-----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, RiGKTkI+BIb89XdkFzk0Z+0cyy9+9wIzGFsSNfr65y3sJHLHnj/3F02mBFewzZxO FhHCt0WCe9q0carrvERIaw== 0000950109-94-001860.txt : 19941014 0000950109-94-001860.hdr.sgml : 19941014 ACCESSION NUMBER: 0000950109-94-001860 CONFORMED SUBMISSION TYPE: DEFA14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19941013 SROS: NASD 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: DEFA14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11389 FILM NUMBER: 94552571 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 DEFA14A 1 SOLICITING MATERIAL SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the registrant [X] Filed by a party other than the registrant [ ] Check the appropriate box: [ ] Preliminary proxy statement [ ] Definitive proxy statement [ ] Definitive additional materials [X] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12 Magma Power Company - ------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) Magma Power Company - ------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement) Payment of filing fee (Check the appropriate box): [ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- (2) Aggregate number of securities to which transactions applies: - -------------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: - -------------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: - -------------------------------------------------------------------------------- (2) Form, schedule or registration statement no.: - -------------------------------------------------------------------------------- (3) Filing party: - -------------------------------------------------------------------------------- (4) Date filed: - -------------------------------------------------------------------------------- [LOGO OF MAGMA POWER COMPANY APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] Significant components of shareholder value have not yet been recognized by the investor commmunity [_] Superior Growth Rates [_] Enhancement of Current Project Cash Flows [_] New Domestic Projects [_] International Expansion [_] Outstanding Competitive Position [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] [X] Superior Growth Rates -- Historical Performance -- Growth Targets [_] Enhancement of Current Project Cash Flows [_] New Domestic Projects [_] International Expansion [_] Outstanding Competitive Position [LOGO OF MAGMA POWER COMPANY Revenues and Earnings 1988-1993 APPEARS HERE] Since 1990, earnings have grown at a 20% CAGR
($ in Millions) Year Earnings Revenues ---- -------- -------- 1988 9.3 26.0 1989 22.3 63.1 1990 30.2 85.6 1991 33.9 94.9 1992 36.4/1/ 109.0 1993 52.1 167.1
/1/ Before Cumulative Effect of Accounting Change -- SFAS No. 109 [LOGO OF MAGMA POWER COMPANY Earnings and Cash Flow Per Share APPEARS HERE] Earnings are on target for another record year in 1994, consistent with analyst expectations for an approximate increase of 15% over 1993 levels.
Year Earnings Per Share Cash Flow Per Share ---- ------------------ ------------------- 1988 .43 .65 1989 1.01 1.36 1990 1.32 1.80 1991 1.44 1.93 1992 1.59/1/ 2.11 1993 2.17 3.07
/1/ Before SFAS No. 109 Adjustment [LOGO OF MAGMA POWER COMPANY Growth in Shareholder's Equity APPEARS HER] Our equity base, critical in allowing us to expand internationally, has more than doubled in the past five years. We expect this growth to continue.
($ in Millions) Year Growth in Shareholder's Equity ---- ------------------------------ 1988 $126.7 1989 $150.1 1990 $192.6 1991 $226.9 1992 $282.3 1993 $351.9
[LOGO OF MAGMA POWER COMPANY Targets for Profitable Growth APPEARS HERE] Our vision is to be a profitable, growing, global leader in geothermal-based independent power production Implementation of our Strategic Vision is targeted to result in: [_] 15% per year earnings growth rate [_] 15-20% return on average equity [_] Target 20-30% after-tax project internal rate of return [LOGO OF MAGMA POWER COMPANY Targeted New Contract Capacity/*/ APPEARS HERE] Magma remains on target for having 1200 MW of capacity installed by the year 2000. A bar graph is presented depicting the following information:
Year MW 1994 162 (Current Capacity) - -------------------------------------------------------------------------------- 1995 162 (Current Capacity) - -------------------------------------------------------------------------------- 1996 162 (Current Capacity) 36 (Fish Lake/SSU1) 72 (Malitbog) --------------- 270 (Total) - -------------------------------------------------------------------------------- 1997 162 (Current Capacity) 36 (Fish Lake/SSU1) 216 (Malitbog) 72 (Alto Peak) --------------- 486 (Total) - -------------------------------------------------------------------------------- 1998 162 (Current Capacity) 36 (Fish Lake/SSU1) 216 (Malitbog) 72 (Alto Peak) 163 (BRPU) 200 (Sheep Mountain) 140 (Wayang Windu) -------------------- 989 (Total) - -------------------------------------------------------------------------------- 1999 162 (Current Capacity) 36 (Fish Lake/SSU1) 216 (Malitbog) 72 (Alto Peak) 163 (BRPU) 200 (Sheep Mountain) 280 (Wayang Windu) 150 (Karaha) ------------ 1,279 (Total) - -------------------------------------------------------------------------------- 2000 162 (Current Capacity) 36 (Fish Lake/SSU1) 216 (Malitbog) 72 (Alto Peak) 163 (BRPU) 200 (Sheep Mountain) 280 (Wayang Windu) 150 (Karaha) ------------ 1,279 (Total) - --------------------------------------------------------------------------------
* Net [LOGO OF MAGMA POWER COMPANY Targeted Earnings Growth (Existing) APPEARS HERE] [GRAPHIC REPRESENTING TARGETED EARNINGS GROWTH (EXISTING) APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Targeted Earnings Growth (Domestic) APPEARS HERE] [GRAPHIC REPRESENTING TARGETED EARNINGS GROWTH (DOMESTIC) APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Targeted Earnings Growth (Total) APPEARS HERE] [GRAPHIC REPRESENTING TARGETED EARNINGS GROWTH (TOTAL) APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] [_] Superior Growth Rates [X] Enhancement of Current Project Cash Flows - Proven Operating Record - SCE Payment Recovery - Operating Improvements - Cost-Saving Technology: ph Mod - Reduced Capital and Operating Costs [_] New Domestic Projects [_] International Expansion [_] Outstanding Competitive Position [LOGO OF MAGMA POWER COMPANY Proven Operating Record APPEARS HERE] Magma is an industry leader in operating reliability [_] 7 plants, 244 MW operating at 113% of contract capacity [_] Magma-operated plants averaged 109% over the past 4 years [LOGO OF MAGMA POWER COMPANY SCE Payment Recovery APPEARS HERE] [_] Affects 4 of 7 operating plants [_] Underpayment on production in excess of nameplate capacity [_] Potential for retroactive recovery [LOGO OF MAGMA POWER COMPANY Operating Improvements APPEARS HERE] [_] Adopt New Technologies - ph Mod - Cement Lined Pipe - Alloys [_] Increase Efficiency - Consolidate Operations - Build Larger Plants [_] Fewer Well Workovers and Plant Turnarounds - Application of New Technologies - Greater Operating Experience - Improved Operating Procedures [LOGO OF MAGMA POWER COMPANY Cost Saving Technology: pH Mod APPEARS HERE] pH Mod is a striking example of Magma's ability to implement technology-based cost reductions [_] Injected acid changes pH level - silica does not precipitate out of solution - eliminates silica handling and storage [_] 20 MW plant operating since 1990 demonstrates process feasibility and benefits [LOGO OF MAGMA POWER COMPANY Reduced Capital and Operating Costs APPEARS HERE] Dramatic cost reductions will enable Magma to "Scale the Cliff" associated with end of initial period under SO4 contracts [_] Targeted 40% reduction in operating costs to under $0.025/kWh for all existing plants by 1998 [_] For new large scale plants, capital cost of less than $2,000/kW and operating costs of less than $0.02/kWh [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] [_] Superior Growth Rates [_] Enhancement of Current Project Cash Flows [X] New Domestic Projects - Project Updates [_] International Expansion [_] Outstanding Competitive Position [LOGO OF MAGMA POWER COMPANY Project Update: Fish Lake/Unit #1 Expansion APPEARS HERE] The Fish Lake Expansion is set to go forward [_] Fish Lake and SSU1 Expansion projects consolidated to one 36 MW plant at SSKGRA Overview [_] Project significantly enhances economies and earnings [_] SoCalEd to file for approval; terms already negotiated Status [_] Construction 1995/completion 1996-7 [MAP APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Project Update: BRPU APPEARS HERE] Though challenged by SCE and SDG&E, we believe this project will go forward [ ] 1st California Competitive Bidding Process Overview [ ] Awarded 163 MW [ ] FSO4 contracts provide real value to utilities [ ] Political and Regulatory support for project Status [ ] Project currently under development [LOGO OF MAGMA POWER COMPANY Project Update: Sheep Mountain APPEARS HERE] Magma is a leader in pumped storage technology [ ] Awarded Right to Negotiate Overview [ ] Sell to Nevada Power Company [ ] Proprietary Modular Pumped Storage(TM) [ ] Construction 1996/completion 1998 Status [ ] Additional projects under development [LOGO OF MAGMA POWER COMPANY 1000 MW Undeveloped Capacity at Salton Sea APPEARS HERE] Largest undeveloped geothermal resource in the U.S. [ ] Resource strategically positioned - proximity to concentrations of demand - access to transmission lines [ ] Uniquely qualifies Magma for geothermal expansion - demonstrated competitive pricing through BRPU - prolific resource with extensive operating history - no other developer has access to such extensive domestic growth potential [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] [_] Superior Growth Rates [_] Enhancement of Current Project Cash Flows [_] New Domestic Projects [X] International Expansion - Philippines - Indonesia - Latin America/Pacific Rim [_] Outstanding Competitive Position [LOGO OF MAGMA POWER COMPANY Project Update: Malitbog, Philippines APPEARS HERE] Malitbog was Magma's first overseas project Overview [_] Contracted 231 MW [_] 10-year BOT with PNOC [_] Secured largest-ever OPIC commitment for a single project Status [_] Expect additional $30 million MIGA political risk insurance [_] Construction underway/completion 1997 [MAP APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Project Update: Alto Peak, Philippines APPEARS HERE] Magma continues to expand abroad with our announcement of a new project in the Philippines [ ] Contracted 72 MW Overview [ ] 10-Year BOT with PNOC Status [ ] Construction 1995/completion 1997 [LOGO OF MAGMA POWER COMPANY Project Update: Wayang Windu, Indonesia APPEARS HERE] Magma's second major international development opportunity is in Indonesia [_] Contract signing imminent Overview [_] Initial phase 280 MW [_] 30-Year BOT with Pertamina/PLN [_] Wellfield development to begin 1995 Status [_] Completion expected 1998 [MAP APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Project Update: Karaha, Indonesia APPEARS HERE] [_] Contract signing imminent Overview [_] Initial Phase 150 MW [_] 30-Year BOT with Pertamina/PLN [_] Wellfield development to begin 1995 Status [_] Completion expected 1999 [LOGO OF MAGMA POWER COMPANY Latin America/Pacific Rim APPEARS HERE] Magma is actively pursuing additional geothermal opportunities on a global basis [_] Project development activities initiated throughout the "Ring of Fire" - Asia - Mexico - Central America - South America [MAP APPEARS HERE] [LOGO OF MAGMA POWER COMPANY Unrecognized Sources of Value APPEARS HERE] [_] Superior Growth Rates [_] Enhancement of Current Project Cash Flows [_] New Domestic Projects [_] International Expansion [X] Outstanding Competitive Position - Sources of Competitive Advantage - Evidence of Undervaluation [LOGO OF MAGMA POWER COMPANY Advantages of Geothermal in International Markets APPEARS HERE] [_] Cost-competitive/kWh with other renewable projects [_] Minimizes need for imported fuel [_] Minimizes need for foreign currency [_] Not subject to variation in world energy prices [_] Environmentally clean [_] High barriers to entry [LOGO OF MAGMA POWER COMPANY Competitive Advantages of Magma APPEARS HERE] Magma is solidly positioned to secure future projects and achieve earnings growth [_] Focused geothermal-only strategy [_] Strong financial condition [_] Outstanding operating track record [_] Ability to lower costs through technological improvements [_] Proven development expertise [_] Excellent in-house technical capabilities [LOGO OF MAGMA POWER COMPANY Strong Financial Condition APPEARS HERE] Magma has an exceptionally strong balance sheeet, allowing for enhanced acquisition ability and expedited project development
--------------------------------------- Magma CE Industry(a) - ------------------------------------------------------------ Debt-to-Cap Ratio(b) (6/30/94) 35.8% 76.1% 67.6% - ------------------------------------------------------------ EBITDA/Interest (LTM 6/30/94) 10.4x 2.6x 4.1x - ------------------------------------------------------------
(a) Industry Group comprises AES, CE, Magma and Sithe (b) Includes both short and long-term consolidated debt [LOGO OF MAGMA POWER COMPANY Interest Coverage APPEARS HERE] High interest coverage ratios relative to the competition underscore Magma's financial flexibility to grow
INTEREST COVERAGE RATIO (a) YEAR Magma CE ---- ----- -- 1989 4.9 1.7 1990 6.1 1.9 1991 7.2 2.7 1992 10.1 4.3 1993 11.1 3.6 LTM 6/30/94 10.4 2.6
(a) EBITDA/Interest [LOGO OF MAGMA POWER COMPANY Quality of Earnings Comparison APPEARS HERE] Despite technological improvements that have extended plant life, Magma continues to use a conservative depreciation policy Adoption of Magma's policy would reduce CE's reported net income Magma
Magma CE Year Earnings per Share Earnings per Share - ---- ------------------ ------------------ 1993 2.17 /1/ 0.91 /1/ 2.30 /2/ 0.84 /2/ 1994E 2.50 /1/ 1.08 /1/ 2.66 /2/ 1.01 /2/
1 Historically stated EPS (fully diluted) using Company-selected accounting estimates 2 Restated EPS (fully diluted) adjusted for differences in accounting estimates vs. other company (i.e. Magma EPS restated using CE Accounting Estimates and vice versa) [LOGO OF MAGMA POWER COMPANY Magma's Capacity Edge Over CE APPEARS HERE]
Magma CE --------------------------------------------------------------------- MWs currently owned and in operation 154 MW 197.5 MW --------------------------------------------------------------------- MWs owned, under contract -International 288 MW 197.0 MW -Domestic 36 MW 30.0 MW ------ -------- --------------------------------------------------------------------- Subtotal 478 MW 422.5 MW --------------------------------------------------------------------- MWs under development -BRPU 163 MW 0.0 -Pumped Storage 200 MW 0.0 --------------------------------------------------------------------- Royalty Income (1994) $21 million/yr 0.0 ---------------------------------------------------------------------
[LOGO OF MAGMA POWER COMPANY Magma vis-a-vis CE: The Project APPEARS HERE] Lifecycle A detailed examination of Magma vis-a-vis its main competitor reveals the high relative quality of Magma's current earnings and future prospects
------------------------------------------------------------------ Magma CE ------------------------------------------------------------------ -------------------------------------------------------------------------------------- Construction [_] Multiple E&C contractors [_] Single-source E&C (Kiewit) -------------------------------------------------------------------------------------- Ownership [_] 50% or greater retention [_] 50% or less retention (a) -------------------------------------------------------------------------------------- Operating [_] 109% of contracted [_] 96% of contracted Reliability capicity last 4 years capacity 1991-1993(b) -------------------------------------------------------------------------------------- Plant [_] 20 year period [_] 37.5 year period(b) Depreciation -------------------------------------------------------------------------------------- Resource [_] Little if any decline in flow [_] New Coso wells decline Management rates at SSKGRA 35-45% in first year(b) -------------------------------------------------------------------------------------- Royalty [_] Levelized [_] Back-end loaded Payments -------------------------------------------------------------------------------------- Cost Reduction [_] Public plan to reduce costs [_] No plan publicly announced --------------------------------------------------------------------------------------
(a) Source: Discount Note Prospectus dated March 4, 1994. (b) Source: 10-K [LOGO OF MAGMA POWER COMPANY Industry Statistics -- 1994(a) APPEARS HERE] Despite impressive results and growth potential, Magma is trading at a discount to its industry peers
Projected Five-Year P/E Ratio Earnings Growth Rate% CE 18.6x 12.5% ---------------------------------------------------- Industry Average 17.4x 12.1% ---------------------------------------------------- Magma 13.8x 13% ----------------------------------------------------
(a) Industry Average comprises AES, CE, Destec, Magma and Sithe Source: First Call Estimates 23 September 1994 [LOGO OF MAGMA POWER COMPANY Industry Statistics -- 1995(a) APPEARS HERE]
Projected Five-Year P/E Ratio (1995E) Earnings Growth Rate (%) CE 15.4x 12.5% ------------------------------------------------------------ Industry Average 14.5x 12.1% ----------------------------------------------------------- Magma 12.6x 13% -----------------------------------------------------------
(a) Industry Average comprises AES, CE, Destec, Magma and Sithe Source: First Call Estimates 23 September 1994 [LOGO OF MAGMA POWER COMPANY Analysts' Insights APPEARS HERE] Prominent Industry Analysts believe Magma shares are undervalued ----------------------------------------------------- Comments ----------------------------------------------------- "Although CE's $35 per share offer falls short of our $42 P/E valuation for Magma shares, it is in line with our $36 NPV valuation. However, this amount does not reflect any upside of potential new projects in the Philippines and Indonesia." (9/20/94) Michael N. Cha "Our rationale for a buyout price higher than $35 per J.P. Morgan share is that an acquirer should pay something for Securities, Inc. the upside potential afforded by possible new Magma projects in the Philippines, Indonesia, California as well as other potential geothermal and pumped storage technologies." (9/29/94) [LOGO OF MAGMA POWER COMPANY Analysts' Insights (cont'd) APPEARS HERE] ----------------------------------------------------- Comments ----------------------------------------------------- "(Magma's) very conservative balance sheet and strong fundamentals does not seem to be reflected in the offering price (of $35)." (9/20/94) "We believe MGMA is still undervalued even after a 26% run-up after the merger announcement which brought the stock back to more normal valuations. If MGMA were to sell at the average price to book of the IPPs in our universe (2.8 times). The stock would Daniele M. Seitz be worth $43.75 (the offer price is only 2.2 times UBS Securities book)." Long term, we believe that with the pipeline of plants under development (Magma's) earnings leap to $5.35 per share by 1998, resulting in 19% compound annual growth in EPS over the period 1993-1998 as 750 MW is expected to be added to its existing base of 154 MW." (10/4/94) [LOGO OF MAGMA POWER COMPANY Summary Investment Highlights APPEARS HERE] [_] Superior Growth Rates [_] Enhancement of Current Project Cash Flows [_] New Domestic Projects [_] International Expansion [_] Outstanding Competitive Position GRAPHICS APPENDIX ----------------- Magma Power Company Exhibit 12 to Solicitation/Recommendation Statement on Schedule 14D-9 Description of Graphical Elements PAGE 4 See description on Page 4. PAGE 5 See description on Page 5. PAGE 6 See description on Page 6. PAGE 8 See description on Page 8. PAGE 9 Graphical depiction of targeted earnings growth from existing operations only from the year 1994 through the year 2005. Graphical element consists of a shaded area beneath a wavering horizontal line. The shaded area is bounded at the bottom by a flat horizontal line on which points are marked at regular intervals for each year from 1994 through 2005. The shaded area is bounded at its two sides by straight, unmarked vertical lines. PAGE 10 Graphical depiction of the build-up of targeted earnings growth from 1) existing operations only and 2) existing operations with pH Mod plus new domestic projects. Graphical element consists of the shaded area described under the heading "PAGE 9" above on top of which is an additional area shaded in another color. The additional shaded area is bounded on top by a wavering line and on the bottom by the wavering line that forms the top boundary of the shaded area described under the heading "PAGE 9". The additional shaded area is bounded on its two sides by straight, unmarked vertical lines. PAGE 11 Graphical depiction of the build-up of targeted earnings growth from 1) existing operations only, 2) existing operations with pH Mod plus new domestic projects and 3) international projects. Graphical element consists of the two shaded areas described under the headings "PAGE 9" and "PAGE 10" above, on top of which is an additional area shaded in a third color. The additional shaded area is bounded on top by a wavering line and on the bottom by the wavering line that forms the top boundary of the shaded area described under the heading "PAGE 10" above. The additional shaded area is bounded on its two sides by straight, unmarked vertical lines. PAGE 19 Map depicting the states of Nevada and California on which the cities of Los Angeles and San Diego and the Salton Sea are labeled. PAGE 24 Map depicting the Philippines on which the cities of Manila and Leyte are labeled. PAGE 26 Map depicting Indonesia on which the islands of Java and Bali and the city of Djakarta are labeled. PAGE 28 Map depicting Asia, Australia, the Pacific Ocean and North and South America. An irregular circle drawn on the map connects the eastern coastal areas of Australia and Asia and the western coastal areas of North and South America. The map is labeled "THE 'RING OF FIRE.'" PAGE 33 See description on page 33. PAGE 34 See description on page 34. PAGE 37 See description on page 37. PAGE 38 See description on page 38. -----END PRIVACY-ENHANCED MESSAGE-----