4
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20559
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission file number: 0-10533
MAGMA POWER COMPANY
(Exact name of registrant as specified in its charter)
NEVADA 95-3694478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4365 Executive Drive, Suite 900, San Diego, CA. 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619)622-7800
Not applicable
(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. YES X NO .
24,042,915 shares of Magma Power Company common stock, par value $.10 per
share, were outstanding at September 30, 1994.
The total number of pages in this report is 19.
(This Page Intentionally Blank)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated balance sheets of Magma Power Company and its
subsidiaries as of September 30, 1994 and December 31, 1993, the
consolidated statements of operations for the nine months ended
September 30, 1994 and 1993, and cash flows for the nine months
ended September 30, 1994 and 1993, and the notes thereto, appear on
page 4 through 8 of this report.
The unaudited interim financial statements reflect all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are considered necessary for a fair presentation of the
results of the periods covered.
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
Current Assets
Cash $ 5,111 $ 18,017
Marketable securities 43,609 32,086
Partnership cash and marketable securities 25,478 22,919
Accounts receivable:
Trade 34,192 18,199
Other 20,012 14,073
Prepaid expenses and other assets 10,423 11,922
------- -------
Total Current Assets 138,825 117,216
Land 6,361 6,225
Property plant and equipment, net of accumulated
depreciation
of $64,828 and $53,166, respectively 256,561 265,215
Exploration and development costs, net of accumulated
amortization of $18,490 and $13,682, respectively 104,271 107,069
Acquisition and new project costs 28,367 13,721
Other investments 41,245 47,642
Power purchase contracts, net of accumulated
amortization
of $1,818 and $946, respectively 21,313 22,185
Other assets and deferred charges 24,480 22,762
Goodwill, net of accumulated amortization of $2,419 and 8,999 9,276
$2,122, respectively --------- ---------
$ 630,422 $ 611,311
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 7,832 $ 7,235
Accrued and other liabilities 3,605 3,463
Current portion of loans payable 37,010 36,799
-------- --------
Total Current Liabilities 48,447 47,497
-------- --------
Loans payable 151,959 189,209
Deferred income taxes 22,376 11,387
Other long-term liabilities 12,354 11,300
-------- --------
Total Non-Current Liabilities 186,689 211,896
-------- --------
Shareholders' Equity
Preferred stock, $.10 par value, 1,000,000 shares
authorized, none issued and outstanding
Common stock, $.10 par value, 30,000,000 shares
authorized,
issued and outstanding 24,042,915 and 23,989,763 2,401 2,399
shares, respectively
Additional paid-in capital 142,765 144,996
Unrealized gains (losses) from marketable securities (677) 583
Retained earnings 250,797 203,940
Total Shareholders' Equity 395,286 351,918
--------- ---------
$ 630,422 $ 611,311
========= =========
The accompanying notes are an integral part of these statements.
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES
Sales of electricity $50,592 $49,674 $124,086 $103,319
Royalties 5,628 5,569 15,062 14,885
Interest and other income 1,400 906 3,866 3,635
Management services 1,263 1,166 3,090 2,942
------- ------- -------- --------
58,883 57,315 146,104 124,781
------- ------- ------- --------
COSTS AND EXPENSES
Plant operating costs 12,723 14,404 41,208 36,622
Depreciation and amortization 5,875 6,374 17,737 15,449
Other non-plant costs 115 118 380 401
General and administrative 3,730 2,912 9,602 7,471
Interest incurred 3,301 2,724 9,262 6,881
------- ------- ------- -------
25,744 26,532 78,189 66,824
------- ------- ------- -------
Income from operations 33,139 30,783 67,915 57,957
Provision for income taxes 10,290 10,330 21,072 18,488
------- ------- ------- -------
Net income $22,849 $20,453 $46,843 $39,469
======= ======= ======= =======
INCOME PER COMMON SHARE
Assuming no dilution $0.95 $0.85 $1.95 $1.64
===== ===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING
Assuming no dilution 24,029 24,096 24,017 24,037
------ ------ ------ ------
The accompanying notes are an integral part of these statements.
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
(Dollars in thousands)
(Unaudited)
For the Nine
Months Ended
September 30,
1994 1993
Cash Flows From Operating Activities
Net income $46,843 $39,469
------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,737 15,449
Transmission credits realized 2,209 1,803
Other, net 1,848 (809)
Changes in components of working capital:
Accounts receivable (21,931) (25,326)
Partnership cash and marketable securities (2,559) 6,373
Prepaid expenses and other assets 87 (2,246)
Accounts payable and accrued liabilities 4,776 6,688
Accrued interest payable (1,102) 167
Income taxes payable (2,934) 8,646
Deferred taxes from operations 12,645 2,920
------- -------
Total adjustments 10,776 13,665
------- -------
Net cash provided by operating activities 57,619 53,134
------- -------
Cash Flows From Investing Activities
Proceeds from the sale of investments 205,686 195,545
Purchase of investments (216,060) (148,655)
Capital expenditures (8,854) (5,718)
Power plant acquisition costs (215,718)
New project development costs (11,909) (11,932)
Other, net (1,198) 1,166
------- -------
Net cash used in investing activities (32,335) (185,312)
------- -------
Cash Flows From Financing Activities
Repayment of loans payable (166,101) (10,070)
Borrowing from banks 130,000 140,000
Loan fees (3,225) --
Proceeds from the issuance of common stock 816 2,519
Other, net 320 (278)
-------- -------
Net cash provided (used) by financing activities (38,190) 132,171
-------- -------
Net increase (decrease) in cash (12,906) (7)
Cash at beginning of period 18,017 2,106
-------- -------
Cash at end of period $ 5,111 $ 2,099
======== =======
The accompanying notes are an integral part of these statements.
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
Note 1. Summary of Significant Accounting Policies:
Basis of Consolidation - The consolidated financial statements
present the assets, liabilities, revenues, costs and expenses of
Magma Power Company (the "Company"), its 100%-owned subsidiaries
and its proportionate share of partnerships in which the Company
has invested.
All significant intercompany transactions and accounts have been
eliminated.
Note 2. Loans Payable:
Loans payable consisted of the following:
September December 31,
1994 1993
Pro-rata share of partnership
non-recourse debt $ 65,157 $ 75,149
Bridge loan -- 140,000
Salton Sea debt 114,308 --
Other loans 9,504 10,859
188,969 226,008
--------- ---------
Less amounts due within one year 37,010 36,799
Loans payable due after one year $ 151,959 $ 189,209
========= =========
Loans payable at September 30, 1994 and December 31, 1993 included the
Company's pro-rata share of the debt of the Del Ranch, L.P., Elmore, L.P.,
and Leathers, L.P. partnerships. The partnership loans are non-recourse to
Magma Power Company and subsidiaries, however, it is collateralized by
substantially all of the assets of these partnerships.
On March 19, 1993, Magma entered into a $140 million unsecured one-year
term loan ("Bridge Loan") with a group of commercial banks. Proceeds from
the loan were used to finance the acquisition of the Salton Sea Plants from
Unocal. On February 28, 1994, the Company replaced the Bridge Loan with a
$130,000,000 non-recourse project level loan which is collateralized by
substantially all of the assets and power purchase contracts of the newly
acquired Salton Sea Plants. Under the secured credit agreement for this
loan, a group of international banks loaned to Salton Sea Power Generating,
L.P. and Salton Sea Brine Processing, L.P. (the "Salton Sea Partnerships"),
which own the Salton Sea Plants, $130,000,000 in the form of a six (6) year
loan at interest rates of 1.25% over LIBOR, secured by substantially all of
the assets of the Salton Sea Partnerships. Restrictions in the secured
credit agreement place limits on distribution of cash from the Salton Sea
Plants to the Company.
Note 3 . Deferred Income Taxes:
Deferred income taxes as of September 30, 1994 and December 31,
1993 represent estimated income taxes payable in the future years
as determined in accordance with SFAS 109 "Accounting for Income
Taxes."
Note 4. Net Income per Common Share:
The calculation of primary earnings per common share is based on
the weighted average number of outstanding common shares. In
computing primary earnings per common share, adjustment has been
made for common shares issuable for shares under option.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Information
On September 19, 1994, California Energy Company, Inc. delivered to the
Company and released publicly an unsolicited letter to Messrs. Pankratz and
Boeker in which California Energy made a proposal (the "Initial Proposal")
to acquire the Company for $25 a share in cash and $10 a share in
California Energy common stock.
On October 6, 1994, California Energy commenced a tender offer (the
"Offer") to purchase 12,400,000 shares of Company Common Stock for $35 net
to the seller per share as the first step of a proposed transaction in
which the shares of Company Common Stock not purchased in the Offer would
each be converted pursuant to a back-end merger (the "Merger") into the
right to receive approximately $15 in cash and California Energy common
stock with a nominal value of approximately $20. In its offer to purchase,
California Energy also announced that it had taken preliminary steps to
commence a solicitation (the "Request Solicitation") of requests for the
calling of a special meeting of the Company's stockholders at which, among
other things, the Company's stockholders would be asked to approve
expanding the size of the Company's Board of Directors from 11 to 15 and
filling the four new directorships created thereby with nominees of
California Energy.
On October 10, 1994, the Board of Directors of the Company unanimously
determined that the Offer was not in the best interests of the Company's
stockholders and unanimously recommended that the Company's stockholders
reject the Offer and not tender their shares pursuant to the Offer. This
position is detailed in the Company's Schedule 14D-9 filed with the
Securities and Exchange Commission on October 11, 1994 as amended.
On October 13, 1994, California Energy filed a preliminary call
solicitation statement (the "Request Solicitation Statement") relating to
the Request Solicitation.
On October 21, 1994, California Energy announced that it had revised the
Offer (as so revised, the "Revised Offer") so as to offer $38.50 net to the
seller per share and the terms of the Merger, which indicated that the
remaining shares would each be converted in the Merger into approximately
$18.10 in cash and California Energy common stock with a nominal value of
approximately $20.40.
On October 31, 1994, the Board of Directors of the Company announced that
it had unanimously determined that the Revised Offer was not in the best
interests of the Company's stockholders and unanimously recommended that
the Company's stockholders reject the Revised Offer and not tender their
shares pursuant to the Revised Offer. This position is detailed in
Amendment No. 5 to the Company's Schedule 14D-9, which was filed with the
Securities and Exchange Commission on October 31, 1994.
On November 1, 1994, California Energy filed a revised Request Solicitation
Statement and announced that it had extended the expiration date of the
Revised Offer until December 2, 1994 and that about 596,580 shares of
Company Common Stock (approximately 2.5% of the outstanding shares) were
tendered as of November 1.
Liquidity and Capital Resources
Operations and development activities have been financed with working
capital, the sale of Company Common Stock for cash and services, and loans
from commercial banks.
The Company has power generation projects in the development stage, both
domestic and international, which it intends to finance with a combination
of Company supplied equity and non-recourse project debt. These
development stage projects will require significant equity contributions
from the Company during the next five years. The Company believes that its
cash reserves, augmented by cash flow from its current operations, and its
ability, due to its relatively low level of debt at the corporate level, to
obtain substantial corporate loans will enable it to fund these equity
contributions.
On February 28, 1994 the Company repaid a $140,000,000 Bridge Loan used in
acquiring assets from Unocal, utilizing both Company cash and the proceeds
from a non-recourse project level six-year term loan of $130,000,000 (the
"Term Loan") collateralized by substantially all of the assets and power
purchase contracts of the three Salton Sea Plants acquired from Unocal. In
addition, a $5,000,000 working capital line of credit has been provided to
the subsidiaries owning the plants by two of the banks participating in the
Term Loan. No loans against the working capital line of credit have been
made.
Cash and marketable securities at September 30, 1994 totaled $74,198,000 of
which $48,720,000 was available for general corporate use. The remainder
of $25,478,000 is Magma's share of the cash and marketable securities of
the "Magma Partnerships," the four separate partnerships which are jointly
owned by the Company and Mission Energy Company and which own the Vulcan,
Hoch, Elmore and Leathers geothermal power plants (the "Partnership
Plants"), and the cash and marketable securities of the "Salton Sea
Partnerships," the 100% owned Magma partnerships which own the three Salton
Sea plants acquired from Unocal (the "Salton Sea Plants"). Certain
portions of these funds are earmarked for the working capital needs of the
plants. In addition, the secured credit agreements for the Hoch, Elmore
and Leathers Partnership Plants and the Term Loan for the Salton Sea Plants
place limits on distributions of cash.
Non-current investments at September 30, 1994, totaled $41,245,000
consisting of $29,676,000 in marketable securities with maturities greater
than one year which are liquid and $11,569,000 of other investments, which
are not liquid.
At September 30, 1994, loans payable (including amounts currently due)
were $188,969,000, a $37,039,000 decrease over year end 1993. The decrease
reflects the $10,000,000 debt reduction that occurred on February 28, 1994
when the $140,000,000 Bridge Loan was replaced with the $130,000,000 Term
Loan and a $9,992,000 reduction in the Company's pro-rata share of Magma
Partnership debt, a $15,692,000 reduction in Salton Sea Partnership debt,
and a $1,355,000 reduction in other debt. The Magma Partnerships debt and
the $130,000,000 Term Loan are both non-recourse to Magma Power Company and
its subsidiaries. The ratio of debt to debt-plus-equity at September 30,
1994 (inclusive of non-recourse debt) was 34 percent compared to 40 percent
at December 31, 1993. The Company has an unused and available line of
credit with Morgan Guaranty Trust Company of $25,000,000 at September 30,
1994.
Six of the seven geothermal power plants operated by the Company sell
electricity to Southern California Edison ("SCE") under Interim Standard
Offer No. 4 "ISO4" long-term power purchase contracts. Each ISO4 contract
provides for both capacity payments and energy payments. The capacity
payments remain constant throughout the life of each ISO4 contract. During
each of the first 10 years of operation (the "Initial Term"), the energy
payments are fixed pursuant to the terms of the ISO4 contract. Thereafter,
the energy payments are SCE's then-current published avoided cost of
energy. In 1994 the time period weighted average price for energy for the
six plants combined is approximately 10.6 cents per kWh. For September
1994, SCE's avoided cost of energy was 2.2 cents per kWh. Estimates of
SCE's future avoided cost of energy vary substantially, but it is expected
to remain substantially below such contract energy prices. Thus, the
revenues generated by each of the Company's six plants operating under ISO4
contracts are likely to decline significantly after their respective
initial terms expire. Such decline could have a material adverse effect on
the Company's results of operation. The initial terms expire in 1996 as to
34 megawatts of nameplate generation, in 1999 for 126 megawatts of
nameplate generation and in 2000 for the remaining 58 megawatts of
nameplate generation under ISO4 contracts.
The seventh and smallest plant (approximately 10 megawatts) sells
electricity to SCE under a negotiated power purchase contract (the
"Negotiated Contract"). The energy payment under the Negotiated Contract
was 4.8 cents per kWh in the third quarter of 1994. The capacity payment
was approximately 1.7 cents per kWh in the third quarter of 1994. Both the
energy and capacity payments adjust quarterly based on a basket of indices
for the 30-year term of the Negotiated Contract.
The Company's strategy is to mitigate the adverse impact of potentially
lower revenues in the future from its six plants with ISO4 contacts by
aggressively seeking out and developing new power generation projects in
both the United States and abroad, seeking out additional strategic
acquisitions, and continuing to find new ways to significantly reduce plant
operating costs for its existing as well as any new plants. The
competition for new power purchase contracts is intense, however, and any
contracts the Company is able to secure in the future, whether in the
United States or abroad, are likely to be on terms and conditions that are
substantially less favorable than those provided in the Company's current
ISO4 contracts.
Other than as described above and in the general information caption, the
Company is not aware of any trends or demands, events or uncertainties that
would result in or that are reasonably likely to result in, a material
change in the Company's liquidity or capital resources.
Results of Operations
Third Quarter 1994 Compared to Third Quarter 1993.
Revenues
Total revenues for the third quarter of 1994 were up $1,568,000 or 3% to
$58,883,000 as compared to $57,315,000 for the same period last year. This
increase was made up primarily of increases in the sales of electricity,
interest income and other income.
Sales of Electricity
Revenues from the sale of electricity increased $918,000 in the third
quarter of 1994 to $50,592,000. The revenue gain was due to a 7.9%
increase in the payments for "energy" under the ISO4 contracts of the four
Magma Partnership Plants. The "energy" payments under the ISO4 contracts
of two of the three Salton Sea Plants are "levelized" during their Initial
Terms. The third Salton Sea Plant does not have an ISO4 contract. Under
its "negotiated contract," the energy and capacity payments adjust
quarterly pursuant to a basket of price indices. The "capacity" payments
received by all plants were essentially unchanged during the period.
During the third quarter of 1994 and 1993, the combined "contract" and
"nameplate" capacity factors of the Magma Partnership Plants are shown in
the table below:
Third
Quarter
1994 1993
Total Kilowatt Hours produced
(kWh amounts in 000s) 352,564 349,201
Contract Capacity Factor(1) 121.4% 120.3%
Nameplate Capacity Factor(1) 107.9% 106.9%
During the third quarter of 1994, the "contract" and "nameplate" capacity
factors of the three Salton Sea Plants combined are as shown in the table
below:
Third Quarter
1994 1993
Total Kilowatt Hours produced
(kWh amounts in 000s) 162,059 167,603
Contract Capacity Factor(1) 101.2% 104.7%
Nameplate Capacity Factor(1) 92.2% 95.1%
(1) Does not exclude scheduled maintenance hours. Calculation is based on
a 92-day (2,208 hours) third quarter.
Interest and Other Income
Interest and other income increased $494,000, a 55% increase compared to
interest and other income for the same period of the prior year, reflecting
the higher cash balances available for investment and the higher short-term
interest rate environment. Cash available for investment during the same
period of the prior year was lower due to the use of cash in connection
with the acquisition of the Salton Sea Plants from Unocal.
Costs and Expenses
In the third quarter of 1994, total costs and expenses were $25,744,000
compared to costs and expenses for the same period in 1993 of $26,532,000.
This 3% decrease in total costs and expenses was composed primarily of
decreases in plant operating costs and depreciation of $1,681,000 and
$499,000, respectively, and increases of $818,000 in general and
administrative expense and $577,000 in interest expense.
The decrease in plant operating costs reflects the realization of certain
efficiencies by integrating the operations of the Magma Partnership and
Salton Sea Plants and the favorable results of the Company's ongoing
efforts to reduce operating costs.
The $818,000 increase in general and administrative costs reflects the
Company's continued devotion of more of its resources towards expansion of
business development activities by increasing staff and support services to
facilitate the planned growth of the Company.
The $577,000 increase in interest expense reflects the effect of higher
borrowing costs due to higher market interest rates. Currently,
approximately 84% of the Company's consolidated debt is floating rate debt.
Net Income
Net income was 12% higher at $22,849,000 in the third quarter of 1994 as
compared to $20,453,000 in the corresponding period of the prior year. The
increase in net income reflects the increase in electricity revenues and
interest income and the decrease in total costs and expenses.
Nine Months Ended September 30, 1994 Compared to
Nine Months Ended September, 30, 1993
Revenues
Total revenues for the first nine months of 1994 were up $21,323,000 or 17%
to $146,104,000 as compared to $124,781,000 for the same period of the
prior year. This increase was made up primarily of an increase in the
sales of electricity.
Sales of Electricity
Revenues from the sale of electricity increased $20,767,000 in the first
nine months of 1994 to $124,086,000 primarily due to the inclusion of the
revenues of the Salton Sea Plants for the full nine months of 1994. The
Salton Sea Plants contributed $15,311,000 of this revenue gain. The balance
of the revenue gain of $5,456,000 was produced by the four Magma
Partnership Plants by way of a 1% increase in the megawatt hours delivered
and an increase in the price paid for "energy" under their ISO4s with SEC.
The annual time period weighted average price of "energy" under the Magma
Partnership Plants ISO4s increased 7.9% in 1994 to 10.9 cents per kWh. The
"energy payments under the ISO4 contracts of two of the Salton Sea Plants
are "levelized" during their Initial Terms. The third Salton Sea Plan does
not have an ISO4 contract. Under its "negotiated" contract, both the
energy and capacity payments adjust quarterly based on a basket of price
indices. The "capacity" payments received by all plants were essentially
unchanged during the first nine months of 1994 compared to 1993.
The combined "contract" and "nameplate" capacity factors of the Magma
Partnership Plants are shown in the table below:
First Nine Months Fiscal
Year
1994 1993 1993
Total Kilowatt Hours produced
(kWh amounts in 000s) 1,017,707 968,941 1,305,700
Contract Capacity Factor(1) 118.1% 112.5% 113.3%
Nameplate Capacity Factor(1) 105.0% 99.9% 100.7%
(1) Does not exclude scheduled maintenance hours. Calculation is based on
a 273 day (6,552 hour) nine month period in 1994 and 1993.
The combined "contract" and "nameplate" capacity factors of the three
Salton Sea Plants during the period are shown in the table below:
Nine Months Nine Months
Ended
December 31
1994 1993
Total Kilowatt Hours produced
(kWh amounts in 000s) 474,704 495,800
Contract Capacity Factor (1) 99.9% 103.6%
Nameplate Capacity Factor (1) 90.8% 94.1%
(1) Does not exclude scheduled maintenance hours. Calculation is based on
a 273-day (6,552 hours) nine month period in 1994 and a nine month period
(6600 hours) ended December 31, 1993.
Interest and Other Income
Interest and other income increased $231,000, a 6% increase compared to
interest income for the same period of the prior year, primarily due to
higher investment earnings, reflecting the higher cash balances available
for investment and the higher short-term interest rate environment.
Costs and Expenses
In the first nine months of 1994, total costs and expenses increased
$11,365,000, a 17% increase, compared to costs for the same period in 1993.
This increase was composed primarily of a $4,586,000 increase in plant
operating costs, a $2,288,000 increase in depreciation, a $2,131,000
increase in general and administrative expense, and a $2,381,000 increase
in interest expense. The increase in plant operating costs and depreciation
primarily reflects the cost of operating the Salton Sea Plants for nine
months in 1994 compared to six months in 1993.
The $2,131,000 increase in general and administrative costs reflects the
Company's continued devotion of more of its resources towards expansion of
business development activities by increasing staff and support services to
facilitate the planned growth of the Company.
The $2,381,000 increase in interest expense over the corresponding period
of 1994 reflects the increased cost of borrowings to finance the
acquisition of the Salton Sea Plants. Interest expense related to the
Magma Partnership Plants declined as a result of lower partnership weighted-
average borrowings during the first nine months of 1994 as compared to the
same period of the prior year .
Provision for Income Taxes
The Company's effective tax rate in the first nine months of 1994 was 31
percent which was comparable to the rate in the same period of the prior
year.
Net Income
Net income was 19% higher at $46,843,000 for the first nine months of 1994
as compared to $39,469,000 in the corresponding period of the prior year.
The increase in net income reflects the addition of the earnings of the
Salton Sea Plants for nine months in 1994 compared to six months in 1993 as
well as the higher ISO4 electricity revenues received by the Partnership
Plants.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Stockholder Litigation Related to the California Energy Offer. Beginning
in September 1994, the Company and its directors were named as defendants
in three purported shareholder class action complaints. The first of
these, entitled William Steiner, et al. v. Paul M. Pankratz, et al., Case
No. 680986 (the "California Complaint"), was filed on September 20, 1994 in
the Superior Court of the State of California in and for the County of San
Diego. The second, entitled Charles Miller, et al. v. Magma Power Company,
et al., Case No. CV94-06187 (the "Nevada State Complaint"), was filed on
October 4, 1994 in the Second Judicial District Court of the State of
Nevada in and for the County of Washoe. The third, entitled William
Steiner and Charles Miller v. Magma Power Co., et al., Case No. CV-N-94-773
(the "Nevada Federal Complaint"), was filed on October 28, 1994 in the
United States District Court for the District of Nevada. On November 2,
1994, the Nevada State Complaint was dismissed without prejudice.
Plaintiff's counsel has agreed to voluntarily stay or dismiss the
California Complaint without prejudice. The Nevada Federal Complaint
alleges that the Company's directors have breached, and are continuing to
breach, their fiduciary duties to the Company's shareholders by failing to
take all reasonable steps in the face of the Initial Proposal, the Offer
and the Revised Offer. The Nevada Federal Complaint also alleges that the
Company has violated Sections 14(d) and 14(e) of the Securities Exchange
Act of 1934, as amended, by making false and misleading statements and
omissions in its Schedule 14D-9 filed with the Securities and Exchange
Commission in connection with the Offer and the Revised Offer. The Nevada
Federal Complaint seeks an order directing the Company's directors to carry
out their fiduciary duties to the Company's shareholders, damages and
costs, including attorneys and experts' fees, and other equitable relief.
Magma Power Company v. California Energy Company, Inc. et al. The Company
and its directors have been involved, since October 3, 1994, in a suit
entitled Magma Power Company v. California Energy Company, Inc., et al.
(the "California Energy Suit"). This litigation began with the Company
filing suit on October 3, 1994 in the Second Judicial District Court for
the State of Nevada in and for the County of Washoe. The suit was
subsequently removed by California Energy to the United States District
Court for the District of Nevada, where it is now pending as Case No. CV-N-
94-00719-DWH. The defendants -- California Energy and its wholly owned
subsidiary CE Acquisition Company, Inc. ("CEAC") -- have answered the
Company's complaint and filed counterclaims naming the Company and its
individual directors as counterclaim defendants. Each party has amended
its initial pleadings, and the party's claims are briefly summarized below
as they exist in pleadings on file with the court as of November 11, 1994.
California Energy and CEAC allege, based on the actions taken by the
Company and its directors in the face of the Initial Proposal, the Offer,
and the Revised Offer, that the Company's directors have violated and are
continuing to violate their fiduciary duties to the shareholders of Magma,
and that the Company has violated and is continuing to violate Section
14(e) of the Securities and Exchange Act of 1934 and the rules and
regulations promulgated thereunder. California Energy and CEAC also allege
that certain provisions of the Nevada General Corporation Law, specifically
78.378-.3793 and 78.411-78.444 of the Nevada Revised Statutes, are
unconstitutional and invalid under the federal Constitution. California
Energy and CEAC seek dismissal of the Company's claims and seeks various
forms of declaratory and injunctive relif, as well as costs, including
attorney fees, and other equitable relief. The Company alleges that the
actions taken by its directors in the face of the Initial Proposal, the
Offer, and the Revised Offer have been and will be taken consistent with
the directors' fiduciary duties to the Company's shareholders. The Company
alleges that California Energy has, through statements it has made or
failed to make in connection with its tender offer, violated Section 14(d)
and Section 14(e) of the Securities and Exchange Act and the rules and
regulations of the SEC promulgated thereunder; and the Company alleges that
California Energy has through statements it has made or failed to make in
connection with its Request Solicitation, violated Section 14(a) of the
1934 Securities and Exchange Act and the rules and regulations of the SEC
promulgated thereunder. The Company also alleges that the Nevada Business
Combination Law, specifically, 78.411-.444 of the Nevada Revised
Statues, is valid under the federal Constitution and binding upon
California Energy. The Company seeks various forms of declaratory relief,
costs, including attorneys fees, injunctive relief prohibiting California
Energy from proceeding with its Offer or Revised Offer until it provides
full and forthright corrective disclosures, and other equitable relief.
Richard Antunez v. Magma Power Company, et al. On December 11, 1992, a law
suit was filed against Magma, Dow Engineering Company ("DEC"), Gulf States,
Inc. and Coastal Conveyor Systems, Inc. by Richard Antunez, a former
employee of Red Hill Geothermal, Inc. (now Magma Operating Company) who was
injured while working at the plant owned by Leathers, L.P. The primary
contention of plaintiff is that the conveyor belt equipment he was working
on when injured was designed and/or constructed in violation of OSHA
requirements and/or without regard to the safety of the individuals
required to use the equipment. Coastal Conveyor Systems, Inc.
manufactured the conveyor belt system. Gulf States, Inc. erected the
conveyor belt system at the Leathers Facility, and DEC designed the
facility and supervised construction under contract with Magma. The
plaintiff alleges that Magma participated in the design and construction of
the facility. In a statement filed with the court in mid-1993 the plaintiff
claimed special damages of $750,000 and general damages of $3.5 million.
However, Mr. Antunez's attorneys made a settlement demand of $10.5 million
for all defendants collectively. At the time of the incident, Magma was
insured under a policy of general liability insurance issued by Lloyd's
Underwriters but Lloyd's has denied coverage. The Company is contesting
this denial. In the event Magma is found to have any liability to Mr.
Antunez, it is possible Magma Power Company will be entitled to be
indemnified by DEC or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the three months ended September 30, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K: There were no Form 8-K's filed during the three
months ended September 30, 1994.
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.
MAGMA POWER COMPANY
(Registrant)
Date: November 14, 1994 s/Jon R. Peele,
Jon R. Peele,
Executive Vice President,
Secretary and General Counsel
Date: November 14, 1994 s/Wallace C. Dieckmann
Wallace C. Dieckmann
Vice President, Chief Financial Officer
