UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________to_________________________
Commission File Number: 333-83815
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Caithness Coso Funding Corp.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3328762
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Coso Finance Partners California 68-0133679
Coso Energy Developers California 94-3071296
Coso Power Developers California 94-3102796
--------------------- ---------- ----------
(Exact names of Registrants as (State or other jurisdiction (IRS Employer
specified in their charters) of incorporation) Identification No.)
565 Fifth Avenue, 29th Floor, New York, New York 10017-2478
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(212) 921-9099
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report.)
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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
300 shares in Caithness Coso Funding Corp. as of May 13, 2005
-------------------------------------------------------------
CAITHNESS COSO FUNDING CORP.
Form 10-Q
For the Quarter Ended March 31, 2005
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Caithness Coso Funding Corp.
Unaudited balance sheets at March 31, 2005 and December 31, 2004 4
Unaudited statements of income for the three-months ended
March 31, 2005 and the three-months ended March 31, 2004 5
Unaudited condensed statements of cash flows for the three-months
ended March 31, 2005 and the three-months ended March 31, 2004 6
Notes to the unaudited financial statements 7
Coso Finance Partners and Subsidiary
Unaudited consolidated balance sheets at March 31, 2005 and
December 31, 2004 8
Unaudited consolidated statements of operations for the three-months
ended March 31, 2005 and the three-months ended March 31, 2004 9
Unaudited consolidated condensed statements of cash flows for the
three-months ended March 31, 2005 and the three-months
ended March 31, 2004 10
Notes to the unaudited consolidated financial statements 11
Coso Energy Developers
Unaudited balance sheets at March 31, 2005 and December 31, 2004 13
Unaudited statements of operations for the three-months ended
March 31, 2005 and the three-months ended March 31, 2004 14
Unaudited condensed statements of cash flows for the three-months
ended March 31, 2005 and the three-months ended March 31, 2004 15
Notes to the unaudited financial statements 16
Coso Power Developers and Subsidiary
Unaudited consolidated balance sheets at March 31, 2005 and
December 31, 2004 17
Unaudited consolidated statements of operations for the three-months
ended March 31, 2005 and the three-months ended March 31, 2004 18
Unaudited consolidated condensed statements of cash flows for the
three-months ended March 31, 2005 and the three-months
ended March 31, 2004 19
Notes to the unaudited consolidated financial statements 20
2
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
Item 3. Quantitative and Qualitative Discloure about Market Risk 28
Item 4. Control and Procedures 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 3. Defaults upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Supplemental consolidated and combined financial information for the
Coso Partnerships and Subsidiaries
Unaudited consolidated and combined balance sheets at March 31, 2005
and December 31, 2004 31
Unaudited consolidated and combined statements of operations for the
three-months ended March 31, 2005 and the three-months ended
March 31, 2004 32
Unaudited consolidated, combined and condensed statements of cash flows
for the three-months ended March 31, 2005 and the three-months
ended March 31, 2004 33
Notes to the unaudited consolidated combined financial statements 34
Item 6. Exhibits 35
3
CAITHNESS COSO FUNDING CORP.
UNAUDITED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
Assets:
Current Assets:
Accrued interest receivable................................................. $ 5,858 $ 883
Current portion of project loan from Coso Finance Partners.................. 15,100 15,100
Current portion of project loan from Coso Energy Developers................. 8,683 8,683
Current portion of project loan from Coso Power Developers.................. 11,697 11,697
------ ------
Total current assets 41,338 36,363
Project loan from Coso Finance Partners....................................... 71,750 71,750
Project loan from Coso Energy Developers...................................... 66,217 66,217
Project loan from Coso Power Developers....................................... 48,830 48,830
------ ------
Total assets $ 228,135 $ 223,160
======= =======
Liabilities and Stockholders' Equity:
Current Liabilities:
Senior secured notes:
Accrued interest payable.................................................... $ 5,858 $ 883
Current portion on project loans............................................ 35,480 35,480
------ ------
Total current liabilities 41,338 36,363
9.05% notes due December 15, 2009........................................... 186,797 186,797
Stockholders' equity........................................................ - -
-------- -------
Total liabilities & stockholders' equity $ 228,135 $ 223,160
======= =======
See accompanying notes to the unaudited financial statements
4
CAITHNESS COSO FUNDING CORP.
UNAUDITED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Interest income......................... $ 4,975 $ 5,675
Interest expense........................ (4,975) (5,675)
----- -----
Net income........................ $ - $ -
===== =====
See accompanying notes to the unaudited financial statements
5
CAITHNESS COSO FUNDING CORP.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Cash flows from investing activities - repayment of project loans...... $ 4,975 $ 5,675
Cash flows from financing activities - repayment of 9.05% notes........ (4,975) (5,675)
----- -----
Net changes in cash.................................................... $ - $ -
===== =====
See accompanying notes to the unaudited condensed financial statements
6
CAITHNESS COSO FUNDING CORP.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Organization and Operations
Caithness Coso Funding Corp. (Funding Corp.), which was incorporated on April
22, 1999, is a single-purpose Delaware corporation formed to issue senior
secured notes (Notes) for its own account and as an agent acting on behalf of
Coso Finance Partners (CFP), Coso Energy Developers (CED), and Coso Power
Developers (CPD), collectively, the "Partnerships." The Partnerships are
California general Partnerships.
On May 28, 1999, Funding Corp. sold $413,000 of Notes. Pursuant to separate
credit agreements between Funding Corp. and each Partnership, the net proceeds
from the offering of the Notes were loaned to the Partnerships. Payment of the
Notes is provided for by payments made by the Partnerships under their
respective project loans. Funding Corp. has no material assets other than the
project loans, and does not conduct any operations apart from having issued the
Notes and making the project loans to the Partnerships.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules. Management
believes that the disclosures are adequate to make the information presented not
misleading when read in conjunction with the financial statements and the notes
thereto in the audited financial statements for the year ended December 31,
2004.
The preparation of unaudited financial statements in accordance with accounting
principles generally accepted in the United States of America requires Funding
Corp. to make certain estimates and assumptions for the reporting periods
covered by the financial statements. These estimates and assumptions affect the
reported amounts of assets, liabilities, income and expenses during the
reporting period. Actual results could differ from these estimates. The
financial information herein presented reflects all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented. The
results for the interim periods are not necessarily indicative of results to be
expected for the full year.
7
COSO FINANCE PARTNERS
AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
Assets:
Current Assets:
Cash........................................................................ $ 9,434 $ 791
Restricted cash and cash equivalents........................................ 10,943 13,298
Accounts receivable, (net of allowances of $216)............................ 7,634 7,502
Prepaid expenses & other assets............................................. 404 702
Inventory................................................................... 5,350 5,357
Amounts due from related parties............................................ 1,734 1,583
------ ------
Total current assets 35,499 29,233
Restricted cash and investments................................................ 15,049 14,894
Property, plant & equipment, (net of accumulated depreciation
of $121,936 and $119,157, respectively)..................................... 133,064 133,624
Power purchase contract, (net of accumulated amortization
of $6,981 and $6,694, respectively)......................................... 7,363 7,650
Deferred financing costs, (net of accumulated amortization
of $2,624 and $2,545, respectively)......................................... 1,498 1,578
----- -----
Total assets $ 192,473 $ 186,979
======= =======
Liabilities and Partners' Capital:
Current Liabilities:
Accounts payable and accrued liabilities.................................... 2,973 4,601
Amounts due to related parties.............................................. 2,515 606
Current portion of project loan............................................. 15,100 15,100
------ ------
Total current liabilities 20,588 20,307
Other liabilities.............................................................. 15,825 15,648
Deferred revenue............................................................... 1,037 --
Amounts due to related parties................................................. 2,347 2,382
Project loan................................................................... 71,750 71,750
------ ------
Total liabilities 111,547 110,087
Partners' capital.............................................................. 80,926 76,892
------ ------
Total liabilities & partners' capital $ 192,473 $ 186,979
======= =======
See accompanying notes to the unaudited consolidated financial statements
8
COSO FINANCE PARTNERS
AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Revenues:
Energy revenues.............................................. $ 11,750 $ 11,856
Capacity and bonus payments.................................. 1,255 1,255
------ ------
Total revenues........................................ 13,005 13,111
Operating expenses:
Plant operating expense...................................... 2,102 2,735
Royalty expense.............................................. 1,934 2,226
Depreciation and amortization................................ 3,072 2,848
----- -----
Total operating expenses.............................. 7,108 7,809
Operating income...................................... 5,897 5,302
Other (income)/expenses:
Interest and other income.................................... (159) (91)
Interest expense on project loan............................. 1,943 2,184
Noncash interest expense..................................... 79 79
----- -----
Total other expenses.................................. 1,863 2,172
----- -----
Net income............................................ $ 4,034 $ 3,130
===== =====
See accompanying notes to the unaudited consolidated financial statements
9
COSO FINANCE PARTNERS
AND SUBSIDIARY
UNAUDITED CONSOLIDATED AND CONDENSED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Net cash provided by (used in) operating activities...... $ 8,668 $ 7,056
Net cash provided by (used in) investing activities...... (25) (26)
Net cash provided by (used in) financing activities...... - (7)
----- -----
Net change in cash....................................... $ 8,643 $ 7,023
===== =====
See accompanying notes to the unaudited consolidated and condensed financial statements
10
COSO FINANCE PARTNERS
AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Organization and Operation
Coso Finance Partners (CFP), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the China Lake Naval Air Weapons
Station, China Lake, California. CFP sells all electricity produced to Southern
California Edison (Edison) under a 24-year power purchase contract expiring in
2011.
(2) Basis of Presentation
The accompanying unaudited consolidated and condensed financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules.
Management believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto in the audited financial statements for the year ended
December 31, 2004.
The preparation of unaudited financial statements in accordance with accounting
principles generally accepted in the United States of America requires CFP to
make certain estimates and assumptions for the reporting periods covered by the
financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses during the reporting
period. Actual results could differ from these estimates. The financial
information herein presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for interim periods presented. The results for the
interim periods are not necessarily indicative of results to be expected for the
full year. CFP has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in energy revenues, expenses and
net income will continue.
The data for the balance sheets presented herein for March 31, 2005 and December
31, 2004 were derived from CFP's financial statements for the interim period and
fiscal year then ended and includes the effect of consolidating New CLPSI
Company, LLC ("CLPSI"), but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
(3) Variable Interest Entities
The consolidated financial statements include the accounts of CLPSI as a result
of the adoption of the Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), (FIN 46R) Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51. An entity shall be subject to consolidation according to the provisions
of FIN 46R, if, by design, the holders of the equity investment at risk lack any
one of the following three characteristics of a controlling financial interest:
(1) the direct or indirect ability to make decisions about an entity's
activities through voting rights or similar rights; (2) the obligation to absorb
the expected losses of the entity if they occur; or (3) the right to receive the
expected residual returns of the entity if they occur. The Company determined
that CLPSI is a variable interest entity under FIN 46R and was consolidated,
effective January 1, 2004. The effects on CFP's consolidated financial
statements at March 31, 2005 and December 31, 2004 were increases of $2,364 and
$2,429 to assets and liabilities, respectively.
The consolidated financial statements relating to prior periods have been
retroactively restated to consolidate the accounts of CLPSI as a direct result
of the adoption of FIN 46R. There was no cumulative effect recorded upon the
adoption of the Interpretation.
11
(4) Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity
delivered and sold under a power purchase contract. Operating revenues are
recognized as income during the period in which electricity is delivered to
Edison.
(5) Reclassifications
Certain balances in prior years have been reclassified to conform to the
presentation adopted in the current year.
(6) Asset Retirement Obligations
In June 2001, FASB issued Statement of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas
Producing Companies. The Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of a fair value can be made, and that the
associated asset retirement costs be capitalized as part of the carrying amount
of the long-lived asset. The Statement is effective for consolidated financial
statements issued for fiscal years beginning after June 15, 2002. On January 1,
2003, CFP adopted SFAS No. 143 and estimated the restoration costs CFP expects
to incur when the land lease with the Navy expires. Under the land lease, CFP is
required to remove all property, plant, and equipment to restore the land to its
original state. As of March 31, 2005 and December 31, 2004, the accumulated
liability associated with the restoration costs was $932 and $910, respectively,
and is included in other liabilities.
12
COSO ENERGY DEVELOPERS
UNAUDITED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
Assets:
Current Assets:
Cash......................................................................... $ 7,491 $ 496
Restricted cash and cash equivalents......................................... 9,812 10,850
Accounts receivable.......................................................... 6,404 6,636
Prepaid expenses and other assets............................................ 514 930
Amounts due from related parties............................................. 491 485
------ ------
Total current assets 24,712 19,397
Restricted investments......................................................... 221 221
Investment in Coso Transmission Line Partners.................................. 2,402 2,430
Advances to New CLPSI Company, LLC............................................. 442 459
Property, plant and equipment, (net of accumulated depreciation
of $129,315 and $127,451, respectively)...................................... 122,288 123,903
Power purchase contract, (net of accumulated amortization
of $6,490 and $6,222, respectively).......................................... 14,953 15,221
Deferred financing costs, (net of accumulated amortization
of $1,821 and $1,757, respectively).......................................... 1,211 1,275
------- -------
Total assets $ 166,229 $ 162,906
======= =======
Liabilities and Partners' Capital:
Current Liabilities:
Accounts payable and accrued liabilities..................................... $ 1,602 $ 1,710
Amounts due to related parties............................................... 3,408 1,648
Current portion of project loan.............................................. 8,683 8,683
------ ------
Total current liabilities 13,693 12,041
Other liabilities............................................................ 1,295 1,263
Amounts due to related parties............................................... 26,485 26,449
Project loan................................................................. 66,217 66,217
------- -------
Total liabilities 107,690 105,970
Partners' capital.............................................................. 58,539 56,936
------- -------
Total liabilities &partners' capital $ 166,229 $ 162,906
======= =======
See accompanying notes to the unaudited financial statements
13
COSO ENERGY DEVELOPERS
UNAUDITED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Revenues:
Energy revenues......................................... $ 7,514 $ 7,872
Capacity and bonus payments............................. 1,227 1,227
----- -----
Total revenues................................... 8,741 9,099
Operating expenses:
Plant operating expense................................. 3,363 3,437
Royalty expense......................................... 182 (33)
Depreciation and amortization........................... 2,132 2,357
----- -----
Total operating expenses......................... 5,677 5,761
Operating income................................. 3,064 3,338
Other (income)/expenses:
Interest and other income............................... (279) (311)
Interest expense on project loan........................ 1,676 1,898
Noncash interest expense................................ 64 64
----- -----
Total other expenses............................. 1,461 1,651
----- -----
Net income....................................... $ 1,603 $ 1,687
===== =====
See accompanying notes to the unaudited financial statements
14
COSO ENERGY DEVELOPERS
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Net cash provided by (used in) operating activities...... $ 6,178 $ 6,474
Net cash provided by (used in) investing activities...... 817 301
Net cash provided by (used in) financing activities...... - -
----- -----
Net change in cash....................................... $ 6,995 $ 6,775
===== =====
See accompanying notes to the unaudited condensed financial statements
15
COSO ENERGY DEVELOPERS
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Organization and Operation
Coso Energy Developers (CED), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the Coso Hot Springs, China
Lake, California. CED sells all electricity produced to Southern California
Edison (Edison) under a 30-year power purchase contract expiring in 2019.
(2) Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules. Management
believes that the disclosures are adequate to make the information presented not
misleading when read in conjunction with the financial statements and the notes
thereto in the audited financial statements for the year ended December 31,
2004.
The preparation of unaudited financial statements in accordance with accounting
principles generally accepted in the United States of America requires CED to
make certain estimates and assumptions for the reporting periods covered by the
financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses during the reporting
period. Actual results could differ from these estimates. The financial
information herein presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for interim periods presented. The results for the
interim periods are not necessarily indicative of results to be expected for the
full year. CED has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in energy revenues, expenses and
net income will continue.
(3) Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity
delivered and sold under a power purchase contract. Operating revenues are
recognized as income during the period in which electricity is delivered to
Edison.
(4) Reclassifications
Certain balances in prior years have been reclassified to conform to the
presentation adopted in the current year.
(5) Asset Retirement Obligations
In June 2001, FASB issued Statement of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas
Producing Companies. The Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of a fair value can be made, and that the
associated asset retirement costs be capitalized as part of the carrying amount
of the long-lived asset. The Statement is effective for consolidated financial
statements issued for fiscal years beginning after June 15, 2002. On January 1,
2003, CED adopted SFAS No. 143 and estimated the restoration costs CED expects
to incur when the land lease with the Navy expires. Under the land lease, CED is
16
required to remove all property, plant, and equipment to restore the land to its
original state. As of March 31, 2005 and December 31, 2004, the accumulated
liability associated with the restoration costs was $1,295 and $1,263,
respectively, and is included in other liabilities.
17
COSO POWER DEVELOPERS
AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
Assets:
Current Assets:
Cash........................................................................ $ 5,882 $ 507
Restricted cash and cash equivalents........................................ 8,479 8,474
Accounts receivable, (net of allowances of $82)............................. 7,465 7,693
Prepaid expenses and other assets........................................... 359 634
Amounts due from related parties............................................ 6,428 6,421
------ ------
Total current assets 28,613 23,729
Restricted investments...................................................... 135 135
Advances to New CLPSI Company, LLC.......................................... 1,905 1,923
Property, plant and equipment, (net of accumulated depreciation
of $113,061 and $111,198, respectively)................................... 111,915 113,696
Power purchase contract, (net of accumulated amortization
of $16,999 and $16,301, respectively)..................................... 13,739 14,437
Deferred financing costs, (net of accumulated amortization
of $3,144 and $3,090, respectively)....................................... 1,031 1,085
------- --------
Total assets $ 157,338 $ 155,005
======= =======
Liabilities and Partners' Capital:
Current Liabilities:
Accounts payable and accrued liabilities.................................... $ 1,455 $ 2,372
Amounts due to related parties.............................................. 2,696 1,313
Current portion of project loan............................................. 11,697 11,697
------ ------
Total current liabilities 15,848 15,382
Other liabilities........................................................... 881 835
Project loan................................................................ 48,830 48,830
------ ------
Total liabilities 65,559 65,047
Minority interest.............................................................. 2,403 2,431
Partners' capital.............................................................. 89,376 87,527
------- -------
Total liabilities & partners' capital $ 157,338 $ 155,005
======= =======
See accompanying notes to the unaudited consolidated financial statements
18
COSO POWER DEVELOPERS
AND SUBSIDARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Revenues:
Energy revenues.......................................... $ 8,150 $ 8,422
Capacity and bonus payments.............................. 1,232 1,234
----- -----
Total revenues.................................... 9,382 9,656
Operating expenses:
Plant operating expense.................................. 2,234 2,803
Royalty expense.......................................... 1,490 1,644
Depreciation and amortization............................ 2,563 2,562
----- -----
Total operating expenses.......................... 6,287 7,009
Operating income.................................. 3,095 2,647
Other (income)/expenses:
Interest and other income................................ (162) (128)
Interest expense on project loan......................... 1,354 1,594
Noncash interest expense................................. 54 54
----- -----
Total other expenses.............................. 1,246 1,520
----- -----
Net income........................................ $ 1,849 $ 1,127
===== =====
See accompanying notes to the unaudited consolidated financial statements
19
COSO POWER DEVELOPERS
AND SUBSIDIARY
UNAUDITED CONSOLIDATED AND CONDENSED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Net cash provided by (used in) operating activities...... $ 5,492 $ 6,320
Net cash provided by (used in) investing activities...... (89) 217
Net cash provided by (used in) financing activities...... (28) (28)
----- -----
Net change in cash....................................... $ 5,375 $ 6,509
===== =====
See accompanying notes to the unaudited consolidated and condensed financial statements
20
COSO POWER DEVELOPERS
AND SUBSIDIARY
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Organization and Operation
Coso Power Developers (CPD), a general partnership, is engaged in the operation
of a 80 MW power generation facility located at the Coso Hot Springs, China
Lake, California. CPD sells all electricity produced to Southern California
Edison (Edison) under a 20-year power purchase contract expiring in 2010.
(2) Basis of Presentation
The accompanying unaudited consolidated and condensed financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules.
Management believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto in the audited financial statements for the year ended
December 31, 2004.
The preparation of unaudited financial statements in accordance with accounting
principles generally accepted in the United States of America requires CPD to
make certain estimates and assumptions for the reporting periods covered by the
financial statements. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues and expenses during the reporting
period. Actual results could differ from these estimates. The financial
information herein presented reflects all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair statement of the results for interim periods presented. The results for the
interim periods are not necessarily indicative of results to be expected for the
full year. CPD has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in energy revenues, expenses and
net income will continue.
The data for the balance sheets presented herein for March 31, 2005 and December
31, 2004 were derived from CPD's financial statements for the interim period and
fiscal year then ended and includes the effect of consolidating Coso
Transmission Line Partners ("CTLP"), but does not include all disclosures
required by accounting principles generally accepted in the United States of
America.
(3) Variable Interest Entities
The consolidated financial statements include the accounts of CTLP as a result
of the adoption of the Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), (FIN 46R) Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51. An entity shall be subject to consolidation according to the provisions
of FIN 46R, if, by design, the holders of the equity investment at risk lack any
one of the following three characteristics of a controlling financial interest:
(1) the direct or indirect ability to make decisions about an entity's
activities through voting rights or similar rights; (2) the obligation to absorb
the expected losses of the entity if they occur; or (3) the right to receive the
expected residual returns of the entity if they occur. The Company determined
that CTLP is a variable interest entity under FIN 46R and was consolidated,
effective January 1, 2004. The effects on CPD's consolidated financial
statements at March 31, 2005 and December 31, 2004 were increases of $2,403 and
$2,431, respectively, to assets and liabilities.
The consolidated financial statements relating to prior periods have been
retroactively restated to consolidate the accounts of CTLP as a direct result of
the adoption of FIN 46R. There was no cumulative effect recorded upon the
adoption of the Interpretation.
21
(4) Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity
delivered and sold under a power purchase contract. Operating revenues are
recognized as income during the period in which electricity is delivered to
Edison.
(5) Reclassifications
Certain balances in prior years have been reclassified to conform to the
presentation adopted in the current year.
(6) Asset Retirement Obligation
In June 2001, FASB issued Statement of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and amends FASB No. 19, Financial Accounting and Reporting by Oil and Gas
Producing Companies. The Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of a fair value can be made, and that the
associated asset retirement costs be capitalized as part of the carrying amount
of the long-lived asset. The Statement is effective for consolidated financial
statements issued for fiscal years beginning after June 15, 2002. On January 1,
2003, CPD adopted SFAS No. 143 and estimated the restoration costs CPD expects
to incur when the land lease with the Navy expires. Under the land lease CPD is
required to remove all property, plant, and equipment to restore the land to its
original state. As of March 31, 2005 and December 31, 2004, the accumulated
liability associated with the restorations costs was $881 and $835,
respectively, and is included in other liabilities.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Except for financial information contained herein, the matters discussed in
this quarterly report may be considered forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and subject to the safe
harbor created by the Securities Litigation Reform Act of 1995. Such statements
include declarations regarding the intent, belief or current expectations of
Caithness Coso Funding Corp. (Funding Corp.), Coso Finance Partners and
Subsidiary (the Navy I Partnership), Coso Energy Developers (the BLM
Partnership), and Coso Power Developers and Subsidiary (the Navy II
Partnership), collectively, (the Coso Partnerships) and their respective
management. Such statements may be identified by terms such as expected,
anticipated, may, will, believe or other terms or variations of such words. Any
such forward-looking statements are not guarantees of future performance and
involve a number of risks and uncertainties; actual results could differ
materially from those indicated by such forward-looking statements. Among the
important factors that could cause future operating results to differ materially
from those anticipated include, but are not limited to: (i) risks relating to
the uncertainties in the California energy market, (ii) the financial viability
of Southern California Edison ("Edison"), (iii) risks related to the operation
of geothermal power plants, (iv) the impact of avoided cost pricing along with
other pricing variables, (v) general operating risks, including resource
availability and regulatory oversight, (vi) changes in government regulation and
(vii) the effects of competition.
General
Each Coso Partnership owns an 80MW geothermal power plant, and its
respective transmission lines, wells, gathering systems and other related
facilities. The Coso Partnerships are located near one another near Coso
Junction, California. The Navy I Partnership owns Navy I and its related
facilities. The BLM Partnership owns BLM and its related facilities. The Navy II
Partnership owns Navy II and its related facilities.
22
Each Coso partnership sells 100% of the electrical energy generated at its
plant to Edison under a long-term Standard Offer No.4 power purchase agreement.
Each power purchase agreement expires after the final maturity date of the 9.05%
Series B Senior Secured Notes (Notes) issued by Funding Corp.
Each Coso partnership is entitled to the following payments under its power
purchase agreement:
* capacity payments for being able to produce electricity at certain levels.
Capacity payments are fixed throughout the life of each power purchase
agreement;
* capacity bonus payments if the Coso partnership is able to produce
electricity above a specified level. The maximum annual capacity bonus
payment available is also fixed throughout the life of each power purchase
agreement; and
* energy payments which are based on the amount of electricity the Coso
Partnership's plant actually produces.
Edison is required to make energy payments to the Coso Partnerships based
on its avoided cost of energy, which is its cost to generate electricity if it
were to produce electricity itself or buy it from another power producer rather
than buy it from the Coso Partnerships. The Edison power purchase agreements
will expire in August 2011 for the Navy I Partnership, in March 2019 for the BLM
Partnership, and in January 2010 for the Navy II Partnership.
Edison entered into an agreement (Agreement) with the Coso Partnerships on
June 19, 2001 that addressed renewable energy pricing and issues concerning
California's energy crisis. The Agreement, which was amended on November 30,
2001, established May 1, 2002 as the date the Coso Partnerships began receiving
a fixed energy rate of 5.37 cents per kWh for five (5) years in lieu of the rate
calculated based on the avoided cost of energy. Subsequent to the five year
period that expires in April 2007, Edison will be required to make energy
payments to the Coso Partnerships based on its avoided cost of energy until each
partnership's power purchase agreement expires. The California Public Utilities
Commission (CPUC) has initiated a hearing to re-evaluate the methodology of
calculating the avoided cost of energy in the future. It is not possible to
predict with accuracy the likely level of future avoided cost of energy prices.
Factors which may impact the future avoided cost of energy prices include, among
other things, the volatility of natural gas markets and regulatory issues.
Edison filed a petition for a writ of review of a January 2001 CPUC
decision, claiming that the "floor" line loss factor of 0.95 for renewable
generators violated the Public Utility Regulatory Policies Act of 1978 (PURPA).
Subsequently, the California Court of Appeals issued a decision on August 20,
2002 in response to the writs affirming the January 2001 CPUC decision, except
for the 0.95 "floor", which it rejected as an abuse of discretion by the CPUC.
While this matter was appealed to the California Supreme Court, the petition for
review was denied. The Coso Partnerships are currently evaluating potential
actions to redress this issue. Their Agreements set the line loss factor at 1.0
for all energy sold between May 2002 through April 2007. After April 2007, the
Coso Partnerships will have a line loss factor of less than 1.0, effectively
decreasing revenues if Edison's challenge to the CPUC ruling stands. The Coso
Partnerships cannot predict whether any subsequent action regarding this matter
will be successful.
In 1994, the Coso Partnerships implemented a steam-sharing program, under
the Coso Geothermal Exchange Agreement. The purpose of the steam-sharing program
is to enhance the management of the Coso geothermal resource and to optimize the
resource's overall benefits to the Coso Partnerships by transferring steam among
the Coso Partnerships. Under the steam sharing program, the partnership
receiving the steam transfer splits revenue earned from electricity generated
with the partnership that transferred the steam.
23
The Coso Partnerships are required to make royalty payments to the U.S.
Navy and the Bureau of Land Management. On November 1, 2004 the Navy I and Navy
II Partnerships' entered into a new agreement ("New Contract") with the United
States Navy terminating the existing contract that was due to expire on December
31, 2009. The New Contract and termination of the existing contracts were
disclosed on Form 8-K filed on November 2, 2004.
Under the terms of the New Contract, the royalty paid to the U.S. Navy was
restructured so that the Navy I and Navy II Partnerships pay at a rate of 15% of
gross revenues received up to an annual base revenue amount. Beyond the annual
base revenue amount, the U.S. Navy and the Navy I and Navy II Partnerships will
split the additional revenues, on a 50/50 basis, until the U.S. Navy receives a
maximum of 20% of all gross revenue.
Under the terminated contract with the U. S. Navy, the Navy I Partnership
was obligated to pay royalties for Units 2 and 3 at 20% of gross revenue through
2009 and the Navy II Partnership was obligated to pay royalties at 18% of gross
revenue through 2004, then increase to 20% through 2009. Additionally, the Navy
I Partnership was obligated to pay a royalty for Unit I consisting of the
payment of the U.S. Navy's electric bill for the China Lake Weapons Facility,
subject to an indexed reimbursement from the U.S. Navy. The reimbursement was
based on a pricing formula for tariff rates charged by Edison. Additionally,
under the terms of the terminated agreement, the Navy was compensated annually
for any savings in electrical usage at the U.S. Navy's Facility below a baseline
amount ("Conserved Power"). Upon termination of the Navy Contract, the Navy was
paid $1.2 million for Conserved Power from January 1, 2004 through October 31,
2004. The terminated contract also obligated the Navy I Partnership to fund an
escrow account so that the Navy I Partnership would pay the U.S. Navy $25
million on December 31, 2009. Accordingly, $111,000 was deposited monthly
through October 31, 2004. That provision was also terminated and a new escrow
arrangement was entered into and the amount the Navy I Partnership owes the U.S.
Navy is now $18 million. That payment is secured by the existing funds on
deposit so that funds plus accrued interest are expected to aggregate $18.0
million by December 31, 2009. Finally, in the terminated contracts the U.S. Navy
had the right to terminate the contracts at any time for their convenience.
Under the New Contract that right was eliminated.
The BLM Partnerships geothermal lease initially had a term of ten years
ending in 1998 with automatic extensions until October 31, 2035, so long as
geothermal steam is commercially produced. The royalty paid to the Bureau of
Land Management is 10% of the net value of steam produced based on a calculation
known as the netback, which is estimated and paid monthly with an annual true-up
after year-end.
The Coso Partnerships also pay other royalties at various rates which in
the aggregate are not material.
Funding Corp. is a special purpose corporation and is equally owned by each
of the Coso Partnerships. It was formed for the purpose of issuing the senior
secured notes (Notes) on behalf of the Coso Partnerships who have jointly,
severally, and unconditionally guaranteed repayment of the Notes.
On May 28, 1999, Funding Corp. issued $110.0 million of 6.80% Notes that
were due in 2001 and paid off on December 15, 2001, and $303.0 million of 9.05%
Notes due in 2009. The proceeds from the Notes were loaned to the Coso
Partnerships and are payable to Funding Corp. from payments of principal and
interest on the Notes. Funding Corp. does not conduct any other operations apart
from serving as the issuer of the Notes.
Under the depository agreement with the trustee for the Notes, the Coso
Partnerships established accounts with a depository and pledged those accounts
as security for the benefit of the holders of the Notes. All amounts deposited
with the depository are, at the direction of the Coso Partnerships, invested by
the depository in permitted investments. All revenues or other proceeds actually
received by the Coso Partnerships are deposited in a revenue account and
withdrawn upon receipt by the depository of a certificate from the relevant Coso
Partnerships detailing the amounts to be paid from funds in its respective
revenue account.
24
Capacity Utilization
For purposes of consistency in financial presentation, the plant capacity
factor for each of the Coso Partnerships is based on a nominal capacity amount
of 80MW (240MW in the aggregate). The Coso Partnerships have a gross operating
capacity that allows for the production of electricity in excess of their
nominal capacity amounts. Utilization of this operating margin is based upon a
number of factors and can be expected to vary throughout the year under normal
operating conditions.
The following data includes the operating capacity factor, capacity and
electricity production (in kWh) for each Coso Partnership on a stand-alone
basis:
Three-Months Ended
March 31
2005 2004
---- ----
Navy I Partnership (stand alone)
Operating capacity factor 101.3% 104.3%
Capacity (MW) (average) 81.06 83.40
kWh produced (000s) 175,090 180,150
BLM Partnership (stand alone)
Operating capacity factor 86.9% 89.4%
Capacity (MW) (average) 69.55 71.49
kWh produced (000s) 150,224 154,410
Navy II Partnership (stand alone)
Operating capacity factor 107.1% 109.7%
Capacity (MW) (average) 85.69 87.77
kWh produced (000s) 185,080 189,580
Total energy production for the Coso Partnerships had slight declines for
the three-months ended March 31, 2005 as compared to the same period in 2004.
The overall effort continues to maximize production through well maintenance and
capital improvements, including improvements to existing production wells and
additional steam-field piping modifications. The Coso Partnerships continue to
work on enhancing the steam utilization and efficiency of the projects through a
turbine enhancement program and additional steam-field piping modifications.
With respect to the reservoir, an injection augmentation program, aimed at
improving reservoir pressure and minimizing resource decline, is currently in
the engineering design and permitting phase. The funds necessary to implement
the capital improvement program are expected to be available from reserves
established under the Notes and from excess cash flow generated after debt
service.
Results of Operations for the Three-months ended March 31, 2005 and 2004
The following discusses the results of operations of the Coso Partnerships
for the three-months ended March 31, 2005 and 2004 (dollar amounts in tables are
in thousands, except per kWh data):
25
Revenue
Three-Months Three-Months
Ended Ended
March 31, 2005 March 31, 2004
$ Cents/kWh $ Cents/kWh
Total Operating Revenues - --------- - ---------
including steam transfers
Navy I Partnership 13,005 7.4 13,111 7.3
BLM Partnership 8,741 5.8 9,099 5.9
Navy II Partnership 9,382 5.1 9,656 5.1
The Coso Partnerships sell all electricity generated to Edison under their
respective power purchase agreement. Total operating revenues consist of
capacity payments, capacity bonus payments, and energy payments, including steam
transfers discussed above. Total operating revenues for the Coso Partnerships
remained consistent for the three-months ended March 31, 2005 as compared to the
same period in 2004.
Plant Operating Expense
Three-Months Three-Months
Ended Ended
March 31, 2005 March 31, 2004
$ Cents/kWh $ Cents/kWh
- --------- - ---------
Navy I Partnership 2,102 1.2 2,735 1.5
BLM Partnership 3,363 2.2 3,437 2.2
Navy II Partnership 2,234 1.2 2,803 1.5
Plant operating expense consists of labor and related expenses, supplies
and maintenance, property taxes, insurance, workovers and administrative
expense. The decrease in plant operating expense for the Navy I and Navy II
Partnerships for the three-months ended March 31, 2005, as compared to the same
period in 2004, was primarily due to decreased well workover costs which are
scheduled to occur later this year.
Royalty Expense
Three-Months Three-Months
Ended Ended
March 31, 2005 March 31, 2004
$ Cents/kWh $ Cents/kWh
- --------- - ---------
Navy I Partnership 1,934 1.1 2,226 1.2
BLM Partnership 182 0.1 (33) 0.0
Navy II Partnership 1,490 0.8 1,644 0.9
Royalty expense for the Navy I and Navy II Partnerships decreased for the
three-months ended March 31, 2005 as compared to the same period in 2004,
primarily due to the change in royalty structure under the terms of the New
Contract with the U.S. Navy discussed above. Royalty expense for the BLM
Partnership increased for the three-months ended March 31, 2005 as compared to
the same period in 2004, due to a large favorable adjustment in 2004 resulting
from the annual reconciliation performed in the first quarter under the netback
royalty calculation.
Depreciation and Amortization
Depreciation and amortization expense for the Navy I Partnership increased
by $224 for the three-months ended March 31, 2005 as compared to the same period
in 2004, due to an increase in capitalized assets associated with a new well
placed in service in December of 2004. Depreciation and amortization expense for
the BLM Partnership decreased by $225 for the three-months ended March 31, 2005
26
as compared to the same period in 2004, due to the older wells and plant
overhauls being fully depreciated during 2004. The effect of the Financial
Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003)
(FIN 46R) on depreciation and amortization expense for the Navy II Partnership
for the three-months ended March 31, 2005 as compared to the same period in
2004, was an increase of $61, over both periods.
Interest and Other Income
Interest and other income for the Navy I and Navy II Partnerships increased
by $68 and $34, respectively for the three-months ended March 31, 2005 as
compared to the same period in 2004, due to higher market rates for fixed income
investments during that period in 2005. The effects of FIN 46R on interest and
other income for the Navy I Partnership was an increase of $41, for the
three-months ended March 31, 2005 as compared to the same period in 2004.
Interest and other income for the BLM Partnership decreased by $32 for the
three-months ended March 31, 2005 as compared to the same period in 2004 due to
a decrease in the Dow Chemical credit partially offset by higher market rates
for fixed income investments during that period in 2005. The effect of FIN 46R
on interest and other income for the Navy II Partnership was an increase of $28,
for the three-months ended March 31, 2005 as compared to the same period in
2004.
Interest Expense
Interest expense for the Navy I, BLM and Navy II Partnerships decreased by
$241, $222 and $240, respectively, for the three-months ended March 31, 2005 as
compared to the same period in 2004, due to the reduction in the principal
amount of the project loan from Funding Corp.
Liquidity and Capital Resources
Each of the Coso Partnerships derive substantially all of their cash flow
from Edison under their power purchase agreements and from interest income
earned on funds on deposit. The Coso Partnerships have used their cash primarily
for capital expenditures for power plant improvements, resource and operating
costs, distributions to partners and payments with respect to the project loan.
The Coso Partnerships cash flow obligations over the next several years
consist of debt service payments to Funding Corp. as they come due under the
Notes. The Coso Partnerships expect to be able to meet these obligations from
operating cash flow. Historically, any excess cash after debt service has either
been reserved for capital improvements or distributed to the partners.
The Coso Partnerships' ability to meet their obligations as they come due
will depend upon the ability of Edison to meet its obligations under the terms
of the standard offer No. 4 power purchase agreements and the Coso Partnerships'
ability to continue to generate electricity. Edison's failure to pay its future
obligations may have a material adverse effect on the Coso Partnerships' ability
to make debt service payments to Funding Corp. as they come due under the Notes.
Net cash from operating activities for the Navy I Partnership increased by
$1,612 for the three-months ended March 31, 2005 as compared to the same period
in 2004, primarily due to increased net income and an increase in amounts due to
related parties during 2005. Net cash used in investing activities for the Navy
I Partnership remained constant for the three-months ended March 31, 2005 as
compared to the same period in 2004.
Net cash from operating activities for the BLM Partnership decreased by
$296 for the three-months ended March 31, 2005 as compared to the same period in
2004, primarily due to a reduction in accounts payable and accrued liabilities,
offset by an increase in amounts due to related parties. Net cash provided by
27
investing activities for the BLM Partnership increased by $516 for the same
period in 2004, primarily due to a reduction in the restricted cash requirements
associated with the Notes during 2005.
Net cash from operating activities for the Navy II Partnerships decreased
by $828 for the three-months ended March 31, 2005 as compared to the same period
in 2004 primarily due to decreased trade payable partially offset by increased
net income and amounts due from related parties. Net cash used in investing
activities for the Navy II Partnership increased by $306 for the three-months
ended March 31, 2005 as compared to the same period in 2004 primarily due to a
reduction in the restricted cash requirements associated with the Notes during
2004.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Risk Factors
Operating the Coso projects involves, among other things, general economic,
financial, competitive, legislative, legal, regulatory and other factors that
are beyond management's control. Changes in these factors could make it more
expensive to operate the Coso projects, or require additional capital
expenditures, or reduce certain benefits currently available to the Coso
Partnerships. There are a variety of other risks that affect the Coso projects,
some of which are beyond management's control, including:
o one or more of the Coso projects could perform below expected levels
of output or efficiency which would reduce revenue;
o in light of the uncertainty of the Western energy markets, Edison's
financial viability may be considered uncertain and accounts
receivable from Edison could be reduced or eliminated;
o the Coso geothermal resource could be interrupted or unavailable;
o operating costs could increase;
o changes in the regulatory structure which govern the current
operations of the Coso Partnerships.
o future competition may lead to an accelerated depletion of the
resource;
o energy prices paid by Edison could decrease or terminate;
o delivery of electrical energy to Edison could be disrupted;
o environmental problems or regulation changes could arise which could
lead to fines or a shutdown of one or more plants;
o plant units and equipment have broken down or failed in the past and
could break down or fail in the future;
o the operators of the Coso projects could suffer labor disputes;
o the government could change permit or governmental approval
requirements restricting operations;
o third parties could fail to perform their contractual obligations to
the Coso Partnerships; and
o catastrophic events, such as fires, earthquakes, explosions, floods,
severe storms or other occurrences including terrorism or war, could
affect one or more of the Coso projects, the Navy or Edison.
28
In addition, the Coso Partnerships must meet specified performance
requirements under their respective power purchase agreements during the months
of June through September to continue to qualify for the maximum capacity and
capacity bonus payments. If one or more of the events listed above occur and
substantially affect the performance of one or more of the plants during these
months, operating revenues would be significantly decreased.
Item 4. Controls and Procedures
The Registrant's Chief Executive Officer and Chief Financial Officer (the
Registrant's principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of March 31, 2005,
that the design and operation of the Registrant's "disclosure controls and
procedures" (as defined in Rules 13a-15(e) under the Securities Exchange Act of
1934, as amended ("Exchange Act")) are effective to ensure that information
required to be disclosed by the Registrant in the reports filed or submitted by
the Registrant under the Exchange Act is accumulated, recorded, processed,
summarized and reported to the Registrant's management, including the
Registrant's principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding whether or not disclosure is
required.
During the quarter ended March 31, 2005, there were no changes in the
Registrant's "internal controls over financial reporting" (as defined in Rule
13a-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, the Registrant's internal controls over
financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
General
The Coso Partnerships are currently parties to various items of litigation
relating to day-to-day operations, none of which, if determined adversely, would
be material to the financial condition and results of operations of the Coso
Partnerships, either individually or taken as a whole.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Supplemental Consolidated and Combined Financial Information for
the Coso Partnerships and Subsidiaries
The following information presents unaudited consolidated and combined
financial statements of the Coso Partnerships and Subsidiaries. These financial
statements represent a consolidated and combination of the financial statements
of Caithness Coso Funding Corp., Coso Finance Partners, Coso Energy Developers,
Coso Power Developers, New CLPSI Company, LLC and Coso Transmission Line
Partners for the periods indicated. This supplemental financial information is
29
not required by accounting principles generally accepted in the United States of
America and has been provided to facilitate a more comprehensive understanding
of the financial position, operating results and cash flows of the Coso
Partnerships and Subsidiaries as a whole, which jointly and severally guarantee
the repayment of the Notes. The unaudited consolidation and combined financial
statements should be read in conjunction with each individual Coso Partnership's
and Subsidiaries financial statements and their accompanying notes.
The financial information herein presented reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results for interim periods
presented. The results for the interim periods are not necessarily indicative of
results to be expected for the full year.
30
COSO PARTNERSHIPS
UNAUDITED CONSOLIDATED AND COMBINED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2005 2004
Assets:
Current Assets:
Cash......................................................................... $ 22,807 $ 1,794
Restricted cash and cash equivalents......................................... 29,234 32,622
Accounts receivable, net..................................................... 21,503 21,831
Prepaid expenses and other................................................... 1,277 2,266
Inventory.................................................................... 5,350 5,357
Amounts due from related parties............................................. 6,813 6,787
------ ------
Total current assets 86,984 70,657
Restricted cash and investments.............................................. 15,405 15,250
Property, plant and equipment, (net of accumulated depreciation
of $364,312 and $357,806, respectively).................................... 367,267 371,223
Power purchase contract, (net of accumulated amortization
of $30,470 and $29,217, respectively)...................................... 36,055 37,308
Deferred financing costs, (net of accumulated amortization
of $7,795 and $7,487, respectively)........................................ 3,740 3,938
------- -------
Total assets $ 509,451 $ 498,376
======= =======
Liabilities and Partners' Capital:
Current Liabilities:
Accounts payable and accrued liabilities..................................... $ 6,030 $ 8,684
Amounts due to related parties............................................... 6,780 1,865
Current portion of project loans............................................. 35,480 35,480
------ ------
Total current liabilities 48,290 46,029
Other liabilities............................................................ 18,001 17,746
Deferred revenue............................................................. 1,037 --
Amounts due to related parties............................................... 26,485 26,449
Project loan................................................................. 186,797 186,797
------- -------
Total liabilities 280,610 277,021
Partners' capital............................................................... 228,841 221,355
------- -------
Total liabilities & partners' capital $ 509,451 $ 498,376
======= =======
See accompanying notes to the unaudited consolidated and combined financial statements.
31
COSO PARTNERSHIPS
UNAUDITED CONSOLIDATED AND COMBINED
STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Revenues:
Energy revenues.......................................... $ 27,415 $ 28,150
Capacity and bonus payments.............................. 3,713 3,716
------ ------
Total revenues.................................... 31,128 31,866
Operating expenses:
Plant operating expense.................................. 7,699 8,906
Royalty expense.......................................... 3,606 3,837
Depreciation and amortization............................ 7,698 7,767
----- -----
Total operating expenses.......................... 19,003 20,510
Operating income.................................. 12,125 11,356
Other (income)/expenses:
Interest and other income................................ (531) (461)
Interest expense on project loan......................... 4,973 5,676
Noncash interest expense................................. 197 197
----- -----
Total other expenses.............................. 4,639 5,412
----- -----
Net income........................................ $ 7,486 $ 5,944
===== =====
See accompanying notes to the unaudited consolidated and combined financial statements.
32
COSO PARTNERSHIPS
UNAUDITED CONSOLIDATED COMBINED AND CONDENSED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three-Months Three-Months
Ended Ended
March 31, March 31,
2005 2004
Net cash provided by (used in) operating activities..... $ 20,338 $ 19,850
Net cash provided by (used in) investing activities..... 703 492
Net cash provided by (used in) financing activities..... (28) (35)
------ ------
Net change in cash...................................... $ 21,013 $ 20,307
====== ======
See accompanying notes to the unaudited consolidated and condensed combined financial statements.
33
COSO PARTNERSHIPS
NOTES TO THE UNAUDITED
CONSOLIDATED AND COMBINED
FINANCIAL STATEMENTS
(Dollars in thousands)
(1) Basis of Presentation
The accompanying unaudited consolidated and combined financial statements were
derived from the stand alone unaudited financial statements of Caithness Coso
Funding Corp., Coso Finance Partners and Subsidiary, Coso Energy Developers and
Coso Power Developers and Subsidiary ("the Coso Partnerships"). All intercompany
accounts and transactions were eliminated. This financial information has been
provided to facilitate a more comprehensive understanding of the financial
position, operating results and cash flows of the Coso Partnerships as a whole.
The unaudited consolidated and combined financial statements should be read in
conjunction with each individual Partnership's unaudited financial statements.
The preparation of unaudited financial statements in accordance with accounting
principles generally accepted in the United States requires the Coso
Partnerships to make certain estimates and assumptions for the reporting periods
covered by the financial statements. These estimates and assumptions affect the
reported amounts of assets, liabilities, revenues and expenses during the
reporting period. Actual results could differ from these estimates. The
financial information herein presented reflects all adjustments, consisting only
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for interim periods presented. The
results for the interim periods are not necessarily indicative of results to be
expected for the full year. The Coso Partnerships have experienced significant
quarterly fluctuations in operating results and it expects that these
fluctuations in energy revenues, expenses and net income will continue.
The data for the consolidated and combined balance sheets presented herein for
March 31, 2005 and December 31, 2004 were derived from the Coso Partnership's
financial statements for the interim period and fiscal year then ended and
includes the effect of consolidating New CLPSI Company, LLC ("CLPSI") and Coso
Transmission Line Partners ("CTLP"), but does not include all disclosures
required by accounting principles generally accepted in the United States of
America.
(2) Variable Interest Entities
The consolidated financial statements include the accounts of CLPSI and CTLP as
a result of the adoption of the Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), (FIN 46R) Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51. An entity shall be subject to consolidation according to the provisions
of FIN 46R, if, by design, the holders of the equity investment at risk lack any
one of the following three characteristics of a controlling financial interest:
(1) the direct or indirect ability to make decisions about an entity's
activities through voting rights or similar rights; (2) the obligation to absorb
the expected losses of the entity if they occur; or (3) the right to receive the
expected residual returns of the entity if they occur. The Coso Partnerships
determined that CLPSI and CTLP, the entities that holds the inventory and
transmission assets, are variable interest entities under FIN 46 (R) and were
consolidated, effective January 1, 2004. The inventory, related physical assets,
and payables were recorded as the Coso Partnership's assets and liabilities. The
impact to the Coso Partnership's future statement of operations was increased
depreciation, partially offset by other income.
The consolidated and combined financial statements relating to prior periods
have been retroactively restated to consolidate the accounts of CLPSI and CTLP
as a direct result of the adoption of FIN 46 (R). There was no cumulative effect
recorded upon the adoption of the Interpretation.
34
(3) Accounts Receivable and Revenue Recognition
Accounts receivable primarily consist of receivables from Edison for electricity
delivered and sold under a power purchase contract. Operating revenues are
recognized as income during the period in which electricity is delivered to
Edison.
(4) Reclassifications
Certain balances in prior years have been reclassified to conform to the
presentation adopted in the current year.
(5) Asset Retirement Obligations
In June 2001, FASB issued Statement of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs and amends SFAS No. 19, Financial Accounting and Reporting by Oil and Gas
Producing Companies. The Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of a fair value can be made, and that the
associated asset retirement costs be capitalized as part of the carrying amount
of the long-lived asset. The Statement is effective for consolidated financial
statements issued for fiscal years beginning after June 15, 2002. On January 1,
2003, the Coso Partnerships adopted SFAS No. 143 and estimated the restoration
costs the Coso Partnerships expects to incur when the land lease expires. Under
the land lease, the Coso Partnerships is required to remove all property, plant,
and equipment to restore the land to its original state. As of March 31, 2005
and December 31, 2004, the accumulated liability associated with the restoration
costs was $3,108 and $3,008, respectively, and is included in other liabilities.
Item 6. Exhibits
Certification of Chief Executive Officer
Certification of Chief Financial Officer
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
35
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, James D. Bishop, Sr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Caithness Coso
Funding Corp., Coso Finance Partners and Subsidiary, Coso Energy
Developers, and Coso Power Developers and Subsidiary (collectively, the
Registrant);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2005 Caithness Coso Funding Corp.
a Delaware Corporation
By: /S/ JAMES D. BISHOP, SR.
------------------------
James D. Bishop, Sr.
Director, Chairman &
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION
302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher T. McCallion, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Caithness Coso
Funding Corp., Coso Finance Partners and Subsidiary, Coso Energy
Developers, and Coso Power Developers and Subsidiary (collectively, the
Registrant);
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2005 Caithness Coso Funding Corp.
a Delaware Corporation
By: /S/ CHRISTOPHER T. MCCALLION
-----------------------------
Christopher T. McCallion
Executive Vice President
& Chief Financial Officer
Principal Financial &
Accounting Officer
Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Caithness Coso Funding Corp., Coso
Finance Partners and Subsidiary, Coso Energy Developers, and Coso Power
Developers and Subsidiary (collectively, the Registrant) on Form 10-Q for the
period ended March 31, 2005 as filed with the Securities and Exchange Commission
on the date hereof (the Report), I, James D. Bishop, Sr., Chief Executive
Officer of the Registrant, certify, to the best of my knowledge and belief,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Registrant.
Date: May 13, 2005 Caithness Coso Funding Corp.
a Delaware Corporation
By: /S/ JAMES D. BISHOP, SR.
------------------------
James D. Bishop, Sr.
Director, Chairman &
Chief Executive Officer
Exhibit 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Caithness Coso Funding Corp., Coso
Finance Partners and Subsidiary, Coso Energy Developers, and Coso Power
Developers and Subsidiary (collectively, the Registrant) on Form 10-Q for the
period ended March 31, 2005 as filed with the Securities and Exchange Commission
on the date hereof (the Report), I, Christopher T. McCallion, Chief Financial
Officer of the Registrant, certify, to the best of my knowledge and belief,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Registrant.
Date: May 13, 2005 Caithness Coso Funding Corp.
a Delaware Corporation
By: /S/ CHRISTOPHER T. MCCALLION
----------------------------
Christopher T. McCallion
Executive Vice President
& Chief Financial Officer
Principal Financial &
Accounting Officer
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.
CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
Date: May 13, 2005 By: /S/ CHRISTOPHER T. MCCALLION
----------------------------
Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO FINANCE PARTNERS AND SUBSIDIARY
a California general partnership
By: New CLOC Company, LLC,
its Managing General Partner
Date: May 13, 2005 By: /S/ CHRISTOPHER T. MCCALLION
----------------------------
Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO ENERGY DEVELOPERS
a California general partnership
By: New CHIP Company, LLC,
its Managing General Partner
Date: May 13, 2005 By: /S/ CHRISTOPHER T. MCCALLION
----------------------------
Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO POWER DEVELOPERS AND SUBSIDIARY
a California general partnership
By: New CTC Company, LLC,
its Managing General Partner
Date: May 13, 2005 By: /S/ CHRISTOPHER T. MCCALLION
----------------------------
Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)