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 March 31, 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 March 31, 1997.
SALTON SEA FUNDING CORPORATION
Form 10-Q
March 31, 1997
-------------------------------------------------------
C O N T E N T S
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements Page
SALTON SEA FUNDING CORPORATION
Independent Accountants' Reports 4
Balance Sheets, March 31, 1997 and December 31, 1996 5
Statements of Operations for the Three Months Ended March 31, 1997 and 1996 6
Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, March 31, 1997 and December 31, 1996 10
Combined Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 11
Combined Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 12
Notes to Combined Financial Statements 13
PARTNERSHIP GUARANTORS
Independent Accountants' Report 14
Combined Balance Sheets, March 31, 1997 and December 31, 1996 15
Combined Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 16
Combined Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 17
Notes to Combined Financial Statements 18
SALTON SEA ROYALTY COMPANY
Independent Accountants' Report 20
Balance Sheets, March 31, 1997 and December 31, 1996 21
Statements of Operations for the Three Months Ended March 31, 1997
and 1996 22
Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 23
Notes to Financial Statements 24
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 25
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities 30
Item 3. Defaults on Senior Securities 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
Exhibit Index 32
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 March 31, 1997, and the related statements of operations and
cash flows for the three-month periods ended March 31, 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, stockholder's 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
April 29, 1997
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
------------------------------------------------------------------------
March 31, December 31,
1997 1996
--------------- ---------------
(unaudited)
ASSETS
Cash $ 51,340 $ 13,218
Restricted cash and short-term investments 12,411 14,044
Prepaid expenses and other assets 13,597 3,452
Notes receivables from affiliates 538,982 538,982
Investment in 1% of net assets of
Guarantors 6,422 6,293
------------- -------------
$622,752 $575,989
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 13,065 $ 3,291
Due to affiliates 61,711 25,022
Senior secured notes and bonds 538,982 538,982
------------- -------------
Total liabilities 613,758 567,295
Stockholder's equity:
Common stock, par value $.01 per share;
authorized 1,000 shares,
issued and outstanding 100 shares - -
Additional paid-in capital 5,352 5,366
Retained earnings 3,642 3,328
------------- -------------
Total stockholder's equity 8,994 8,694
------------- -------------
$622,752 $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
March 31,
1997 1996
Revenues: ------------- ------------
Interest income $10,405 $ 8,953
Equity in earnings of Guarantors 143 88
----------- -----------
Total revenues 10,548 9,041
----------- -----------
Expenses:
General and administrative expenses 240 181
Interest expense 9,774 7,990
----------- -----------
Total expenses 10,014 8,171
----------- -----------
Income before income taxes 534 870
Provision for income taxes 220 357
----------- -----------
Net income $ 314 $ 513
====== ======
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
1997 1996
---------- -----------
Cash flows from operating activities:
Net income $ 314 $ 513
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of guarantors (143) (88)
Changes in assets and liabilities:
Prepaid expenses and other assets (10,145) (7,875)
Accrued liabilities 9,774 6,942
----------- -----------
Net cash flows from operating activities (200) (508)
----------- -----------
Cash flows from investing activities:
Decrease in restricted cash and short-term
investments 1,633 13,040
----------- -----------
Cash flows from financing activities:
Due to affiliates 36,689 (6,795)
----------- -----------
Net change in cash 38,122 5,737
Cash at the beginning of period 13,218 4,393
----------- -----------
Cash at the end of period $ 51,340 $ 10,130
====== =======
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ (14) $ 112
====== =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
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 March 31, 1997 and the results of
operations for the three months ended March 31, 1997 and 1996 and cash flows
for the three months ended March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 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. In particular, the significant accounting policies and
practices were presented as Note 2 to the Funding Corporation financial
statements included in that filing.
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 March 31, 1997, and the related combined statements of
operations and cash flows for the three-month periods ended March 31, 1997 and
1996. These financial statements are the responsibility of the Guarantors'
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such combined financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of the Salton Sea Guarantors as of
December 31, 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
April 29, 1997
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
March 31, December 31,
1997 1996
---------------- ---------------
(unaudited)
ASSETS
Accounts receivable $ 15,501 $ 14,954
Prepaid expenses and other assets 14,314 16,008
Property, plant, contracts and equipment, net 483,314 484,182
Excess of cost over fair value of net assets
acquired, net 50,464 50,790
------------- -------------
$563,593 $565,934
======= =======
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 160 $ 642
Accrued liabilities 15,802 9,989
Due to affiliates 48,598 64,091
Senior secured project note 299,840 299,840
------------- -------------
Total liabilities 364,400 374,562
Total Guarantors' equity 199,193 191,372
------------- -------------
$563,593 $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
March 31,
----------------------------------
1997 1996
------------ ------------
Revenues:
Sales of electricity $23,254 $16,221
Interest and other income 9 68
----------- -----------
Total revenues 23,263 16,289
----------- -----------
Expenses:
Operating, general and administration 7,161 5,789
Depreciation and amortization 3,642 2,682
Interest expense 5,864 6,257
Less capitalized interest (1,225) (3,300)
----------- -----------
Total expenses 15,442 11,428
----------- -----------
Net income $ 7,821 $ 4,861
====== ======
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
----------------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 7,821 $ 4,861
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,642 2,682
Changes in assets and liabilities:
Accounts receivable (547) (5,809)
Prepaid expenses and other assets 1,694 2,276
Accounts payable and accrued
liabilities 5,331 7,996
------------ -------------
Net cash flows from operating activities 17,941 12,006
------------ -------------
Cash flows from investing activities:
Capital expenditures (2,448) (30,623)
------------ -------------
Cash flows from financing activities:
Due to (from) affiliates (15,493) 18,163
------------ -------------
Net change in cash - (454)
Cash at beginning of period - 454
------------ -------------
Cash at end of period $ - $ -
======= ========
The accompanying notes are an integral part of these financial statements.
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
-------------------------------------------------------
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 March 31, 1997 and the results of operations for the
three months ended March 31, 1997 and 1996 and cash flows for the three months
ended March 31, 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 months ended March 31, 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. In particular, the
Guarantors' significant accounting policies and practices were presented as
Note 2 to the Guarantors' combined financial statements included in that
filing.
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the following:
March 31, December 31,
1997 1996
-------------------- -------------------
Plant and equipment $329,842 $329,458
Power sale agreements 64,609 64,609
Mineral reserves 68,056 66,831
Exploration and development costs 43,059 42,220
------------- -------------
505,566 503,118
Less accumulated depreciation
and amortization (22,252) (18,936)
------------- -------------
$483,314 $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 March 31, 1997, and the related combined statements of
operations and cash flows for the three-month periods ended March 31, 1997 and
1996. These financial statements are the responsibility of the Guarantors'
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such combined financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of the Partnership Guarantors as of
December 31, 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
April 29, 1997
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
-------------------------------------------------------
March 31, December 31,
1997 1996
-------------------- ------------------
(unaudited)
ASSETS
Accounts receivable $ 22,800 $ 22,766
Due from affiliates 141,828 129,278
Prepaid expenses and other assets 16,024 19,083
Property, plant, contracts and equipment, net 366,699 364,849
Management fee 67,660 67,521
Excess of cost over fair value of net assets
acquired, net 137,795 138,686
------------- -------------
$752,806 $742,183
======= =======
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 901 $ 663
Accrued liabilities 26,773 22,977
Senior secured project notes 182,204 182,204
Deferred income taxes 111,380 108,277
------------ -------------
Total liabilities 321,258 314,121
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 43,882 40,396
------------- -------------
Total Guarantors' equity 431,548 428,062
------------- -------------
$752,806 $742,183
======= =======
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
-------------------------------------
1997 1996
----------- -----------
Revenues:
Sales of electricity $34,746 $15,159
Interest and other income 545 2,220
----------- ----------
Total revenues 35,291 17,379
----------- ----------
Expenses:
Operating, general and administration 16,282 7,612
Depreciation and amortization 9,644 4,373
Interest expense 3,651 2,007
Less capitalized interest (2,246) (2,007)
----------- -----------
Total expenses 27,331 11,985
----------- -----------
Income before income taxes 7,960 5,394
Provision for income taxes 3,103 2,249
----------- -----------
Net income $ 4,857 $ 3,145
======= =======
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
-----------------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net income $ 4,857 $ 3,145
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,644 4,373
Deferred income taxes 3,103 2,249
Changes in assets and liabilities:
Accounts receivable (34) 2,226
Prepaid expenses and other assets 3,059 (2,163)
Accounts payable and accrued liabilities 4,034 (15,094)
____________ _____________
Net cash flows from operating activities 24,663 (5,264)
------------ -------------
Cash flows from investing activities:
Capital expenditures (10,236) (3,736)
Management fee (506) (841)
Increase in restricted cash and short-term investments - (717)
------------ -------------
Net cash flows from investing activities (10,742) (5,294)
------------ -------------
Cash flows from financing activities:
Increase in amounts due from affiliates (12,550) (914)
Repayments on loans payable - (5,133)
Contributions from parent - 16,501
Distributions to parent (1,371) -
------------ -------------
Net cash flows from financing activities (13,921) 10,454
------------ -------------
Net change in cash - (104)
Cash at beginning of period - 11,146
------------ -------------
Cash at end of period $ - $ 11,042
======= =======
The accompanying notes are an integral part of these financial statements.
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
-------------------------------------------------------
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 March 31, 1997 and the results of
operations for the three months ended March 31, 1997 and 1996 and cash flows
for the three months ended March 31, 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 months ended March 31, 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. In particular, the
Guarantors' significant accounting policies and practices were presented as
Note 2 to the Guarantors' combined financial statements included in that
filing.
3. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the following:
March 31, December 31,
1997 1996
-------------------- -------------------
Plant and equipment $ 62,776 $ 60,272
Power sale agreements 123,588 123,588
Process license 46,290 46,290
Mineral reserves 123,445 121,199
Exploration and development costs 62,610 59,303
------------ -------------
418,709 410,652
Less accumulated depreciation
and amortization (52,010) (45,803)
------------ -------------
$366,699 $364,849
======== ========
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
-------------------------------------------------------
4. Purchase of Edison Mission Energy's Partnership Interests
On April 17, 1996 CECI completed the indirect acquisition of Edison Mission
Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and
Elmore geothermal operating facilities. Magma Power Company, a wholly-owned
subsidiary of CECI, currently operates these facilities and directly or
indirectly owns 100% interest in these facilities. Magma's ownership interest
related to Del Ranch, Leathers, Elmore and Vulcan is assigned to the
Partnership Guarantors.
Unaudited pro forma combined revenue and net income of the Guarantors on a
purchase, push down basis of accounting, for the three months ended March 31,
1996, as if the acquisition had occurred at the beginning of the period after
giving effect to certain pro forma adjustments related to the acquisition were
$36,065 and $4,238, 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 March 31, 1997, and the related statements of operations and cash
flows for the three-month periods ended March 31, 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 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
April 29, 1997
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
-------------------------------------------------------------------------
March 31, December 31,
1997 1996
------------------ -----------------
(unaudited)
ASSETS
Due from affiliates $ 15,992 $ 10,008
Royalty stream, net 42,150 44,372
Excess of cost over fair value of net
assets acquired, net 34,777 35,004
Prepaid expenses and other assets 1,512 1,689
------------- -------------
$ 94,431 $ 91,073
======= =======
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 14,640 $ 12,070
Senior secured project note 56,936 56,936
Deferred income taxes 11,349 12,227
-------------- -------------
Total liabilities 82,925 81,233
Equity:
Common stock, par value $.01 per share; 100 shares authorized
issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 9,945 8,279
------------- -------------
Total equity 11,506 9,840
------------- -------------
$ 94,431 $ 91,073
======= =======
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
---------------------------------
1997 1996
----------- ----------
Revenues:
Royalty income $ 7,861 $ 6,941
Expenses:
Operating, general and administrative expenses 1,877 1,707
Amortization of royalty stream and goodwill 2,449 2,570
Interest expense 1,132 1,358
--------- -----------
Total expenses 5,458 5,635
--------- -----------
Income before income taxes 2,403 1,306
Provision for income taxes 737 478
--------- -----------
Net income $ 1,666 $ 828
======= ====
The accompanying notes are an integral part of these financial statements.
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
-------------------------------------------------------
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $1,666 $ 828
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of royalty stream and goodwill 2,449 2,570
Changes in assets and liabilities:
Prepaid expenses and other assets 177 222
Accrued liabilities and deferred income taxes 1,692 1,614
----------- -----------
Net cash flows from operating activities 5,984 5,234
Net cash flows from investing activities - -
----------- -----------
Net cash flows from financing activities:
Decrease (increase) in due from affiliates (5,984) 125
Distribution to parent - (5,359)
----------- -----------
Net cash flows from financing activities (5,984) (5,234)
----------- -----------
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
(Dollars in thousands)
(Unaudited)
-------------------------------------------------------
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 March 31, 1997 and the results of operations for the
three months ended March 31, 1997 and 1996 and cash flows for the three months
ended March 31, 1997 and 1996.
The results of operations for the three months ended March 31, 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
Guarantor's business and financial statement presentations. In particular, the
Guarantor's significant accounting policies and practices were presented in
Note 2 to the Company's financial statements included in that report.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except per kWh Data)
--------------------------------------------------------------
Results of Operations:
The following is management's discussion and analysis of certain significant
factors which have affected the Funding Corporation's and Guarantors' financial
condition and results of operations during the periods included in the
accompanying statements of operations.
Funding Corporation was organized for the sole purpose of acting as issuer of
senior secured notes and bonds (the "Securities"). The Securities are payable
from the proceeds of payments made of principal and interest on the senior
secured project notes by the Guarantors, as defined, to the Funding
Corporation. The Securities are guaranteed on a joint and several basis by the
Guarantors. The guarantees of the Partnership Guarantors and Salton Sea
Royalty Company are limited to available cash flow. The Funding Corporation
does not conduct any operations apart from the Securities.
The Partnership Projects sell all electricity generated by the respective
plants pursuant to four long-term SO4 Agreements between the projects and
Southern California Edison Company ("Edison"). These SO4 Agreements provide
for capacity payments, capacity bonus payments and energy payments. Edison
makes fixed annual capacity bonus payments to the projects, and to the extent
that capacity factors exceed certain benchmarks, is required to make capacity
bonus payments. The price for capacity and capacity bonus payments is fixed
for the life of the SO4 Agreements and the capacity payments are significantly
higher in the months of June through September. Energy is sold at increasing
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 Avoided Cost of Energy, the
Company's 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
5.22 cents per kWh during the three months ended March 31, 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 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
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except per kWh Data)
--------------------------------------------------------------
Results of Operations: (continued)
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 three months ended March 31, 1997, Edison's average Avoided Cost of
Energy was 3.8 cents per kWh which is substantially below the contract energy
prices earned for the three months ended March 31, 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 SO4 Agreements could decline significantly after the expiration
of the respective scheduled payment periods.
The following data represents the aggregate capacity and electricity production
of Salton Sea Units I, II, III and IV:
Three Months Ended
March 31,
----------------------------------
1997 1996
----------- -----------
Overall capacity factor 98.8% 89.6%
Capacity NMW (average) 119.4 79.8
kWh produced (in thousands) 254,800 156,200
The overall capacity factor for the Salton Sea Project has increased for the
three months ended March 31, 1997 compared to the same period in 1996 primarily
as a result of the commencement of operations at the Salton Sea IV project and
operating efficiencies resulting in greater production at Salton Sea Units I,
II and III.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except per kWh Data)
--------------------------------------------------------------
Results of Operations: (continued)
The following data represents the aggregate capacity and electricity production
of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended
March 31,
-------------------------------
1997 1996
----------- -----------
Overall capacity factor 101.8% 97.6%
Capacity NMW (average) 148.0 148.0
kWh produced (in thousands) 325,300 315,600
The overall capacity factor for the Partnership Project increased for the first
quarter of 1997 compared to the first quarter of 1996 due to increased
production at Leathers and Elmore as both facilities had scheduled turbine
overhauls in 1996.
The Salton Sea Guarantors' sales of electricity increased to $23,254 for the
three months ended March 31, 1997 from $16,221 for the same period of 1996, a
43.4% increase. This increase was primarily due to the addition of Unit IV
production in June 1996 and increased electric production at the other plants.
The Partnership Guarantors' sales of electricity increased to $34,746 for the
three months ended March 31, 1997 from $15,159 for the same period in 1996, a
129.2% increase. This increase was primarily due to the purchase of Edison
Mission Energy's 50% partnership interest in the four geothermal operating
facilities in April 1996.
The Royalty Guarantor's revenues increased to $7,861 for the three months ended
March 31, 1997 from $6,941 for the same period last year. This increase was
due primarily to higher energy sales at Elmore and Leathers compared to the
same period last year.
The Salton Sea Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, increased to $7,161, for
the three months ended March 31, 1997 from $5,789 for the same period in 1996.
This increase was primarily due to the commencement of operations at the
Salton Sea Unit IV plant in June 1996.
The Partnership Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, increased to $16,282 for
the three months ended March 31, 1997 from $7,612 for the same period in 1996.
This increase was primarily due to the Edison Mission Energy Partnership
Interest Acquisition.
The Royalty Guarantors' operating expenses increased to $1,877 for the three
months ended March 31, 1997 from $1,707 for the same period in 1996, a 10.0%
increase. This increase was due to a scheduled increase in third party lessor
royalties related to the increase in the Partnership Projects' sales of
electricity.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except per kWh Data)
---------------------------------------------------------------
Results of Operations: (continued)
The Salton Sea Guarantors' depreciation and amortization increased to $3,642
for the three months ended March 31, 1997 from $2,682 for the same period of
1996, a 35.8% increase. This increase was due primarily to the depreciation
related to Salton Sea Unit IV plant.
The Partnership Guarantors' depreciation and amortization increased to $9,644
for the three months ended March 31, 1997 from $4,373 for the same period in
1996, a 120.5% increase. This increase was due primarily to the Edison Mission
Energy Partnership Interest Acquisition.
The Royalty Guarantors' amortization decreased to $2,449 for the three months
ended March 31, 1997 from $2,570 for the same period of 1996, a 4.7% decrease.
This decrease is a result of scheduled amortization.
The Salton Sea Guarantors' interest expense, net of capitalized amounts,
increased to $4,639 for the three months ended March 31, 1997 from $2,957 for
the same period in 1996, a 56.9% increase. This increase was due primarily to
the capitalization of interest related to the Salton Sea Unit IV expansion
during the construction period in 1996, offset partially by the decreased
indebtedness in 1997 due to the scheduled payments on the debt.
The Partnership Guarantors' interest expense, net of capitalized amounts,
increased to $1,405 for the three months ended March 31, 1997 from $0 for the
same period in 1996 as the result of additional indebtedness primarily related
to the Edison Mission Energy Partnership Interest Acquisition.
The Royalty Guarantors' interest expense decreased to $1,132 for the three
months ended March 31, 1997 from $1,358 from the same period in 1996. The
decrease was the result of scheduled payments on the debt.
The Salton Sea Guarantors are primarily 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 $3,103 for the
three months ended March 31, 1997 from $2,249 for the same period in 1996, a
38.0% increase. This increase was primarily due to an increase in income
before income taxes resulting from the Edison Mission Energy Partnership
Interest 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 $737 for the three months
ended March 31, 1997 compared to $478 for the same period in 1996. This
increase was due primarily to increased earnings in the current year. Tax
obligations of the Royalty Guarantor will be remitted to the parent company
only to the extent of cash flows available after operating expenses and debt
service.
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands, Except per kWh Data)
--------------------------------------------------------------
Results of Operations: (continued)
The Salton Sea Funding Corporation's net income for the three months ended
March 31, 1997 was $314 compared to $513 for the same period in 1996. Net
income primarily represented interest income and expense, net of applicable
tax, and the Salton Sea Funding Corporation's 1% equity in earnings of the
Guarantors.
The Salton Sea Guarantors' net income increased to $7,821 for the three months
ended March 31, 1997 compared to $4,861 for the same period of 1996.
The Partnership Guarantors' net income increased to $4,857 for the three months
ended March 31, 1997 compared to $3,145 for the same period of 1996.
The Royalty Guarantors' net income increased to $1,666 for the three months
ended March 31, 1997 compared to $828 for the same period of 1996.
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
/s/ Gregory E. Abel
Date: May 14, 1997 Gregory E. Abel
Executive Vice President and
Chief Accounting Officer
/s/ John G. Sylvia
John G. Sylvia
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 33
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 63,751
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
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<TOTAL-ASSETS> 622,752
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0
0
<COMMON> 0
<OTHER-SE> 8,994
<TOTAL-LIABILITY-AND-EQUITY> 622,752
<SALES> 0
<TOTAL-REVENUES> 10,548
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 240
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<INCOME-PRETAX> 534
<INCOME-TAX> 220
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