-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RYEQRX3PIirg0Cj6XtT6FwoePcmE7mbel1ACmol3B8TXZX6MjR1enJhIyUS39KCB 9q3AkkJyTpwDtul1ksJ6qQ== 0000355878-94-000009.txt : 19941122 0000355878-94-000009.hdr.sgml : 19941122 ACCESSION NUMBER: 0000355878-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAGMA POWER CO /NV/ CENTRAL INDEX KEY: 0000355878 STANDARD INDUSTRIAL CLASSIFICATION: 4991 IRS NUMBER: 953694478 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11389 FILM NUMBER: 94559795 BUSINESS ADDRESS: STREET 1: 4365 EXECUTIVE DR STE 900 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6196227800 MAIL ADDRESS: STREET 1: 4365 EXECUTIVE DR STE 900 CITY: SAN DIEGO STATE: CA ZIP: 92121 FORMER COMPANY: FORMER CONFORMED NAME: MAGMA DEVELOPMENT CORP DATE OF NAME CHANGE: 19820519 10-Q 1 3RD QTR 10Q 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 -----END PRIVACY-ENHANCED MESSAGE-----