<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 16, 1995
(Date of Report)
CALIFORNIA ENERGY COMPANY, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 1-9874 94-2213782
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
302 South 36th Street, Suite 400, Omaha, Nebraska 68131
(Address of principal executive offices, including zip code)
(402) 341-4500
(Registrant's telephone number, including area code)
NO CHANGE
(Former name or former address, if changed since last report)
<PAGE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
(c) Exhibits.
99.1 The audited consolidated balance sheets of Magma Power Company as of December 31,
1994 and 1993, and the related audited consolidated statements of income and cash flows for each
of the three years in the period ended December 31, 1994.
99.2 The unaudited consolidated balance sheets of Magma Power Company for the quarter ended March 31,
1995 and 1994, and the related unaudited consolidated statements of income and cash flows for each
of the quarterly periods ended March 31, 1995 and 1994.
</TABLE>
2
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA ENERGY COMPANY, INC.
By: /s/ John G. Sylvia
- -----------------------------------------------------------------------------
Name: John G. Sylvia
Title: Senior Vice President
and Chief Financial Officer
By: /s/ Gregory E. Abel
- -----------------------------------------------------------------------------
Name: Gregory E. Abel
Title: Vice President, Controller and
Chief Accounting Officer
Dated: May 16, 1995
3
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------- --------
<S> <C> <C>
99.1 The audited consolidated balance sheets of Magma Power Company as of
December 31, 1994 and 1993, and the related audited consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1994.
99.2 The unaudited consolidated balance sheets of Magma Power Company for the quarter
ended March 31, 1995 and 1994, and the related unaudited consolidated statements
of income and cash flows for each of the quarterly periods ended March 31, 1995
and 1994.
</TABLE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
-------------------------
REPORT ON AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(As of December 31, 1994 and 1993
and for each of the Three Years in the Period Ending December 31, 1994)
---------------------------
<PAGE>
<PAGE>
Coopers & Lybrand Letterhead
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Magma Power Company
We have audited the accompanying consolidated balance sheets of Magma Power
Company and Subsidiaries (the "Company") at December 31, 1994 and 1993, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1994. The financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Magma Power
Company and Subsidiaries at December 31, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 12, subsequent to December 31, 1994, all of the
outstanding common stock of Magma Power Company was acquired by California
Energy Company, Inc.
/s/ Coopers & Lybrand L.L.P.
San Diego, California
March 10, 1995
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International).
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992
- ---------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Revenues
Sales of electricity ......................... $158,374 $137,882 $ 72,236
Royalties .................................... 21,067 19,629 22,929
Interest and other income .................... 5,466 4,195 8,653
Management services .......................... 5,975 5,432 5,148
- ---------------------------------------------- ---------- ---------- ---------
190,882 167,138 108,966
============================================== ========== ========== =========
Cost and Expenses
Plant operating costs ........................ 52,122 49,493 33,258
Depreciation and amortization ................ 23,985 21,692 11,927
Other non-plant costs ........................ 29,983 471 800
General and administrative ................... 13,942 10,943 6,483
Interest expense ............................. 12,469 9,626 6,831
- ---------------------------------------------- ---------- ---------- ---------
132,501 92,225 59,299
- ---------------------------------------------- ---------- ---------- ---------
Income from operations ....................... 58,381 74,913 49,667
Provision for income taxes ................... 19,832 22,778 13,309
- ---------------------------------------------- ---------- ---------- ---------
Income before cumulative effect of
accounting change .......................... 38,549 52,135 36,358
Cumulative effect to January 1, 1992 of
change in accounting for income taxes ..... -- -- 17,833
- ---------------------------------------------- ---------- ---------- ---------
Net income ................................... $ 38,549 $ 52,135 $ 54,191
============================================== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31 1994 1993
- ------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
ASSETS
Cash .............................................................. $ 3,801 $ 18,017
Marketable securities and other investments ....................... 66,455 79,728
Partnership cash and marketable securities ........................ 43,172 22,919
Accounts receivable:
Trade ............................................................ 23,355 18,199
Other ............................................................ 6,495 14,073
Land .............................................................. 7,919 6,225
Property, plant and equipment, net of accumulated depreciation of
$69,324 and $53,166, respectively ................................ 252,863 265,215
Exploration and development costs, net of accumulated amortization
of $19,490 and $13,682, respectively ............................. 96,709 107,069
Acquisition and new project costs ................................. 60,348 13,721
Power purchase contracts, net of accumulated amortization of
$2,108 and $946, respectively .................................... 21,023 22,185
Other assets and deferred charges ................................. 32,166 34,684
Goodwill, net of accumulated amortization of $2,514 and $2,122,
respectively ..................................................... 9,180 9,276
- ------------------------------------------------------------------ ---------- ----------
Total Assets ..................................................... $623,486 $611,311
================================================================== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable .................................................. $ 15,319 $ 7,235
Accrued and other liabilities ..................................... 12,251 14,763
Loans payable ..................................................... 189,045 226,008
Deferred income taxes ............................................. 17,055 11,387
- ------------------------------------------------------------------ ---------- ----------
Total Liabilities ................................................ 233,670 259,393
- ------------------------------------------------------------------ ---------- ----------
Commitments and contingencies
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 24,117,914 and 23,989,763 shares,
respectively .................................................... 2,411 2,399
Additional paid-in-capital ....................................... 144,916 144,996
Unrealized gains from marketable securities ...................... -- 583
Retained earnings ................................................ 242,489 203,940
- ------------------------------------------------------------------ ---------- ----------
Total Shareholders' Equity ...................................... 389,816 351,918
- ------------------------------------------------------------------ ---------- ----------
Total Liabilities and Shareholders' Equity ....................... $623,486 $611,311
================================================================== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAINS FROM TOTAL
------------------ PAID-IN MARKETABLE RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SECURITIES EARNINGS EQUITY
-------- -------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 .... 22,927 $2,293 $126,962 $-- $ 97,617 $226,872
Other equity transactions, net 54 5 1,192 -- -- 1,197
Net income, 1992 ............. -- -- -- -- 54,191 54,191
-------- -------- ------------ ------------ ---------- ---------------
BALANCE, DECEMBER 31, 1992 .... 22,981 2,298 128,154 -- 151,808 282,260
-------- -------- ------------ ------------ ---------- ---------------
Purchase of Dow stock option
through issuance of shares . 857 86 (86) -- -- --
Tax effect of Dow option
purchase ................... -- -- 13,581 -- -- 13,581
Unrealized gains from
marketable securities ...... -- -- -- 583 -- 583
Other equity transactions, net 152 15 3,347 -- (3) 3,359
Net income, 1993 ............. -- -- -- -- 52,135 52,135
-------- -------- ------------ ------------ ---------- ---------------
BALANCE, DECEMBER 31, 1993 ..... 23,990 2,399 144,996 583 203,940 351,918
-------- -------- ------------ ------------ ---------- ---------------
Adjustment to tax effect of
Dow option purchase ........ -- -- (3,045) -- -- (3,045)
Net change in unrealized gains
from marketable securities . -- -- -- (583) -- (583)
Other equity transactions, net 127 12 2,965 -- -- 2,977
Net income, 1994 ............. -- -- -- -- 38,549 38,549
-------- -------- ------------ ------------ ---------- ---------------
BALANCE, DECEMBER 31, 1994 ..... 24,117 $2,411 $144,916 $-- $242,489 $389,816
======== ======== ============ ============ ========== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992
- ------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................... $ 38,549 $ 52,135 $ 54,191
- ------------------------------------------------- ----------- ----------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 23,985 21,692 11,927
Write-off of Junior SO4 receivable ............ 14,502 -- --
Realization of transmission line credits ..... 2,947 2,538 1,444
Other, net .................................... 2,250 (639) (3)
Cumulative adoption of SFAS 109 ............... -- -- (17,833)
Changes in components of working capital:
Accounts receivable .......................... (12,081) (8,333) (8,529)
Partnership cash and marketable securities .. (20,253) (2,195) (1,233)
Prepaid expenses and other assets ............ 1,224 (2,253) 585
Accounts payable and accrued liabilities .... 14,099 2,845 501
Accrued interest payable ..................... (766) 719 (395)
Income taxes payable ......................... 344 7,605 (301)
Deferred taxes from operations ............... 8,168 7,485 6,684
----------- ----------- ----------
Total adjustments ........................... 34,419 29,464 (7,153)
- ------------------------------------------------- ----------- ----------- ----------
Net cash provided by operating
activities ................................ 72,968 81,599 47,038
- ------------------------------------------------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in marketable securities 7,473 38,695 (10,678)
Capital expenditures ............................ (15,215) (8,434) (12,043)
Power plant acquisition costs ................... -- (215,081) (22,527)
New project development costs ................... (42,830) (12,345) (3,749)
Other, net ...................................... (527) 1,893 (667)
- ------------------------------------------------- ----------- ----------- ----------
Net cash used in investing activities ..... (51,099) (195,272) (49,664)
- ------------------------------------------------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing from banks ............................ 130,000 140,000 --
Proceeds from the issuance of common stock ..... 2,977 -- 691
Repayment of loans payable ...................... (166,020) (10,081) (9,501)
Loan fees ....................................... (3,225) -- --
Other, net ...................................... 183 (335) 841
- ------------------------------------------------- ----------- ----------- ----------
Net cash provided by (used in) financing
activities ................................ (36,085) 129,584 (7,969)
- ------------------------------------------------- ----------- ----------- ----------
Net increase (decrease) in cash ................. (14,216) 15,911 (10,595)
Cash at beginning of year ....................... 18,017 2,106 12,701
- ------------------------------------------------- ----------- ----------- ----------
Cash at end of year ............................. $ 3,801 $ 18,017 $ 2,106
================================================= =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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" or "Magma") and its 100% owned subsidiaries and partnerships,
Imperial Magma, Vulcan Power Company ("Vulcan"), Magma Operating Company
("MOC"), Desert Valley Company ("Desert Valley"), Fish Lake Power Company
("FLPC"), Magma Land I ("MLI"), Salton Sea Power Company, Salton Sea Brine
Processing, L.P., Salton Sea Power Generation, L.P., Peak Power Corporation
("Peak Power"), Magma Netherlands, B.V., Tongonan Power Investments, Inc.,
Visayas Geothermal Power Company, and its pro-rata 50% share of the accounts
of Del Ranch, L.P., Elmore, L.P., Leathers, L.P., Vulcan/BN Geothermal Power
Company and Magma/GEO '83 Joint Venture.
All significant intercompany transactions and accounts have been eliminated.
REVENUE RECOGNITION -- Sales of electricity represents the Company's pro-rata
50% share of the revenue accrued by Del Ranch, L.P. (Hoch Plant), Elmore,
L.P. (Elmore Plant), Leathers, L.P. (Leathers Plant), and Vulcan/BN
Geothermal Power Company (Vulcan Plant) (collectively, the "Partnerships")
and its 100% owned interest in Salton Sea Power Generation, L.P., from sales
to Southern California Edison Company ("SCE"). SCE is a subsidiary of
SCEcorp. SCEcorp is the parent corporation of Mission Energy Company which,
through its subsidiaries, owns 50% of the Partnerships.
Each of the Partnerships sells electricity to SCE under Interim Standard
Offer No. 4 contracts ("ISO4s"). For the first ten years the price paid for
energy under these ISO4s is fixed and escalates at an average rate of 7.5%
per year. The price paid for capacity (including bonus capacity), on the
other hand, is fixed for the entire thirty-year term of the ISO4s.
Two of the Salton Sea Plants (see Note 2) sell electricity to SCE pursuant to
ISO4s under which the capacity payments (including bonus capacity) are fixed
for the full thirty-year term of the ISO4s. During the first ten years of
these two ISO4s, the energy payments are fixed (and do not escalate).
Starting in 1996 for the Vulcan Plant, 1999 for the Hoch Plant, Elmore Plant,
Salton Sea Plant 3, and 2000 for the Leathers Plant and the Salton Sea Plant
2, the price for energy under the ISO4s for these plants will automatically
convert to the SCE's then-current published avoided cost of energy.
6
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The remaining 10 MW Salton Sea Plant 1 sells electricity to SCE pursuant to a
negotiated contract under which both the capacity and the energy portions of
the revenues adjust quarterly based on a basket of indices.
Royalties, management service fees, and rental income contractually payable
to the Company by the Partnerships are recorded net of the Company's pro-rata
50% share of the corresponding partnership expense.
PROPERTY, PLANT, AND EQUIPMENT -- Land is carried at cost. Buildings, plants,
and equipment are carried at cost less accumulated depreciation. Exploration
and development costs are carried at cost less accumulated amortization. The
Company follows the full cost method of accounting for costs incurred in
connection with the exploration and development of geothermal resources. All
such costs, which include dry hole costs and the costs of drilling and
equipping wells, are capitalized and amortized over their estimated useful
lives when production commences.
Depreciation and amortization are computed using the straight-line method
over the asset's useful life.
Useful lives are as follows:
<TABLE>
<CAPTION>
<S> <C>
Plant and plant equipment 20 years
Office furniture and equipment 5-10 years
Maintenance and other equipment 7-10 years
Exploration and development costs 20 years
</TABLE>
When property, plant and equipment is sold or abandoned, the cost and related
accumulated depreciation/ amortization are removed from the accounts and the
resulting gain or loss is recognized currently.
DEFERRED WELL REWORK COSTS -- The Company defers all well rework costs and
amortizes them over the estimated period between reworks. Production wells
are amortized using a units of production method while injection wells are
amortized on a straight-line basis over eighteen months. Deferred well rework
costs of $5,368,000 in 1994 and $6,254,000 in 1993 are included in other
assets and deferred charges.
7
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
POWER PURCHASE CONTRACTS -- Power purchase contracts are carried at cost less
accumulated amortization. Contract costs are amortized on a straight-line
basis over the shorter of the remaining contract life or twenty years. The
amortization begins at the date of acquisition, for contracts in service, or
the date of firm operations. Amortization expense amounted to $1,162,000 in
1994, $858,000 in 1993, and $25,000 in 1992.
GOODWILL -- In a merger which was effective March 11, 1988, Magma Power
Company became successor in interest to all of the assets and obligations of
Magma Energy. The excess of the value of stock issued over the fair market
value of the assets acquired was recorded as goodwill and is being amortized
on the straight-line method over a period of thirty years. Amortization
expense amounted to $365,000 in 1994, 1993, and 1992.
MARKETABLE SECURITIES AND OTHER INVESTMENTS -- At December 31, 1993,
marketable securities were classified as "available-for-sale" and are carried
at their fair value. Gross unrealized holding gains are excluded from
earnings and reported, net of related tax effect, as a separate component of
Shareholders' Equity. At December 31, 1994, marketable securities were
classified as "held-to-maturity" and reported at amortized cost. Realized
gains and losses are determined using the specific identification method and
are included in other income. Other investments are carried at cost which
approximates market value.
RETIREMENT PLANS -- The Company maintains two defined contribution plans,
covering all eligible employees, which are funded annually. Contributions to
the plans totaled $1,239,000 in 1994, $1,213,000 in 1993, and $963,000 in
1992.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For purposes of the Statements of
Cash Flows, the Company considers bank and money market deposits as cash.
Partnership cash and marketable securities are not considered cash
equivalents as these assets are segregated for exclusive use of the
Partnerships and the Salton Sea Plants and restrictions in secured credit
agreements place limits on distributions of cash to the Company.
Interest paid was $13,235,000 in 1994, net of $708,000 capitalized to new
projects, $8,407,000 in 1993, and $5,514,000 in 1992.
RECLASSIFICATION -- The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format. Such
reclassification did not impact previously reported net income or retained
earnings.
8
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. GEOTHERMAL POWER PARTNERSHIPS:
The Vulcan partnership was formed in 1985 with equal ownership between Vulcan
Power Company, a 100% owned subsidiary of Magma Power Company and BN
Geothermal, Inc., a wholly owned subsidiary of Mission Energy Company.
Similarly, the Del Ranch, Elmore and Leathers partnerships were formed in
1988 with equal ownership between Magma Power Company and Mission Energy
Company.
In March 1993, the Company formed Salton Sea Brine Processing, L.P. to hold
the well field and brine processing equipment acquired from Union Oil Company
of California ("Unocal") and Salton Sea Power Generation, L.P. to hold the
power generating assets acquired from Desert Power Company and Earth Energy
Inc., both wholly owned subsidiaries of Unocal (collectively the "Salton Sea
Plants"). Ownership of Salton Sea Brine Processing, L.P. is 1% Salton Sea
Power Company and 99% Magma Power Company. Ownership of Salton Sea Power
Generation, L.P. is 99% Salton Sea Brine Processing, L.P. and 1% Salton Sea
Power Company.
Visayas Geothermal Power Company ("VGPC"), a Philippine general partnership,
was formed on February 2, 1994 to develop, construct, own and operate a
facility (the "Malitbog Project") located at Malitbog on the island of Leyte,
Republic of the Philippines for the conversion of geothermal steam into
electricity and having an expected power generating capacity of 231 gross MW.
A Philippine branch of Magma Netherlands B.V., a Netherlands corporation
("Magma Netherlands") is the managing general partner and 99% partner of the
VGPC. The remaining 1% interest is owned by Tongonan Power Investments, Inc.
("TPII"), a Philippine corporation and general partner. Magma Netherlands and
TPII are wholly owned subsidiaries of Magma Power Company.
NOTE 3. MARKETABLE SECURITIES AND OTHER INVESTMENTS:
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities." At December 31, 1993, all debt and equity securities were
classified as available-for-sale and carried at fair value. Gross unrealized
holding gains of $836,000 were recorded, net of tax effect, at December 31,
1993. During 1994, the Company reclassified all of its outstanding
investments previously classified as available-for-sale to investments
classified as held-to-maturity. At the time of the transfer, the fair market
value of the investments approximated their amortized cost.
9
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. MARKETABLE SECURITIES AND OTHER INVESTMENTS: (CONTINUED)
At December 31, the amortized cost basis of marketable securities and other
investments consisted of the following:
<TABLE>
<CAPTION>
SECURITIES MATURITIES
(MATURING UNREALIZED OF
WITHIN GAINS OTHER
(DOLLARS IN THOUSANDS) ONE YEAR) OTHER (LOSSES) SECURITIES
- ------------------------------------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
1994
- -------------------------------------
Marketable debt and equity securities
Commercial paper $19,951 $ -- $ --
U.S. Treasuries and agencies 810 16,762 (982) 2-5 years
Corporate medium-term notes 5,000 10,894 (674) 2-5 years
Municipal tax exempts 3,000 -- --
Other investments
Low income housing limited
partnerships -- 8,324 --
Other -- 1,714 --
- ------------------------------------- ------------ --------- ------------ ------------
Total $28,761 $37,694 $(1,656)
===================================== ============ ========= ============ ============
1993
- -------------------------------------
Marketable debt and equity securities
Commercial paper $ 4,986 $ -- $ --
Auction rate preferred stock 23,100 -- --
U.S. Treasuries and agencies 4,000 12,572 414 2-5 years
U.S. Treasuries and agencies -- 5,000 84 6-10 years
Corporate medium-term notes -- 6,894 199 2-5 years
Corporate medium-term notes -- 4,000 139 6-10 years
Municipal tax exempts -- 3,000 -- 2-5 years
Other investments
Low income housing limited
partnerships -- 8,333 --
Other -- 7,007 --
- ------------------------------------- ------------ --------- ------------ ------------
Total $32,086 $46,806 $ 836
===================================== ============ ========= ============ =============
</TABLE>
NOTE 4. OTHER NON-PLANT COSTS:
During 1994, the Company wrote-off its entire outstanding accrued Junior SO4
royalty receivable from GEO East Mesa. The write-off amounted to $14,502,000
and is included in other non-plant costs on the accompanying statements of
operations. The write-off was deemed necessary due to the inability of the
East Mesa Plant to convert its construction loans into a term loan as had
been expected to occur in 1994. Conversion of the construction loans into a
term loan, which is a prerequisite to the Company collecting the Junior SO4
royalties, has been placed on indefinite hold.
10
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. OTHER NON-PLANT COSTS: (CONTINUED)
Upon the signing of the Merger Agreement between Magma and California Energy
Company, Inc. on December 9, 1994 (See Note 12), terminated Magma personnel
were entitled to receive severance benefits under existing change of control
agreements. For the year ended December 31, 1994, the Company accrued
$5,195,000 relating to the change of control agreements in other non-plant
costs in the accompanying statements of operations.
Also included in other non-plant costs in the accompanying statements of
operations were $9,861,000 in merger expenses incurred by the Company for
legal, financial advisory and other services used during 1994.
NOTE 5. PROPERTY, PLANT, AND EQUIPMENT:
Property, plant, and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
- ------------------------------------ ---------- ----------
<S> <C> <C>
Plant, plant equipment and buildings $304,145 $301,246
Maintenance and other equipment 15,581 14,963
Office furniture and equipment 2,461 2,172
- ------------------------------------ ---------- ----------
322,187 318,381
Less accumulated depreciation 69,324 53,166
- ------------------------------------ ---------- ----------
Property, plant and equipment, net $252,863 $265,215
==================================== ========== ==========
</TABLE>
NOTE 6. ACQUISITION AND NEW PROJECT COSTS:
On December 15, 1992, the Company signed a definitive agreement with Unocal
to purchase all of Unocal's geothermal interests in the Imperial Valley of
California including the Salton Sea Plants and 40,600 acres of geothermal
leases, its Long Valley geothermal leases, consisting of approximately 12,000
acres near Mammoth, California and its 58,300 acres of geothermal leases in
Nevada. On March 31, 1993, the Company consummated its acquisition of the
Imperial Valley geothermal interests. Total cost includes (i) payments to
Unocal consisting of the purchase price of $224 million, working capital of
$7.3 million, and an
11
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. ACQUISITION AND NEW PROJECT COSTS: (CONTINUED)
interest charge of $3.5 million and (ii) advisory fees and transaction costs
totaling $3.4 million. The total cost of the acquisition was allocated as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ---------------------------------- ---------
<S> <C>
Land .............................. $ 388
Property, plant and equipment .... 163,948
Exploration and development costs 44,094
Power purchase contracts .......... 22,217
Transmission line credits ......... 6,254
Other ............................. 1,278
- ---------------------------------- ---------
$238,179
================================== =========
</TABLE>
In addition to the initial acquisition price, the Company will make payments
to Unocal contingent on future development of new power generation capacity.
The Company plans to build a new 36 MW geothermal power plant at the Salton
Sea Known Geothermal Resource Area in Southern California to supply power to
SCE under two long term power purchase contracts (the "Region I Expansion
Project").
The contracts consist of the combination of a 16 MW Interim Standard Offer
No. 4 contract originally assigned to the Company's geothermal resource at
Fish Lake, Nevada, and a 20 MW expansion option under a negotiated contract
that was acquired as part of the Company's acquisition of Unocal's Salton Sea
Plants.
The definitive agreement between the Company and SCE to combine the contracts
is subject to final review and approval by the California Public Utilities
Commission. The Company expects approval to be granted during 1995. The
Company is currently engaged in exploratory and well field development
activities, which are preparatory to constructing a power plant.
During 1994, VGPC began construction on the Malitbog Project, having an
estimated total project cost of approximately $280 million. The Malitbog
Project will consist of three steam turbine generating units (the "Generating
Units"), each with a net power generating capacity of approximately 74.1 MW.
Construction will occur in two phases: the Initial Phase, consisting of a
single Generating Unit, is scheduled for completion by July 1996, and the
Second Phase, consisting of the remaining two Generating Units, is scheduled
for completion by July 1997.
12
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. ACQUISITION AND NEW PROJECT COSTS: (CONTINUED)
VGPC has entered into an energy conversion agreement (the "ECA") with
PNOC-Energy Development Corporation ("PNOC-EDC") to generate electricity
utilizing geothermal steam supplied by PNOC-EDC and deliver the electricity
to the Philippine National Power Corporation ("NAPOCOR") on behalf of
PNOC-EDC. PNOC-EDC is a wholly owned subsidiary of the Philippine National
Oil Company ("PNOC"). The Republic of the Philippines owns both PNOC and
NAPOCOR. The ECA is structured on a "take-or-pay" basis and will expire ten
years after the commercial operation date of the third Generating Unit. Upon
expiration of the ECA, VGPC will transfer the facilities to PNOC-EDC, on an
"as is" basis, without cost or compensation, and free of any liens created by
VGPC.
VGPC has entered into a Turnkey Design and Construction Agreement ("TDCA")
with Sumitomo Corporation ("Sumitomo") covering the design and construction
of the Generating Units. The TDCA is, with limited exceptions, a fixed price
turnkey construction contract under which VGPC will pay $190,932,000 to
Sumitomo in accordance with monthly progress payments. Pursuant to a
reimbursement undertaking, Magma has agreed to reimburse Sumitomo for draws,
if any, by PNOC-EDC on a $21,600,000 construction bond provided by Sumitomo
on behalf of VGPC for liquidated damages relating to completion and
performance guarantees other than for draws for which Sumitomo is responsible
under the TDCA.
New project costs as of December 31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
- --------------------------- --------- ---------
<S> <C> <C>
Region I Expansion Project $16,848 $13,721
Malitbog Project ........... 39,542 --
Other ...................... 3,958 --
- --------------------------- --------- ---------
$60,348 $13,721
=========================== ========= =========
</TABLE>
13
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. LOANS PAYABLE:
At December 31, loans payable consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
- ------------------------------------------------- ---------- ---------
<S> <C> <C>
Pro-rata portion of Partnership non-recourse debt $ 65,238 $ 75,149
Salton Sea Term Loan ............................. 114,308 --
Bridge Loan ...................................... -- 140,000
Other loans ...................................... 9,499 10,859
---------- ---------
189,045 226,008
Less amount due within one year .................. 37,013 36,799
---------- ---------
Loans payable due after one year ................. $152,032 $189,209
========== =========
</TABLE>
Loans payable at December 31, 1994 and 1993 included the Company's pro-rata
share of the debt of the Del Ranch, Elmore, and Leathers partnerships which
is non-recourse to Magma Power Company and subsidiaries, however, it is
collateralized by substantially all of the assets of these partnerships. A
secured credit agreement with a group of international banks, with Morgan
Guaranty Trust Company ("Morgan") as the agent bank, provides for direct bank
loans at specified premiums over a choice of either the bank's prime rate,
the London Interbank Offered Rate ("LIBOR") or the CD Base rate. As an
alternative, each partnership may elect to issue commercial paper and
medium-term notes supported by letters of credit issued by Fuji Bank,
Limited, which are secured, in turn, by the project debt facility with
Morgan. The fair value of the commercial paper and medium-term notes
approximates their carrying value.
The partnerships had no direct bank borrowings at December 31, 1994 and 1993.
The weighted average effective interest rates of the commercial paper and
medium-term notes outstanding at December 31, was 6.6% in 1994 and 5.5% in
1993. During 1994 and 1993, the Company's pro-rata share of the partnerships'
weighted average borrowings was $68,799,000 and $77,616,000, respectively,
with weighted average effective interest rates of 6.3% and 5.6% for the
corresponding periods.
The loans of each partnership are reduced by twenty-five semi-annual
principal payments in March and September of each year. The last principal
payment is scheduled for September 15, 2001 for the Del Ranch and Elmore
loans and September 15, 2002 for the Leathers loan.
14
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. LOANS PAYABLE: (CONTINUED)
On March 19, 1993, the Company entered into a one-year $140,000,000 term loan
(the "Bridge Loan") with a group of commercial banks. Proceeds of the loan
were used to finance the acquisition of the Imperial Valley geothermal
interests. Interest on the loan accrued at LIBOR plus .675%.
On February 28, 1994, the Company replaced the Bridge Loan with a
$130,000,000 non-recourse project level debt (the "Salton Sea Term Loan")
which is collateralized by substantially all of the assets of the Salton Sea
Plants. A secured credit agreement with a group of international banks, with
Credit Suisse as the agent bank, provides for direct loans at LIBOR plus
1.25%. The amortization of loan fees associated with the Salton Sea Term Loan
will increase effective borrowing costs by approximately 1% using the
implicit interest method. The fair value of the Salton Sea Term Loan
approximates its carrying value.
The loans are reduced by twelve semi-annual principal payments in March and
September of each year. The last principal payment is scheduled for March 15,
2000.
Other loans consist of a ten-year $4,000,000 tax exempt debt financing
guaranteed by Magma Power Company on behalf of Desert Valley, and installment
obligations representing scheduled capital contributions for investments in
low income housing limited partnerships. The tax exempt bonds, issued in
October, 1990, have a coupon interest rate of 7.625% and a sinking fund
requirement in the seventh through tenth years. The installment obligations
are non-interest bearing and are payable through the year 2000 in varying
amounts totaling $5,146,000.
In December 1994, the Company obtained a project level debt facility on its
$280 million Malitbog Project. A consortium of international banks will loan
an amount not to exceed $135 million (the "Bank Loans"), and the Overseas
Private Investment Corporation ("OPIC") will provide an amount not to exceed
$75 million (the "OPIC Loan"), for a total of $210 million (collectively, the
"Facility"). Initially, the Facility will consist of three-year construction
loans, which, upon completion of construction, will be converted into
eight-year term loans. Drawdowns on the Facility will be on a pro-rata basis
between the Bank Loans and the OPIC Loan. Ninety-percent of the Bank Loans
will be supported by political risk insurance from OPIC. The Facility will be
collateralized by substantially all assets of the Malitbog Project.
Drawdowns on the Bank Loans will incur interest at LIBOR plus 2.5% to 2.75%
or the Base Rate (as defined in the Facility) plus 1.875% to 2.125%.
Furthermore, the Bank Loans are required under the Facility to be hedged by
interest rate hedging agreements covering 100% of the total bank commitments
before any drawdowns occur. No such hedging agreements had been entered into
as of December 31, 1994. Drawdowns on the OPIC Loan will incur interest
15
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. LOANS PAYABLE: (CONTINUED)
at LIBOR or an Index rate (as defined in the Facility) plus approximately
3.45% to 3.55%. Interest on both the Bank Loans and the OPIC Loan will be
payable in arrears quarterly during the construction period. Upon conversion
from construction to term loans, approximately equal principal payments plus
accrued interest will be paid quarterly over the eight-year term loan period
with provisions for mandatory prepayments of principal under certain
circumstances as defined under the Facility. As of December 31, 1994, no
borrowings had occurred on the loans.
The Company's equity contributions to the Malitbog Project will total $70
million to be funded prior to any drawdowns on the Facility. The Company's
equity contributions will also be covered by political risk insurance from
OPIC. As of December 31, 1994, equity contributions to the Malitbog Project
amounted to $37,192,000.
The Company has undertaken to provide political risk insurance on the Bank
Loans for the ten-percent of the $135 million not covered by OPIC insurance.
Also, should certain financial covenants be breached under the Facility, the
Company would be required to pay for construction costs overruns of up to $10
million and provide up to $24 million in debt service reserves.
The Company's pro-rata portion of annual maturities of loans payable for the
five years beginning January 1, 1995 are as follows:
<TABLE>
<CAPTION>
PRO RATA
PORTION OF
(DOLLARS IN SALTON SEA PARTNERSHIP
THOUSANDS) TERM LOAN DEBT OTHER TOTAL
- -------------------- ----------- ------------- -------- ---------
<S> <C> <C> <C> <C>
1995 ................ $ 25,072 $10,718 $1,223 $ 37,013
1996 ................ 24,846 12,830 1,558 39,234
1997 ................ 26,108 13,348 2,211 41,667
1998 ................ 25,552 13,348 2,061 40,961
1999 ................ 11,344 8,578 1,323 21,245
Thereafter .......... 1,386 6,416 1,123 8,925
----------- ------------- -------- ---------
$114,308 $65,238 $9,499 $189,045
=========== ============= ======== =========
</TABLE>
In addition, at December 31, 1994, the Salton Sea Plants had an unused and
available $5,000,000 working line of credit with two of the banks
participating in the Salton Sea Term Loan.
16
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. SHAREHOLDERS' EQUITY:
In 1987, 1993, and 1994 the Company entered into technical, engineering, and
management agreements with The Dow Chemical Company ("Dow"). Under the 1987
Agreement, the Company agreed to pay for those services either with shares of
Magma Power Company common stock valued at the then market price or cash.
Under the 1993 and 1994 Agreements, the Company agreed to pay for services
provided by Dow in cash. Dow services totaling $205,000 in 1994, $575,000 in
1993, and $799,000 in 1992 were paid in cash.
The 1987 Agreement granted Dow an option for 2,000,000 shares of Magma Power
Company common stock at option prices that started at $17.00 per share, a
negotiated price that exceeded the then current market price, and which
escalated over a four-year period commencing one year after operation of the
Hoch Plant to a maximum exercise price of $21.00 in 1993. On October 12, 1993
the Company purchased the option by issuing 857,143 newly issued and
unregistered shares. The number of shares issued was based on the difference
between the exercise price of $21.00 per share and the market price on
October 12, 1993 discounted $1.00 to $37.50. During 1993, shareholders'
equity was increased by $13,581,000 representing the tax effect of the shares
purchased. During 1994, the tax effect was adjusted downward by $3,045,000.
Reserved common stock at December 31 is as follows:
<TABLE>
<CAPTION>
(SHARES) 1994 1993
- ----------------------------------- ----------- ---------
<S> <C> <C>
Stock Option Plan .................. 1,535,596 655,331
Deferred Stock and Incentive Awards 13,150 19,925
- ----------------------------------- ----------- ---------
1,548,746 675,256
=================================== =========== =========
</TABLE>
NOTE 9. INCENTIVE STOCK OPTION PLANS:
On September 25, 1987, the shareholders of the Company approved the Magma
Power Company Stock Option Plan of 1987 (the "1987 Plan"). Under the 1987
Plan, options to purchase an aggregate of 1,000,000 shares of common stock,
$0.10 par value, of the Company may be granted to salaried employees and
consultants of the Company and its subsidiaries, as selected by the Board of
Directors or its compensation committee (the "Committee"). The option price
granted under the 1987 Plan is established by the Board of Directors or the
Committee, when the option is granted. Such price may not be less than 90% of
the fair market value of the stock on the date the option is granted. The
options have a term of ten years and become exercisable in accordance with a
vesting schedule starting one year from the date of the grant.
17
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCENTIVE STOCK OPTION PLANS: (CONTINUED)
Under the 1987 Plan, options outstanding have been granted to officers and
employees to purchase common stock at prices ranging from $9.25 to $33.30 per
share. Option transactions for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
(SHARES) 1994 1993
- --------------------------------------------------- ----------- -----------
<S> <C> <C>
Options outstanding, beginning of year ............. 426,150 475,034
Options granted .................................... 193,025 92,175
Options exercised (exercise prices $10.00 to
$33.30) ........................................... (119,735) (141,059)
- --------------------------------------------------- ----------- -----------
Options outstanding, end of year ................... 499,440 426,150
=================================================== =========== ===========
</TABLE>
As of December 31, 1994, 36,156 shares of common stock were available for
future option grants under the 1987 Plan.
On June 21, 1994, the shareholders of the Company approved the 1994 Equity
Participation Plan of Magma Power Company (the "1994 Plan") to succeed the
1987 Plan. Under the 1994 Plan, not more than 1,000,000 shares of common
stock are authorized for issuance upon exercise of options, stock
appreciation rights, and other awards, or upon vesting of restricted or
deferred stock awards. As of December 31, 1994, 35,588 options at prices
ranging from $34.81 to $37.00 had been granted under the 1994 Plan. At
December 31, 1994, 2,888 options were exercisable. No options were exercised
during 1994.
Upon the completion of the Merger with California Energy Company, Inc. (see
Note 12), all remaining outstanding stock options under Magma's 1987 Plan and
1994 Plan, whether or not then exercisable, were canceled. Each holder of a
canceled company option became then entitled to a cash payment equal to the
difference between $38.75 and the canceled option price. A total payment of
approximately $8,500,000 for all of the canceled options was paid by
California Energy Company, Inc. as part of the Merger consideration.
NOTE 10. PROVISION FOR INCOME TAXES:
The Company provides for taxes on income in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and the tax basis of
the assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The cumulative effect of the
adoption of SFAS 109 as of January 1, 1992 increased net income by
$17,833,000 and is reported separately in the consolidated statements of
operations.
18
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. PROVISION FOR INCOME TAXES: (CONTINUED)
The provision consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS) CURRENT DEFERRED TOTAL
- -------------------- --------- ---------- ---------
<S> <C> <C> <C>
1994
Federal ............. $ 9,190 $7,551 $16,741
State ............... 2,554 537 3,091
- -------------------- --------- ---------- ---------
Total ............... $11,744 $8,088 $19,832
==================== ========= ========== =========
1993
Federal ............. $10,787 $6,861 $17,648
State ............... 3,913 1,217 5,130
- -------------------- --------- ---------- ---------
Total ............... $14,700 $8,078 $22,778
==================== ========= ========== =========
1992
Federal ............. $ 4,972 $4,783 $ 9,755
State ............... 1,908 1,646 3,554
- -------------------- --------- ---------- ---------
Total ............... $ 6,880 $6,429 $13,309
==================== ========= ========== =========
</TABLE>
Amounts paid to federal and state authorities for income tax purposes
amounted to $11,350,000 in 1994, $7,707,000 in 1993 and $7,244,000 in 1992.
Deferred tax liabilities and assets for 1994 and 1993, as calculated in
accordance with SFAS 109, consists of the following:
<TABLE>
<CAPTION>
1994 1993
- ------------------------------- --------- ---------
<S> <C> <C>
Deferred Liabilities:
Depreciation .................. $17,241 $17,727
Intangible drilling costs .... 24,046 22,832
Other ......................... 1,883 270
- ------------------------------- --------- ---------
Gross deferred tax liabilities $43,170 $40,829
=============================== ========= =========
Deferred Assets:
Tax credits ................... 18,204 26,318
Other ......................... 8,424 3,124
- ------------------------------- --------- ---------
Gross deferred tax assets ..... 26,628 29,442
- ------------------------------- --------- ---------
Net deferred tax liability .... $16,542 $11,387
=============================== ========= =========
</TABLE>
19
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. PROVISION FOR INCOME TAXES: (CONTINUED)
During 1993, the Company realized a tax benefit of $13,581,000 from the
purchase of Dow's option to acquire Magma Power Company common stock. This
benefit resulted in a decrease in current income taxes payable of $8,880,000,
an increase in deferred tax liabilities of $93,000 and an increase in
deferred tax assets of $4,794,000. During 1994, the estimated tax benefit was
reduced by $3,045,000.
Major differences between the statutory rate and the effective tax rate for
the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
- --------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Taxes at federal statutory rate (35% in 1994 and 1993 and 34% in
1992) ............................................................... $20,422 $26,220 $16,887
State taxes, net of federal benefit .................................. 2,241 3,592 2,242
Amortization of goodwill ............................................. 137 127 123
Percentage depletion ................................................. (2,087) (2,692) (1,321)
Investment tax credit ................................................ (100) (520) --
Lease investments .................................................... (4,741) (4,268) (2,887)
Merger defense costs ................................................. 3,451 -- --
Capital gains ........................................................ -- -- (1,815)
Other ................................................................ 509 319 80
--------- --------- ---------
$19,832 $22,778 $13,309
========= ========= =========
Effective tax rate ................................................... 34.0% 30.0% 26.8%
========= ========= =========
</TABLE>
NOTE 11. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiary, Desert Valley Company, have issued
irrevocable letters of credit totaling $300,000 and $6,759,000, respectively,
which guarantee repayment of tax-exempt bond financing, contingent
environmental liabilities and obligations for site closure upon cessation of
operations.
NOTE 12. SUBSEQUENT EVENT (UNAUDITED):
Subsequent to December 31, 1994, all of the outstanding common stock of Magma
Power Company was acquired in a two-step transaction according to the terms
of a merger agreement (the "Merger Agreement") whereby on January 10, 1995,
California Energy Company, Inc. ("CE") acquired approximately 51% of the
outstanding shares of Magma common stock (the "Magma Common Stock") through a
cash tender offer at $39 per share (the "Magma Tender Offer"), and on February
24, 1995, CE acquired the remaining 49% of Magma Common Stock not owned by CE
through a merger (the "Merger"). CE is engaged in independent geothermal
power operations and development activities similar to those of the Company.
20
<PAGE>
<PAGE>
MAGMA POWER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12. SUBSEQUENT EVENT (UNAUDITED): (CONTINUED)
Upon the effective time of the Merger, each outstanding share of Magma Common
Stock (other than shares of Magma Common Stock held by CE, CE Acquisition
Company, Inc. ("CE Sub"), a wholly owned subsidiary of CE, or any other
direct or indirect subsidiary of CE and shares of Magma Common Stock held in
the treasury of Magma) was converted into the right to receive $38.75 per
share of Magma Common Stock. CE paid the Merger consideration solely in cash.
A total of approximately $957 million was required to complete the Magma
Acquisition. Up to $500 million in secured bank financing was provided by
Credit Suisse (the "Merger Facilities") on specified terms and subject to
customary conditions. Such funds, together with funds of CE, were used to
complete the Magma Acquisition.
The Merger Facilities are comprised of (i) a six-year term loan ("Term Loan
A") in a principal amount of up to the difference between $500 million and
the principal amount of Term Loan B (as defined below), to be amortized in
semi-annual payments, and (ii) an eight-year term loan ("Term Loan B") in a
principal amount of $150 million, to be amortized in semi-annual payments in
the seventh and eighth years of such Term Loan. Loans under the Merger
Facilities were made to CE on a non-recourse basis, and CE lent the proceeds
of such loans to Magma in exchange for a secured term note of Magma (the
"Magma Note"). The loans under the Merger Facilities will be amortized from
payments received by CE from Magma on the Magma Note which will be amortized
from internally generated funds of Magma. Loans under the Merger Facilities
are secured by an assignment and pledge by CE of the Magma Note and 100% of
the capital stock of Magma. The Magma Note is secured by an assignment of
certain unencumbered assets of Magma.
Interest on loans under the Merger Facilities are payable at spreads of 2.50%
above LIBOR (adjusted for reserves) or 1.50% above the Base Rate for Term
Loan A, and 3.00% above LIBOR (adjusted for reserves) or 2.00% above the Base
Rate for Term Loan B. The LIBOR spreads are subject to upward adjustments in
certain instances. CE may elect to have loans bear interest based on either
LIBOR or the Base Rate (as defined in the Merger Facilities).
21
<PAGE>
MAGMA POWER COMPANY, INC.
FINANCIAL STATEMENTS AND NOTES THERETO FOR THE QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Independent Accountants' Report ................................................... 2
Consolidated Balance Sheets, March 31, 1995 and December 31, 1994 ................ 3
Consolidated Statements of Operations for the Three Months Ended March 31, 1995
and 1994 ......................................................................... 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1995
and 1994 ......................................................................... 5
Notes to Consolidated Financial Statements ........................................ 6
</TABLE>
1
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of Magma Power
Company and subsidiaries as of March 31, 1995, and the related
consolidated statements of operations and cash flows for the three-month
period ended March 31, 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The consolidated balance sheet of Magma Power Company and subsidiaries as of
December 31, 1994, from which the accompanying December 31, 1994 balance sheet
was derived, was audited by other auditors whose report, dated March 10, 1995,
expressed an unqualified opinion. The consolidated statements of operations and
cash flows for the three-month period ended March 31, 1994 have not been audited
in accordance with generally accepted auditing standards or reviewed in
accordance with standards established by the American Institute of Certified
Public Accountants and, accordingly, no opinion is expressed thereon.
DELOITTE & TOUCHE LLP
April 25, 1995
Omaha, Nebraska
2
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNT)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and short-term investments ............................. $ 42,690 $ 3,801
Joint venture cash and short-term investments ............... 24,710 43,172
Marketable securities and other investments ................. 31,800 66,455
Accounts receivable ......................................... 22,719 29,850
Properties and plants, net (Note 4) ......................... 900,292 438,862
Excess of cost over fair value of net assets acquired, net . 309,203 --
Deferred charges and other assets ........................... 56,483 41,346
------------ ------------
Total assets .............................................. $1,387,897 $623,486
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable ............................................ $ 3,479 $ 15,319
Other accrued liabilities ................................... 28,854 12,251
Project loans ............................................... 164,852 189,045
Merger loan ................................................. 500,000 --
Deferred income taxes ....................................... 187,996 17,055
------------ ------------
Total liabilities ......................................... 885,181 233,670
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred stock -- $0.10 par value, authorized 1,000,000 shares -- --
Common Stock -- authorized 30,000,000 shares, par value $0.010
per share, issued and outstanding 100 and 24,117,914 shares
at March 31, 1995 and December 31, 1994, respectively ..... -- 2,411
Additional paid in capital .................................. 495,509 144,916
Retained earnings ........................................... 7,207 242,489
------------ ------------
Total stockholders' equity ................................ 502,716 389,816
------------ ------------
Total liabilities and stockholders' equity ................ $1,387,897 $623,486
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1995 1994
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues:
Sales of electricity and steam $35,362 $33,592
Royalties ..................... 4,397 4,873
Interest and other income .... 3,218 1,954
--------- ---------
Total revenues ............ 42,977 40,419
--------- ---------
Cost and expenses:
Plant operations .............. 12,128 14,991
General and administration ... 2,338 3,025
Depreciation and amortization 8,658 5,910
Interest expense .............. 12,755 2,836
Less interest capitalized ..... (3,104) --
--------- ---------
Total costs and expenses . 32,775 26,762
--------- ---------
Income before taxes ........... 10,202 13,657
Provision for income taxes ... 2,995 4,302
--------- ---------
Net income .................... $ 7,207 $ 9,355
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 7,207 $ 9,355
Adjustments to reconcile net cash flow from operating activities: .......
Depreciation and amortization ............................................ 7,402 5,910
Other .................................................................... (138) 1,307
Amortization of excess of cost over fair value of net assets acquired ... 1,256 --
Provision for deferred income taxes ...................................... 2,027 (425)
Changes in other items: ..................................................
Accounts receivable ...................................................... 7,131 1,059
Accounts payable and accrued liabilities ................................. 4,459 3,770
Income tax payable ....................................................... -- 4,727
----------- -----------
Net cash flows from operating activities ............................... 29,344 25,703
----------- -----------
Cash flows from investing activities:
Capital expenditures relating to power plants and development for
existing projects ....................................................... 641 (2,154)
Salton Sea expansion ..................................................... (10,277) --
Malitbog construction in progress ........................................ (11,167) (1,216)
Purchase of the Company by California Energy ............................. (933,099)
Decrease (increase) in other investments and assets ...................... 19,733 (2,178)
----------- -----------
Net cash flows from investing activities ............................... (934,169) (5,548)
----------- -----------
Cash flows from financing activities:
Proceeds and net benefits from sale of common, treasury, and preferred
stock and exercise of options ........................................... -- 184
Advance from parent ...................................................... 496,418 --
Repayment of project finance loans ....................................... (24,193) (144,845)
Borrowing from Banks ..................................................... -- 130,000
Deferred financing costs ................................................. -- (3,225)
Merger note .............................................................. 500,000 --
Other, net ............................................................... -- (17)
----------- -----------
Net cash flows from financing activities ............................... 972,225 (17,903)
----------- -----------
Net increase (decrease in cash and cash equivalents ...................... 67,400 2,252
Cash and cash equivalents at beginning of period ......................... -- 40,936
----------- -----------
Cash and cash equivalents at end of period ............................... $ 67,400 $ 43,188
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER KWH AMOUNTS)
1. GENERAL:
In the opinion of management of Magma Power Company, Inc. (the "Company"),
the accompanying unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1995 and the results of
operations for the three months ended March 31, 1995 and 1994, and cash flows
for the three months ended March 31, 1995 and 1994. The March 31, 1995
information reflects the Company's financial and operating results on a
purchase accounting basis after giving effect to the acquisition of the
Company by California Energy Company, Inc. (California Energy) (See Note 3).
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, and its proportionate share of the accounts of
the partnerships and joint ventures in which it has invested.
The results of operations for the three months ended March 31, 1995 and 1994
are not necessarily indicative of the results to be expected for the full year.
Certain amounts in the 1994 financial statements and supporting footnote
disclosures have been reclassified to conform to the 1995 presentation. Such
reclassification did not impact previously reported net income or retained
earnings.
2. OTHER FOOTNOTE INFORMATION:
Reference is made to the Company's most recently issued report on the annual
audited consolidated financial statements that included information necessary
or useful to the understanding of the Company's business and financial
statement presentations. In particular, the Company's significant accounting
policies and practices were presented as Note 1 to the consolidated financial
statements included in that report.
6
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER KWH AMOUNTS)
3. PURCHASE OF THE COMPANY BY CALIFORNIA ENERGY:
In the first quarter of 1995, California Energy acquired all of the
outstanding equity interest in the Company. California Energy is engaged in
independent geothermal power operations and development activities similar to
those of the Company. The transaction was accounted for as a purchase. The
results of operations of the Company include the effect of the purchase
accounting from January 10, 1995, to March 31, 1995. Goodwill recorded in
connection with the Magma acquisition will be amortized using the straight
line method over 40 years. The purchase price of approximately $957,000 was
paid solely in cash and was funded with the net proceeds from the issuance of
18,170 shares of the California Energy's common stock, $500,000 in secured
bank financing and general corporate funds of California Energy.
7
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER KWH AMOUNTS)
4. PROPERTY, PLANT, AND EQUIPMENT:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- ------------
(UNAUDITED)
<S> <C> <C>
Project costs:
Power plants and gathering systems .............................. $639,267 $345,318
Wells and resource development .................................. 87,981 116,199
----------- ------------
727,248 461,517
Less accumulated depreciation and amortization .................. (7,295) (90,922)
----------- ------------
Net facilities ................................................ 719,953 370,595
Land ............................................................ -- 7,919
----------- ------------
Total project costs ........................................... 719,953 378,514
Fish Lake/Salton Sea Expansion--and other construction in
progress ....................................................... 95,383 20,806
Malitbog -- construction in progress ............................ 84,956 39,542
----------- ------------
Total ......................................................... $900,292 $438,862
=========== ============
</TABLE>
8
<PAGE>
<PAGE>
MAGMA POWER COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER KWH AMOUNTS)
5. MERGER FACILITIES:
The Merger Facilities consist of (i) a $350 million principal amount term
loan maturing on October 31, 2000 to be amortized in semi-annual payments
beginning on April 30, 1995 ("Term Loan A"), (ii) a $75 million principal
amount term loan maturing on October 31, 2001 to be amortized in semi-annual
payments beginning April 30, 2001 ("Term Loan B") and (iii) a $75 million
principal amount term loan maturing on October 31, 2002 to be amortized in
semi-annual payment beginning April 30, 2002 ("Term Loan C"). As of March 31,
1995, the outstanding principal amount on Term Loan A, Term Loan B and Term
Loan C was $350 million, $75 million and $75 million, respectively. Credit
Suisse is the agent bank in connection with the Merger Facilities. Loans
under the Merger Facilities were made to California Energy on a non-recourse
basis, and California Energy loaned the proceeds of such loans to the Company
in exchange for a secured note. Loans under the Merger Facilities are secured
by an assignment and pledge by California Energy of such note and 100% of the
capital stock of the Company.
The Company may, subject to certain terms and conditions, elect to have the
term loans bear interest based on either the Eurodollar Rate or the Base Rate
(as defined in the Merger Facilities). Interest on the term loans is payable
at spreads of 2.50% above the Eurodollar Rate or 1.50% above the Base Rate
for Term Loan A and 3.50% above the Eurodollar Rate or 2.50% above the Base
Rate for Term Loan B and Term Loan C. As of March 31, 1995, Term Loan A bore
interest at the rate of 8.656% per annum and Term Loan B and Term Loan C each
bore interest at the rate of 9.656% per annum.
6. INCOME TAXES:
The Company's effective tax rate continues to be less than the statutory rate
primarily due to the depletion deduction and the generation of energy tax
credits in 1995. The significant components of the deferred tax liability are
the temporary differences between the financial reporting basis and income
tax basis of the power plant and the well and resource development costs, and
in addition, the offsetting benefits of operating loss carryforwards and
investment and geothermal energy tax credits. The income tax provision for
the three months ended March 31, 1995, is approximately 32% current tax
expense and 68% deferred tax expense.
9
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<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
California Energy Company, Inc.
Omaha, Nebraska
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Magma Power Company for the three-month period ended March 31,
1995, as indicated in our report dated April 25, 1995; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, is being included in your Report
on Form 8-K dated May 16, 1995.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
May 16, 1995
10
