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, 2000 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 LLC Delaware 33-0453364
Vulcan Power Company Nevada 95-3992087
CalEnergy Operating Corporation Delaware 33-0268085
Salton Sea Royalty LLC Delaware 47-0790492
VPC Geothermal LLC 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
Salton Sea Power L.L.C. Delaware 47-0810713
CalEnergy Minerals LLC Delaware 47-0810718
CE Turbo LLC Delaware 47-0812159
CE Salton Sea Inc. Delaware 47-0810711
Salton Sea Minerals Corp. Delaware 47-0811261
(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,
2000.
<PAGE>
SALTON SEA FUNDING CORPORATION
Form 10-Q
March 31, 2000
-------------
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, 2000 and December 31, 1999 5
Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 6
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, March 31, 2000 and December 31, 1999 10
Combined Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 11
Combined Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 12
Notes to Combined Financial Statements 13
<PAGE>
PARTNERSHIP GUARANTORS
Independent Accountants' Report 14
Combined Balance Sheets, March 31, 2000 and December 31, 1999 15
Combined Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 16
Combined Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 17
Notes to Combined Financial Statements 18
SALTON SEA ROYALTY LLC
Independent Accountants' Report 19
Balance Sheets, March 31, 2000 and December 31, 1999 20
Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 21
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 22
Notes to Financial Statements 23
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 24
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, 2000, and the related statements of operations and
cash flows for the three month periods ended March 31, 2000 and 1999. 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 generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Salton Sea Funding Corporation as of December
31, 1999, 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 25, 2000, 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, 1999 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 21, 2000
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
March 31, December 31,
2000 1999
----------- ----------
(unaudited)
ASSETS
Cash $ 10,720 $ 2,086
Prepaid expenses and other assets 14,494 3,617
Due from affiliates --- 2,118
Current portion secured project notes
from Guarantors 25,072 25,072
Total current assets 50,286 32,893
Secured project notes from Guarantors 543,908 543,908
Investment in 1% of net assets of
Guarantors 8,805 8,847
---------- ----------
$ 602,999 $ 585,648
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 14,389 $ 3,607
Due to affiliates 6,628 ---
Current portion long term debt 25,072 25,072
Total current liabilities 46,089 28,679
Senior secured notes and bonds 543,908 543,908
---------- ----------
Total liabilities 589,997 572,587
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 7,636 7,695
---------- ----------
Total stockholder's equity 13,002 13,061
---------- ----------
$ 602,999 $ 585,648
========== ==========
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,
2000 1999
Revenues:
Interest income $ 10,963 $ 12,129
Equity in earnings (loss) of Guarantors (42) 116
- ---- --------
Total revenues 10,921 12,245
--------- --------
Expenses:
General and administrative expenses 259 215
Interest expense 10,763 11,737
--------- --------
Total expenses 11,022 11,952
--------- --------
Income (loss) before income taxes (101) 293
Provision for income taxes expense (benefit) (42) 121
--------- --------
Net income (loss) $ (59) $ 172
========= =========
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,
2000 1999
Cash flows from operating activities:
Net income (loss) $ (59) $ 172
Adjustments to reconcile net income (loss) to net
cash flow from operating activities:
Equity in (earnings) loss of guarantors 42 (116)
Changes in assets and liabilities:
Prepaid expenses and other assets (10,877) (10,361)
Accrued liabilities 10,782 11,737
---------- ---------
Net cash flows from operating activities (112) 1,432
---------- ---------
Cash flows from financing activities:
Increase in due to affiliates 8,746 22,929
---------- ---------
Net cash flows from financing activities 8,746 22,929
---------- ---------
Net change in cash 8,634 24,361
Cash at the beginning of period 2,086 17,629
---------- ---------
Cash at the end of period $ 10,720 $ 41,990
========== =========
Supplemental disclosures:
Interest paid $ --- $ ---
========== =========
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, 2000 and the results of operations
for the three months ended March 31, 2000 and 1999 and cash flows for the three
months ended March 31, 2000 and 1999. The results of operations for the three
months ended March 31, 2000 and 1999 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, 1999.
The Funding Corporation was formed on June 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, 2000, and the related combined statements of
operations and cash flows for the three month period ended March 31, 2000 and
1999. 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 generally accepted in the United States
of America.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of the Salton Sea Guarantors as of
December 31, 1999, 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 25, 2000, 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, 1999 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 21, 2000
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
2000 1999
---------- ---------
(unaudited)
ASSETS
Accounts receivable $ 3,408 $ 11,537
Prepaid expenses and other assets 12,806 11,695
Total current assets 16,214 23,232
Restricted cash 7,907 10,001
Property, plant, contracts and equipment, net 556,112 552,903
Excess of cost over fair value of net assets
acquired, net 46,552 46,878
---------- ---------
$ 626,785 $ 633,014
========= =========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 198 $ 33
Accrued liabilities 13,932 7,862
Current portion of long term debt 9,737 9,737
Total current liabilities 23,867 17,632
Due to affiliates 18,878 27,993
Senior secured project note 284,217 284,217
---------- ---------
Total liabilities 326,962 329,842
Total Guarantors' equity 299,823 303,172
---------- ---------
$ 626,785 $ 633,014
========== =========
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
------------------------
2000 1999
-------- - -------
Revenues:
Sales of electricity $ 8,893 $ 18,272
Interest and other income 127 792
--------- - ----
Total revenues 9,020 19,064
---------- ----
Expenses:
Operating, general and
administration 5,758 7,308
Depreciation and amortization 4,094 4,022
Interest expense 5,840 6,076
Less capitalized interest (3,323) (1,704)
---------- ----
Total expenses 12,369 15,702
---------- ----
Net income (loss) $ (3,349) $ 3,362
========== =============
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,
--------------------
2000 1999
Cash flows from operating activities:
Net income (loss) $ (3,349) $ 3,362
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 4,094 4,022
Changes in assets and liabilities:
Accounts receivable 8,129 5,688
Prepaid expenses and other assets (1,111) 1,211
Accounts payable and accrued
liabilities 6,235 5,177
--------- ------------
Net cash flows from operating activities 13,998 19,460
-------- ------------
Cash flows from investing activities:
Capital expenditures (6,977) (9,792)
Decrease in restricted cash 2,094 7,760
-------- ------------
Net cash flows from investing activities (4,883) (2,032)
Cash flows from financing activities:
Decrease in due to affiliates (9,115) (17,428)
-------- ------------
Net cash flows from financing activities (9,115) (17,428)
----------- -------
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, 2000 and the results of operations for the
three months ended March 31, 2000 and 1999 and cash flows for the three months
ended March 31, 2000 and 1999. The results of operations for the three months
ended March 31, 2000 and 1999 are not necessarily indicative of the results to
be expected for the full year.
The unaudited financial statements shall 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, 1999.
The combined financial statements include the accounts of the partnerships in
which the Guarantors have a 100% interest.
<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, 2000, and the related combined statements of
operations and cash flows for the three month periods ended March 31, 2000 and
1999. 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 generally accepted in the United States
of America.
We have previously audited, in accordance with generally accepted auditing
standards, the combined balance sheet of the Partnership Guarantors as of
December 31, 1999, 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 25, 2000, 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, 1999 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 21, 2000
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
2000 1999
(unaudited)
ASSETS
Accounts receivable $ 8,959 $ 16,295
Prepaid expenses and other assets 23,522 18,959
Total current liabilities 32,481 35,254
Restricted cash 26,470 60,454
Due from affiliates 66,487 75,274
Property, plant, contracts and equipment, net 589,226 531,427
Management fee 70,589 71,489
Excess of cost over fair value of net assets
acquired, net 127,103 127,994
--------- ---------
$ 912,356 $ 901,892
========= =========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 3,422 $ 3,925
Accrued liabilities 26,255 13,534
Current portion of long term debt 10,562 10,562
Total current liabilities 40,239 28,021
Senior secured project notes 250,650 250,650
Deferred income taxes 98,328 98,907
--------- ---------
Total liabilities 389,217 377,578
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 135,473 136,648
--------- ---------
Total Guarantors' equity 523,139 524,314
--------- ---------
$ 912,356 $ 901,892
========= =========
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,
2000 1999
--------- ---------
Revenues:
Sales of electricity $ 10,389 $ 22,030
Interest and other income 476 2,319
------------- --------
Total revenues 10,865 24,349
------------- -------------
Expenses:
Operating, general and
administration 7,790 11,207
Depreciation and amortization 4,645 6,218
Interest expense 5,095 5,694
Less capitalized interest (4,911) (2,433)
------------- -------------
Total expenses 12,619 20,686
------------- -------------
Income (loss) before income taxes (1,754) 3,663
Provision for income taxes expense (benefit) (579) 1,117
------------- -------------
Net income (loss) $ (1,175) $ 2,546
============= =============
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,
2000 1999
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (1,175) $ 2,546
Adjustments to reconcile net income (loss)
to net cash flow from operating activities:
Depreciation and amortization 4,645 6,218
Deferred income taxes (579) 1,117
Changes in assets and liabilities:
Accounts receivable 7,336 12,159
Prepaid expenses and other assets (4,563) 190
Accounts payable and accrued
liabilities 12,218 5,611
----------- --------
Net cash flows from operating activities 17,882 27,841
----------- --------
Cash flows from investing activities:
Capital expenditures (60,850) (17,568)
Decrease in restricted cash 33,984 10,580
Management fee 197 (384)
----------- --------
Net cash flows from investing activities (26,669) (7,372)
----------- --------
Cash flows from financing activities:
Increase (decrease) in due from affiliates 8,787 (20,469)
----------- --------
Net cash flows from financing activities 8,787 (20,469)
----------- --------
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, 2000 and the results of operations for the
three months ended March 31, 2000 and 1999 and cash flows for the three months
ended March 31, 2000 and 1999. The results of operations for the three months
ended March 31, 2000 and 1999 are not necessarily indicative of the results to
be expected for the full year.
The unaudited financial statements shall 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, 1999.
The combined financial statements include the proportionate share of the
accounts of the partnerships in which the Guarantors have an interest.
<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 LLC as
of March 31, 2000, and the related statements of operations and cash flows for
the three month periods ended March 31, 2000 and 1999. These financial
statements are the responsibility of the Salton Sea Royalty LLC'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 generally accepted in the United States of
America.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of the Salton Sea Royalty LLC as of December 31,
1999, and the related statements of operations, equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 25,
2000, 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, 1999 is fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
As discussed in Note 1 to the financial statements, the Company converted to a
limited liability company during 1999 and as such the statements of operations
and cash flows for the three months ended March 31, 2000 and 1999 are not
comparable due to the change in reporting entity which results in no tax expense
in fiscal 2000.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 21, 2000
<PAGE>
SALTON SEA ROYALTY LLC
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
March 31, December 31,
2000 1999
----------- -----------
(unaudited)
ASSETS
Prepaid expenses and other assets $ 197 $ 235
Total current assets 197 235
Royalty stream, net 16,512 16,776
Excess of cost over fair value of net assets
acquired, net 32,053 32,280
Due from affiliates 22,969 21,825
$ 71,731 $ 71,116
============== ==============
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 327 $ 82
Current portion of long term debt 4,773 4,773
Total current liabilities 5,100 4,855
Senior secured project note 9,041 9,041
-------------- --------------
Total liabilities 14,141 13,896
Equity:
Common stock, par value $.01 per share; 100
share authorized, issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 56,029 55,659
-------------- --------------
Total equity 57,590 57,220
-------------- --------------
$ 71,731 $ 71,116
============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY LLC
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
------- -------
Revenues:
Royalty income $ 1,560 $ 13,459
Expenses:
Operating, general and
administrative expenses 415 1,108
Amortization of royalty stream
and goodwill 491 2,449
Interest expense 284 468
------------- -------------
Total expenses 1,190 4,025
------------- -------------
Income before income taxes 370 9,434
Provision for income taxes --- 3,790
------------- -------------
Net income $ 370 $ 5,644
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY LLC
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
2000 1999
--------- --------
Cash flows from operating activities:
Net income $ 370 $ 5,644
Adjustments to reconcile net income to net
cash flow from operating activities:
Amortization of royalty stream and goodwill 491 2,449
Changes in assets and liabilities:
Prepaid expenses and other assets 38 70
Accrued liabilities and deferred income taxes 245 (5,130)
Net cash flows from operating activities 1,144 3,033
Net cash flows from financing activities:
Increase in due from affiliates (1,144) (3,033)
---------- ------ --
Net cash flows from financing activities (1,144) (3,033)
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 LLC
NOTES TO FINANCIAL STATEMENTS
(in thousands)
--------------------
1. General:
In the opinion of management of the Salton Sea Royalty LLC (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, 2000 and the results of operations for the three months
ended March 31, 2000 and 1999 and cash flows for the three months ended March
31, 2000 and 1999. The results of operations for the three months ended March
31, 2000 and 1999 are not necessarily indicative of the results to be expected
for the full year. The Company was converted to a limited liability company
during 1999 and as such the statements of operations and cash flows for the
three months ended March 31, 2000 and 1999 are not comparable due to the change
in reporting entity which results in no tax expense in fiscal 2000. Income taxes
are now the responsibility of the partners and the Company has no obligation to
provide funds to the partners for payment of any tax liabilities. Accordingly,
the Company has no tax obligations.
The unaudited financial statements shall 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, 1999.
<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 LLC'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 LLC 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.
The scheduled energy price periods of the Partnership Project SO4 Agreements
extended until February 1996 for the Vulcan Partnership, December 1998 for the
Hoch (Del Ranch) and Elmore Partnerships, and December 1999 for the Leathers
Partnership.
For 2000, the Partnership Projects are receiving Edison's avoided cost of energy
pursuant to their respective SO4 Agreements.
The Salton Sea I Project sells electricity to Edison pursuant to a 30-year
negotiated power purchase agreement, as amended (the "Salton Sea I PPA"), which
provides for capacity and energy payments. The energy payment is calculated
using a base price which is subject to quarterly adjustments based on a basket
of indices. The time period weighted average energy payment for Salton Sea I was
5.4 cents per kWh during the three months ended March 31, 2000. As the Salton
Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's
avoided cost of energy.
<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 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 4, 2000 for Salton Sea II and expired on 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 Power Purchase Agreement ("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, 2000, Edison's average avoided cost of
energy was 3.2 cents per kWh. 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 will
likely decline significantly after the expiration of the respective scheduled
payment periods.
<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 following data includes the aggregate capacity and electricity production of
Salton Sea Units I, II, III and IV:
Three Months Ended
March 31,
----------------------
2000 1999
-------- -------
Overall capacity factor 45.2% 83.8%
Capacity (NMW) (average) 119.4 119.4
kWh produced (in thousands) 117,900 216,000
The overall capacity factor for the Salton Sea Projects decreased for the three
months ended March 31, 2000 compared to the same period in 1999 primarily due to
scheduled overhauls in 2000 which were more extensive compared to 1999.
The following data includes the aggregate capacity and electricity production of
the Partnership Projects:
Three Months Ended
March 31,
---------------------
2000 1999
-------- ---------
Overall capacity factor 81.9% 106.8%
Capacity (NMW) (average) 148 148
kWh produced (in thousands) 264,600 341,500
The overall capacity factor for the Partnership Projects decreased for the three
months ended March 31, 2000 compared to the same period in 1999 due to scheduled
overhauls at all plants in 2000 and none in 1999.
Revenues:
The Salton Sea Guarantors' sales of electricity decreased to $8,893 for the
three months ended March 31, 2000 from $18,272 for the same period in 1999, a
51.3% decrease. This decrease was primarily due to scheduled overhauls in 2000
which were more extensive compared to 1999 and the Unit III scheduled price
period ended in February, 1999.
<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 Partnership Guarantors' sales of electricity decreased to $10,389 for the
three months ended March 31, 2000 from $22,030 for the same period in 1999, a
52.8% decrease. This decrease was primarily due to the expiration of the fixed
price period at Leathers on December 31, 1999.
The Royalty Guarantor revenue decreased to $1,560 for the three months ended
March 31, 2000 from $13,459 for the same period last year. This was due
primarily to a decrease in East Mesa payments related to a settlement agreement
in 1998.
Operating Expenses:
The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and administrative expenses, decreased to $5,758, for the three
months ended March 31, 2000 from $7,308 for the same period in 1999. The
decrease was due to a reduction in royalty expenses due to the lower revenues.
The Partnership Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, decreased to $7,790 for the
three months ended March 31, 2000 from $11,207 for the same period in 1999. The
decrease was due to a reduction in royalty expenses due to the lower revenues.
The Royalty Guarantors' operating expenses decreased to $415 for the three
months ended March 31, 2000 from $1,108 for the same period in 1999, a 62.5%
decrease. This decrease was due to lower royalty costs due to the end of the
scheduled price period at Leathers.
Depreciation and Amortization:
The Salton Sea Guarantors' depreciation and amortization increased to $4,094 for
the three months ended March 31, 2000 from $4,022 for the same period of 1999,
an 1.8% increase.
The Partnership Guarantors' depreciation and amortization decreased to $4,645
for the three months ended March 31, 2000 from $6,218 for the same period in
1999. The decrease was due primarily to lower step up depreciation amortization
after the end of the scheduled price period at Leathers.
The Royalty Guarantors' amortization was $491 for the three months ended March
31, 2000 compared to $2,449 for the same period of 1999. The decrease was due to
lower amortization after the end of the scheduled price period at the
partnership plants.
<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)
Interest Expense:
The Salton Sea Guarantors' interest expense, net of capitalized amounts,
decreased to $2,517 for the three months ended March 31, 2000 from $4,372 for
the same period in 1999, a 42.4% decrease. The decrease was due to reduced
indebtedness and higher capitalized interest on Unit V construction.
The Partnership Guarantors' interest expense, net of capitalized amounts,
decreased to $184 for the three months ended March 31, 2000 from $3,261 for the
same period in 1999. The decrease was due to reduced indebtedness and higher
capitalized interest on zinc construction.
The Royalty Guarantors' interest expense decreased to $284 for the three months
ended March 31, 2000 from $468 from the same period in 1999. The decrease was
due to 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 decreased to a benefit of $(579)
for the three months ended March 31, 2000 from an expense of $1,117 for the same
period in 1999. This decrease was primarily due to a lower pre-tax income.
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 $0 for the three months ended
March 31, 2000 compared to $3,790 for the same period in 1999. The decrease in
the provision is due to the change in the Royalty Guarantor from a corporation
to a limited liability company which is not taxed. Income taxes are the
responsibility of the partners and Royalty Guarantor has no obligation to
provide funds to the partners for payment of any tax liabilities. Accordingly,
the Royalty Guarantor has no tax obligations.
<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)
Net Income:
The Salton Sea Funding Corporation's net income (loss) for the three months
ended March 31, 2000 was $(59) compared to $172 for the same period in 1999. 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 (loss) decreased to $(3,349) for the three
months ended March 31, 2000 compared to $3,362 for the same period of 1999.
The Partnership Guarantors' net income (loss) decreased to $(1,175) for the
three months ended March 31, 2000 compared to $2,546 for the same period of
1999.
The Royalty Guarantors' net income decreased to $370 for the three months ended
March 31, 2000 compared to $5,644 for the same period of 1999.
Liquidity and Capital Resources:
Salton Sea Minerals LLC, a Partnership Guarantor ("Minerals LLC"), developed and
owns the rights to proprietary processes for the extraction of zinc from
elements in solution in the geothermal brine and fluids utilized at its Imperial
Valley plants (the "Zinc Recovery Project") as well as the production of power
to be used in the extraction process. A pilot plant has successfully produced
commercial quality zinc at the Company's Imperial Valley Project.
Minerals LLC is constructing the Zinc Recovery Project which will recover zinc
from the geothermal brine (the "Zinc Recovery Project"). Four facilities will be
installed near Imperial Valley Project sites to extract a zinc chloride solution
from the brine through an ion exchange process. This solution will be
transported to a central processing plant where zinc ingots will be produced
through solvent extraction, electrowinning and casting processes. The Zinc
Recovery Project is designed to have a capacity of approximately 30,000 metric
tonnes per year and is scheduled to commence commercial operation in mid-2000.In
September 1999, Minerals LLC entered into a sales agreement whereby all zinc
produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial
term of the agreement expires in December 2005.
The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc.
("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering,
procurement and construction contract (the "Zinc Recovery Project EPC
Contract"). Total project costs of the Zinc Recovery Project are expected to be
approximately $200,900. The Company has incurred $134,113 of such costs through
March 31, 2000.
<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: (continued)
Salton Sea Power LLC, a Salton Sea Guarantor, is constructing Salton Sea V.
Salton Sea V is a 49 net MW geothermal power plant which will sell approximately
one-third of its net output to the Zinc Recovery Project. The remainder will be
sold through the California Power Exchange ("PX") or in other market
transactions.
Salton Sea V is being constructed pursuant to a date certain, fixed price,
turn-key engineering, procurement and construction contract (the "Salton Sea V
EPC Contract") by Stone & Webster Engineering Corporation ("SWEC"). Salton Sea V
is scheduled to commence commercial operation in mid-2000. Total project costs
of Salton Sea V are expected to be approximately $119,100.
CE Turbo LLC, a Partnership Guarantor, is constructing the CE Turbo Project. The
CE Turbo Project will have a capacity of 10 net MW. The net output of the CE
Turbo Project will be sold to the Zinc Recovery Project or sold through the PX
or in other market transactions.
The Partnership Projects have upgraded the geothermal brine processing
facilities at the Vulcan and Del Ranch Projects with the Region 2 Brine
Facilities Construction. In addition to incorporating the pH modification
process, which has reduced operating costs at the Salton Sea Projects, the new,
more efficient facilities will achieve economies through improved brine
processing systems and the utilization of more modern equipment. The Partnership
Projects expect these improvements will reduce brine-handling operating costs at
the Vulcan Project and the Del Ranch Project.
The CE Turbo Project is being and the Region 2 Brine Facilities Construction has
been constructed by SWEC pursuant to a date certain, fixed price, turnkey
engineering, procurement and construction contract (the "Region 2 Upgrade EPC
Contract"). The CE Turbo Project is scheduled to commence initial operations in
mid-2000 and the Region 2 Brine Facilities Construction is in operation. Total
project costs for both the CE Turbo Project and the Region 2 Brine Facilities
Construction are expected to be approximately $63,700.
Total equity funding for these projects is expected to be approximately
$122,500.
The EPC contractor's parent, Stone & Webster, Incorporated, has recently
announced that it is having current liquidity problems and intends to sell
substantially all of its assets to Jacobs Engineering Group, Inc. in exchange
for an immediate $50 million secured revolving credit facility, assumption of
substantially all of Stone & Webster's balance sheet liabilities, and $150
million in cash and stock, and subsequently intends to seek bankruptcy court
approval of the asset sale and credit agreement. As the work on the construction
projects are expected to be completed this summer, the Company does not believe
there will be any material adverse effect on the final completion of those
projects or the Company.
<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: (continued)
The operating 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 operating Partnership Guarantors' primary source
of revenue is payments received pursuant to long term power sales agreements
with Edison. The Royalty Guarantor's only source of revenue is Royalties
received pursuant to resource lease agreements with the Partnership Projects.
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.
Inflation has not had a significant impact on the Guarantors' operating revenue
and costs.
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including development and construction
uncertainty, operating uncertainty, acquisition uncertainty, uncertainties
relating to doing business outside of the United States, uncertainties relating
to geothermal resources, uncertainties relating to domestic and international
economic and political conditions and uncertainties regarding the impact of
regulations, changes in government policy, industry deregulation and
competition. Reference is made to all of the Company's SEC filings, incorporated
herein by reference, for a description of such factors. The Company assumes no
responsibility to update forward-looking information contained herein.
<PAGE>
SALTON SEA FUNDING CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
Neither the Salton Sea Funding Corporation nor the Guarantors are parties
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 Section 13 or 15(d) of the Securities Exchange
Act of 1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha, State
of Nebraska, on this 12th day of May, 2000.
SALTON SEA FUNDING CORPORATION
Date: May 12, 2000 /s/ Joseph M. Lillo*
By: Joseph M. Lillo
Vice President and Controller
*By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 35
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 10,721
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,296
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 602,999
<CURRENT-LIABILITIES> 46,089
<BONDS> 568,908
0
0
<COMMON> 0
<OTHER-SE> 13,002
<TOTAL-LIABILITY-AND-EQUITY> 602,999
<SALES> 0
<TOTAL-REVENUES> 10,921
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 259
<LOSS-PROVISION> 0
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<INCOME-TAX> (42)
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</TABLE>
