SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
Commission File No. 33-95538
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
47-0790493
(IRS Employer Identification No.)
Salton Sea Brine Processing L.P. California 33-0601721
Salton Sea Power Generation L.P. California 33-0567411
Fish Lake Power Company Delaware 33-0453364
Vulcan Power Company Nevada 95-3992087
CalEnergy Operating Company Delaware 33-0268085
Salton Sea Royalty Company Delaware 47-0790492
BN Geothermal Inc. Delaware 91-1244270
San Felipe Energy Company California 33-0315787
Conejo Energy Company California 33-0268500
Niguel Energy Company California 33-0268502
Vulcan/BN Geothermal Power Company Nevada 33-3992087
Leathers, L.P. California 33-0305342
Del Ranch, L.P. California 33-0278290
Elmore, L.P. California 33-0278294
(Exact name of Registrants (State or other (I.R.S. Employer
as specified in their charters) jurisdiction of Identification No.)
incorporation or
organization)
302 S. 36th Street, Suite 400-A, Omaha, NE 68131
(Address of principal executive offices and Zip Code of Salton
Sea Funding Corporation)
Salton Sea Funding Corporation's telephone number, including area
code: (402) 231-1641
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
All common stock of Salton Sea Funding Corporation is indirectly
held by Magma Power Company. 100 shares of Common Stock were
outstanding on June 30, 1997.
SALTON SEA FUNDING CORPORATION
Form 10-Q
June 30, 1997
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Page
SALTON SEA FUNDING CORPORATION
Independent Accountants' Report 4
Balance Sheets, June 30, 1997
and December 31, 1996 5
Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1996 6
Statement of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, June 30, 1997
and December 31, 1996 10
Combined Statements of Operations for the Three
and Six Months Ended June 30, 1997 and 1996 11
Combined Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 12
Notes to Combined Financial Statements 13
PARTNERSHIP GUARANTORS
Independent Accountants' Report 15
Combined Balance Sheets, June 30, 1997
and December 31, 1996 16
Combined Statements of Operations for the Three
and Six Months Ended June 30, 1997 and 1996 17
Combined Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 18
Notes to Combined Financial Statements 19
SALTON SEA ROYALTY COMPANY
Independent Accountants' Report 21
Balance Sheets, June 30, 1997
and December 31, 1996 22
Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1996 23
Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 24
Notes to Financial Statements 25
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 26
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults on Senior Securities 33
Item 4. Submission of Matters to a Vote of
Security Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
Signatures 34
Exhibit Index 35
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Funding Corporation as of June 30, 1997, and the related
statements of operations for the three and six month periods
ended June 30, 1997 and 1996 and cash flows for the six months
ended June 30, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Salton Sea Funding
Corporation as of December 31, 1996, and the related statements
of operations, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated January
31, 1997, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 1996 is fairly
stated, in all material respects, in relation to the balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
June 30, December 31,
1997 1996
___________ __________
(unaudited)
ASSETS
Cash $ --- $ 13,218
Restricted cash and short-term
investments 6,271 14,044
Prepaid expenses and other assets 3,042 3,452
Secured project notes of Guarantors 493,868 538,982
Investment in 1% of net assets of
Guarantors 6,606 6,293
__________ __________
$ 509,787 $ 575,989
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 3,005 $ 3,291
Due to affiliates 3,577 25,022
Senior secured notes and bonds 493,868 538,982
__________ __________
Total liabilities 500,450 567,295
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares --- ---
Additional paid-in capital 5,366 5,366
Retained earnings 3,971 3,328
__________ __________
Total stockholder's equity 9,337 8,694
__________ __________
$ 509,787 $ 575,989
========== ==========
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
Revenues:
Interest income $ 10,342 $ 8,707 $ 20,747 $ 17,660
Equity in earnings of
Guarantors 198 146 341 234
_________ ________ ________ ________
Total revenues 10,540 8,853 21,088 17,894
_________ ________ ________ ________
Expenses:
General and
administrative expenses 219 45 459 226
Interest expense 9,717 7,943 19,491 15,933
_________ ________ ________ ________
Total expenses 9,936 7,988 19,950 16,159
_________ ________ ________ ________
Income before income taxes 604 865 1,138 1,735
Provision for income taxes 248 355 467 712
_________ ________ ________ ________
Net income $ 356 $ 510 $ 671 $ 1,023
========= ========= ======== =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months ended
June 30, 1997
1997 1996
Cash flows from operating activities:
Net income $ 671 $ 1,023
Adjustments to reconcile net income to net
cash flow from operating activities:
Equity in earnings of guarantors (341) (234)
Changes in assets and liabilities:
Prepaid expenses and other assets 410 419
Accrued liabilities (286) (1,273)
__________ _________
Net cash flows from operating activities 454 (65)
__________ _________
Cash flows from investing activities:
Restricted cash 7,773 37,806
Principal repayments of secured project notes
of Guarantors 45,114 ---
__________ _________
Net cash flows from investing activities 52,887 37,806
__________ _________
Cash flows from financing activities:
Decrease in due to affiliates (21,445) (13,094)
Repayment of senior secured notes and bonds (45,114) ---
__________ _________
Net cash flows from financing activities (66,559) (13,094)
__________ _________
Net change in cash (13,218) 24,647
Cash at the beginning of period 13,218 4,393
__________ _________
Cash at the end of period $ --- $ 29,040
========== =========
Supplemental disclosures:
Interest paid $ 19,777 $ 16,158
========== ==========
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ (28) $ 556
========== =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(in thousands)
_____________________
1. General:
In the opinion of management of the Salton Sea Funding
Corporation (the "Funding Corporation"), the accompanying
unaudited financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to
present fairly the financial position as of June 30, 1997 and the
results of operations for the three and six months ended June 30,
1997 and 1996 and cash flows for the six months ended June 30,
1997 and 1996.
The results of operations for the three and six months ended June
30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
The Funding Corporation was formed on June 20, 1995 for the sole
purpose of acting as issuer of senior secured notes and bonds.
2. Other Footnote Information:
Reference is made to the Funding Corporation's most recently
issued annual report on Form 10-K that included information
necessary or useful to the understanding of the Funding
Corporation's business and financial statement presentations.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Salton Sea Guarantors as of June 30, 1997, and the related
combined statements of operations for the three and six month
periods ended June 30, 1997 and 1996 and cash flows for the six
month periods ended June 30, 1997 and 1996. These financial
statements are the responsibility of the Salton Sea Guarantors'
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such combined financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Salton Sea
Guarantors as of December 31, 1996, and the related combined
statements of operations, Guarantors' equity, and cash flows for
the year then ended (not presented herein); and in our report
dated January 31, 1997, we expressed an unqualified opinion on
those combined financial statements. In our opinion, the
information set forth in the accompanying combined balance sheet
as of December 31, 1996 is fairly stated, in all material
respects, in relation to the combined balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1997 1996
__________ _________
(unaudited)
ASSETS
Accounts receivable $ 17,298 $ 14,954
Prepaid expenses and other assets 13,543 16,008
Property, plant, contracts and
equipment, net 480,965 484,182
Excess of cost over fair value of net
assets acquired, net 50,138 50,790
_________ _________
$ 561,944 $ 565,934
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 267 $ 642
Accrued liabilities 7,709 9,989
Due to affiliates 61,535 64,091
Senior secured project note 283,024 299,840
_________ _________
Total liabilities 352,535 374,562
Total Guarantors' equity 209,409 191,372
_________ _________
$ 561,944 $ 565,934
========= =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
_____________________ _____________________
1997 1996 1997 1996
________ ________ ________ ________
Revenues:
Sales of electricity $ 25,169 $ 19,012 $ 48,423 $ 35,233
Interest and other income 152 60 161 128
_______ _______ _______ _______
Total revenues 25,321 19,072 48,584 35,361
_______ _______ _______ _______
Expenses:
Operating, general and
administration 6,844 5,937 14,005 11,726
Depreciation and amortization 3,647 3,204 7,289 5,886
Interest expense 5,833 6,262 11,697 12,519
Less capitalized interest (1,219) (2,907) (2,444) (6,207)
_______ _______ _______ _______
Total expenses 15,105 12,496 30,547 23,924
_______ _______ _______ _______
Net income $ 10,216 $ 6,576 $ 18,037 $ 11,437
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
____________________
1997 1996
_________ _________
Cash flows from operating activities:
Net income $ 18,037 $ 11,437
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization 7,289 5,886
Changes in assets and liabilities:
Accounts receivable (2,344) (5,389)
Prepaid expenses and other assets 2,465 (1,123)
Accounts payable and accrued
liabilities (2,655) 2,122
_________ _________
Net cash flows from operating activities 22,792 12,933
_________ _________
Cash flows from investing activities:
Capital expenditures (3,420) (52,430)
_________ _________
Net cash flows from investing activities (3,420) (52,430)
_________ _________
Cash flows from financing activities:
Increase (decrease) in due to affiliates (2,556) 50,271
Repayments of senior secured project note (16,816) (10,830)
___________________
Net cash flows from financing activities (19,372) 39,441
_________ _________
Net change in cash --- (56)
Cash at beginning of period --- 454
_________ _________
Cash at end of period $ ---$ 398
========= =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Guarantors (the
"Guarantors"), the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as
of June 30, 1997 and the results of operations for the three and
six months ended June 30, 1997 and 1996 and cash flows for the
six months ended June 30, 1997 and 1996.
The combined financial statements include the accounts of the
partnerships in which the Guarantors have a 100% interest.
The results of operations for the three and six months ended June
30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included
information necessary or useful to the understanding of the
Guarantors' business and financial statement presentations.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the
following:
June 30, December 31,
1997 1996
________ ________
Plant and equipment $ 328,873 $ 329,458
Power sale agreements 64,609 64,609
Mineral extraction 69,275 66,831
Exploration and development costs 43,427 42,220
________ ________
506,184 503,118
Less accumulated depreciation
and amortization (25,219) (18,936)
________ ________
$ 480,965 $ 484,182
======== ========
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying combined balance sheet of the
Partnership Guarantors as of June 30, 1997, and the related
combined statements of operations for the three and six month
periods ended June 30, 1997 and 1996 and cash flows for the six
month periods ended June 30, 1997 and 1996. These financial
statements are the responsibility of the Partnership Guarantors'
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such combined financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheet of the Partnership
Guarantors as of December 31, 1996, and the related combined
statements of operations, Guarantors' equity and cash flows for
the year then ended (not presented herein); and in our report
dated January 31, 1997, we expressed an unqualified opinion on
those combined financial statements. In our opinion, the
information set forth in the accompanying combined balance sheet
as of December 31, 1996 is fairly stated, in all material
respects, in relation to the combined balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1997 1996
____________ ___________
(unaudited)
ASSETS
Accounts receivable $ 28,008 $ 22,766
Due from affiliates 123,085 129,278
Prepaid expenses and other assets 16,265 19,083
Property, plant, contracts and
equipment, net 367,418 364,849
Management fee 68,278 67,521
Excess of cost over fair value of
net assets acquired, net 136,904 138,686
_________ _________
$ 739,958 $ 742,183
========= =========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 1,236 $ 663
Accrued liabilities 21,420 22,977
Senior secured project notes 162,907 182,204
Deferred income taxes 116,386 108,277
_________ _________
Total liabilities 301,949 314,121
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 50,343 40,396
_________ _________
Total Guarantors' equity 438,009 428,062
_________ _________
$ 739,958 $ 742,183
========= =========
The accompanying notes are an integral part of these financial s
tatements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
_____________________ ______________________
1997 1996 1997 1996
_________ _________ _________ _________
Revenues:
Sales of electricity $ 38,165 $ 36,996 $ 72,911 $ 52,155
Interest and other income 1,022 1,929 1,567 4,149
_________ _________ _________ _________
Total revenues 39,187 38,925 74,478 56,304
_________ _________ _________ _________
Expenses:
Operating, general and
administration 15,366 16,798 31,648 24,410
Depreciation and
amortization 9,686 9,916 19,330 14,289
Interest expense 3,548 3,255 7,199 5,262
Less capitalized interest (2,302) (2,462) (4,548) (4,469)
_________ _________ _________ _________
Total expenses 26,298 27,507 53,629 39,492
_________ _________ _________ _________
Income before income taxes 12,889 11,418 20,849 16,812
Provision for income taxes 5,006 4,463 8,109 6,712
_________ _________ _________ _________
Net income $ 7,883 $ 6,955 $ 12,740 $ 10,100
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
______________________
1997 1996
_________ _________
Cash flows from operating activities:
Net income $ 12,740 $ 10,100
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization 19,330 14,289
Deferred income taxes 8,109 874
Changes in assets and liabilities:
Accounts receivable (5,242) 278
Prepaid expenses and other assets 2,818 (2,340)
Accounts payable and accrued
liabilities (985) (8,134)
_________ _________
Net cash flows from operating activities 36,770 15,067
_________ _________
Cash flows from investing activities:
Capital expenditures (19,383) (11,434)
Management fee (1,490) (1,501)
Restricted cash - 23,085
_________ _________
Net cash flows from investing activities (20,873) 10,150
_________ _________
Cash flows from financing activities:
Repayments of senior secured project rates (19,297) (99,809)
Loan proceeds - 135,000
Increase (decrease) in due from affiliates 6,193 (37,071)
Distributions to parent (2,793) (34,457)
_________ _________
Net cash flows from financing activities (15,897) (36,337)
_________ _________
Net change in cash - (11,120)
Cash at beginning of period - 11,146
_________ _________
Cash at end of period $ - $ 26
========= =========
During 1996, CalEnergy Company, Inc. contributed $71,000 of net
assets acquired from Edison Mission Energy, of which $12,956 was
cash, to the Partnership Guarantors.
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Partnership Guarantors (the
"Guarantors"), the accompanying unaudited combined financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position as of June 30, 1997 and the results of operations for
the three and six months ended June 30, 1997 and 1996 and cash
flows for the six months ended June 30, 1997 and 1996.
The combined financial statements include the proportionate share
of the accounts of the partnerships in which the Guarantors have
an interest.
The results of operations for the three and six months ended June
30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included
information necessary or useful to the understanding of the
Guarantors' business and financial statement presentations.
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the
following:
June 30, December 31,
1997 1996
____________ ___________
Plant and equipment $ 66,628 $ 60,272
Power sale agreements 123,588 123,588
Process license 46,290 46,290
Mineral reserves 125,747 121,199
Exploration and development costs 68,073 59,303
__________ __________
430,326 410,652
Less accumulated depreciation
and amortization (62,908) (45,803)
__________ __________
$ 367,418 $ 364,849
========== ==========
4. Purchase of Edison Mission Energy's Partnership Interests
On April 17, 1996 CalEnergy Company, Inc. ("CECI") completed the
indirect acquisition of Edison Mission Energy's partnership
interests in the Vulcan, Hoch (Del Ranch), Leathers and Elmore
geothermal operating facilities. Magma Power Company, wholly-
owned by CECI, currently operates these facilities and directly
or indirectly owns 100% interest in these facilities. Magma's
ownership interest related to Del Ranch, Leathers, Elmore and
Vulcan is assigned to the Partnership Guarantors.
Unaudited proforma combined revenue and net income of the
Guarantors on a purchase, push down basis of accounting, for the
six months ended June 30, 1996, as if the acquisition had
occurred at the beginning of the period after giving effect to
certain pro forma adjustments related to the acquisitions were
$74,943 and $11,233, respectively.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying balance sheet of the Salton Sea
Royalty Company as of June 30, 1997, and the related statements
of operations for the three and six month periods ended June 30,
1997 and 1996 and cash flows for the six month periods ended June
30, 1997 and 1996. These financial statements are the
responsibility of the Salton Sea Royalty Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such financial statements
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of the Salton Sea Royalty
Company as of December 31, 1996, and the related statements of
operations, equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 31, 1997, we
expressed an unqualified opinion on those financial statements.
In our opinion, the information set forth in the accompanying
balance sheet as of December 31, 1996 is fairly stated, in all
material respects, in relation to the balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 12, 1997
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
June 30, December 31,
1997 1996
___________ ___________
(unaudited)
ASSETS
Due from affiliates $ 10,622 $ 10,008
Royalty stream, net 39,929 44,372
Excess of cost over fair value of net assets
acquired, net 34,550 35,004
Prepaid expenses and other assets 1,335 1,689
__________ __________
$ 86,436 $ 91,073
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 14,846 $ 12,070
Senior secured project note 47,935 56,936
Deferred income taxes 10,472 12,227
__________ __________
Total liabilities 73,253 81,233
Equity:
Common stock, par value $.01 per share; 100
share authorized, issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 11,622 8,279
__________ __________
Total equity 13,183 9,840
__________ __________
$ 86,436 $ 91,073
========== ==========
The accompanying notes are an integral part of these financial s
tatements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
_____________________ ____________________
1997 1996 1997 1996
_______ _______ ________ ________
Revenues:
Royalty income $ 7,922 $ 7,697 $ 15,783 $ 14,638
Expenses:
Operating, general and
administrative expenses 1,955 1,845 3,832 3,552
Amortization of royalty stream
and goodwill 2,448 2,570 4,897 5,140
Interest expense 1,094 1,341 2,226 2,699
_______________________________________
Total expenses 5,497 5,756 10,955 11,391
_______________________________________
Income before income taxes 2,425 1,941 4,828 3,247
Provision for income taxes 748 887 1,485 1,365
_______________________________________
Net income $ 1,677 $ 1,054 $ 3,343 $ 1,882
=======================================
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
_____________________
1997 1996
_________ ________
Cash flows from operating activities:
Net income $ 3,343 $ 1,882
Adjustments to reconcile net income to net
cash flow from operating activities:
Amortization of royalty stream and goodwill 4,897 5,140
Changes in assets and liabilities:
Prepaid expenses and other assets 354 445
Accrued liabilities and deferred
income taxes 1,021 1,321
Net cash flows from operating activities 9,615 8,788
Net cash flows from financing activities:
Decrease (increase) in due from affiliates (614) 7,896
Repayment of Senior secured project note (9,001) (5,473)
Distribution to parent - (11,211)
Net cash flows from financing activities (9,615) (8,788)
_________ _________
Net change in cash - -
Cash at beginning of period - -
_________ _________
Cash at end of period $ - $ -
========= =========
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
NOTES TO FINANCIAL STATEMENTS
(in thousands)
____________________
1. General:
In the opinion of management of the Salton Sea Royalty Company
(the "Company"), the accompanying unaudited financial statements
contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position as
of June 30, 1997 and the results of operations for the three and
six months ended June 30, 1997 and 1996 and cash flows for the
six months ended June 30, 1997 and 1996.
The results of operations for the three and six months ended June
30, 1997 and 1996 are not necessarily indicative of the results
to be expected for the full year.
2. Other Footnote Information:
Reference is made to the Salton Sea Funding Corporation's most
recently issued annual report on Form 10-K that included
information necessary or useful to the understanding of the
Company's business and financial statement presentations.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations:
The following is management's discussion and analysis of certain
significant factors which have affected the Funding Corporation's
and Guarantor's financial condition and results of operations
during the periods included in the accompanying statements of
operations.
Funding Corporation was organized for the sole purpose of acting
as issuer of senior secured notes and bonds (the "Securities").
The Securities are payable from the proceeds of payments made of
principal and interest on the senior secured project notes by the
Guarantors, as defined, to the Funding Corporation. The
Securities are guaranteed on a joint and several basis by the
Guarantors. The guarantees of the Partnership Guarantors and
Salton Sea Royalty Company are limited to available cash flow.
The Funding Corporation does not conduct any operations apart
from the Securities.
The Partnership Projects sell all electricity generated by the
respective plants pursuant to four long-term SO4 Agreements
between the projects and Southern California Edison Company
("Edison"). These SO4 Agreements provide for capacity payments,
capacity bonus payments and energy payments. Edison makes fixed
annual capacity bonus payments to the projects, and to the extent
that capacity factors exceed certain benchmarks is required to
make capacity bonus payments. The price for capacity and
capacity bonus payments is fixed for the life of the SO4
Agreements and the capacity payments are significantly higher in
the months of June through September. Energy is sold at
increasing scheduled rates for the first ten years of each
contract and thereafter at Edison's Avoided Cost of Energy.
The scheduled energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan
Partnership and extend until December 1998, December 1998, and
December 1999 for each of the Hoch (Del Ranch), Elmore and
Leathers Partnerships, respectively.
Excluding Vulcan, which is receiving Edison's awarded cost of
energy, the Companys SO4 Agreements provide for energy rates
ranging from 13.6 cents per kWh in 1997 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 initial contract capacity and contract nameplate
are each 10 MW. The energy payment is calculated using a Base
Price which is subject to quarterly adjustments based on a basket
of indices. The time period weighted average energy payment for
Salton Sea I was 5.3 cents per kWh during the six months ended
June 30, 1997. 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 FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Salton Sea II and Salton Sea III Projects sell electricity to
Edison pursuant to 30-year modified SO4 Agreements. The contract
capacities and contract nameplates are 15 MW and 20 MW for Salton
Sea II and 47.5 MW and 49.8 MW for Salton Sea III, respectively.
The contracts require Edison to make capacity payments, capacity
bonus payments and energy payments. The price for contract
capacity and contract capacity bonus payments is fixed for the
life of the modified SO4 Agreements. The energy payments for the
first ten year period, which expires April 4, 2000 for Salton Sea
II and February 13, 1999 for Salton Sea III, are levelized at a
time period weighted average of 10.6 cents per kWh and 9.8 cents
per kWh for Salton Sea II and Salton Sea III, respectively.
Thereafter, the monthly energy payments will be at Edison's
Avoided Cost of Energy. For Salton Sea II only, Edison is
entitled to receive, at no cost, 5% of all energy delivered in
excess of 80% of contract capacity through March 31, 2004.
The Salton Sea IV Project sells electricity to Edison pursuant to
a modified SO4 agreement which provides for contract capacity
payments on 34 MW of capacity at two different rates based on the
respective contract capacities deemed attributable to the
original Salton Sea PPA option (20 MW) and to the original Fish
Lake PPA (14 MW). The capacity payment price for the 20 MW
portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 MW portion is a fixed levelized
rate. The energy payment (for deliveries up to a rate of 39.6
MW) is at a fixed price for 55.6% of the total energy delivered
by Salton Sea IV and is based on an energy payment schedule for
44.4% of the total energy delivered by Salton Sea IV. The
contract has a 30-year term but Edison is not required to
purchase the 20 MW of capacity and energy originally attributable
to the Salton Sea I PPA option after September 30, 2017, the
original termination date of the Salton Sea I PPA.
For the six months ended June 30, 1997, Edison's average Avoided
Cost of Energy was 3.2 cents per kWh which is substantially below
the contract energy prices earned for the six months ended June
30, 1997. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year. The Company cannot predict
the likely level of Avoided Cost of Energy prices under the SO4
Agreements and the modified SO4 Agreements at the expiration of
the scheduled payment periods. The revenues generated by each of
the projects operating under such Agreements could decline
significantly after the expiration of the respective scheduled
payment periods.
The following data includes the aggregate capacity and
electricity production of Salton Sea Units I, II, III and IV:
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
Three Months Ended Six Months Ended
June 30, June 30,
_________________________________________
1997 1996 1997 1996
________ _________ __________________
Operating capacity factor 89.4% 78.7% 94.1% 83.8%
Capacity (NMW)
(weighted average)* 119.4 92.9 119.4 86.3
kWh produced
(in thousands) 233,100 159,700 487,900 315,900
*Weighted average for the commencement of operations at the
Salton Sea Unit IV for 1996.
The following data includes the aggregate capacity and
electricity production of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended Six Months Ended
June 30, June 30,
_________________________________________
1997 1996 1997 1996
________ _________ __________________
Operating capacity factor 98.2% 109.2% 100.0% 103.4%
Capacity NMW (average) 148 148 148 148
kWh produced (in thousands)317,400 353,000 642,700 668,600
The Salton Sea Guarantors' sales of electricity increased to
$25,169 for the three months ended June 30, 1997 from $19,012 for
the same period of 1996, a 32.4% increase. For the six month
period ended June 30, 1997, sales of electricity increased to
$48,423 from $35,233 in 1996, a 37.4% increase. These increases
were primarily due to the addition of Unit IV production on June
1, 1996 and increased electric production at the other plants.
The Partnership Guarantors' sales of electricity increased to
$38,165 for the three months ended June 30, 1997 from $36,996 for
the same period in 1996, a 3.2% increase. For the six month
period ended June 30, 1997, sales of electricity increased to
$72,911 from $52,155 in 1996, a 39.8% increase. These increases
were primarily due to the purchase of Edison Mission Energy's 50%
partnership interest in the four geothermal operating facilities
in April 1996 and a scheduled price increase at some of the
facilities offset partially by turbine overhauls at Vulcan and
Del Ranch in April 1997.
The Royalty Guarantor revenue increased to $7,922 for the three
months ended June 30, 1997 from $7,697 for the same period last
year. For the six month period ended June 30, 1997, revenue
increased to $15,783 from $14,638 in 1996, a 7.8% increase.
These increases were due primarily to higher energy sales at
Del Ranch, Elmore and Leathers compared to the same periods of
1996.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
increased to $6,844, for the three months ended June 30, 1997
from $5,937 for the same period in 1996. For the six month period
ended June 30, 1997, operating expenses increased to $14,005 from
$11,726 in 1996. These increases were primarily due to the start
up of the Salton Sea Unit IV plant in June 1996.
The Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $15,366 for the three months ended June 30, 1997
from $16,798 for the same period in 1996. For the six month
period ended June 30, 1997, operating expenses increased to
$31,648 from $24,410 in 1996. The decrease in the second quarter
was due to a reduction in operating costs. The year to date
increase was primarily due to the Edison Mission Energy
acquisition.
The Royalty Guarantors' operating expenses increased to $1,955
for the three months ended June 30, 1997 from $1,845 for the same
period in 1996, a 6.0% increase. For the six month period ended
June 30, 1997, operating expenses increased to $3,832 from $3,552
in 1996, a 7.9% increase. These increases were due to a
scheduled increase in third party lessor royalties related to the
increase in the Partnership Projects' sales of electricity.
The Salton Sea Guarantors' depreciation and amortization
increased to $3,647 for the three months ended June 30, 1997 from
$3,204 for the same period of 1996, a 13.8% increase. For the
six month period ended June 30, 1997, depreciation and
amortization increased to $7,289 from $5,886 in 1996. These
increases were due primarily to the start up of the Salton Sea
Unit IV plant in June 1996.
The Partnership Guarantors' depreciation and amortization
decreased to $9,686 for the three months ended June 30, 1997 from
$9,916 for the same period in 1996, a 2.3% decrease. For the six
month period ended June 30, 1997, depreciation and amortization
increased to $19,330 from $14,289 in 1996, a 35.3% increase.
These increases were due primarily to the Edison Mission Energy
acquisition.
The Royalty Guarantors' amortization decreased to $2,448 for the
three months ended June 30, 1997 from $2,570 for the same period
of 1996, a 4.7% decrease. For the six month period ended June 30,
1997, depreciation and amortization decreased to $4,897 from
$5,140 in 1996. These decreases were due to decreases in
allocated purchase price depreciation.
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, increased to $4,614 for the three months ended June 30,
1997 from $3,355 for
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
the same period in 1996, a 37.5% increase. For the six month
period ended June 30, 1997, interest expense, net of capitalized
amounts, increased to $9,253 from $6,312 in 1996. These
increases were due primarily to the capitalization of interest
related to the mineral reserve project.
The Partnership Guarantors' interest expense, net of capitalized
amounts, increased to $1,246 for the three months ended June 30,
1997 from $793 for the same period in 1996. For the six month
period ended June 30, 1997, interest expense, net of capitalized
amounts, increased to $2,651 from $793 in 1996. These increases
were a result of increased indebtedness.
The Royalty Guarantors' interest expense decreased to $1,094 for
the three months ended June 30, 1997 from $1,341 from the same
period in 1996. For the six month period ended June 30, 1997,
interest expense decreased to $2,226 from $2,699 in 1996. These
decreases were a result of reduced indebtedness.
The Salton Sea Guarantors are comprised of partnerships. Income
taxes are the responsibility of the partners and Salton Sea
Guarantors have no obligation to provide funds to the partners
for payment of any tax liabilities. Accordingly, the Salton Sea
Guarantors have no tax obligations.
The Partnership Guarantors income tax provision increased to
$5,006 for the three months ended June 30, 1997 from $4,463 for
the same period in 1996, a 12.2% increase. For the six month
period ended June 30, 1997, the provision for income taxes
increased to $8,109 from $6,712 in 1996, a 20.8% increase. These
increases were primarily due to an increase in income before
income taxes resulting from the Edison Mission Energy
acquisition. Income taxes will be paid by the parent of the
Guarantors from distributions to the parent company by the
Guarantors which occur after operating expenses and debt service.
The Royalty Guarantor's income tax provision was $748 for the
three months ended June 30, 1997 compared to $887 for the same
period in 1996. For the six month period ended June 30, 1996,
the income tax provision was $1,485 compared to $1,365 for the
same period in 1996. Tax obligations of the Royalty Guarantor
will be remitted to the parent company only to the extent of cash
flows available after operating expenses and debt service.
The Salton Sea Funding Corporation's net income for the three
months ended June 30, 1997 was $356 compared to $510 for the same
period in 1996. For the six month period ended June 30, 1997 net
income decreased to $671 compared to $1,023 in 1996. The net
income primarily represents interest income and
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
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 increased to $10,216 for
the three months ended June 30, 1997 compared to $6,576 for the
same period of 1996. For the six month period ended June 30,
1997, net income increased to $18,037 compared to $11,437 in
1996.
The Partnership Guarantors' net income increased to $7,883 for
the three months ended June 30, 1997 compared to $6,955 for the
same period of 1996. For the six month period ended June 30,
1997, net income increased to $12,740 compared to $10,100 in
1996.
The Royalty Guarantors' net income increased to $1,677 for the
three months ended June 30, 1997 compared to $1,054 for the same
period of 1996. For the six month period ended June 30, 1997,
net increased to $3,343 compared to $1,882 in 1996.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Liquidity and Capital Resources:
The Salton Sea Guarantors' only source of revenue is payments
received pursuant to long term power sales agreements with
Edison, other than interest earned on funds on deposit. The
Partnership Guarantors' primary source of revenue is payments
received pursuant to long term power sales agreements with
Edison. The Partnership Guarantors' also receive a special
distribution. The Royalty Guarantor receives Royalties pursuant
to resource lease agreements with the Partnership Projects and
the East Mesa Project. These payments, for each of the
Guarantors, are expected to be sufficient to fund operating and
maintenance expenses, payments of interest and principal on the
Securities, projected capital expenditures and debt service
reserve fund requirements.
SALTON SEA FUNDING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
The Salton Sea Funding Corporation is not a party to any
material legal matters.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Default on Senior Securities.
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 - Other Information.
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Report on Form 8-K:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SALTON SEA FUNDING CORPORATION
Date: August 13, 1997 /s/ Gregory E. Abel
Gregory E. Abel
President and Chief Operating Officer,
CalEnergy Europe and Chief Accounting Officer,
CalEnergy Company, Inc.
/s/ Craig M. Hammett
Craig M. Hammett
Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 36
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 509,787
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<BONDS> 493,868
0
0
<COMMON> 0
<OTHER-SE> 9,337
<TOTAL-LIABILITY-AND-EQUITY> 509,787
<SALES> 0
<TOTAL-REVENUES> 10,540
<CGS> 0
<TOTAL-COSTS> 219
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 9,717
<INCOME-PRETAX> 604
<INCOME-TAX> 248
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