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, 1998
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, 1998.
<PAGE>
SALTON SEA FUNDING CORPORATION
Form 10-Q
March 31, 1998
_____________
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, March 31, 1998 and December 31, 1997 5
Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 6
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, March 31, 1998 and December 31, 199710
Combined Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 11
Combined Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 12
Notes to Combined Financial Statements 13
<PAGE>
PARTNERSHIP GUARANTORS
Independent Accountants' Report 15
Combined Balance Sheets, March 31, 1998 and December 31, 199716
Combined Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 17
Combined Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 18
Notes to Combined Financial Statements 19
SALTON SEA ROYALTY COMPANY
Independent Accountants' Report 21
Balance Sheets, March 31, 1998 and December 31, 1997 22
Statements of Operations for the Three Months Ended
March 31, 1998 and 1997 23
Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 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 32
Item 2. Changes in Securities 32
Item 3. Defaults on Senior Securities 32
Item 4. Submission of Matters to a Vote of
Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibit Index 34
<PAGE>
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, 1998, and the related
statements of operations and cash flows for the three month
periods ended March 31, 1998 and 1997. 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, 1997, and the related statements
of operations, stockholders' equity, and cash flows for the year
then ended (not presented herein); and in our report dated
February 12, 1998, 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, 1997 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 22, 1998
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
March 31, December 31,
1998 1997
___________ __________
(unaudited)
ASSETS
Cash $ 70,155 $ 15,568
Prepaid expenses and other assets 11,406 2,823
Secured project notes from Guarantors 448,754 448,754
Investment in 1% of net assets of
Guarantors 7,305 7,144
__________ __________
$ 537,620 $ 474,289
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 11,080 $ 2,782
Due to affiliates 67,246 12,598
Senior secured notes and bonds 448,754 448,754
__________ __________
Total liabilities 527,080 464,134
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 5,174 4,789
__________ __________
Total stockholder's equity 10,540 10,155
__________ __________
$ 537,620 $ 474,289
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Revenues:
Interest income $ 8,990 $ 10,405
Equity in earnings of Guarantors 161 143
________ ________
Total revenues 9,151 10,548
________ ________
Expenses:
General and administrative expenses 238 240
Interest expense 8,259 9,774
________ ________
Total expenses 8,497 10,014
________ ________
Income before income taxes 654 534
Provision for income taxes 269 220
________ ________
Net income $ 385 $ 314
======== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 385 $ 314
Adjustments to reconcile net income to net
cash flow from operating activities:
Equity in earnings of Guarantors (161) (143)
Changes in assets and liabilities:
Prepaid expenses and other assets (8,583) (10,145)
Accrued liabilities 8,298 9,774
__________ _________
Net cash flows from operating activities (61) (200)
__________ _________
Cash flows from investing activities:
Decrease in restricted cash --- 1,633
__________ _________
Cash flows from financing activities:
Increase in due to affiliates 54,648 36,689
__________ _________
Net change in cash 54,587 38,122
Cash at the beginning of period 15,568 13,218
__________ _________
Cash at the end of period $ 70,155 $ 51,340
========== =========
Non-cash investing and financing activities:
Adjustments resulting from capital transactions
of Guarantors $ --- $ (14)
========== =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 March 31, 1998 and
the results of operations for the three months ended March 31,
1998 and 1997 and cash flows for the three months ended March 31,
1998 and 1997. The results of operations for the three months
ended March 31, 1998 and 1997 are not necessarily indicative of
the results to be expected for the full year.
The unaudited financial statements should be read in conjunction
with the financial statements included in the Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
The Funding Corporation was formed on September 20, 1995 for the
sole purpose of acting as issuer of senior secured notes and
bonds.
<PAGE>
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, 1998, and the related
combined statements of operations and cash flows for the three
month periods ended March 31, 1998 and 1997. 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, 1997, 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 February 12, 1998, 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, 1997 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 22, 1998
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Accounts receivable $ 12,623 $ 15,823
Prepaid expenses and other assets 12,177 13,043
Property, plant, contracts and
equipment, net 476,111 478,001
Excess of cost over fair value of
net assets acquired, net 49,160 49,486
_________ _________
$ 550,071 $ 556,353
======== ========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 578 $ 390
Accrued liabilities 12,690 7,826
Due to affiliates 30,596 47,741
Senior secured project note 266,208 266,208
_________ _________
Total liabilities 310,072 322,165
Total Guarantors' equity 239,999 234,188
_________ _________
$ 550,071 $ 556,353
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31
_____________________
1998 1997
________ ________
Revenues:
Sales of electricity $ 20,185 $ 23,254
Interest and other income 15 9
_______ _______
Total revenues 20,200 23,263
_______ _______
Expenses:
Operating, general and
administrative expenses 6,747 7,161
Depreciation and amortization 3,714 3,642
Interest expense 5,260 5,864
Less capitalized interest (1,332) (1,225)
_______ _______
Total expenses 14,389 15,442
_______ _______
Net income $ 5,811 $ 7,821
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
____________________
1998 1997
Cash flows from operating activities:
Net income $ 5,811 $ 7,821
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization 3,714 3,642
Changes in assets and liabilities:
Accounts receivable 3,200 (547)
Prepaid expenses and other assets 866 1,694
Accounts payable and accrued
liabilities 5,052 5,331
_________ _________
Net cash flows from operating activities 18,643 17,941
_________ _________
Cash flows from investing activities:
Capital expenditures (1,498) (2,448)
_________ _________
Cash flows from financing activities:
Decrease in due to affiliates (17,145) (15,493)
_________ _________
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.
<PAGE>
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 March 31, 1998 and the results of operations for the three
months ended March 31, 1998 and 1997 and cash flows for the three
months ended March 31, 1998 and 1997. The results of operations
for the three months ended March 31, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full
year.
The unaudited financial statements should be read in conjunction
with the financial statements included in the Salton Sea Funding
Corporation's annual report of Form 10-K for the year ended
December 31, 1997.
The combined financial statements include the accounts of the
partnerships in which the Guarantors have a 100% interest.
<PAGE>
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
2. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consist of the following:
March 31, December 31,
1998 1997
________ ________
(unaudited)
Plant and equipment $ 330,471 $ 330,306
Power sale agreements 64,609 64,609
Mineral extraction 73,112 71,780
Exploration and development costs 43,628 43,627
________ ________
511,820 510,322
Less accumulated depreciation
and amortization (35,709) (32,321)
________ ________
$ 476,111 $ 478,001
======== ========
<PAGE>
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, 1998, and the related
combined statements of operations and cash flows for the three
month periods ended March 31, 1998 and 1997. 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, 1997, 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 February 12, 1998, 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, 1997 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 22, 1998
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Accounts receivable $ 23,461 $ 23,481
Prepaid expenses and other assets 11,953 13,121
Due from affiliates 136,457 124,311
Property, plant, contracts and
equipment, net 372,730 370,666
Management fee from affiliates 70,134 70,082
Excess of cost over fair value of
net assets acquired, net 134,231 135,122
_________ _________
$ 748,966 $ 736,783
========= =========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 2,910 $ 1,338
Accrued liabilities 24,145 23,285
Senior secured project notes 143,610 143,610
Deferred income taxes 110,652 106,851
_________ _________
Total liabilities 281,317 275,084
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 79,983 74,033
_________ _________
Total Guarantors' equity 467,649 461,699
_________ _________
$ 748,966 $ 736,783
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31
1998 1997
Revenues:
Sales of electricity $ 34,097 $ 34,746
Interest and other income 734 545
Total revenues 34,831 35,291
_________ _________
Expenses:
Operating, general and
administrative expenses 14,090 16,282
Depreciation and amortization 10,155 9,644
Interest expense 3,297 3,651
Less capitalized interest (2,462) (2,246)
Total expenses 25,080 27,331
_________ _________
Income before income taxes 9,751 7,960
Provision for income taxes 3,801 3,103
_________ _________
Net income $ 5,950 $ 4,857
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 5,950 $ 4,857
Adjustments to reconcile net income to net
cash flow from operating activities:
Depreciation and amortization 10,155 9,644
Deferred income taxes 3,801 3,103
Changes in assets and liabilities:
Accounts receivable 20 (34)
Prepaid expenses and other assets 1,168 3,059
Accounts payable and accrued
liabilities 2,432 4,034
Net cash flows from operating activities 23,526 24,663
Cash flows from investing activities:
Capital expenditures (10,675) (10,236)
Management fee (705) (506)
Net cash flows from investing activities (11,380) (10,742)
Cash flows from financing activities:
Increase in due from affiliates (12,146) (12,550)
Distributions to parent --- (1,371)
Net cash flows from financing activities (12,146) (13,921)
_________ _________
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.
<PAGE>
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 March 31, 1998 and the results of operations for
the three months ended March 31, 1998 and 1997 and cash flows for
the three months ended March 31, 1998 and 1997. The results of
operations for the three months ended March 31, 1998 and 1997 are
not necessarily indicative of the results to be expected for the
full year.
The unaudited financial statements should be read in conjunction
with the financial statements included in the Salton Sea Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
The combined financial statements include the proportionate share
of the accounts of the partnerships in which the Guarantors have
an interest.
<PAGE>
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(in thousands)
____________________
2. Property, Plant, Contracts and Equipment:
Property, plant, contracts and equipment consisted of the
following:
March 31, December 31,
1998 1997
(unaudited)
Plant and equipment $ 77,153 $ 73,830
Power sale agreements 123,588 123,588
Process license 46,290 46,290
Mineral reserves 132,984 130,522
Exploration and development costs 80,868 75,978
__________ __________
460,883 450,208
Less accumulated depreciation
and amortization (88,153) (79,542)
__________ __________
$ 372,730 $ 370,666
========== ==========
<PAGE>
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, 1998, and the related statements
of operations and cash flows for the three month periods ended
March 31, 1998 and 1997. 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, 1997, and the related statements of
operations, equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 12, 1998, 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, 1997 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 22, 1998
<PAGE>
SALTON SEA ROYALTY COMPANY
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Due from affiliates $ 32,134 $ 19,114
Royalty stream, net 29,596 31,818
Excess of cost over fair value of net assets
acquired, net 33,869 34,096
Prepaid expenses and other assets 864 981
__________ __________
$ 96,463 $ 86,009
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 28,308 $ 21,306
Senior secured project note 38,934 38,934
Deferred income taxes 6,391 7,268
__________ __________
Total liabilities 73,633 67,508
Equity:
Common stock, par value $.01 per share; 100
share authorized, issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 21,269 16,940
__________ __________
Total equity 22,830 18,501
__________ __________
$ 96,463 $ 86,009
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31
1998 1997
Revenues:
Royalty income $ 12,038 $ 7,861
Expenses:
Operating, general and administrative expenses 1,859 1,877
Amortization of royalty stream and goodwill 2,449 2,449
Interest expense 776 1,132
____________________
Total expenses 5,084 5,458
____________________
Income before income taxes 6,954 2,403
Provision for income taxes 2,625 737
____________________
Net income $ 4,329 $ 1,666
====================
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 4,329 $ 1,666
Adjustments to reconcile net income to net
cash flow from operating activities:
Amortization of royalty stream and goodwill 2,449 2,449
Changes in assets and liabilities:
Prepaid expenses and other assets 117 177
Accrued liabilities and deferred income
taxes 6,125 1,692
Net cash flows from operating activities 13,020 5,984
Net cash flows from financing activities:
Decrease (increase) in due from affiliates (13,020) (5,984)
_________ _________
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.
<PAGE>
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 March 31, 1998 and the results of operations for the three
months ended March 31, 1998 and 1997 and cash flows for the three
months ended March 31, 1998 and 1997. The results of operations
for the three months ended March 31, 1998 and 1997 are not
necessarily indicative of the results to be expected for the full
year.
The unaudited financial statements should be read in conjunction
with the financial statements included in the Salton Sea Funding
Corporation's annual report on Form 10-K for the year ended
December 31, 1997.
<PAGE>
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 Salton Sea Funding
Corporation's (the "Funding Corporation") and the Salton Sea
Guarantors, the Partnership Guarantors and the Salton Sea Royalty
Company's (collectively, the "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 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 Vulcan, Leathers, Del Ranch and Elmore partnerships
(collectively 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 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 14.6 cents per kWh in 1998 to 15.6 cents per kWh in
1999.
The Salton Sea I Project sells electricity to Edison pursuant to
a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea I PPA"), which provides for capacity and energy
payments. The energy payment is calculated using a Base Price
which is subject to quarterly adjustments based on a basket
<PAGE>
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)
of indices. The time period weighted average energy payment for
Salton Sea I was 5.4 cents per kWh during the three months ended
March 31, 1998. 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 that provide
for 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 2000 for Salton Sea II and February 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
September 30, 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, 1998, Edison's average
Avoided Cost of Energy was 3.0 cents per kWh which is
substantially below the contract energy prices earned for the
three months ended March 31, 1998. 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
<PAGE>
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 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:
Three Months Ended
March 31,
1998 1997
Overall capacity factor 81.4% 98.8%
Capacity (NMW)(weighted average) 119.4 119.4
kWh produced (in thousands) 209,900 254,800
The overall capacity factor for the Salton Sea Project decreased
for the three months ended March 31, 1998 compared to the same
period in 1997 due to scheduled overhauls in February 1998.
The following data includes the aggregate capacity and
electricity production of Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended
March 31,
1998 1997
Overall capacity factor 98.38% 101.8%
Capacity NMW (average) 148 148
kWh produced (in thousands) 314,500 325,300
The overall capacity factor for the Partnership Projects
decreased for the three months ended March 31, 1998 compared to
the same period in 1997 due to scheduled overhauls at Leathers
and Elmore.
Revenues:
The Salton Sea Guarantors' sales of electricity decreased to
$20,185 for the three months ended March 31, 1998 from $23,254
for the same period of 1997, a 13.2% decrease. This decrease was
primarily due to the timing of overhauls. The 1997 overhauls were
performed in the second quarter, while the 1998 overhauls were
performed in the first quarter.
The Partnership Guarantors' sales of electricity marginally
decreased to $34,097 for the three months ended March 31, 1998
from $34,746 for the same period in 1997.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
___________________________________
Results of Operations: (continued)
The Royalty Guarantor revenue increased to $12,038 for the three
months ended March 31, 1998 from $7,861 for the same period last
year. This increase was due primarily to an increase in East
Mesa royalty income related to the royalty settlement agreement.
Operating Expenses:
The Salton Sea Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $6,747 for the three months ended March 31, 1998
from $7,161 for the same period in 1997. The decrease was due to
a reduction in operating and maintenance costs.
The Partnership Guarantors' operating expenses, which include
royalty, operating, and general and administrative expenses,
decreased to $14,090 for the three months ended March 31, 1998
from $16,282 for the same period in 1997, a 13.5% decrease. The
decrease was due to a reduction in operating and maintenance
costs.
The Royalty Guarantors' operating expenses marginally decreased
to $1,859 for the three months ended March 31, 1998 from $1,877
for the same period in 1997.
Depreciation and Amortization:
The Salton Sea Guarantors' depreciation and amortization
increased to $3,714 for the three months ended March 31, 1998
from $3,642 for the same period of 1997.
The Partnership Guarantors' depreciation and amortization
increased to $10,155 for the three months ended March 31, 1998
from $9,644 for the same period in 1997. The increase was due
primarily to plant improvements.
The Royalty Guarantors' amortization was $2,449 for the three
months ended March 31, 1998 compared to $2,449 for the same
period of 1997.
Interest Expense:
The Salton Sea Guarantors' interest expense, net of capitalized
amounts, decreased to $3,928 for the three months ended March 31,
1998 from $4,639 for the same period in 1997, a 15.3% decrease.
The decrease was a result of reduced indebtedness.
The Partnership Guarantors' interest expense, net of capitalized
amounts, decreased to $835 for the three months ended March 31,
1998 from $1,405 for the same period in 1997. The decrease was a
result of reduced indebtedness.
<PAGE>
THE SALTON SEA FUNDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per kwh data)
_________________________________
Results of Operations: (continued)
The Royalty Guarantors' interest expense decreased to $776 for
the three months ended March 31, 1998 from $1,132 for the same
period in 1997. The decrease was a result of reduced
indebtedness.
Income Tax Provision:
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
$3,801 for the three months ended March 31, 1998 from $3,103 for
the same period in 1997, a 22.5% increase. This increase was
primarily due to an increase in income before income taxes.
Income taxes will be paid by the parent of the Guarantors from
distributions to the parent company by the Guarantors which occur
after operating expenses and debt service.
The Royalty Guarantor's income tax provision increased to $2,625
for the three months ended March 31, 1998 from $737 for the same
period in 1997. This increase was primarily due to an increase in
income before income taxes. Tax obligations of the Royalty
Guarantor will be remitted to the parent company only to the
extent of cash flows available after operating expenses and debt
service.
Net Income:
The Salton Sea Funding Corporation's net income for the three
months ended March 31, 1998 was $385 compared to $314 for the
same period in 1997. The net income primarily represents
interest income and expense, net of applicable tax, and the
Salton Sea Funding Corporation's 1% equity in earnings of the
Guarantors.
The Salton Sea Guarantors' net income decreased to $5,811 for the
three months ended March 31, 1998 compared to $7,821 for the same
period of 1997.
The Partnership Guarantors' net income increased to $5,950 for
the three months ended March 31, 1998 compared to $4,857 for the
same period of 1997.
The Royalty Guarantors' net income increased to $4,329 for the
three months ended March 31, 1998 compared to $1,666 for the same
period of 1997.
<PAGE>
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 Funding Corporation's primary source of revenue is
principal and interest payments on the secured project notes of
the Guarantors. 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 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.
<PAGE>
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.
<PAGE>
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: May 14, 1998 /s/ Craig M. Hammett
Craig M. Hammett
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 35
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 70,155
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 537,620
<CURRENT-LIABILITIES> 0
<BONDS> 448,754
0
0
<COMMON> 0
<OTHER-SE> 10,540
<TOTAL-LIABILITY-AND-EQUITY> 537,620
<SALES> 0
<TOTAL-REVENUES> 9,151
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,259
<INCOME-PRETAX> 654
<INCOME-TAX> 269
<INCOME-CONTINUING> 385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385
<EPS-PRIMARY> 0
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</TABLE>
