10,481 $ 1,011 $11,492
========= ========= =========
Predecessor:
1994
- --------------------
Federal $ 6,277 $ 3,314 $ 9,591
State 1,108 585 1,693
--------- --------- ----------
Total $ 7,385 $ 3,899 $11,284
========= ========= ==========
1993
- --------------------
Federal $ 4,372 $ 2,773 $ 7,145
State 771 489 1,260
--------- --------- ---------
Total $ 5,143 $ 3,262 $ 8,405
========= ========= =========
</TABLE>
Deferred tax liabilities and assets at December 31, 1995 and 1994, as
calculated in accordance with SFAS 109, consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
(successor) (predecessor)
<S> <C> <C>
Deferred liabilities:
Depreciation and
amortization $106,238 $28,037
Deferred assets:
Tax credits 7,831 14,530
-------- ---------
Net deferred tax liability $ 98,407 $13,507
===== =====
</TABLE>
The effective tax rate differs from the federal statutory tax rate due
primarily to amortization, depreciation and the realization for income tax
purposes of certain tax credits.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying successor balance sheet of the Salton
Sea Royalty Company (the "Company") as of December 31, 1995, and the
related successor statements of operations, equity and cash flows for the
year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on those 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 presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such successor financial statements present fairly, in
all material respects, the financial position of the Salton Sea Royalty
Company as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 26, 1996
SALTON SEA ROYALTY COMPANY
SUCCESSOR BALANCE SHEET
DECEMBER 31, 1995
(Dollars in Thousands)
ASSETS
Due from affiliates $ 25,110
Royalty stream, net 53,744
Goodwill, net 35,912
Prepaid expenses and other assets 2,575
-------
$117,341
=======
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 5,948
Senior secured project note 67,882
Deferred income taxes 15,460
-------
Total liabilities 89,290
Commitments and Contingencies (Notes 2,3 and 4)
Equity:
Common stock -
Additional paid-in capital 24,541
Retained earnings 3,510
-------
Total equity 28,051
-------
$117,341
=======
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(Dollars in Thousands)
Revenues:
Royalty income $28,383
Expenses:
Operating, general and administrative expenses 6,822
Amortization of royalty stream and goodwill 11,239
Interest expense 4,757
----------
Total expenses 22,818
----------
Income before income taxes 5,565
Provision for income taxes 963
----------
Income before minority interest 4,602
Minority interest 1,092
----------
Net income $ 3,510
======
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENT OF EQUITY
YEAR ENDED DECEMBER 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-in Retained
Shares Amount Earnings Earnings Total
------ ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 - $ - $ 5,300 $ - $ 5,300
Net income in 1995 prior to
acquisition - - - 1,092 1,092
Purchase accounting push-down
adjustment, net - - 38,043 (1,092) 36,951
Distributions - - (20,501) - (20,501)
Contributions - - 1,699 - 1,699
Issuance of $.01 par value per
share common stock 100 - - - -
Net income - - - 3,510 3,510
----- ----- ------- -------- -------
Balance, December 31, 1995 100 $ - $24,541 $ 3,510 $28,051
===== ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY COMPANY
SUCCESSOR STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(Dollars in Thousands)
Cash flow from operating activities:
Net income $ 3,510
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 1,092
Amortization of royalty stream and goodwill 11,239
Deferred income taxes (4,581)
Changes in assets and liabilities:
Prepaid expenses and other assets (2,575)
Accrued liabilities 5,948
----------
Net cash flows from operating activities 14,633
----------
Net cash flow 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
Increase in due from affiliates (25,110)
Contributions from parent 2,634
Distribution to parent (21,436)
Loan repayments (47,564)
----------
Net cash flows from financing activities 23,970
----------
Net change in cash -
Cash at beginning of period -
----------
Cash at end of period $ -
==========
The accompanying notes are an integral part of the financial statements.
SALTON SEA ROYALTY COMPANY
NOTES TO SUCCESSOR FINANCIAL STATEMENTS
(Columnar Dollars in Footnotes are in Thousands)
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a newly formed
single-purpose entity, 99% owned by Magma Power Company ("Magma") and 1%
owned by Salton Sea Funding Corporation (the "Funding Corporation").
Effective February 24, 1995, Magma became a wholly-owned subsidiary of
CalEnergy Company, Inc. ("CECI") (see Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have
a 50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All
of the Projects are engaged in the operation of geothermal power plants in
the Imperial Valley in Southern California. Substantially all of the
assigned royalties are based on a percentage of energy and capacity
revenues of the Projects. With the exception of royalties from East Mesa,
the royalties are senior to debt service and are pari passu with other
operating and maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("Edison"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours (kWhs) of
energy provided to Edison. During the first 10 years of the agreement, the
Projects earn payments for energy as scheduled in the ISO4s. After the
10-year scheduled payment period has expired (1998 for Del Ranch and
Elmore; 1999 for Leathers and East Mesa), the energy payment per kWh
throughout the remainder of the contract period will be at Edison's Avoided
Cost of Energy. For the year ended December 31, 1995, Edison's average
Avoided Cost of Energy was 2.1 cents per kWh which is substantially below
the contract energy prices earned in 1995. 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
ISO4s at the expiration of the scheduled payment periods. The revenues
generated by each of the units operating under ISO4s could decline
significantly after the expiration of the relevant scheduled payment period
which would have a direct effect on the related royalty streams.
As discussed above, all revenues except those derived from East Mesa are
from, and all operating expenses are paid by, related parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statement of operations presents revenues and expenses
which have been assigned to the Company under the arrangements described
above on the accrual method of accounting. This presentation is a "carve
out" of information from Magma and certain of its affiliates. Such
revenues, net of related expenses, will serve to guarantee loans from
Funding Corporation, a wholly-owned subsidiary of CECI.
The December 31, 1995 successor financial statements reflect the
acquisition of Magma (see Note 3), the resulting push down to the Company
of the accounting as a purchase business combination and minority interest
for the non-owned periods consisting of 100% for the period January 1-9,
1995 and 49% for the period January 10, 1995--February 23, 1995.
Purchase Accounting
As a result of the purchase business combination (see Note 3) accounted
for on a push down basis by the Company during the year ended December 31,
1995, the royalty stream is stated at fair value.
The Company's policy is to provide amortization expense beginning upon
the commencement of revenue production over the estimated remaining useful
life of the identifiable assets.
The royalty streams have been assigned values separately for each of (1)
the remaining portion (1 to 5 years) of their scheduled price periods and
(2) the 20 year avoided cost periods and are amortized separately over such
periods using the straight line method.
Total acquisition costs in excess of the fair values assigned to the net
assets acquired are amortized over a 40 year period using the straight line
method.
Income Taxes
The Company will be included in consolidated income tax returns with its
parent and affiliates. Income taxes are provided on a separate return
basis in accordance with the requirements of Statement of Financial
Accounting Standards No. 109, however, tax obligations of the Company will
be remitted to the parent only to the extent of cash flows available after
operating expenses and debt service.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are
based on market prices of similar instruments and/or valuation techniques
using market assumptions. Unless otherwise noted, the estimated fair value
amounts do not differ significantly from recorded values. Although
management uses its best judgement in estimating the fair value of these
financial instruments, there are inherent limitations in any estimation
technique. Therefore, the fair value estimates presented herein are not
necessarily indicative of the amounts which the company could realize in a
current transaction.
SFAS 121
On January 1, 1996, the Company intends to adopt Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Management anticipates that the adoption of SFAS 121 will not have a
material effect on the Company's financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. PURCHASE OF MAGMA POWER COMPANY
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma 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. Magma is
engaged in independent power operations similar to those of CECI. The
transaction was accounted for as a purchase business combination.
Unaudited pro forma combined revenue and net income of the Company on a
purchase, push down basis of accounting, for the year ended December 31,
1995, as if the acquisition had occurred on January 1, 1994 after giving
effect to certain pro forma adjustments related to the acquisition, were
$28,383,000 and $3,753,000, respectively, compared to $29,410,000 and
$7,532,000 (pre-tax), respectively, for the year ended December 31, 1994.
The adjustments which have been made to the net assets of the Company to
reflect the effect of the acquisition of Magma accounted for as a purchase
business combination pushed down to the Company are as follows (dollars in
thousands):
Royalty stream $64,155
Goodwill 36,740
Deferred financing costs 1,843
Deferred income taxes (25,341)
Debt (40,446)
----------
Net increase in assets $36,951
==========
4. SENIOR SECURED PROJECT NOTE
The Company assumed its proportionate share of the secured bank
financing incurred in connection with the purchase of Magma (see Note 3).
On July 21, 1995, CECI recapitalized Magma and the related Merger
Facilities from proceeds received through a $200 million high yield
offering and a $475 million investment grade offering of the Salton Sea
Funding Corporation. The Company issued a project note in the amount of
$75 million payable to Salton Sea Funding Corporation at interest rates
ranging from 6.69% to 7.37%, and guaranteed to the extent of available cash
flow, the investment grade securities. The guarantee issued is
collateralized by a lien on substantially all the assets of and a pledge of
stock in the Guarantor.
Principal maturities of the senior secured project note are as follows:
1996 $10,946
1997 18,001
1998 15,726
1999 9,396
2000 4,773
Thereafter 9,040
----------
$67,882
======
The estimated fair value of the Senior Secured Project Note was
$68,944,000 at December 31, 1995.
5. Income Taxes
The provision for income taxes for the year ended December 31, 1995,
consisted of the following:
<TABLE>
<CAPTION>
Current Deferred Total
--------- ----------- --------
<S> <C> <C> <C>
Federal $4,323 $(3,644) $679
State 1,221 (937) 284
--------- ----------- --------
Total $5,544 $(4,581) $963
===== ====== =====
</TABLE>
The Company's effective tax rate differs from the statutory federal
income tax rate due primarily to percentage depletion in excess of cost
depletion and goodwill amortization.
Deferred tax liabilities and assets at December 31, 1995, consisted of
the following:
Deferred liabilities:
Depreciation and amortization $20,760
Deferred assets:
Jr. SO4 royalty receivable 5,300
----------
Net deferred tax liability $15,460
======
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying Predecessor Summaries of Revenues and
Related Expenses (the "Predecessor Summaries") of Salton Sea Royalty
Company (the "Company") for each of the two years in the period ended
December 31, 1994. The Predecessor Summaries are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
Predecessor Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Predecessor Summaries are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Predecessor
Summaries. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the Predecessor Summaries. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying Predecessor Summaries were prepared for inclusion in
the Prospectus of Salton Sea Funding Corporation on the basis of
presentation as described in Note 2, and are not intended to be a complete
presentation of the Company's assets, liabilities, revenues and expenses.
In our opinion, the Predecessor Summaries referred to above present
fairly, in all material respects, the revenues and related expenses
described in Notes 1 and 2 of the Company for each of the two years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Diego, California
June 19, 1995, except as to the information presented in
Note 4, for which the date is July 21, 1995
SALTON SEA ROYALTY COMPANY
PREDECESSOR SUMMARIES OF REVENUES AND RELATED EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1994 1993
--------- ----------
<S> <C> <C>
Royalty Income $29,410 $26,942
Operating expenses 20,753 5,710
--------- ----------
Excess of revenues over expenses $ 8,657 $21,232
========= ==========
</TABLE>
The accompanying notes are an integral part of the summaries.
SALTON SEA ROYALTY COMPANY
NOTES TO PREDECESSOR SUMMARIES OF REVENUES AND RELATED EXPENSES
1. ORGANIZATION
Salton Sea Royalty Company (the "Company") is a newly formed single-purpose
entity, 99% owned by Magma Power Company ("Magma") and 1% owned by Salton Sea
Funding Corporation (the "Funding Corporation"). Effective February 24,
1995, Magma became a wholly-owned subsidiary of CalEnergy Company, Inc.
("CECI") (see Note 3).
In June 1995, the Company received an assignment of royalties and certain
fees paid by three partnership projects, Del Ranch, Elmore and Leathers
(collectively, the "Partnership Projects"). Magma and its affiliates have a
50% interest in the Partnership Projects. In addition, the Company has
received an assignment of certain resource-related royalties and contract
assignment royalties payable by the geothermal power plant located in
Imperial Valley, California which is owned by an unaffiliated third party
(East Mesa, together with the Partnership Projects, the "Projects"). All of
the Projects are engaged in the operation of geothermal power plants in the
Imperial Valley in Southern California. Substantially all of the assigned
royalties are based on a percentage of energy and capacity revenues of the
Projects. With the exception of royalties from East Mesa (Note 2), the
royalties are senior to debt service and are pari passu with other operating
and maintenance expenses of the Projects.
All of the Projects have executed long-term Interim Standard Offer No. 4
power purchase agreements ("ISO4s") providing for capacity and energy sales
to Southern California Edison Company ("Edison"). Each of these agreements
provides for fixed price capacity payments for the life of the contract.
The Projects earn energy payments based on kilowatt hours (kWhs) of energy
provided to Edison. During the first 10 years of the agreement, the Projects
earn payments for energy as scheduled in their ISO4s. After the 10-year
scheduled payment period has expired (1998 for Del Ranch and Elmore; 1999 for
Leathers and East Mesa), the energy payment per kWh throughout the remainder
of the contract period will be at Edison's Avoided Cost of Energy. For the
year ended December 31, 1994, Edison's average Avoided Cost of Energy was 2.5
cents per kWh which is substantially below the contract energy prices earned
in 1994. 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 ISO4s at the expiration of the
scheduled payment periods. The revenues generated by each of the units
operating under ISO4s could decline significantly after the expiration of the
relevant scheduled payment period.
As discussed above, all revenues except those derived from East Mesa are
from or through related parties.
2. BASIS OF PRESENTATION
The accompanying Predecessor Summaries of Revenues and Related Expenses
present predecessor revenues and expenses for the periods indicated which
have been assigned to the Company under the arrangements described above on
the accrual method of accounting. This presentation is a "carve out" of
historical information from Magma and certain of its affiliates. The basis
of presentation described herein is not intended to be a complete
presentation of the Company's assets, liabilities, revenues and expenses.
Such revenues, net of related expenses, will serve to guarantee loans from
Salton Sea Funding Corporation, a wholly-owned subsidiary of CECI (see Note
4).
During 1994, the entire $14,502,000 balance due from junior royalties from
East Mesa was written off due to uncertainty as to their collectibility. The
write-off was considered necessary due to the inability of the East Mesa
plant to convert its construction loans to term loans as had been expected
during 1994.The timing of such conversion, which is a prerequisite to the
collection of the junior royalties, is uncertain. Revenues related to the
East Mesa junior royalties for the years ended December 31, 1994 and 1993 were
$3,412,000, and $3,190,000, respectively.
3. PURCHASE OF MAGMA POWER COMPANY (UNAUDITED)
On January 10, 1995, CECI acquired approximately 51% of the outstanding
shares of common stock of Magma (the "Magma Common Stock") through a cash
tender offer (the "Magma 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. Magma is engaged
in independent power operations similar to those of CECI. The transaction
was accounted for as a purchase business combination.
4. SENIOR SECURED PROJECT NOTE
The Company assumed its proportionate share of the secured bank financing
incurred in connection with the purchase of Magma (see Note 3). On July 21,
1995, CECI recapitalized Magma and the related Merger Facilities were
recapitalized from proceeds received through a $200 million high yield
offering and a $475 million investment grade offering by Funding Corporation.
The Company issued a project note in the amount of $75 million payable to
Salton Sea Funding Corporation with maturities of $7,118,000, $10,946,000,
$18,001,000, $15,725,000, $9,396,000, and $13,814,000 in 1995, 1996, 1997,
1998, 1999 and thereafter, respectively, at interest rates ranging from 6.69%
to 7.37% and guaranteed, to the extent of available cash flow, the investment
grade securities. The guarantee issued is collateralized by a lien on
substantially all the assets of and a pledge of stock in the Guarantor.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below are the current executive officers of the Funding
Corporation and the Guarantors and their positions with the Funding
Corporation and each of the Guarantors (or general partner thereof):
EXECUTIVE OFFICER POSITION
David L. Sokol Director, Chairman of the Board and Chief
Executive Officer
Thomas R. Mason Director, President and Chief Operating Officer
Gregory E. Abel Senior Vice President, Controller and Chief
Accounting Officer
Edward F. Bazemore Vice President, Human Resources
Vincent R. Fesmire Vice President, Construction
Steven A. McArthur Director, Senior Vice President, General
Counsel and Secretary
Dale R. Schuster Vice President, Administration
John G. Sylvia Director, Senior Vice President, Chief
Financial Officer and Treasurer
Jonathan M. Weisgall Vice President, Legislative & Regulatory
Affairs
DAVID L. SOKOL, 39. Mr. Sokol has been a director of CalEnergy since March
1991 and is currently the Chairman and Chief Executive Officer of CalEnergy,
the Funding Corporation and each Guarantor (or general partner thereof). Mr.
Sokol also held the title of President of CalEnergy from April 19, 1993 until
January 21, 1995. Mr. Sokol was Chairman, President and Chief Executive
Officer of CalEnergy from February 1991 until January 1992. Mr. Sokol was the
President and Chief Operating Officer of, and a director of, JWP, Inc., from
January 27, 1992 to October 1, 1992. From November 1990 until February 1991,
Mr. Sokol was the President and Chief Executive Officer of Kiewit Energy
Company. From 1983 to November 1990, Mr. Sokol was the President and Chief
Executive Officer of Ogden Projects, Inc.
THOMAS R. MASON, 52, President and Chief Operating Officer of California
Energy, the Funding Corporation and each Guarantor (or general partner
thereof). Mr. Mason joined CalEnergy in March 1991. From October 1989 to
March 1991, Mr. Mason was Vice President and General Manager of Kiewit Energy
Company. Prior to that Mr. Mason was Director of Marketing for Energy
Factors, Inc. (now Sithe Energies U.S.A., Inc.), a non-utility developer of
power facilities. Prior to that Mr. Mason was a worldwide Market Manager of
power generation for Solar Gas Turbines, a gas turbine manufacturer.
GREGORY E. ABEL, 33, Senior Vice President, Controller and Chief Accounting
Officer of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Abel joined CalEnergy in 1992. Mr. Abel is a Chartered
Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a
Manager in the San Francisco office of Price Waterhouse, he was responsible
for clients in the energy industry.
EDWARD F. BAZEMORE, 59, Vice President, Human Resources of CalEnergy, the
Funding Corporation and each Guarantor (or general partner thereof). Mr.
Bazemore joined CalEnergy in July 1991. From 1989 to 1991, he was Vice
President, Human Resources, at Ogden Projects, Inc. in New Jersey. Prior to
that, Mr. Bazemore was Director of Human Resources for Ricoh Corporation,
also in New Jersey. Previously, he was Director of Industrial Relations for
Scripto, Inc. in Atlanta, Georgia.
VINCENT R. FESMIRE, 55, Vice President, Construction of CalEnergy, the
Funding Corporation and each Guarantor (or general partner thereof). Mr.
Fesmire joined CalEnergy in October 1993. In 1995 Mr. Fesmire's
responsibilities were realigned to provide a concentrated focus on the
critical construction projects. Prior to joining CalEnergy, Mr. Fesmire was
employed for 19 years with Stone & Webster, an engineering firm, serving in
various management level capacities with an expertise in geothermal design
engineering.
STEVEN A. McARTHUR, 38, Senior Vice President, General Counsel and
Secretary of CalEnergy, the Funding Corporation and each Guarantor (or
general partner thereof). Mr. McArthur joined CalEnergy in February 1991.
From 1988 to 1991 he was an attorney in the Corporate Finance Group at
Shearman & Sterling in San Francisco. From 1984 to 1988 he was an attorney in
the Corporate Finance Group at Winthrop, Stimson, Putnam & Roberts in New
York.
DALE R. SCHUSTER, 44, Vice President, Administration of CalEnergy, the
Funding Corporation and each Guarantor (or general partner thereof). Mr.
Schuster joined CalEnergy in July 1994. From 1991 until joining CalEnergy he
was Senior Vice President and General Manager of AutoInfo, Inc., a software
development and information systems company, and prior to that, Vice
President and General Manager of ValCom, Inc.
JOHN G. SYLVIA, 38, Senior Vice President, Chief Financial Officer and
Treasurer of CalEnergy, the Funding Corporation and each Guarantor (or
general partner thereof). Mr. Sylvia joined CalEnergy in 1988. From 1985 to
1988, Mr. Sylvia was a Vice President of an international financial
institution with responsibility for corporate and capital markets banking.
From 1986 to 1990, Mr. Sylvia served as an Adjunct Professor of Applied
Economics at the University of San Francisco. From 1982 to 1985, Mr. Sylvia
held various corporate finance positions with investment and financial firms.
JONATHAN M. WEISGALL, 46, Vice President, Legislative and Regulatory
Affairs of CalEnergy, the Funding Corporation and each Guarantor (or general
partner thereof). Mr. Weisgall joined CalEnergy in May, 1995. Mr. Weisgall
was an attorney in private practice with extensive energy and regulatory
experience and is Adjunct Professor of Energy Law at Georgetown University
Law Center.
Item 11. EXECUTIVE COMPENSATION
The Funding Corporation's and the Guarantors' directors and executive
officers receive no remuneration for serving in such capacities.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Description of Capital Stock
As of December 31, 1995, the authorized capital stock of the Funding
Corporation consisted of 1,000 shares of common stock, par value $.01 per
share (the "Common Stock"), of which 100 shares were outstanding. There is no
public trading market for the Common Stock. As of December 31, 1995, there
was one holder of record of the Common Stock. Holders of Common Stock are
entitled to one vote per share on any matter coming before the stockholders
for a vote.
The Funding Corporation does not expect in the foreseeable future to pay
any dividends on the Common Stock. The Indenture contains certain
restrictions on the payment of dividends with respect to the Common Stock.
Principal Holders
Since the formation of the Funding Corporation in June 1995, all of the
outstanding shares of Common Stock have been owned by Magma. Magma directly
or indirectly owns all of the capital stock of or partnership interests in
the Funding Corporation and the Guarantors. CalEnergy owns all of the capital
stock of Magma. CalEnergy's common stock is publicly traded on the New York,
Pacific and London Stock Exchanges, and approximately 34% of the common stock
is beneficially owned, through indirect subsidiaries, by Kiewit.
Item 13. Certain Relationships and Related Transactions
Other Relationships and Related Transactions
The Salton Sea Projects' and the Partnership Projects' geothermal power
plants are owned (100% and 50%, respectively), administered and operated by
Magma or subsidiaries of Magma. Geothermal fluid supplying these facilities
is provided from Magma's (or a subsidiary's) geothermal resource holdings in
the SSKGRA.
In providing rights to geothermal resources and/or geothermal fluids,
administering and operating the geothermal power plants, and disposing of
solids from these facilities, Magma (directly and through subsidiaries)
receives certain royalties, cost reimbursements and fees for its services and
the rights it provides. See the financial statements attached hereto.
The Funding Corporation believes that the transactions with related parties
described above, taking into consideration all of the respective terms and
conditions of each of the relevant contracts and agreements, are at least as
favorable to the Guarantors as those which could have been obtained from
unrelated parties in arms' length negotiations.
Relationship of the Funding Corporation and the Guarantors to Magma and
California Energy
The Funding Corporation is a wholly owned direct subsidiary of Magma
organized for the sole purpose of acting as issuer of the Securities. The
Funding Corporation is restricted, pursuant to the terms of the Indenture, to
acting as issuer of the Securities and other indebtedness as permitted under
the Indenture, making loans to the Guarantors pursuant to the Credit
Agreements, and transactions related thereto. The Funding Corporation and
each of the Guarantors (and, in the case of SSBP and SSPG, the general
partners thereof) have been organized and are operated as legal entities
separate and apart from CalEnergy, Magma and any other Affiliates of
CalEnergy or Magma, and, accordingly, the assets of the Funding Corporation
and the Guarantors (and, in the case of SSBP and SSPG, the general partners
thereof) will not be generally available to satisfy the obligations of
CalEnergy, Magma or any other Affiliates of CalEnergy or Magma; provided,
however, that unrestricted cash of the Funding Corporation and the Guarantors
or other assets which are available for distribution may, subject to
applicable law and the terms of financing arrangements of such parties, be
advanced, loaned, paid as dividends or otherwise distributed or contributed
to CalEnergy, Magma or Affiliates thereof.
PART IV
Item 14. Exhibits, Financial Statements Schedule and Reports on Form 8-K
(a) Financial Statements and Schedules
(i) Financial Statements
(ii) Financial Statement Schedules
Financial Statement Schedules are not included because
they are not required or the information required is
included in the Financial Statements and related foot-
notes.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as part of
this Annual Report.
For the purposes of complying with the amendments to the rules governing
Form S-4 effective July 13, 1990 under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into the Company's currently effective
Registration Statements on Form S-4.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant, the registrant has been advised that in the opinion the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(d) Financial statements required by Regulations S-X, which are excluded
from the Annual Report by Rule 14a-3(b).
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
SALTON SEA FUNDING CORPORATION
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and April 8, 1996
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
SALTON SEA BRINE PROCESSING L.P.
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
SALTON SEA POWER GENERATION L.P.
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
FISH LAKE POWER COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
VULCAN POWER COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
CALENERGY OPERATING COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, in the City of
Omaha, State of Nebraska, on April 8, 1996.
SALTON SEA ROYALTY COMPANY
By: /s/ David L. Sokol
David L. Sokol
Director, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cased this report to be signed on its behalf by the undersigned,
each thereunto duly authorized in the City of Omaha, State of Nebraska, on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David L. Sokol Director, Chairman of the Board of April 8, 1996
David L. Sokol Directors and Chief Executive
Officer (Principal Executive Officer)
/s/ John G. Sylvia Director, Senior Vice President, April 8, 1996
John G. Sylvia Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Gregory E. Abel Senior Vice President, Controller and
Gregory E. Abel Chief Accounting Officer (Principal
Accounting Officer)
/s/ Thomas R. Mason Director, President and Chief Operating April 8, 1996
Thomas R. Mason Officer
/s/ Steven A. McArthur Director, Senior Vice President, General April 8, 1996
Steven A. McArthur Counsel and Secretary
</TABLE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of the Funding Corporation (incorporated by
reference to Exhibit 3.1 to the Funding Corporation Registration
Statement on Form S-4 dated August 9, 1995, 33-95538 ("Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to
Exhibit 3.2 to the Funding Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to
Exhibit 3.3 to the Funding Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to
Exhibit 3.4 to the Funding Corporation Form S-4).
3.5 Articles of Incorporation of Fish Lake (incorporated by reference to
Exhibit 3.5 to the Funding Corporation Form S-4).
3.6 By-laws of Fish Lake (incorporated by reference to Exhibit 3.6 to the
Funding Corporation Form S-4).
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit
3.7 to the Funding Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the
Funding Corporation Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to
Exhibit 3.9 to the Funding Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the
Funding Corporation Form S-4).
3.11 Articles of Incorporation of the Royalty Guarantor (incorporated by
reference to Exhibit 3.11 to the Funding Corporation Form S-4).
3.12 By-laws of the Royalty Guarantor (incorporated by reference to Exhibit
3.12 to the Funding Corporation Form S-4).
4.1(a)
Indenture, dated as of July 21, 1995, between Chemical Trust Company
of California and the Funding Corporation (incorporated by reference
to Exhibit 4.1(a) to the Funding Corporation Form S-4).
4.1(b)
First Supplemental Indenture, dated as of October 18, 1995, between
Chemical Trust Company of California and the Funding Corporation
(incorporated by reference to Exhibit 4.1(b) to the Funding
Corporation Form S-4).
4.2 Salton Sea Secured Guarantee, dated as of July 21, 1995, by SSBP, SSPG
and Fish Lake in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.2 to the Funding Corporation
Form S-4).
4.3 Partnership Guarantors Secured Limited Guarantee, dated as of July 21,
1995, by CEOC and VPC in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 4.3 to the Funding Corporation
Form S-4).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21,
1995, by the Royalty Guarantor in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.4 to the Funding
Corporation Form S-4).
4.5 Exchange and Registration Rights Agreement, dated July 21, 1995, by
and among CS First Boston Corporation, Lehman Brothers Inc. and the
Funding Corporation (incorporated by reference to Exhibit 4.5 to the
Funding Corporation Form S-4).
4.6 Collateral Agency and Intercreditor Agreement, dated as of July 21,
1995, by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the Guarantors (incorporated
by reference to Exhibit 4.6 to the Funding Corporation Form S-4).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power
Company in favor of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.7 to the Funding Corporation Form S-4).
4.8 Purchase Agreement, dated July 18, 1995, by and among CS First Boston
Corporation, Lehman Brothers Inc., the Guarantors and the Funding
Corporation (incorporated by reference to Exhibit 4.8 to the Funding
Corporation Form S-4).
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power
Company, the Funding Corporation and the Guarantors (incorporated by
reference to Exhibit 4.9 to the Funding Corporation Form S-4).
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement,
dated as of July 21, 1995, by and among the Funding Corporation,
certain banks and Credit Suisse, as agent (incorporated by reference
to Exhibit 4.10 to the Funding Corporation Form S-4).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among
Credit Suisse and the Funding Corporation (incorporated by reference
to Exhibit 4.11 to the Funding Corporation Form S-4).
4.12 Salton Sea Credit Agreement, dated July 21, 1995, by and among SSBP,
SSPG and Fish Lake (incorporated by reference to Exhibit 4.12 to the
Funding Corporation Form S-4).
4.13 Salton Sea Project Note, dated July 21, 1995, by SSBP, SSPG and Fish
Lake in favor of the Funding Corporation (incorporated by reference to
Exhibit 4.13 to the Funding Corporation Form S-4).
4.14 Deposit and Disbursement Agreement, dated as of July 21, 1995, by and
among the Funding Corporation, Chemical Trust Company of California
and the Guarantors (incorporated by reference to Exhibit 4.14 to the
Funding Corporation Form S-4).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by
Magma Power Company and Salton Sea Power Company in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.15
to the Funding Corporation Form S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by
SSBP and Salton Sea Power Company in favor of Chemical Trust Company
of California (incorporated by reference to Exhibit 4.16 to the
Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (Pledge of Stock of Fish Lake by Magma Power
Company and the Funding Corporation), dated as of July 21, 1995, by
Magma Power Company and the Funding Corporation in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.17
to the Funding Corporation Form S-4).
4.18 Cost Overrun Commitment, dated as of July 21, 1995, between CalEnergy,
SSPG, SSBP and Fish Lake (incorporated by reference to Exhibit 4.18 to
the Funding Corporation Form S-4).
4.19 Partnership Guarantors Credit Agreement, dated July 21, 1995, by and
among CEOC, VPC and the Funding Corporation (incorporated by reference
to Exhibit 4.19 to the Funding Corporation Form S-4).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights,
dated as of July 21, 1995, by CEOC and VPC in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.20 to
the Funding Corporation Form S-4).
4.21 Stock Pledge Agreement (Pledge of Stock of CEOC by Magma Power Company
and the Funding Corporation), dated as of July 21, 1995, by Magma Power
Company and Funding Corporation in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.21 to the Funding
Corporation Form S-4).
4.22 Stock Pledge Agreement (Pledge of Stock of VPC by Magma Power Company
and the Funding Corporation), dated as of July 21, 1995, by Magma Power
Company and the Funding Corporation in favor of Chemical Trust Company
of California (incorporated by reference to Exhibit 4.22 to the Funding
Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and the
Funding Corporation, dated as of July 21, 1995 (incorporated by
reference to Exhibit 4.23 to the Funding Corporation Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty
Guarantor in favor of the Funding Corporation (incorporated by
reference to Exhibit 4.24 to the Funding Corporation Form S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of July
21, 1995, by the Royalty Guarantor in favor of Chemical Trust Company
of California (incorporated by reference to Exhibit 4.25 to the Funding
Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty
Guarantor to Chicago Title Company for the use and benefit of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.26
to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (Pledge of Stock of Royalty Guarantor by Magma
Power Company and the Funding Corporation), dated as of July 21, 1995,
by Magma Power Company and the Funding Corporation in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.27
to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of
July 21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.29 to the
Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.30 to the Funding Corporation Form S-4).
4.31 Partnership Project Note, dated July 21, 1995, by VPC and CEOC in favor
of the Funding Corporation (incorporated by reference to Exhibit 4.31
to the Funding Corporation Form S-4).
4.32 Certificate of Amendment of Certificate of Incorporation dated as of
March 26, 1996.
10.1 Salton Sea Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing, dated as of July 21, 1995, by SSBP, SSPG and Fish Lake
to Chicago Title Company for the use and benefit of Chemical Trust
Company of California (incorporated by reference to Exhibit 10.1 to the
Funding Corporation Form S-4) .
10.2 Collateral Assignment of Southern California Edison Company Agreements,
dated as of July 21, 1995, by SSPG and Fish Lake in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 10.2
to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton
Sea Geothermal Facility, dated May 9, 1987 (the "Unit 1 Power Purchase
Agreement"), between Southern California Edison Company and Earth
Energy, Inc. (incorporated by reference to Exhibit 10.3 to the Funding
Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of
March 30, 1993, between Southern California Edison Company and Earth
Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding
Corporation Form S-4).
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29,
1994, between Southern California Edison Company and SSPG (incorporated
by reference to Exhibit 10.5 to the Funding Corporation Form S-4).
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16,
1985 (the "Unit 2 Power Purchase Agreement"), between Southern
California Edison Company and Westmoreland Geothermal Associates
(incorporated by reference to Exhibit 10.6 to the Funding Corporation
Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of
December 18, 1987, between Southern California Edison Company and
Earth Energy, Inc. (incorporated by reference to Exhibit 10.7 to the
Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power
Purchase Agreement"), between Southern California Edison Company and
Union Oil Company of California (incorporated by reference to Exhibit
10.8 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated
November 29, 1994, between Southern California Edison Company, SSPG and
Fish Lake (incorporated by reference to Exhibit 10.9 to the Funding
Corporation Form S-4).
10.10 Plant Connection Agreement (Unit 2), dated October 3, 1989, between the
Imperial Irrigation District and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.10 to the Funding Corporation Form S-4).
10.11 Plant Connection Agreement, dated August 2, 1988 (Unit 3), between the
Imperial Irrigation District and Desert Power Company (incorporated by
reference to Exhibit 10.11 to the Funding Corporation Form S-4).
10.12 Imperial Irrigation District Funding and Construction Agreements as
amended (Units 2 and 3), dated as of June 29, 1987, among the Imperial
Irrigation District, Earth Energy, Inc., Chevron Geothermal Company of
California, Geo East Mesa No. 3, Inc., Magma Power Company, Desert
Power Company, Geo East Mesa No. 2, Inc., Heber Geothermal Company,
Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN Geothermal Power
Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P.,
Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource
Recovery Associates, L.P. (incorporated by reference to Exhibit 10.12
to the Funding Corporation Form S-4).
10.13 Transmission Service Agreement, dated as of October 3, 1989 (Unit 2),
between the Imperial Irrigation District and Earth Energy, Inc.
(incorporated by reference to Exhibit 10.13 to the Funding Corporation
Form S-4).
10.14 Transmission Service Agreement, dated as of August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power Company
(incorporated by reference to Exhibit 10.14 to the Funding Corporation
Form S-4).
10.15 Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by and
between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.15 to the Funding Corporation
Form S-4).
10.16 Letter Agreement, dated February 2, 1995, between Magma Power Company
and the Imperial Irrigation District (incorporated by reference to
Exhibit 10.16 to the Funding Corporation Form S-4).
10.17 Transmission Service Agreement (Unit 4), dated as of July 14, 1995, by
and between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.17 to the Funding Corporation
Form S-4).
10.18 Transmission Line Construction Agreement (Unit 4), dated July 14, 1995,
between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.18 to the Funding Corporation
Form S-4).
10.19 Funding Agreement, dated June 15, 1988 (Unit 2), between Southern
California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.19 to the Funding Corporation Form S-4).
10.20 Second Amended and Restated Administrative Services Agreement, by and
among CEOC, SSBP, SSPG and Fish Lake, dated as of July 15, 1995
(incorporated by reference to Exhibit 10.20 to the Funding Corporation
Form S-4).
10.21 Second Amended and Restated Operating and Maintenance Agreement, dated
as of July 15, 1995, by and among Magma Power Company, SSBP, SSPG and
Fish Lake (incorporated by reference to Exhibit 10.21 to the Funding
Corporation Form S-4).
27.0 Financial Data Schedule.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * * * * * *
California Energy Operating Company, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That in lieu of a meeting, the sole stockholder of said
corporation has given unanimous written consent to the following amendment to
the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of California Energy
Operating Company be amended by changing the first sentence thereof so
that, as amended, said sentence shall be and read as follows:
"The name of the Corporation is CalEnergy Operating Company (the
"Company")."
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Certificate of Amendment of Certificate of
Incorporation has caused this certificate to be signed by Steven A. McArthur,
its Senior Vice President, and attested by Douglas L. Anderson, Assistant
Secretary, as of this 26th day of March, 1996.
CALIFORNIA ENERGY OPERATING COMPANY, INC.
By:
Steven A. McArthur
Senior Vice President
ATTEST
By: Douglas L. Anderson
Assistant Secretary
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 61,649
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 522,521
<CURRENT-LIABILITIES> 0
<BONDS> 452,088
0
0
<COMMON> 0
<OTHER-SE> 6,950
<TOTAL-LIABILITY-AND-EQUITY> 522,521
<SALES> 0
<TOTAL-REVENUES> 17,577
<CGS> 0
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,022
<INCOME-PRETAX> 2,555
<INCOME-TAX> 1,048
<INCOME-CONTINUING> 1,507
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