SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
March 31, 1996
Commission File No. 1-9874
CALENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 South 36th Street, Suite 400, Omaha, NE 68131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 341-4500
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
Former name, former address and former fiscal year, if changed since last
report. California Energy Company, Inc.
51,994,438 shares of Common Stock, $0.0675 par value were outstanding as of
March 31, 1996.
CALENERGY COMPANY, INC.
Form 10-Q
March 31, 1996
_____________
C O N T E N T S
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Report of Independent Accountants 3
Consolidated Balance Sheets, March 31, 1996
and December 31, 1995 4
Consolidated Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 3. Defaults on Senior Securities 25
Item 4. Submission of Matters to a Vote of
Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 27
Exhibit Index 28
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
CalEnergy Company, Inc.
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of CalEnergy
Company, Inc. and subsidiaries as of March 31, 1996, and the related
consolidated statements of operations and cash flows for the three month
periods ended March 31, 1996 and 1995. 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 consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of CalEnergy Company, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended
(not presented herein), and in our report dated January 26, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1995 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 18, 1996
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
March 31 December 31
1996 1995
(unaudited)
ASSETS
Cash and investments $ 144,568 $ 72,114
Joint venture cash and investments 56,764 77,590
Restricted cash 124,818 149,227
Short-term investments 12,691 34,190
Accounts receivable 47,527 57,909
Due from joint ventures 27,731 27,273
Properties, plants, contracts and
equipment, net (Note 3) 1,860,094 1,781,255
Notes receivable - joint ventures 11,561 14,254
Excess of cost over fair
value of net assets acquired, net 299,739 302,288
Equity investment in Casecnan 60,207 60,815
Deferred charges and other assets 75,700 77,123
Total assets $2,721,400 $2,654,038
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 7,768 $ 6,638
Other accrued liabilities 97,452 87,892
Project loans 235,464 257,933
Construction loans 251,386 211,198
Senior Discount Notes 489,517 477,355
Salton Sea notes and bonds 452,088 452,088
Limited recourse senior secured notes 200,000 200,000
Convertible subordinated debentures 100,000 100,000
Convertible debt 64,850 64,850
Deferred income taxes 228,063 226,520
Total liabilities 2,126,588 2,084,474
Deferred income 25,584 26,032
Commitments and contingencies
Stockholders' equity:
Preferred stock - authorized 2,000 shares, no
par value - -
Common stock - par value $0.0675 per share,
authorized 80,000 shares, issued 52,180 and
50,680 shares, outstanding 51,994 and 50,593
at March 31, 1996 and December 31, 1995,
respectively 3,523 3,421
Additional paid in capital 356,251 343,406
Retained earnings 219,520 205,059
Treasury stock - 186 and 87 common
shares at March 31, 1996 and December 31,
1995, respectively, at cost (3,416) (1,348)
Unearned compensation - restricted stock (6,650) (7,006)
Total stockholders' equity 569,228 543,532
Total liabilities and
stockholders' equity $2,721,400 $2,654,038
The accompanying notes are an integral part of these financial statements.
CALENERGY COMPANY, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
________________________________
Three Months Ended
March 31
1996 1995
(unaudited)
Revenues:
Sales of electricity and steam $ 75,944 $ 72,978
Royalty income 3,893 3,917
Interest and other income 10,519 9,790
Total revenues 90,356 86,685
Costs and expenses:
Plant operations 18,956 18,426
General and administration 4,179 6,426
Royalties 4,375 4,414
Depreciation and amortization 18,053 14,183
Loss on equity investment in Casecnan 962 -
Interest expense 34,779 29,562
Less interest capitalized (11,906) (4,484)
Total costs and expenses 69,398 68,527
Income before income taxes 20,958 18,158
Provision for income taxes 6,497 5,540
Income before minority interest 14,461 12,618
Minority interest - 3,005
Net income 14,461 9,613
Preferred dividends
(paid in kind)* - 1,080
Net income available to
common stockholders $ 14,461 $ 8,533
Net income per share - primary $ .27 $ .21
Net income per share - fully diluted (Note 5) $ .26 $ .21
Average number of common and
common equivalent shares
outstanding 54,114 41,341
Fully diluted shares (Note 5) 63,228 45,785
The accompanying notes are an integral part of these financial statements.
*Reflects dividends on the Company's Series C Redeemable Convertible
Preferred Stock, which was payable in kind. The Series C stock was exchanged
in whole into the Company's Convertible Debt on March 15, 1995.
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
________________________________
Three Months Ended
March 31
1996 1995
(unaudited)
Cash flows from operating activities:
Net income $ 14,461 $ 9,613
Adjustments to reconcile net cash flow from
operating activities:
Depreciation and amortization 16,121 12,927
Amortization of excess of cost over
fair value of net assets acquired 1,932 1,256
Amortization of original issue discount 12,162 10,933
Amortization of deferred financing costs 1,708 2,713
Amortization of deferred compensation 356 -
Provision for deferred income taxes 1,543 4,272
Loss on equity investment in Casecnan 962 -
Changes in other items:
Accounts receivable 10,382 3,381
Accounts payable and accrued liabilities 7,759 912
Deferred income (448) (228)
Income tax payable 4,913 -
Net cash flows from operating activities 71,851 45,779
Cash flows from investing activities:
Malitbog construction (31,221) (11,167)
Upper Mahiao construction (7,233) (19,886)
Mahanagdong construction (19,997) (3,291)
Salton Sea Unit IV construction (28,288) (10,277)
Indonesian and other development (4,481) (1,601)
Pacific Northwest, Nevada and Utah (1,755) (337)
Capital expenditures relating to existing
operating projects (2,962) (1,730)
Purchase of Magma, net of cash acquired - (906,226)
Decrease in short-term investments 21,499 -
Decrease in restricted cash 24,409 12,803
Decrease in other investments and assets 1,451 28,488
Net cash flows from investing activities (48,578) (913,224)
Cash flows from financing activities:
Proceeds and net benefits from sale of common
and treasury stock and exercise of options 14,103 299,548
Repayment of project finance loans (22,469) (37,992)
Construction loans 40,188 21,525
Increase in amounts due from joint ventures (246) (5,720)
Purchase of treasury stock (3,221) (1,590)
Merger loan - 500,000
Deferred financing costs - Merger loan - (22,782)
Net cash flows from financing activities 28,355 752,989
Net increase (decrease) in cash and
cash equivalents 51,628 (114,456)
Cash and cash equivalents at beginning of period 149,704 308,091
Cash and cash equivalents at end of period $ 201,332 $ 193,635
Supplemental disclosures:
Interest paid, net of amount capitalized $ 10,782 $ 22,644
Income taxes paid $ - $ 240
The accompanying notes are an integral part of these financial statements.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
1. General:
In the opinion of management of CalEnergy Company, Inc. (the "Company"), the
accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1996 and the results of
operations for the three months ended March 31, 1996 and 1995, and cash flows
for the three months ended March 31, 1996 and 1995.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, and its proportionate share of the accounts of
the partnerships and joint ventures in which it has invested.
The results of operations for the three months ended March 31, 1996 and 1995
are not necessarily indicative of the results to be expected for the full
year.
Certain amounts in the 1995 financial statements and supporting footnote
disclosures have been reclassified to conform to the 1996 presentation. Such
reclassification did not impact previously reported net income or retained
earnings.
2. Other Footnote Information:
Reference is made to the Company's most recently issued annual report that
included information necessary or useful to the understanding of the
Company's business and financial statement presentations. In particular, the
Company's significant accounting policies and practices were presented as
Note 2 to the consolidated financial statements included in that report.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
3. Properties, Plants, Contracts and Equipment:
Properties, plants, contracts and equipment comprise the following:
March 31 December 31
1996 1995
(unaudited)
Operating project costs:
Power plants $ 625,009 $ 623,778
Wells, resource, and development 355,158 329,414
Power sales agreements 188,415 188,415
Licenses, equipment and other 57,020 58,052
Wells and resource development
in progress 109 465
Total operating facilities 1,225,711 1,200,124
Less accumulated depreciation
and amortization (179,917) (164,184)
Net operating facilities 1,045,794 1,035,940
Mineral and resource reserves 194,511 212,929
Construction in progress:
Upper Mahiao 196,137 188,904
Malitbog 177,956 146,735
Salton Sea Unit IV 137,057 108,769
Mahanagdong 96,557 76,560
Indonesian and other development 12,082 11,418
Total $1,860,094 $1,781,255
4. Income Taxes:
The Company's effective tax rate continues to be less than the statutory rate
primarily due to the depletion deduction and the generation of energy tax
credits in 1996. The significant components of the deferred tax liability
are the temporary differences between the financial reporting basis and
income tax basis of the power plant and the well and resource development
costs, and in addition, the offsetting benefits of operating loss
carryforwards and investment and geothermal energy tax credits. The income
tax provision for the three months ended March 31, 1996, is approximately 75%
current tax expense and 25% deferred tax expense.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
5. Net Income Per Common Share:
Fully diluted earnings per common share assumes the conversion of the
convertible debt into 3,529 common shares at a conversion price of $18.375
per share, the conversion of the convertible subordinated debentures into
4,444 common shares at a conversion price of $22.50 per share and the
exercise of all dilutive stock options outstanding at their option prices,
with the option exercise proceeds used to repurchase shares of common stock
at the ending market price.
6. Subsequent events:
On April 12, 1996, CalEnergy Capital Trust, a special purpose Delaware
business trust organized by the Company (the "Trust") completed a private
placement (with certain shelf registration rights) of $100,000 of convertible
preferred securities ("TIDES"). In addition, an option to purchase an
additional 78.6 TIDES, or $3,930 was exercised by the underwriters to cover
over-allotments.
The Trust has issued 2,078.6 of 6 1/4% TIDES with a liquidation preference of
fifty dollars each. The Company owns all of the common securities of the
Trust. The TIDES and the common securities represent undivided beneficial
ownership interests in the Trust. The assets of the Trust consist solely of
the Company's 6 1/4% Convertible Junior Subordinated Debentures due 2016 in
an outstanding aggregate principal amount of $103,930 ("Junior Debentures").
Each TIDES will be convertible at the option of the holder thereof at any
time into 1.6728 shares of CalEnergy Common Stock (equivalent to a conversion
price of $29.89 per share of the Company's Common Stock), subject to
customary anti-dilution adjustments.
Until converted into the Company's Common Stock, the TIDES will have no
voting rights with respect to the Company and, except under certain limited
circumstances, will have no voting rights with respect to the Trust.
Distributions on the TIDES (and Junior Debentures) are cumulative, accrue
from the date of initial issuance and are payable quarterly in arrears,
commencing June 15, 1996. The Junior Debentures are subordinated in right of
payment to all senior indebtedness of the Company and the Junior Debentures
are subject to certain covenants, events of default and optional and
mandatory redemption provisions, all as described in the Junior Debenture
Indenture.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
6. Subsequent events: (continued)
On April 17, 1996 the Company completed the acquisition of Edison Mission
Energy's partnership interests in four geothermal operating facilities in
California for a cash purchase price of $70,000. The acquisition will be
accounted for as a purchase.
The four projects, Vulcan, Hoch (Del Ranch), Leathers and Elmore, are located
in the Imperial Valley of California. The Company operates the facilities
and sells power to Edison under long-term SO4 contracts. Prior to this
transaction, the Company was a 50% owner of these facilities. The
acquisition of Edison Mission Energy's 50% interest results in CalEnergy
owning an additional 74 net MW of generating capacity.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Results of Operations:
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the periods included in the accompanying statements of
operations.
For purposes of consistent financial presentation, plant capacity factors for
Navy I, Navy II, and BLM (collectively the Coso Project), are based upon a
capacity amount of 80 net MW for each plant. Plant capacity factors for
Vulcan, Hoch (Del Ranch), Elmore, Leathers, (collectively the Partnership
Project) are based on contract nameplate amounts of 34, 38, 38, and 38 net MW
respectively, and for Salton Sea I, Salton Sea II and Salton Sea III plants
(collectively the Salton Sea Project), are based on contract nameplate
amounts of 10, 20 and 49.8 net MW respectively (the Partnership Project and
the Salton Sea Project are collectively referred to as the Imperial Valley
Project). Each plant possesses an operating margin which periodically allows
for production in excess of the amount listed above. Utilization of this
operating margin is based upon a variety of factors and can be expected to
vary between calendar quarters, under normal operating conditions.
The Coso Project and the Partnership Project sell all electricity generated
by the respective plants pursuant to seven long-term SO4 Agreements between
the projects and Southern California Edison ("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 are significantly higher in
the months of June through September. Energy is sold at increasing fixed
rates for the first ten years of each contract and thereafter at Edison's
Avoided Cost of Energy.
The fixed energy price periods of the Coso Project SO4 Agreements extend
until at least August 1997, March 1999 and January 2000 for each of the units
operated by the Navy I, BLM and Navy II Partnerships, respectively.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations: (continued)
The fixed energy price periods of the Partnership Project SO4 Agreements
extend until February 1996, December 1998, December 1998, and December 1999
for each of the Vulcan, Hoch (Del Ranch), Elmore and Leathers Partnerships,
respectively.
The Company's SO4 Agreements provide for energy rates ranging from 12.7 cents
per kWh in 1996 to 15.6 cents per kWh in 1999.
The Salton Sea I Project sells electricity to Edison pursuant to a 30 year
negotiated power purchase agreement, as amended (the "Salton Sea I PPA"),
which provides for capacity and energy payments. The initial contract
capacity and contract nameplate are each 10 MW. The energy payment is
calculated using a Base Price which is subject to quarterly adjustments based
on a basket of indices. The time period weighted average energy payment for
Unit 1 was 4.99 cents per kWh during 1995. As the Salton Sea I PPA is not an
SO4 Agreement, the energy payments do not revert to Edison's Avoided Cost of
Energy.
The Salton Sea II and Salton Sea III Projects sell electricity to Edison
pursuant to 30 year modified SO4 Agreements. The contract capacities and
contract nameplates are 15 MW and 20 MW for Salton Sea II and 47.5 MW and
49.8 MW for Salton Sea III, respectively. The contracts require Edison to
make capacity payments, capacity bonus payments and energy payments. The
price for contract capacity and contract capacity bonus payments is fixed for
the life of the modified SO4 Agreements. The energy payments for the first
ten year period, which period expires April 4, 2000, 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 for the period April 1, 1994
through March 31, 2004.
For the three months ended March 31, 1996, Edison's average Avoided Cost of
Energy was 2.3 cents per kWh which is substantially below the contract energy
prices earned for the three months ended March 31, 1996. 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
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Result of Operations (continued)
Agreements and the modified SO4 Agreements at the expiration of the scheduled
payment periods. The revenues generated by each of the projects operating
under SO4 Agreements could decline significantly after the expiration of the
respective scheduled energy payment periods.
Sales of electricity and steam increased to $75,944 in the first quarter of
1996 from $72,978 in the first quarter of 1995, a 4.1% increase.
The following operating data represent the aggregate capacity and electricity
production of the Coso Project:
Three Months Ended Fiscal
March 31 Year
1996 1995 1995
Overall capacity
factor 108.7% 110.2% 110.3%
kWh produced
(in thousands) 569,900 571,100 2,318,400
Installed capacity
NMW (average) 240 240 240
The marginal decrease in the capacity factor was a result of a scheduled pre-
peak outage at the Navy II plant in 1996.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Result of Operations (continued)
The following operating data represent the aggregate capacity and electricity
production of the Partnership Project:
Three Months Ended Fiscal
March 31 Year
1996 1995 1995
Overall capacity
factor 97.6% 102.3% 105.9%
kWh produced
(in thousands) 315,600 327,100 1,373,310
Installed capacity
NMW (average) 148 148 148
The overall capacity factor for the Partnership Project decreased for the
first quarter of 1996 compared to the first quarter of 1995 due to scheduled
turbine overhauls at the Leathers and Elmore plants.
The following operating data represent the aggregate capacity and electricity
production of the Salton Sea Project:
Three Months Ended Fiscal
March 31 Year
1996 1995 1995
Overall capacity
factor 89.6% 86.8% 86.5%
kWh produced
(in thousands) 156,200 149,600 604,300
Installed capacity
NMW (average) 79.8 79.8 79.8
The overall capacity factor for the Salton Sea Project has increased for the
first quarter of 1996 compared to the same period in 1995 as a result of
increased production at the Salton Sea I and Salton Sea II Projects due to
pre-peak outages at both projects in the first quarter of 1995.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations: (continued)
Roosevelt Hot Springs steam field supplied 100% of customer power plant steam
requirements in the first quarter of 1996. The Company has an approximate
70% interest in the Roosevelt Hot Springs field. The Desert Peak power plant
operated at 90.6% of its nine net megawatt capacity in the first quarter of
1996. The Yuma power plant availability was effectively 100% during the
first quarter 1996 and delivered an average of 89% of its 50 net MW plant
capacity, which reflected certain contractual curtailments.
The Company received royalty income of $3,893 and $3,917 in the first quarter
of 1996 and 1995, respectively. Wholly owned subsidiaries of the Company
receive royalty income from the Partnership Project, East Mesa Project and
the Mammoth Project.
Interest and other income increased in the first quarter of 1996 to $10,519
from $9,790 for the same period in 1995. The increase reflects management
services income received from the Partnership Project partially offset by
lower interest earned on cash and investment balances.
The Company's expenses as a percentage of sales of electricity and steam were
as follows:
Three Months Ended
March 31
1996 1995
Plant operations (net of the Company's
management fees and Yuma fuel cost) 21.5% 21.8%
General and administration 5.5% 8.8%
Royalties 5.8% 6.0%
Depreciation and
amortization 23.8% 19.4%
Interest (less amounts
capitalized) 30.1% 34.4%
86.7% 90.4%
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Results of Operations: (continued)
Plant operations costs increased in the first quarter of 1996 to $18,956 from
$18,426 for the same period in 1995, a 2.9% increase. The increase was
primarily due to the fact Imperial Valley operations included 91 days of
expense in 1996 compared to including only 80 days in 1995 because of the
timing of the Magma acquisition. This increase was partially offset by lower
costs at the Coso Project and Desert Peak due to continued savings from the
Company's cost control programs.
General and administration costs decreased to $4,179 in the first quarter of
1996 from $6,426 in the first quarter of 1995, a 35.0% decrease. This
decrease was primarily due to the savings realized by consolidating the
corporate functions from the Magma acquisition.
Royalty costs marginally decreased to $4,375 in the first quarter of 1996
from $4,414 in the first quarter of 1995, a .9% decrease.
Depreciation and amortization increased to $18,053 in the first quarter of
1996 from $14,183 in the first quarter of 1995, a 27.3% increase. This
increase was primarily due to the amortization of the allocated purchase
price and goodwill related to the Magma acquisition.
Interest expense, less amounts capitalized, decreased to $22,873 in the first
quarter of 1996 from $25,078 in the first quarter of 1995, an 8.8% decrease.
This decrease was due to the offsetting effects of increased interest expense
associated with the senior discount notes, convertible debt, limited recourse
senior secured notes and Salton Sea notes and bonds, and the associated
increase in capitalized interest on the Company's international and domestic
projects in construction.
The provision for income taxes increased to $6,497 in the first quarter of
1996 from $5,540 in the first quarter of 1995. The increase was due to
higher income before taxes.
Net income available for common shareholders increased to $14,461 or $.27 per
share in the first quarter of 1996 from $8,533 or $.21 per share in the first
quarter of 1995. Income before minority interest increased to $14,461 in the
first quarter of 1996 from $12,618, in the first quarter of 1995 a 14.6%
increase.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources:
The Company's cash and investments were $144,568 at March 31, 1996 as
compared to $72,114 at December 31, 1995. In addition, the Company's share
of the Coso Project and the Partnership Project cash and investments retained
in project control accounts at March 31, 1996 and December 31, 1995 was
$56,764 and $77,590, respectively. Distributions out of the project control
accounts are made monthly to the Company for operation and maintenance and
capital costs and semiannually to each Coso Project partner and Partnership
Project partner for profit sharing under a prescribed calculation subject to
mutual agreement by the partners. In addition to these liquid instruments,
the Company recorded separately restricted cash of $124,818 and $149,227 at
March 31, 1996 and December 31, 1995, respectively. The restricted cash
balances are comprised primarily of amounts deposited in restricted accounts
from which the Company will source its equity contribution requirements
relating to the Salton Sea Unit IV, Upper Mahiao, Mahanagdong and Malitbog
projects and the Company's proportionate share of Coso Project and
Partnership Project cash reserves for the debt service reserve funds. Also,
the Company had $12,691 and $34,190 of short term investments as of March 31,
1996 and December 31, 1995, respectively.
The Company repurchased 173 and 102 common shares for aggregate amounts of
$3,221 and $1,590 during the first quarter of 1996 and 1995, respectively.
At March 31, 1996 the Company holds 186 shares of its common stock at a cost
of $3,416 to provide shares for issuance under the Company's employee stock
option and share purchase plan and other outstanding convertible securities.
The repurchase plan attempts to minimize the dilutive effect of the
additional shares issued under these plans.
On April 12, 1996, CalEnergy Capital Trust, a special purpose Delaware
business trust organized by the Company (the "Trust") completed a private
placement (with certain shelf registration rights of $100,000 of convertible
preferred securities ("TIDES"). In addition, an option to purchase an
additional 78.6 TIDES, or $3,930 was exercised by the underwriters to cover
over-allotments.
The Trust has issued 2,078.6 of 6 1/4% TIDES with a liquidation preference of
fifty dollars each. The Company owns all of the common securities of the
Trust. The TIDES and the common
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Liquidity and Capital Resources: (continued)
securities represent undivided beneficial ownership interests in the Trust.
The assets of the Trust consist solely of the Company's 6 1/4% Convertible
Junior Subordinated Debentures due 2016 in an outstanding aggregate principal
amount of $103,930 ("Junior Debentures"). Each TIDES will be convertible at
the option of the holder thereof at any time into 1.6728 shares of CalEnergy
Common Stock (equivalent to a conversion price of $29.89 per share of the
Company's Common Stock), subject to customary anti-dilution adjustments.
Until converted into the Company's Common Stock, the TIDES will have no
voting rights with respect to the Company and, except under certain limited
circumstances, will have no voting rights with respect to the Trust.
Distributions on the TIDES (and Junior Debentures) are cumulative, accrue
from the date of initial issuance and are payable quarterly in arrears,
commencing June 15, 1996. The Junior Debentures are subordinated in right of
payment to all senior indebtedness of the Company and the Junior Debentures
are subject to certain covenants, events of default and optional and
mandatory redemption provisions, all as described in the Junior Debenture
Indenture.
On April 17, 1996 the Company completed the acquisition of Edison Mission
Energy's partnership interests in four geothermal operating facilities in
California for a cash purchase price of $70,000.
The four projects, Vulcan, Hoch (Del Ranch), Leathers and Elmore, are located
in the Imperial Valley of California. The Company operates the facilities
and sells power to Edison under long-term SO4 contracts. Prior to this
transaction, the Company was a 50% owner of these facilities. The
acquisition of Edison Mission Energy's 50% interest results in CalEnergy
owning an additional 74 net MW of generating capacity.
In 1995, the Company commenced development of and has obtained financing for
the Casecnan Project, a multipurpose irrigation and hydroelectric power
facility with a rated capacity of approximately
150 net MW located on the island of Luzon in the Philippines. The total
project cost for the facility is approximately $495,000. The current capital
structure consists of term loans of approximately
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Liquidity and Capital Resources: (continued)
$371,500 and $123,836 in equity contributions. The Company's portion of the
contributed equity is approximately $61,918. The Overseas Private Investment
Corporation ("OPIC") is providing political risk insurance on the equity
investment.
The project is structured as a 20 year build-own-operate-transfer ("BOOT"),
in which the Company's indirect subsidiary CE Casecnan Water and Energy
Company, Inc., a Philippine corporation, will be responsible as the BOOT
operator. The fixed price, date-certain turnkey contractor is Hanbo
Corporation of South Korea.
Additionally in 1995, the Company commenced construction of an additional 40
net MW electric generating facility (the "Salton Sea Unit IV") in the
Imperial Valley pursuant to an amended and restated 30 year power purchase
agreement with Edison. The Salton Sea Unit IV has a target completion date
of mid year 1996 and an estimated capital construction cost of $135,000. As
of March 31, 1996, the Company has invested $91,209 in the Salton Sea Unit IV
which was financed with proceeds from the Salton Sea Funding Corporation.
The Company signed a non-binding Memorandum of Understanding with an
international mining company in 1995 which provides, among other things, for
the Company, at its option, to deliver power for the mineral extraction
process. The initial phase of the project would require approximately 15 MW.
To date the pilot plant has successfully produced zinc at the Company's
Imperial Valley Project. The mining company is presently completing
construction of its larger demonstration plant. If successfully developed,
the mineral extraction process will provide an environmentally compatible and
low cost minerals recovery methodology. The project is subject to a number
of uncertainties, including the execution of definitive agreements with
respect to power sales and other mineral recovery activities, and
implementation cannot be assured.
In April 1994, the Company closed the financing for the 119 net MW Upper
Mahiao geothermal power project located in the Philippines. The total
project cost for the facility is approximately $218,000.
The Company will supply approximately $56,000 of equity and project debt
financing will constitute the balance of approximately
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Liquidity and Capital Resources: (continued)
$162,000. A syndicate of international commercial lenders is providing the
construction financing. The Export-Import Bank of the U.S. ("Ex-Im Bank") is
providing political risk insurance to the commercial banks on the
construction loan and will provide the preponderance of project term
financing upon satisfaction of conditions associated with commercial
operation. As of March 31, 1996, draws on the construction loan totalled
$141,795, and the Company has invested $50,428. OPIC is providing political
risk insurance on the equity investment by the Company in this project. The
Upper Mahiao project commenced construction in April of 1994, and is expected
to be in service by July of 1996. The project is structured as a ten year
BOOT, in which the Company's subsidiary CE Cebu Geothermal Power Company,
Inc. ("CE Cebu"), the project company, will be responsible for implementing
construction of the geothermal power plant and, as owner, for providing
operations and maintenance during the ten year BOOT period. The electricity
generated by the Upper Mahiao geothermal power plant will be sold to the
Philippine National Oil Company - Energy Development Corporation ("PNOC-
EDC"), which is also responsible for supplying the facility with the
geothermal steam. After a ten year cooperation period, and the recovery by
the Company of its capital investment plus incremental return, the plant will
be transferred to PNOC-EDC at no cost. Ormat Inc. of Sparks, Nevada is the
turnkey contractor for the project.
PNOC-EDC will be obligated to pay for electric capacity that is nominated
each year by CE Cebu, irrespective of whether PNOC-EDC is willing or able to
accept delivery of such capacity. PNOC-EDC will pay to CE Cebu a fee (the
"Capacity Fee") based on the plant capacity nominated to PNOC-EDC in any year
(which, at the plant's design capacity, is approximately 95% of total
contract revenues) and a fee (the "Energy Fee") based on the electricity
actually delivered to PNOC-EDC (approximately 5% of total contract revenues).
The Capacity Fee serves to recover the capital costs of the project, to
recover fixed operating costs and to cover return on investment. The Energy
Fee is designed to cover all variable operating and maintenance costs of the
power plant. Payments under the Upper Mahiao Energy Conversion Agreement
("ECA") will be denominated in U.S. dollars, or computed in U.S. dollars and
paid in Philippine pesos at the then-current exchange rate, except for the
Energy Fee, which will be used to pay Philippine peso-
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
________________________________
Liquidity and Capital Resources: (continued)
denominated expenses. Significant portions of the Capacity Fee and Energy
Fee will be indexed to U.S.and Philippine inflation rates, respectively.
PNOC-EDC's payment requirements, and its other obligations under the Upper
Mahiao ECA are supported by the Government of the Philippines through a
performance undertaking.
In August 1994, the Company closed the financing for the 165 net MW
Mahanagdong project located in the Philippines. The total project cost for
the facility is approximately $320 million. The capital structure consists
of a term loan of $240 million and approximately $80 million in equity
contributions. OPIC and a consortium of international commercial lenders is
providing the construction debt financing facility. The debt provided by the
commercial lenders is insured against political risk by the Ex-Im Bank. Ten
year term debt financing (which will replace the construction debt) will be
provided by Ex-Im Bank and by OPIC. The Mahanagdong project has commenced
construction and as of March 31, 1996, the Company's proportionate share of
draws on the construction loan totalled $50,389 and equity investments made
by a subsidiary of the Company totaled $34,748. OPIC is providing political
risk insurance on the equity. The Mahanagdong project is targeted for
service in July, 1997. As with the Upper Mahiao project, the Mahanagdong
project is structured as a ten year BOOT, in which the Company will be
responsible for implementing construction of the geothermal power plant and,
as owner, for providing operations and maintenance for the ten year BOOT
period. After a ten year cooperation period, and the recovery by the Company
of its capital investment plus incremental return, the plant will be
transferred to PNOC-EDC at no cost.
The electricity generated by the Mahanagdong project will be sold to PNOC-
EDC, on a "take or pay" basis, which is also responsible for supplying the
facility with the geothermal steam. The terms of the Mahanagdong ECA are
substantially similar to those of the Upper Mahiao ECA. All of PNOC-EDC's
obligations under the Mahanagdong ECA are supported by the Government of the
Philippines through a performance undertaking. The Capacity Fees are
expected to be approximately 97% of total revenues at the design capacity
levels and the Energy Fees are expected to be approximately 3% of such total
revenues.The Mahanagdong project will be built, owned and operated by CE
Luzon Geothermal Power Company, a Philippine corporation, that is expected to
be owned post-completion as
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
follows: 45% by the Company, 45% by Kiewit, and up to 10% by another
industrial company. The turnkey contractor consortium consists of Kiewit
Construction Group, Inc. (with an 80% interest) and CE Holt Co., a wholly
owned subsidiary of the Company (with a 20% interest).
In December 1994, financing was closed and construction commenced on the
Malitbog Project, a 216 net MW geothermal project, located on the island of
Leyte. The Malitbog Project will be built, owned and operated by Visayas
Geothermal Power Company ("VGPC"), a Philippine general partnership that is
wholly owned, indirectly, by the Company. VGPC will sell 100% of its
capacity on substantially the same basis as described above for the Upper
Mahiao Project to PNOC-EDC, which will in turn sell the power to NAPOCOR.
The Malitbog Project has a total project cost of approximately $280 million,
including interest during construction and project contingency costs. A
consortium of international lenders and OPIC have provided a total of $210
million of construction and term loan facilities, the $135 million
international commercial bank portion of which is supported by political risk
insurance from OPIC. As of March 31, 1996, draws on the construction loan
totalled $59,202, the equity investments made by subsidiaries of the Company
totalled $70,000 and advances by subsidiaries of the Company totalled $3,542.
The advances will be repaid by draws on the construction loan. The Company's
equity contribution to VGPC of $70,000 is covered by political risk insurance
from OPIC and the Multilateral Investment Guarantee Agency ("MIGA"). As with
the Upper Mahiao project, the Malitbog project is structured as a ten year
BOOT, in which the Company will be responsible for implementing construction
of the geothermal power plant and, as owner, for providing operations and
maintenance for the ten year BOOT period. After a ten year cooperation
period, and the recovery by the Company of its capital investment plus
incremental return, the plant will be transferred to PNOC-EDC at no cost.
The Malitbog Project is being constructed by Sumitomo Corporation pursuant to
a fixed-price, date-certain, turnkey supply and construction contract.
Construction of the facility has begun, with commercial operation of Unit 1
scheduled to commence in July 1996 and commercial operation of Unit 2 and
Unit 3 scheduled to commence in July 1997.
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
Magma is seeking new long-term final SO4 power purchase agreements in
southern California through the bidding process adopted by the CPUC under its
1992 Biennial Resource Plan Update ("BRPU"). In its 1992 BRPU, the CPUC
cited the need for an additional 9,600 MW of power production through 1999
among California's three investor-owned utilities, Edison, SDG&E and Pacific
Gas and Electric Company (collectively, the "IOUs"). Of this amount, 275 MW
was set aside for bidding by independent power producers (such as Magma)
utilizing renewable resources. Pursuant to an order of the CPUC dated June
22, 1994 (confirmed on December 21, 1994), Magma was awarded 163 MW for sale
to Edison (69 net MW) and SDG&E (94 net MW), with in-service dates in 1997
and 1998. However, the IOUs have to date challenged and may continue to
challenge the order and there can be no assurance that power sales contracts
will be executed or that any such projects will be completed.
In light of the regulatory uncertainty concerning the BRPU awards resulting
from such IOU challenges, in March 1995 Magma entered into a settlement
agreement with Edison relating to the 69 net MW of capacity awarded to Magma
as a winning bidder in the BRPU solicitation. The agreement (which is
subject to CPUC approval) provides for three lump sum termination payments in
lieu of signing a power sales contract with Edison for the 69 net MW of BRPU
capacity. The amount of the termination payments is subject to a
confidentiality agreement but provides Edison's ratepayers with very
significant savings when compared to payments that would otherwise be made to
Magma over the life of the proposed BRPU power sales contract.
The agreement also provides Edison with an option, which can be exercised at
any time prior to February 1, 2002, to negotiate a power sales contract for
69 net MW of geothermal capacity and energy on commercially reasonable prices
and terms, without giving effect to termination payments previously paid.
The Company is actively seeking to develop, construct, own and operate new
power projects and infrastructure projects utilizing geothermal and other
technologies, both domestically and internationally, the completion of any of
which is subject to substantial risk. Development can require the Company to
expend significant sums for preliminary engineering, field development,
CALENERGY COMPANY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands, except per share and per kWh amounts)
_________________________________
Liquidity and Capital Resources: (continued)
permitting, legal and other financing related costs. The Company's future
growth is dependent, in large part, upon the demand for significant amounts
of additional electrical generating capacity and the Company's ability to
obtain contracts to supply portions of this capacity. There can be no
assurance that development, financing or construction efforts on any
particular project, or the Company's efforts generally, will be successful.
The Company believes that the international independent power market holds
the majority of new opportunities for financially attractive private power
development in the next several years. The financing, construction and
development of projects outside the United States entail significant
political and financial risks (including, without limitation, uncertainties
associated with first time privatization efforts in the countries involved,
currency exchange rate fluctuations, currency repatriation restrictions,
political instability, civil unrest and expropriation) and other structuring
issues that have the potential to cause substantial delays or material
impairment of value to the project being developed, which the Company may not
be fully capable of insuring against. The uncertainty of the legal
environment in certain foreign countries in which the Company may develop or
acquire projects could make it more difficult for the Company to enforce its
rights under agreements relating to such projects. In addition, the laws and
regulations of certain countries may limit the ability of the Company to
hold a majority interest in some of the projects that it may develop or
acquire. The Company's international projects may, in certain cases, be
terminated by a government.
Projects in operation, construction and development are subject to a number
of uncertainties more specifically described in the Company's Form 8-K, dated
April 2, 1996, filed with the Securities Exchange Commission.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
See Note 8 to the 1995 Annual Consolidated Financial Statements.
Item 2 - Changes in Securities.
Not applicable.
Item 3 - Defaults 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 11 - Calculation of earnings per share.
Exhibit 15 - Awareness letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
During the quarter ended March 31, 1996, the Company filed the
following:
(i) Form 8-K dated March 26, 1996 announcing the Registrant has
officially changed its corporate name to CalEnergy Company,
Inc.
(ii) Form 8-K dated March 28, 1996 announcing the execution of
a definitive agreement with Edison Mission Energy for the
purchase of the remaining 50% interest not owned by the
Company of its geothermal operating facilities in the
Imperial Valley, California.
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.
CALENERGY COMPANY, INC.
Date: May 10, 1996 /s/ John G. Sylvia
John G. Sylvia
Senior Vice President and
Chief Financial Officer
/s/ Gregory E. Abel
Gregory E. Abel
Senior Vice President, Controller and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit Page
No. No.
11 Calculation of Earnings Per Share 29
15 Awareness Letter of Independent Accountants 30
27 Financial Data Schedule 31