SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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.)
(Exact name of Registrants (State or other (I.R.S. Employer
as specified in their charters) jurisdiction of Identification No.)
incorporation or organization)
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 LLC 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
302 S. 36th Street, Suite 400-A, Omaha, NE 68131
(Address of principal executive offices and Zip Code of
Salton Sea Funding Corporation)
Salton Sea Funding Corporation's telephone number,
including area code: (402) 231-1641
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
All common stock of Salton Sea Funding Corporation is indirectly held by Magma
Power Company. 100 shares of Common Stock were outstanding on June 30, 2000.
<PAGE>
SALTON SEA FUNDING CORPORATION
Form 10-Q
June 30, 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, June 30, 2000 and December 31, 1999 5
Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 6
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 7
Notes to Financial Statements 8
SALTON SEA GUARANTORS
Independent Accountants' Report 9
Combined Balance Sheets, June 30, 2000 and December 31, 1999 10
Combined Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 11
Combined Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 12
Notes to Combined Financial Statements 13
<PAGE>
PARTNERSHIP GUARANTORS
Independent Accountants' Report 14
Combined Balance Sheets, June 30, 2000 and December 31, 1999 15
Combined Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 16
Combined Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 17
Notes to Combined Financial Statements 18
SALTON SEA ROYALTY LLC
Independent Accountants' Report 19
Balance Sheets, June 30, 2000 and December 31, 1999 20
Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999 21
Statements of Cash Flows for the Six Months Ended
June 30, 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 June 30, 2000, and the related statements of operations for
the three and six month periods ended June 30, 2000 and 1999 and cash flows for
the six month periods ended June 30, 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 auditing standards generally accepted in the United States of America, 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
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, 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
July 21, 2000
<PAGE>
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 13 $ 2,086
Prepaid expenses and other assets 3,506 3,617
Due from affiliates 19,020 2,118
Current portion secured project notes from Guarantors 14,350 25,072
Total current assets 36,889 32,893
Secured project notes from Guarantors 532,078 543,908
Investment in 1% of net assets of Guarantors 8,903 8,847
$ 577,870 $ 585,648
============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 3,439 $ 3,607
Revolving loan 15,000 ---
Current portion of long term debt 14,350 25,072
Total current liabilities 32,789 28,679
Senior secured notes and bonds 532,078 543,908
Total liabilities 564,867 572,587
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 7,637 7,695
Total stockholder's equity 13,003 13,061
$ 577,870 $ 585,648
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Interest income $ 10,756 $ 11,982 $ 21,719 $ 24,111
Equity in earnings of Guarantors 98 92 56 __ 208
Total revenues 10,854 12,074 21,775 24,319
---------- ---------- ---------- ----------
Expenses:
General and administrative expenses 218 188 477 403
Interest expense 10,634 11,622 21,397 23,359
---------- ---------- ---------- ----------
Total expenses 10,852 11,810 21,874 23,762
---------- ---------- ---------- ----------
Income (loss) before income taxes 2 264 (99) 557
Provision for income taxes 1 107 (41) 228
---------- ---------- ---------- ----------
Net income (loss) $ 1 $ 157 $ (58) $ 329
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (58) $ 329
Adjustments to reconcile net income to net
cash flows from operating activities:
Equity in earnings of guarantors (56) (208)
Changes in assets and liabilities:
Prepaid expenses and other assets 111 2,073
Accrued liabilities (168) (231)
Net cash flows from operating activities (171) 1,963
Cash flows from investing activities:
Principal repayments of secured project notes
from Guarantors 22,552 28,918
Net cash flows from investing activities 22,552 28,918
Cash flows from financing activities:
Increase in due from affiliates (16,902) (7,243)
Proceeds from revolving loan 15,000 ---
Repayment of senior secured notes and bonds (22,552) (28,918)
Net cash flows from financing activities (24,454) (36,161)
Net change in cash (2,073) (5,280)
Cash at the beginning of period 2,086 17,629
Cash at the end of period $ 13 $ 12,349
================= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------------------
1. General:
In the opinion of management of the Salton Sea Funding Corporation (the "Funding
Corporation"), the accompanying unaudited financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial position as of June 30, 2000 and the results of operations
for the three and six months ended June 30, 2000 and 1999 and cash flows for the
six months ended June 30, 2000 and 1999. The results of operations for the three
and six months ended June 30, 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 Funding Corporation was formed on June 20, 1995 for the sole purpose of
acting as issuer of senior secured notes and bonds.
2. New Borrowings:
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million seven
year revolving credit agreement between Credit Suisse as bank and agent and
other lenders. The interest rate is at the Adjusted Base Rate plus .375% or at
the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding
Corporation borrowed $15 million under its revolving credit agreement. The loan
is due in two installments, $5 million on July 26, 2000 and $10 million on
August 28, 2000.
<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 June 30, 2000, and the related combined statements of
operations for the three and six month periods ended June 30, 2000 and 1999 and
cash flows for the six month periods ended June 30, 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 auditing standards generally accepted in the United States of America, 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
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, 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
July 21, 2000
<PAGE>
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Accounts receivable $ 15,763 $ 11,537
Prepaid expenses and other assets 10,323 11,695
Total current assets 26,086 23,232
Restricted cash 7,845 10,001
Property, plant, contracts and equipment, net 560,401 552,903
Excess of cost over fair value of net assets
acquired, net 46,226 46,878
$ 640,558 $ 633,014
============ ===========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 2 $ 33
Accrued liabilities 7,822 7,862
Current portion of long term debt 9,169 9,737
Total current liabilities 16,993 17,632
Due to affiliates 43,504 27,993
Senior secured project note 275,558 284,217
Total liabilities 336,055 329,842
Total Guarantors' equity 304,503 303,172
$ 640,558 $ 633,014
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Sales of electricity $ 18,605 $ 19,546 $ 27,498 $ 37,818
Interest and other income 86 651 213 1,443
------- ------- ------- -------
Total revenues 18,691 20,197 27,711 39,261
------- ------- ------- -------
Expenses:
Operating, general and
administration 6,806 6,227 12,564 13,535
Depreciation and amortization 4,227 4,421 8,321 8,443
Interest expense 5,791 6,095 11,631 12,171
Less capitalized interest (2,813) (1,947) (6,136) (3,651)
------- ------- ------- -------
Total expenses 14,011 14,796 26,380 30,498
------- ------- ------- -------
Net income $ 4,680 $ 5,401 $ 1,331 $ 8,763
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
----------------------
2000 1999
Cash flows from operating activities:
Net income $ 1,331 $ 8,763
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 8,321 8,443
Changes in assets and liabilities:
Accounts receivable (4,226) (4,301)
Prepaid expenses and other assets 1,372 2,020
Accounts payable and accrued liabilities (71) 1,933
Net cash flows from operating activities 6,727 16,858
Cash flows from investing activities:
Capital expenditures (15,167) (27,629)
Decrease in restricted cash 2,156 22,325
Net cash flows from investing activities (13,011) (5,304)
Cash flows from financing activities:
Increase (decrease) in due to affiliates 15,511 (3,516)
Repayments of senior secured project note (9,227) (8,038)
Net cash flows from financing activities 6,284 (11,554)
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
--------------------
1. General:
In the opinion of management of the Salton Sea Guarantors (the "Guarantors"),
the accompanying unaudited combined financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position as of June 30, 2000 and the results of operations for the
three and six months ended June 30, 2000 and 1999 and cash flows for the six
months ended June 30, 2000 and 1999. The results of operations for the three and
six months ended June 30, 2000 and 1999 are not necessarily indicative of the
results to be expected for the full year.
The unaudited combined 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.
2. Related Party Transaction:
Salton Sea Power LLC ("Salton Sea Power"), a Salton Sea Guarantor, and El Paso
Merchant Energy L.P. ("EPME") entered into a power marketing agreement
commencing June 13, 2000 and ending on June 30, 2000. Under the terms of the
agreement, EPME purchased and Salton Sea Power sold all available power from the
Salton Sea Unit V project. EPME sold the available power into the bulk power
market. The purchase price of the available power is the value of the cash
actually received by EPME for the sale of such power, plus any realized
renewable premiums.
On June 9, 2000, Salton Sea Power, entered into an agreement to sell all
available power from the Salton Sea Unit V and CE Turbo projects to EPME. Under
the terms of the agreement commencing on July 1, 2000 and ending on September
30, 2000, EPME will purchase up to 25 MW of available power for $53 per MWh,
together with any premiums related to such power. EPME will also market any
available power which exceeds 25 MW on behalf of Salton Sea Power and any
available power from CE Turbo LLC.
<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 June 30, 2000, and the related combined statements of
operations for the three and six month periods ended June 30 2000 and 1999 and
cash flows for the six month periods ended June 30, 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 auditing standards generally accepted in the United States of America, 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
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, 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
July 21, 2000
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
ASSETS
<S> <C> <C>
Accounts receivable $ 16,213 $ 16,295
Prepaid expenses and other assets 23,874 18,959
Total current assets 40,087 35,254
Restricted cash 6,111 60,454
Due from affiliates 41,981 75,274
Property, plant, contracts and equipment, net 610,149 531,427
Management fee 70,225 71,489
Excess of cost over fair value of net assets acquired, net 126,212 127,994
$ 894,765 $ 901,892
============== ============
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 2,252 $ 3,925
Accrued liabilities 12,636 13,534
Current portion of long term debt 2,954 10,562
Total current liabilities 17,842 28,021
Senior secured project notes 249,696 250,650
Deferred income taxes 100,229 98,907
Total liabilities 367,767 377,578
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 139,332 136,648
Total Guarantors' equity 526,998 524,314
$ 894,765 $ 901,892
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
<S> <C> <C> <C> <C>
Sales of electricity $ 19,628 $ 24,222 $ 30,017 $ 46,252
Interest and other income 625 2,155 1,101 4,474
--------- --------- --------- ---------
Total revenues 20,253 26,377 31,118 50,726
--------- --------- --------- ---------
Expenses:
Operating, general and
administration 9,518 11,858 17,308 23,065
Depreciation and amortization 4,848 6,262 9,493 12,480
Interest expense 5,045 5,641 10,140 11,335
Less capitalized interest (4,918) (4,314) (9,829) (6,747)
--------- --------- --------- ---------
Total expenses 14,493 19,447 27,112 40,133
--------- --------- --------- ---------
Income before income taxes 5,760 6,930 4,006 10,593
Provision for income taxes 1,901 3,014 1,322 4,131
--------- --------- --------- ---------
Net income $ 3,859 $ 3,916 $ 2,684 $ 6,462
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
2000 1999
--------- --------
Cash flows from operating activities:
Net income $ 2,684 $ 6,462
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 9,493 12,480
Deferred income taxes 1,322 4,131
Changes in assets and liabilities:
Accounts receivable 82 8,694
Prepaid expenses and other assets (4,915) (428)
Accounts payable and accrued
liabilities (2,569) 3,847
--------- ---------
Net cash flows from operating activities 6,097 35,186
--------- ---------
Cash flows from investing activities:
Capital expenditures (85,028) (56,111)
Decrease in restricted cash 54,343 36,631
Management fee (143) (851)
--------- ---------
Net cash flows from investing activities (30,828) (20,331)
--------- ---------
Cash flows from financing activities:
Repayments of senior secured project notes (8,562) (16,182)
Decrease in due from affiliates 33,293 1,327
--------- ---------
Net cash flows from financing activities 24,731 (14,855)
--------- ---------
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
--------------------
1. General:
In the opinion of management of the Partnership Guarantors (the "Guarantors"),
the accompanying unaudited combined financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position as of June 30, 2000 and the results of operations for the
three and six months ended June 30, 2000 and 1999 and cash flows for the six
months ended June 30, 2000 and 1999. The results of operations for the three and
six months ended June 30, 2000 and 1999 are not necessarily indicative of the
results to be expected for the full year.
The unaudited combined 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.
2. Property:
The increase in property, plant, contracts and equipment is due to the Zinc
Recovery Project and Region II Brine Facility construction costs. The decrease
in restricted cash is due to expenditures on these projects.
3. Revenue:
The decrease in revenue was due to the expiration of the scheduled price period
at Leathers at December 31, 1999.
<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 June 30, 2000, and the related statements of operations for the three and six
month periods ended June 30, 2000 and 1999 and cash flows for the six month
periods ended June 30, 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 auditing standards generally accepted in the United States of America, 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
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, 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, Salton Sea Royalty LLC was
converted to a limited liability company during 1999 and as such the statements
of operations for the three and six months ended June 30, 2000 and 1999 and cash
flows for the six months ended June 30, 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
July 21, 2000
<PAGE>
SALTON SEA ROYALTY LLC
BALANCE SHEETS
(Dollars in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ----------
(unaudited)
ASSETS
<S> <C> <C>
Prepaid expenses and other assets $ 158 $ 235
Total current assets 158 235
Royalty stream, net 16,247 16,776
Excess of cost over fair value of net assets acquired, net 31,826 32,280
Due from affiliates 19,666 21,825
$ 67,897 $ 71,116
============= =============
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 55 $ 82
Current portion of long term debt 2,227 4,773
Total current liabilities 2,282 4,855
Senior secured project note 6,826 9,041
Total liabilities 9,108 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 57,228 55,659
Total equity 58,789 57,220
$ 67,897 $ 71,116
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY LLC
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C>
Royalty income $ 2,707 $ 3,770 $ 4,267 $ 17,229
Expenses:
Operating, general and
administrative expenses 758 1,046 1,173 2,154
Amortization of royalty stream
and goodwill 492 2,448 983 4,897
Interest expense 258 446 542 914
--------- ---------- --------- ----------
Total expenses 1,508 3,940 2,698 7,965
---------- ---------- ---------- --------
Income (loss) before income taxes 1,199 (170) 1,569 9,264
Provision for (benefit from) income taxes --- (113) --- 3,677
--------- ---------- --------- ----------
Net income (loss) $ 1,199 $ (57) $ 1,569 $ 5,587
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SALTON SEA ROYALTY LLC
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
-------------------
2000 1999
--------- --------
Cash flows from operating activities:
Net income $ 1,569 $ 5,587
Adjustments to reconcile net income to net
cash flows from operating activities:
Amortization of royalty stream and goodwill 983 4,897
Changes in assets and liabilities:
Prepaid expenses and other assets 77 139
Accrued liabilities and deferred income taxes (27) (5,671)
Net cash flows from operating activities 2,602 4,952
Net cash flows from financing activities:
Decrease (increase) in due from affiliates 2,159 (254)
Repayment of senior secured project note (4,761) (4,698)
--------- ---------
Net cash flows from financing activities (2,602) (4,952)
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
--------------------
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 June 30, 2000 and the results of operations for the three and six
months ended June 30, 2000 and 1999 and cash flows for the six months ended June
30, 2000 and 1999. The results of operations for the three and six months ended
June 30, 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 for the three and six months ended June 30, 2000
and 1999 and cash flows for the six months ended June 30, 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.
2. Revenues:
The second quarter and year to date decreases were due primarily to a reduction
in royalty income from Leathers due to lower revenues from the expiration of the
scheduled price period on December 31, 1999. The year to date decrease was also
due to a decrease in East Mesa royalty income related to a royalty settlement.
<PAGE>
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.
<PAGE>
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 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
5.5 cents per kWh during the six months ended June 30, 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.
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 expired
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 are at Edison's Avoided Cost of Energy.
For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all
energy delivered in excess of 80% of contract capacity through March 31, 2004.
The Salton Sea IV Project sells electricity to Edison pursuant to a modified SO4
agreement which provides for contract capacity payments on 34 MW of capacity at
two different rates based on the respective contract capacities deemed
attributable to the original Salton Sea PPA option (20 MW) and to the original
Fish Lake PPA (14 MW). The capacity payment price for the 20 MW portion adjusts
quarterly based upon specified indices and the capacity payment price for the 14
MW portion is a fixed levelized rate. The energy payment (for deliveries up to a
rate of 39.6 MW) is at a fixed price for 55.6% of the total energy delivered by
Salton Sea IV and is based on an energy payment schedule for 44.4% of the total
energy delivered by Salton Sea IV. The contract has a 30-year term but Edison is
not required to purchase the 20 MW of capacity and energy originally
attributable to the Salton Sea I PPA option after September 30, 2017, the
original termination date of the Salton Sea I PPA.
Salton Sea Unit V Project will sell approximately one-third of its net output to
a Zinc facility, which is a subsidiary of MidAmerican and is expected to
commence operation in the third quarter of 2000. The remainder of the Salton Sea
Unit V output will be sold through the California Power Exchange (the "PX") or
in other market transactions. The PX was created to establish markets for the
sale of power on a daily and hourly basis. Thus, PX prices are expected to have
the characteristics of short term spot prices and to fluctuate from time to time
in a manner that cannot be predicted with accuracy.
For the six months ended June 30, 2000 and 1999, Edison's average Avoided Cost
of Energy was 3.8 and 2.7 cents respectively per kWh. Estimates of Edison's
future Avoided Cost of Energy vary substantially from year to year.
<PAGE>
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 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.
The following data includes the aggregate capacity and electricity production of
Salton Sea Units I, II, III and IV:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- -------- -------
Overall capacity factor 74.8% 93.3% 60.0% 88.6%
Capacity (NMW) (weighted average) 119.4 119.4 119.4 119.4
kWh produced (in thousands) 195,000 243,300 312,900 459,300
The overall capacity factor for the Salton Sea Projects decreased for the three
and six months ended June 30, 2000 compared to the same period in 1999 due to
scheduled overhauls in 2000 which were more extensive compared to 1999.
The following data includes the aggregate capacity and electricity production of
Vulcan, Del Ranch, Elmore and Leathers:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- ------- ------- -------
Overall capacity factor 100.4% 94.6% 91.1% 100.7%
Capacity (NMW) (average) 148 148 148 148
kWh produced (in thousands) 324,600 305,900 589,200 647,400
The overall capacity factor for the Partnership Projects increased for the three
months ended June 30, 2000 compared to the same period in 1999 due to scheduled
overhauls in 1999. The overall capacity factor for the Partnership Projects
decreased for the six months ended June 30, 2000 compared to the same period in
1999 due to scheduled overhauls at all plants in the first quarter of 2000.
<PAGE>
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)
Revenues:
The Salton Sea Guarantors' sales of electricity decreased to $18,605 for the
three months ended June 30, 2000 from $19,546 for the same period in 1999, a
4.8% decrease. For the six months ended June 30, 2000, sales of electricity
decreased to $27,498 from $37,818 in 1999, a 27.3% decrease. These decreases
were primarily due to scheduled overhauls in 2000 which were more extensive
compared to 1999 and the expiration of the fixed price periods at Salton Sea
Unit II and III in April, 2000 and February, 1999, respectively.
The Partnership Guarantors' sales of electricity decreased to $19,628 for the
three months ended June 30, 2000 from $24,222 for the same period in 1999, a
19.0% decrease. For the six month period ended June 30, 2000, sales of
electricity decreased to $30,017 from $46,252 in 1999, a 35.1% decrease. These
decreases were primarily due to the expiration of the scheduled price period at
Leathers on December 31, 1999 offset by increases resulting from higher avoided
cost rates in the six months ended June 30, 2000 compared to 1999.
The Royalty Guarantor revenue decreased to $2,707 for the three months ended
June 30, 2000 from $3,770 for the same period last year. For the six month
period ended June 30, 2000, revenue decreased to $4,267 from $17,229 in 1999.
This decrease was due primarily to a decrease in East Mesa royalty income
related to a royalty settlement and a reduction in royalty income from Leathers
due to lower revenue.
Operating Expenses:
The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and administrative expenses, increased to $6,806, for the three
months ended June 30, 2000 from $6,227 for the same period in 1999. This
increase was due to higher operating costs resulting from Unit V start up. For
the six month period ended June 30, 2000, operating expenses decreased to
$12,564 from $13,535 in 1999. This decrease was primarily due to lower royalty
costs resulting from lower revenues.
The Partnership Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, decreased to $9,518 for the
three months ended June 30, 2000 from $11,858 for the same period in 1999. For
the six month period ended June 30, 2000, operating expenses decreased to
$17,308 from $23,065 in 1999, a 25.0% decrease. These decreases were primarily
due to a reduction in royalty expenses due to the lower revenues.
The Royalty Guarantors' operating expenses decreased to $758 for the three
months ended June 30, 2000 from $1,046 for the same period in 1999, a 27.5%
decrease. For the six month period ended June 30, 2000, operating expenses
decreased to $1,173 from $2,154 in 1999, a 45.5% decrease. These decreases were
due to lower royalty costs due to the end of the scheduled price period at
Leathers.
<PAGE>
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)
Depreciation and Amortization:
The Salton Sea Guarantors' depreciation and amortization decreased to $4,227 for
the three months ended June 30, 2000 from $4,421 for the same period of 1999, a
4.4% decrease. For the six month period ended June 30, 2000, depreciation and
amortization decreased to $8,321 from $8,443 in 1999. The decreases were due to
a decrease in step up depreciation charges.
The Partnership Guarantors' depreciation and amortization decreased to $4,848
for the three months ended June 30, 2000 from $6,262 for the same period in
1999. For the six month period ended June 30, 2000, depreciation and
amortization decreased to $9,493 from $12,480 in 1999. The decreases were due
primarily to lower step up depreciation amortization after the end of the
scheduled price period at Leathers.
The Royalty Guarantors' amortization was $492 for the three months ended June
30, 2000 compared to $2,448 for the same period of 1999. For the six month
period ended June 30, 2000, amortization was $983 compared to $4,897 in 1999.
The decreases were due to lower amortization after the end of the scheduled
price period at the partnership plants.
Interest Expense:
The Salton Sea Guarantors' interest expense, net of capitalized amounts,
decreased to $2,978 for the three months ended June 30, 2000 from $4,148 for the
same period in 1999, a 28.2% decrease. For the six month period ended June 30,
2000, interest expense, net of capitalized amounts, decreased to $5,495 from
$8,520 in 1999. The decreases were due to reduced indebtedness and higher
capitalized interest on construction projects.
The Partnership Guarantors' interest expense, net of capitalized amounts,
decreased to $127 for the three months ended June 30, 2000 from $1,327 for the
same period in 1999. For the six month period ended June 30, 2000, interest
expense, net of capitalized amounts, decreased to $311 from $4,588. The
decreases were primarily due to reduced indebtedness and higher capitalized
interest on construction projects.
The Royalty Guarantors' interest expense decreased to $258 for the three months
ended June 30, 2000 from $446 from the same period in 1999. For the six month
period ended June 30, 2000, interest expense decreased to $542 from $914 in
1999. The decreases were 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 $1,901 for the
three months ended June 30, 2000 from $3,014 for the same period in 1999, a
36.9% decrease. For the six month period ended June 30,
<PAGE>
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)
2000, the provision for income taxes decreased to $1,322 from $4,131 in 1999.
The decreases were 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
June 30, 2000 compared to an income tax benefit of $113 for the same period in
1999. For the six month period ended June 30, 2000, the income tax provision was
$0 compared to $3,677 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 or any tax liabilities. Accordingly, the Royalty Guarantor has no tax
obligations.
Net Income:
The Salton Sea Funding Corporation's net income for the three months ended June
30, 2000 decreased to $1 compared from $157 for the same period in 1999. For the
six month period ended June 30, 2000, net loss was $58 compared to net income of
$329 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 decreased to $4,680 for the three months
ended June 30, 2000 compared to $5,401 for the same period of 1999. For the six
month period ended June 30, 2000, net income decreased to $1,331 compared to
$8,763 in 1999.
The Partnership Guarantors' net income decreased to $3,859 for the three months
ended June 30, 2000 compared to $3,916 for the same period of 1999. For the six
month period ended June 30, 2000, net income decreased to $2,684 from $6,462 in
1999.
The Royalty Guarantors' net income was $1,199 for the three months ended June
30, 2000 compared to a net loss of $57 for the same period of 1999. For the six
month period ended June 30, 2000, net income decreased to $1,569 from $5,587 in
1999.
Liquidity and Capital Resources:
On July 21, 1995, Salton Sea Funding Corporation obtained a $15 million seven
year revolving credit agreement between Credit Suisse as bank and agent and
other lenders. The interest rate is at the Adjusted Base Rate plus .375% or at
the LIBOR rate plus 100 basis points. On May 26, 2000, Salton Sea Funding
Corporation borrowed $15 million under its revolving credit agreement. The loan
is due in two installments, $5 million on July 26, 2000 and $10 million on
August 28, 2000. The proceeds were used for general operating costs.
<PAGE>
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 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 the third
quarter of 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. at market value plus a premium. 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, which is being funded by $140,500 of debt and $60,400
from equity contributions. The Company has incurred $152,700 of such costs
through June 30, 2000.
Salton Sea Power LLC, a Salton Sea Guarantor, is constructing and testing 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 is being 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"). Total
project costs of Salton Sea V are approximately $119,100, which is being funded
by $83,300 of debt and $35,800 from equity contributions. Salton Sea Power LLC
has incurred approximately $102,200 of these costs through June 30, 2000.
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 brine facilities
construction.
<PAGE>
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 CE Turbo Project is being and the brine facilities have been constructed by
SWEC pursuant to a date certain, fixed price, turnkey engineering, procurement
and construction contract. The CE Turbo Project is scheduled to commence initial
operations in the third quarter of 2000 and the brine facilities is in
operation. Total project costs for both the CE Turbo Project and the brine
facilities are expected to be approximately $63,700, which is being funded by
$44,600 of debt and $19,100 from equity contributions. The Company has incurred
approximately $54,500 of such costs through June 30, 2000.
The EPC contractor's parent, Stone & Webster, Incorporated, voluntarily filed
Chapter 11 Bankruptcy on June 2, 2000 and has sold substantially all of its
assets to Shaw Group Inc. Shaw Group Inc. has agreed to complete substantially
all of Stone & Websters' contracts for future and current projects. The Company
does not believe this situation will cause any material adverse effect on the
final completion of the Company's projects or the Company.
The operating Salton Sea Guarantors' only source of revenue is payments received
pursuant to long term power sales agreements with Edison, other than Unit 5
revenue and 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 other than CE Turbo and Zinc revenue and
interest earned on funds on deposit. 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.
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>
Item 3. Qualitative and Quantitative Disclosures About Market Risk:
On June 9, 2000, Salton Sea Power LLC, a subsidiary of CE Generation, entered
into an agreement to sell all available power from the Salton Sea Unit V and CE
Turbo projects to El Paso Merchant Energy, L.P. Under the terms of the agreement
commencing on July 1, 2000 and ending on September 30, 2000, El Paso Merchant
Energy will purchase up to 25 MW of available power for $53 per MWh, together
with any premiums related to such power. El Paso will also market any available
power which exceeds 25 MW on behalf of Salton Sea Power LLC and any available
power from CE Turbo LLC.
<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:
None.
<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: August 14, 2000 /s/ Joseph M. Lillo
Joseph M. Lillo
Vice President and
Controller
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
27 Financial Data Schedule 36
