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
September 30, 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. N/A
63,655,333 shares of Common Stock, $0.0675 par value were
outstanding as of October 31, 1996.
CALENERGY COMPANY, INC.
Form 10-Q
September 30, 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, September 30, 1996
and December 31, 1995 4
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults on Senior Securities 29
Item 4. Submission of Matters to a Vote of
Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 31
Exhibit Index 32
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 September 30,
1996, and the related consolidated statements of operations for
the three and nine month periods ended September 30, 1996 and
1995 and the related consolidated statements of cash flows for
the nine month periods ended September 30, 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
October 22, 1996
CALENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
________________________________
September 30 December 31
1996 1995
(unaudited)
ASSETS
Cash and investments $334,335 $ 72,114
Joint venture cash and investments 37,092 77,590
Restricted cash 94,392 149,227
Short-term investments 2,864 34,190
Accounts receivable 109,453 57,909
Due from joint ventures 18,211 27,273
Properties, plants, contracts and
equipment, net (Note 3) 2,223,770 1,781,255
Notes receivable - joint ventures 11,250 14,254
Excess of cost over fair value of
net assets acquired, net 393,763 302,288
Equity investments 200,408 60,815
Deferred charges and other assets 122,904 77,123
Total assets $3,548,442 $2,654,038
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 7,118 $ 6,638
Other accrued liabilities 103,160 87,892
Project loans 284,779 257,933
Construction loans 351,923 211,198
Senior discount notes 514,626 477,355
Senior notes (Note 9) 224,137 -
Salton Sea notes and bonds 563,035 452,088
Limited recourse senior secured notes 200,000 200,000
Convertible subordinated
debentures (Note 7) 73,755 100,000
Revolving loan (Note 10) 35,000 -
Convertible debt (Note 7) - 64,850
Deferred income taxes 339,923 226,520
Total liabilities 2,697,456 2,084,474
Deferred income 25,244 26,032
Convertible preferred securities
of subsidiary (Note 8) 103,930 -
Commitments and contingencies (Notes 8, 9, 10 and 11)
Stockholders' equity:
Preferred stock - authorized 2,000
shares, no par value - -
Common stock - par value $0.0675 per
share, authorized 80,000 shares,
issued 57,066 and 50,680 shares,
outstanding 57,066 and 50,593 at
September 30, 1996 and December 31,
1995, respectively 3,853 3,421
Additional paid in capital 447,467 343,406
Retained earnings 276,346 205,059
Treasury stock - 0 and 87 common
shares at September 30, 1996 and
December 31, 1995, respectively, at cost (1) (1,348)
Unearned compensation - restricted stock (5,853) (7,006)
Total stockholders' equity 721,812 543,532
Total liabilities and stockholders'
equity $3,548,442 $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 Nine Months
Ended Ended
September 30 September 30
1996 1995 1996 1995
(unaudited) (unaudited)
Revenues:
Sales of electricity and steam $165,487 $102,423 $346,166 $257,157
Income on equity investments 2,998 - 2,998 -
Royalty income 980 5,372 5,995 14,201
Interest and other income 9,583 11,922 30,039 32,140
Total revenues 179,048 119,717 385,198 303,498
Costs and expenses:
Plant operations 32,159 22,458 73,546 61,331
General and administration 6,518 4,600 15,814 15,877
Royalty expense 8,023 7,913 18,294 18,249
Depreciation and amortization 36,587 17,210 80,300 47,034
Loss on equity investment
in Casecnan 1,192 - 3,966 -
Interest expense 45,017 34,229 116,521 99,524
Less interest capitalized (7,951) (6,512) (31,459) (16,633)
Dividends on convertible preferred
securities of subsidiary (Note 8) 1,624 - 3,067 -
Total costs and expenses 123,169 79,898 280,049 225,382
Income before income taxes 55,879 39,819 105,149 78,116
Provision for income taxes 18,325 12,457 33,862 24,245
Income before minority interest 37,554 27,362 71,287 53,871
Minority interest - - - 3,005
Net income 37,554 27,362 71,287 50,866
Preferred dividends
(paid in kin - - - 1,080
Net income available for
common shareholders $37,554 $27,362 $71,287 $49,786
Net income per share - primary $ .67 $ .52 $ 1.29 $ 1.02
Net income per share - fully
diluted (Note 5) $ .59 $ .48 $ 1.18 $ .96
Average number of common and
common equivalent shares
outstanding 56,296 53,080 55,362 48,861
Fully diluted shares (Note 5) 67,740 61,518 66,397 56,829
The accompanying notes are an integral part of these financial statements.
CALENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
________________________________
Nine Months Ended
September 30
1996 1995
Cash flows from operating activities: (unaudited)
Net income $ 71,287 $ 50,866
Adjustments to reconcile net cash flow
from operating activities:
Depreciation and amortization 73,873 41,948
Amortization of excess of cost over
fair value of net assets acquired 6,427 5,086
Amortization of original issue discount 37,272 33,727
Amortization of deferred financing costs 6,900 6,671
Amortization of deferred compensation 1,153 -
Provision for deferred income taxes 16,188 16,823
Loss on equity investments 968 -
Changes in other items:
Accounts receivable (34,372) (23,133)
Accounts payable and accrued liabilities 1,833 383
Deferred income (788) (31)
Income tax payable 2,091 -
Net cash flows from operating activities 182,832 132,340
Cash flows from investing activities:
Purchase of Falcon, net of cash acquired (206,577) -
Purchase of Partnership Interest, net of
cash acquired (58,044) -
Malitbog construction (95,047) (56,110)
Upper Mahiao construction (26,265) (118,737)
Mahanagdong construction (36,903) (33,961)
Salton Sea Unit IV construction (57,513) (38,894)
Indonesian and other development (48,721) (6,189)
Pacific Northwest, Nevada and Utah (3,746) (3,703)
Capital expenditures relating to
operating projects (23,913) (14,879)
Decrease in short-term investments 31,326 73,163
Decrease (increase) in restricted cash 75,926 (52,344)
Decrease in other investments and assets 9,371 10,118
Purchase of Magma, net of cash acquired - (906,226)
Net cash flows from investing activities (440,106) (1,147,762)
Cash flows from financing activities:
Proceeds from convertible preferred
securities of subsidiary 103,930 -
Proceeds from Salton Sea notes and bonds 135,000 475,000
Proceeds from issuance of senior notes 224,136 -
Proceeds from revolver 35,000 -
Repayment of Salton Sea notes and bonds (24,053) -
Proceeds and net benefits from sale of common
and treasury stock and exercise of options 13,950 299,269
Repayment of project finance loans (140,924) (153,763)
Construction loans 140,725 123,316
Decrease (increase) in amounts due from
joint ventures 8,666 (8,678)
Deferred financing costs (14,212) (34,733)
Purchase of treasury stock (3,221) (1,590)
Proceeds from limited recourse senior
secured notes - 200,000
Proceeds from merger loan - 500,000
Repayment of merger loan - (500,000)
Net cash flows from financing activities 478,997 898,821
Net increase (decrease) in cash and
cash equivalents 221,723 (116,601)
Cash and cash equivalents at beginning
of period 149,704 308,091
Cash and cash equivalents at end of period $ 371,427 $ 191,490
Supplemental disclosures:
Interest paid, net of amount capitalized $ 48,477 $ 53,025
Income taxes paid $ 17,790 $ 6,359
Supplemental schedule of non-cash financing activities:
Additional common stock was issued upon the conversion of $64,850
of convertible debt and the conversion of $26,245 of the
convertible subordinated debentures.
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 September 30, 1996 and the results of operations
for the three and nine months ended September 30, 1996 and 1995,
and cash flows for the nine months ended September 30, 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 except for CE Casecnan Water and Energy
Company, Inc. and Saranac Power Partners, L.P. and NorCon Power
Partners, L.P., two projects acquired by the Company on August 7,
1996 (see Note 6), which are accounted for under the equity
method.
The results of operations for the three and nine months ended
September 30, 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:
September 30, December 31,
1996 1995
(unaudited)
Operating project costs:
Power plants $1,260,962 $ 623,778
Wells, resource, and development 395,109 329,414
Power sales agreements 233,030 188,415
Licenses, equipment and other 58,244 58,052
Wells and resource development
in progress 130 465
Total operating facilities 1,947,475 1,200,124
Less accumulated depreciation
and amortization (237,903) (164,184)
Net operating facilities 1,709,572 1,035,940
Mineral and resource reserves 203,409 212,929
Construction in progress:
Malitbog 142,611 146,735
Mahanagdong 113,463 76,560
Indonesian and other development 54,715 11,418
Upper Mahiao - 188,904
Salton Sea Unit IV - 108,769
Total $2,223,770 $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
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
4. Income Taxes: (continued)
income tax basis of the power plants and the well and resource
development costs, and in addition, the offsetting benefits of
operating loss carryforwards and investment and geothermal energy
tax credits.
5. Net Income Per Common Share:
Fully diluted earnings per common share assumes the conversion at
the beginning of the year of the convertible debt into 3,529
common shares at a conversion price of $18.375 per share, the
conversion at the beginning of the year of the convertible
subordinated debentures into 4,444 common shares at a conversion
price of $22.50 per share, the conversion of the convertible
preferred securities of subsidiary into 3,477 common shares at a
conversion price of $29.89 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.Purchase of Falcon Seaboard Resources, Inc. and Edison Mission
Energy's Partnership Interests:
On August 7, 1996 the Company completed the acquisition of Falcon
Seaboard Resources, Inc. (the "Falcon Acquisition") for a cash
price of $226,000. Through the acquisition, the Company
indirectly acquired significant ownership interests in three
operating gas-fired cogeneration facilities and a related natural-
gas pipeline. The acquisition is accounted for as a purchase.
The plants are located in Texas, Pennsylvania and New York and
total 520 MW in capacity.
On April 17, 1996 the Company completed the acquisition of Edison
Mission Energy's partnership interests (the "Partnership Interest
Acquisition") in four geothermal operating facilities in
California for a cash purchase price of $70,000. The acquisition
is 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 Southern California
Edison ("Edison") under long-term SO4 contracts. Prior to this
transaction, the Company was a 50% owner of these facilities.
The Partnership Interest Acquisition results in CalEnergy owning
an additional 74 net MW of generating capacity.
Unaudited proforma combined revenue, net income and primary
earnings per share of the Company, Falcon Acquisition and the
Partnership Interest Acquisition (including the issuance of
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
6. Purchase of Falcon Seaboard Resources, Inc. and Edison
Mission Energy's Partnership Interest: (continued)
Salton Sea Funding Corporation Senior Secured Series D Notes and
Series E Bonds described in Note 8) for the nine months ended
September 30, 1996 as if the acquisition had occurred at the
beginning of the periods presented were $455,328, $74,499 and
$1.35, respectively, compared to $430,692, $59,049 and $1.12 for
the same period last year.
7. Conversion of Debt to Equity:
On September 20, 1996, the Company converted the $64,850
convertible debt and associated accrued interest into 3,620
common shares at a conversion price of $18.375 per share. Also
in September, the Company converted $26,245 of convertible
subordinated debentures into 1,166 common shares at a conversion
price of $22.50 per share. Substantially all of the remaining
$73,755 convertible subordinated debentures converted into 3,277
common shares in October, 1996.
8. Issuance of Convertible Preferred Securities:
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)
________________________________
9. Debt Offerings:
On September 20, 1996 the Company completed a sale to
institutional investors of $225,000 aggregate principal amount of
9 1/2% Senior Notes due 2006. The proceeds of the offering are
available to make equity investments in future domestic and
international energy projects, to fund possible project or
company acquisitions, and for other general corporate purposes.
On June 20, 1996 the Salton Sea Funding Corporation, a wholly
owned indirect subsidiary of the Company (the "Funding
Corporation"), completed a sale to institutional investors of
$135,000 aggregate amount of Senior Secured Series D Notes and
Series E Bonds ("the Notes and Bonds") which are nonrecourse to
the Company. The Funding Corporation Notes and Bonds which
mature in May 2000 and May 2011 respectively, bear an interest
rate of 7.02% and 8.30% respectively. The Funding Corporation
Notes and Bonds are rated BBB- by Standard & Poor's Corporation
and Baa3 by Moody's Investors Service, Inc. The proceeds of the
offering were used by the Funding Corporation to refinance
$96,584 of existing project level indebtedness, to fund a portion
of the purchase price for the Partnership Interest Acquisition
and for certain capital improvements at the Imperial Valley
Project.
10. Revolving Credit Facility:
On July 8, 1996 the Company obtained a $100,000 three year
revolving credit facility. The facility is unsecured and is
available to fund general operating capital requirements and
finance future business opportunities.
11. Subsequent Events:
On October 28, 1996 the Company announced that CE Electric UK
plc, which is indirectly owned on a 70% basis by the Company and
a 30% basis by Peter Kiewit Sons', Inc., has offered to pay
approximately $1,225,000 cash in an unsolicited offer to acquire
all of the ordinary shares and preference shares of Northern
Electric plc ("Northern"), a regional electricity distribution
and supply company in the United Kingdom. The offer is not being
made, directly or indirectly, in or into the United States or by
use of the mails or any means or instrumentality (including,
without limitation, facsimile transmission, telex and telephone)
of interstate or foreign commerce of, or any facilities of a
national securities exchange of, the United States and the offer
cannot be accepted by any such use, means, instrumentality or
from within the United States.
CALENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per kWh amounts)
________________________________
11. Subsequent Events: (continued)
Northern is one of the twelve UK regional electricity companies
which came into existence as a result of the restructuring and
subsequent privatization of the U.K. electricity industry in
1990. Its main business is the distribution and supply of
electricity to approximately 1.5 million customers in the North
East of England. For its fiscal year ended March 31, 1996,
Northern had a profit before tax of approximately $241,000 on
revenues of approximately $1,440,000. As of November 8, 1996, CE
Electric UK plc owned approximately 29.5% of the outstanding
ordinary shares of Northern.
On October 4, 1996 the Company closed the $120,000 project
financing for the Dieng Unit 1 55 net MW geothermal project
located in Indonesia. Dieng Unit 1 is already under construction
and is currently expected to begin commercial operation by late
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)
________________________________
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 and Leathers (collectively the Partnership Project) are
based on capacity amounts of 34, 38, 38, and 38 net MW
respectively, and for Salton Sea I, Salton Sea II, Salton Sea III
and Salton Sea IV plants (collectively the Salton Sea Project)
are based on capacity amounts of 10, 20, 49.8 and 39.6 net MW
respectively (the Partnership Project and the Salton Sea Project
are collectively referred to as the Imperial Valley Project).
Plant capacity factors for Saranac, Power Resources, Inc., NorCon
and Yuma (collectively the Gas Plants) are based on capacity
amounts of 240, 200, 80, and 50 net MW, respectively. 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 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 payment is 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.
The fixed energy price periods of the Partnership Project SO4
Agreements extended until February 1996 for the Vulcan
Partnership and extend until December 1998, December 1998, and
December 1999 for each of the Hoch (Del Ranch), Elmore and
Leathers Partnerships, respectively.
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 Company's SO4 Agreements provide for scheduled price period
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 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 September 30, 2004.
The Salton Sea IV Project sells electricity to Edison pursuant to
a modified SO4 agreement which provides for contract capacity
payments on 34 MW of capacity at two different rates based on the
respective contract capacities deemed attributable to the
original Salton Sea PPA option (20 MW) and to the original Fish
Lake PPA (14 MW). The capacity payment price for the 20 MW
portion adjusts quarterly based upon specified indices and the
capacity payment price for the 14 MW portion is a fixed levelized
rate. The energy payment (for deliveries up to a rate of 39.6
MW) is at a fixed price for 55.6% of the total energy delivered
by Salton Sea IV and is based on an energy payment schedule for
44.4% of the total energy delivered by Salton Sea IV. The
contract has a 30-year term but Edison is not required to
purchase the 20 MW of capacity and energy originally attributable
to the Salton Sea I PPA option after September 30, 2017, the
original termination date of the Salton Sea I PPA.
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)
For the nine months ended September 30, 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 nine months ended
September 30, 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 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.
The Upper Mahiao project was deemed complete in June, 1996 and
began receiving capacity payments pursuant to the Upper Mahiao
Energy Conversion Agreement ("ECA") in July of 1996. The project
is structured as a ten year build-own-operate-transfer ("BOOT"),
in which the Company's subsidiary CE Cebu Geothermal Power
Company, Inc. ("CE Cebu"), the project company, was 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 is sold to the PNOC - Energy Development
Corporation ("PNOC-EDC"), which is also responsible for supplying
the facility with the geothermal steam. After the 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.
PNOC-EDC is 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
pays 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 ECA are 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-denominated expenses.
Significant portions of the Capacity Fee and Energy Fee are
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.
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)
Unit I of the Malitbog project was deemed complete in July 1996.
The Malitbog Project is being built, owned and operated by
Visayas Geothermal Power Company ("VGPC"), a Philippine general
partnership that is wholly owned, indirectly, by the Company.
VGPC is selling 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 the National Power
Corporation of the Philippines.
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 Saranac Project sells electricity to New York State Electric
& Gas pursuant to a 15 year negotiated power purchase agreement
(the "Saranac PPA"), which provides for capacity and energy
payments. Capacity payments, which in 1996 total 2.1 cents per kWh,
are received for electricity produced during "peak hours" as
defined in the Saranac PPA and escalate at approximately 4.1%
annually for the remaining term of the contract. Energy payments,
which average 6.3 cents per kWh in 1996, escalate at approximately
4.4% annually for the remaining term of the contract. The
Saranac PPA expires in June of 2009.
The Power Resources Project sells electricity to Texas Utilities
Electric Company ("TUEC") pursuant to a 15 year negotiated power
purchase agreement (the "Power Resources PPA"), which provides
for capacity and energy payments. Capacity payments and energy
payments, which in 1996 are $2,930 per month and 2.86 cents per kWh,
respectively, escalate at 3.5% annually for the remaining term of
the contract. The Power Resources PPA expires in September 2003.
The NorCon Project sells electricity to Niagara Mohawk Power
Corporation ("Niagara") pursuant to a 25 year negotiated power
purchase agreement (the "NorCon PPA") which provides for energy
payments calculated pursuant to an adjusting formula based on
Niagara's ongoing Tariff Avoided Cost and the contractual Long-
Run Avoided Cost. The NorCon PPA term extends through December
2017. The Company and Niagara are currently engaged in
discussions regarding a potential restructuring or buyout and
termination of the NorCon PPA.
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 Yuma Project sells electricity to San Diego Gas & Electric
Company ("SDG&E") under an existing 30-year power purchase
contract. The energy is sold at SDG&E's Avoided Cost of Energy
and the capacity is sold to SDG&E at a fixed price for the life
of the power purchase contract. The contract term extends
through May 2024.
The following operating data represent the aggregate capacity and
electricity production of the Coso Project:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Overall capacity factor 111.5% 112.2% 109.9% 109.5%
kWh produced
(in thousands) 590,600 594,700 1,734,600 1,721,600
Installed capacity
NMW (average) 240 240 240 240
The capacity factor for the three and nine months ended September
30, 1996 compared to the same periods in 1995 reflects the
relatively consistent production at all three plants.
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 following operating data represent the aggregate capacity and
electricity production of the Partnership Project:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Overall capacity Factor106.4% 108.0% 104.4% 106.0%
kWh produced
(in thousands) 347,700 352,970 1,016,300 1,027,620
Installed capacity
NMW (average) 148 148 148 148
The overall capacity factor for the Partnership Project decreased
for the third quarter of 1996 compared to the third quarter of
1995 due to decreased production at the Vulcan plant. The
overall capacity factor decreased for the nine months ended
September 30, 1996 compared to the same period in 1995 primarily
due to scheduled turbine overhauls at Leathers and Elmore in the
first quarter of 1996.
The following operating data represent the aggregate capacity and
electricity production of the Salton Sea Project:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Overall capacity factor 97.9% 93.9% 89.6% 86.3%
kWh produced
(in thousands) 258,000 165,400 573,900 451,400
Installed capacity NMW
(weighted average)* 119.4 79.8 97.4 79.8
*The nine months ended September 30, 1996 is a weighted average
for the commencement of operations at the Salton Sea Unit IV
project.
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 overall capacity factor for the Salton Sea Project has
increased for the three and nine months ended September 30, 1996
compared to the same periods in 1995 primarily as a result of the
commencement of operations at the Salton Sea IV project.
The following operating data represents the aggregate capacity
and electricity production of the Gas Plants:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Overall capacity factor 87.1% 88.8% 88.7% 88.3%
kWh produced
(in thousands) 1,095,982 1,117,481 3,323,287 3,309,260
Installed capacity NMW 570 570 570 570
The capacity factor of the Gas Plants reflects certain
contractual curtailments. The capacity factors adjusted for
these contractual curtailments are 100.7% and 100.1% for the
three and nine months ended September 30, 1996 and 100.5% and
96.9% for the three and nine months ended September 30, 1995.
Roosevelt Hot Springs steam field supplied 100% of customer power
plant steam requirements in the third quarter of 1996. The
Company has an approximate 70% interest in the Roosevelt Hot
Springs field. The Desert Peak power plant operated at 81% of
its nine net megawatt capacity in the third quarter of 1996.
Sales of electricity and steam increased in the third quarter of
1996 to $165,487 from $102,423 for the same period in 1995, a
61.6% increase. For the nine month period ended September 30,
1996, sales of electricity and steam increased to $346,166 from
$257,157 in 1995, a 34.6% increase. These increases are primarily
the result of the Partnership Interest Acquisition, the Falcon
Acquisition, revenue from the Philippine facilities and the
commencement of commercial operations at the Salton Sea Unit IV
Project.
Income on equity investments reflects the Company's share of
equity income primarily from the Saranac Project.
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)
Royalty income decreased in the third quarter of 1996 to $980
from $5,372 in the same period in 1995, an 81.8% decrease. For
the nine months ended September 30, 1996 royalty income decreased
to $5,995 from $14,201, a 57.8% decrease. These decreases are a
result of the Company no longer recognizing royalty income
received from the Partnership Project as the Partnership Project
is now owned 100% by the Company due to the Partnership Interest
Acquisition. The Company continues to receive royalty income
from other projects not owned by the Company.
Interest and other income decreased in the third quarter of 1996
to $9,583 from $11,922 for the same period in 1995, a 19.6%
decrease. For the nine months ended September 30, 1996, interest
and other income decreased to $30,039 from $32,140, a 6.5%
decrease. These decreases are primarily a result of the Company
no longer recognizing management services income received from
the Partnership Project as the Partnership Project is now owned
100% by the Company due to the Partnership Interest Acquisition.
The Company's expenses as a percentage of sales of electricity
and steam were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
1996* 1995 1996* 1995
Plant operations (net of the
Company's management fees) 19.4% 20.4% 20.9% 22.4%
General and administration 3.9% 4.5% 4.6% 6.2%
Royalties 4.8% 7.7% 5.3% 7.1%
Depreciation and amortization 22.1% 16.8% 23.2% 18.3%
Interest (less amounts
capitalized) 22.4% 27.1% 24.6% 32.2%
72.6% 76.5% 78.6% 86.2%
*Excludes loss on equity investment in Casecnan (currently in
construction) and dividends on convertible preferred securities
of subsidiary.
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)
Plant operations increased in the third quarter of 1996 to
$32,159 from $22,458 for the same period in 1995, a 43.2%
increase. For the nine months ended September 30, 1996, plant
operations increased to $73,546 from $61,331 in 1995, a 19.9%
increase. These increases are primarily due to the Partnership
Interest Acquisition, the Falcon Acquisition and the commencement
of operations at the Salton Sea Unit IV Project.
General and administration costs increased in the third quarter
of 1996 to $6,518 from $4,600 for the same period in 1995, a
41.7% increase. For the nine months ended September 30, 1996,
corporate administration marginally decreased to $15,814 from
$15,877 in 1995, a .4% decrease. General and administration costs
continue to decrease as a percentage of revenue.
Royalty costs marginally increased in the third quarter of 1996
to $8,023 from $7,913 for the same period in 1995, a 1.4%
increase. For the nine months ended September 30, 1996, royalty
expense marginally increased to $18,294 from $18,249 in 1995, a
.2% increase.
Depreciation and amortization increased in the third quarter of
1996 to $36,587 from $17,210 for the same period in 1995, a
112.6% increase. For the nine months ended September 30, 1996,
depreciation and amortization increased to $80,300 from $47,034
in 1995, a 70.7% increase. These increases are primarily due to
the amortization of the allocated purchase price and goodwill
related to the Magma, Partnership Interest and Falcon
acquisitions, the Philippine projects and the commencement of
operations at the Salton Sea Unit IV Project.
Loss on equity investment in Casecnan reflects the Company's
interim construction period share of interest expense in excess
of capitalized interest and interest income at the Casecnan
project, which is currently in construction.
Interest expense, less amounts capitalized, increased in the
third quarter of 1996 to $37,066 from $27,717 for the same period
in 1995, a 33.7% increase. For the nine months ended September
30, 1996, interest expense, less amounts capitalized increased to
$85,062 from $82,891 in 1995, a 2.6% increase. These increases
are due to greater average outstanding debt offset by the
increase in capitalized interest on the Company's international
and domestic projects in construction.
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)
Dividends on convertible preferred securities reflect financial
expense related to these securities which were issued in April,
1996.
The provision for income taxes increased in the third quarter of
1996 to $18,325 from $12,457, for the same period in 1995, a
47.1% increase. For the nine months ended September 30, 1996,
provisions for income taxes increased to $33,862 from $24,245 in
1995, a 39.7% increase. These increases are due to higher income
before taxes and a marginal increase in the effective tax rate.
Net income available for common shareholders increased in the
third quarter of 1996 to $37,554 or $.67 per share from $27,362
or $.52 per share for the same period in 1995. For the nine
months ended September 30, 1996, net income available to common
shareholders increased to $71,287 or $1.29 per share from $49,786
or $1.02 per share.
Liquidity and Capital Resources:
The Company's cash and investments were $334,335 at September 30,
1996 as compared to $72,114 at December 31, 1995. In addition,
the Company's share of joint venture cash and investments
retained in project control accounts at September 30, 1996 was
$37,092. At December 31, 1995 the Company's share of the Coso
Project and the Partnership Project cash and investments retained
in project control accounts was $77,590. Distributions out of the
Coso project control accounts are made monthly to the Company for
operations and maintenance and capital costs and semiannually to
each Coso Project partner for profit sharing under a prescribed
calculation subject to mutual agreement by the partners. The
Company recorded separately restricted cash of $94,392 and
$149,227 at September 30, 1996 and December 31, 1995,
respectively. The restricted cash balance as of September 30,
1996 is comprised primarily of amounts deposited in restricted
accounts from which the Company will source its equity
contribution requirements relating to the Mahanagdong Project,
fund certain capital improvements at the Imperial Valley Project,
and the Company's proportionate share of Coso Project, Power
Resources, Upper Mahiao and Malitbog cash reserves for debt
service reserve funds. Also, the Company had $2,864 and $34,190
of short term investments as of September 30, 1996 and December
31, 1995, respectively.
On October 28, 1996 the Company announced that CE Electric UK
plc, which is indirectly owned on a 70% basis by the Company and
a 30% basis by Peter Kiewit Sons', Inc., has offered to pay
approximately $1,225,000 cash in an unsolicited offer to acquire
all of the ordinary shares and preference shares of Northern
Electric plc ("Northern"), a regional electricity distribution
and supply company in the United Kingdom. The proposed purchase
price would be financed from existing cash and the proceeds from
debt financing.
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)
Northern is one of the twelve UK regional electricity companies
which came into existence as a result of the restructuring and
subsequent privatization of the U.K. electricity industry in
1990. Its main business is the distribution and supply of
electricity to approximately 1.5 million customers in the North
East of England. For its fiscal year ended March 31, 1996,
Northern had a profit before tax of approximately $241,000 on
revenues of approximately $1,440,000. The offer is not being
made, directly or indirectly, in or into the United States or by
use of the mails or any means or instrumentality (including,
without limitation, facsimile transmission, telex and telephone)
of interstate or foreign commerce of, or any facilities of a
national securities exchange of, the United States and the offer
cannot be accepted by any such use, means, instrumentality or
from within the United States. As of November 8, 1996, CE
Electric UK plc owned approximately 29.5% of the outstanding
ordinary shares of Northern.
On October 4, 1996 the Company closed the $120,000 project
financing for the Dieng Unit 1 55 net MW geothermal project
located in Indonesia. Dieng Unit 1 is already under construction
and is currently expected to begin commercial operation by late
1997.
On September 20, 1996 the Company completed a sale to
institutional investors of $225,000 aggregate principal amount of
9 1/2% Senior Notes due 2006. The proceeds of the offering are
available to make equity investments in future domestic and
international energy projects, to fund possible project or
company acquisitions, for the repayment of debt and for other
general corporate purposes.
Also September 20, 1996, the Company converted the $64,850
convertible debt and associated accrued interest into 3,620
common shares at a conversion price of $18,375 per share. Also
in September, the Company converted $26,245 of convertible
subordinated debentures into 1,166 common shares at a conversion
price of $22.50 per share. Substantially all of the remaining
$73,755 convertible subordinated debentures converted into 3,277
common shares in October, 1996.
On July 8, 1996 the Company obtained a $100,000 three year
revolving credit facility of which the Company has drawn $95,000
as of October 31, 1996. The facility is unsecured and is
available to fund general operating capital requirements and
finance future business opportunities.
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)
On June 20, 1996 the Salton Sea Funding Corporation, a wholly
owned indirect subsidiary of the Company, (the "Funding
Corporation"), completed a sale to institutional investors of
$135,000 aggregate amount of Senior Secured Notes and Bonds ("the
Notes and Bonds") which are nonrecourse to the Company. The
Funding Corporation Notes and Bonds which mature in May 2000 and
May 2011 respectively, bear an interest rate of 7.02% and 8.30%
respectively. The Funding Corporation Notes and Bonds are rated
BBB- by Standard & Poor's Corporation and Baa3 by Moody's
Investors Service, Inc. The proceeds of the offering were used
by Funding Corporation to refinance $96,584 of existing project
level indebtedness at the Partnership Project, to fund a portion
of the Partnership Interest Acquisition and for certain capital
improvements at the Imperial Valley.
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.
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)
In 1995, the Company commenced development of and 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 $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.
In 1996, the Company signed an agreement with an international
mining company which provides for the extraction of minerals by
this Company at the Imperial Valley Project and 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 at least 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.
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 $320,000. The
capital structure consists of a term loan of $240,000 and
approximately $80,000 in equity contributions. OPIC and a
consortium of international commercial lenders are 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
September 30, 1996, the Company's proportionate share of draws on
the construction loan totaled $72,272, equity investments made by
a subsidiary of the Company totaled $31,580 and advances by
subsidiaries of the Company totaled $2,899. These advances will
be repaid by draws on the construction loan. 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
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)
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 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
the National Power Corporation of the Philippines.
The Malitbog Project has a total project cost of approximately
$280,000, including interest during construction and project
contingency costs. A consortium of international lenders and
OPIC have provided a total of $210,000 of construction and term
loan facilities, the $135,000 international commercial bank
portion of which is supported by political risk insurance from
OPIC. As of September 30, 1996, draws on the construction loan
totalled $132,242, the equity investments made by subsidiaries of
the Company totalled $70,000 and advances by subsidiaries of the
Company totalled $2,694. 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.
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)
The Malitbog Project is being constructed by Sumitomo Corporation
pursuant to a fixed-price, date-certain, turnkey supply and
construction contract. Unit 1 was deemed complete in late July
1996 and the Company has commenced receiving capacity payments
under the contract. Commercial operation of Unit 2 and Unit 3 is
scheduled to commence in July 1997.
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 a total of 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,
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
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)
assurance that development, financing or construction efforts on
any particular project, or the Company's efforts generally, will
be successful.
The Company believes 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 August 21, 1996, filed with the
Securities Exchange Commission.
CALENERGY COMPANY, INC.
PART II - OTHER INFORMATION
Item 1 - Legal proceedings.
As of September 30, 1996, there are no material
outstanding lawsuits.
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 September 30, 1996, the Company
filed the following:
(i) Form 8-K/A dated July 1, 1996 amending
form 8-K dated April 17, 1996 and includes the
financial statements thereto.
(ii) Form 8-K dated July 8, 1996 announcing
the definitive Purchase Agreement between CE/FS
Holding Company, Inc. and the stockholders of
Falcon Seaboard Resources Inc..
(iii) Form 8-K dated August 7, 1996
announcing the Falcon Acquisition.
(iv) Form 8-K dated August 21, 1996
announcing the Registrant is filing cautionary
statements identifying important factors that
could cause the Registrant's actual results to
differ materially from those projected in forward-
looking statements.
(v) Form 8-K/A dated August 27, 1996
amending the 8-K dated August 7, 1996 and includes
the financial statements thereto.
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: November 14, 1996 /s/Gregory E. Abel
Gregory E. Abel
Executive Vice President and
Chief Accounting Officer
/s/John G. Sylvia
John G. Sylvia
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No.
10.1 Agreement between New York State Electric & Gas
Corporation and Saranac Energy Company, Inc. dated as of
April 27, 1990 and Amendment No. 1 to Power Purchase
Agreement between New York State Electric & Gas
Corporation and Saranac Energy Company, Inc. dated
August 29, 1991.
10.2 Second Amended and Restated Agreement of Limited
Partnership of Saranac Power Partners, L.P. by and among
Saranac Energy Company, Inc. general partners and TPC
Saranac Partners One, Inc. TPC Saranac Partners Two,
Inc. and Saranac Energy Company, Inc., as Limited
Partners, dated as of May 13, 1994 and First Amendment
to Second Amended and Restated Agreement of Limited
Partnership by and among Saranac Energy Company, Inc.,
TPC Saranac Partner One, Inc., TPC Saranac Partner Two,
Inc. and General Electric Capital Corporation, dated as
of September 30, 1994.
11.0 Calculation of Earnings Per Share
15.0 Awareness Letter of Independent Accountants
27.0 Financial Data Schedule