MAMMOTH COMPLEX ACQUISITION

12 Months Ended

Dec. 31, 2012

MAMMOTH COMPLEX ACQUISITION

NOTE 2 — MAMMOTH COMPLEX ACQUISITION

On August 2, 2010, the Company acquired the remaining 50% interest in Mammoth-Pacific, L.P. (“Mammoth Pacific”), which owns the Mammoth complex located near the city of Mammoth, California, for a purchase price of $72.5 million in cash. The Company acquired the remaining interest in Mammoth Pacific to increase its geothermal power plant operations in the United States.

Prior to the acquisition, the Company had a 50% interest in Mammoth Pacific that was accounted for under the equity method of accounting. Following the acquisition, the Company became the sole owner of the Mammoth complex, as well as the sole owner of rights to over 10,000 acres of undeveloped federal lands.

As a result of the acquisition of the remaining 50% interest in Mammoth Pacific, the financial statements of Mammoth Pacific have been consolidated with the Company’s financial statements effective August 2, 2010. The acquisition-date fair value of the previously held 50% equity interest was $64.9 million, which takes into account a “control premium” of $7.6 million. In the year ended December 31, 2010, the Company recognized a pre-tax gain of $36.9 million, which is equal to the difference between the acquisition-date fair value of the previously held 50% equity interest in Mammoth Pacific and the acquisition-date carrying value of such investment. The gain is included in “gain on acquisition of controlling interest” in the consolidated statements of operations and comprehensive income (loss).

The values of the assets acquired and liabilities assumed at the acquisition date are based on management’s estimates using the methodology and assumptions described below.

Valuation methodology and assumptions

In estimating the fair value for the assets acquired, the Company primarily relied on the “Income Approach”. After reviewing several geothermal transactions, the Company concluded that those transactions were not sufficiently comparable to the assets acquired in this transaction. The Company also considered the “Cost Approach” as a reasonableness check to compare to the “Income Approach” value, but did not rely on it as a final indicator of the value.

The “Income Approach” is based on the premise that the value of an asset is equal to the present value of the cash flows that the assets are expected to generate. To estimate the fair value of the existing and replacement tangible and intangible assets as well as the development project at the Mammoth Pacific site, a discounted cash flow (“DCF”) analysis was utilized whereby the cash flows expected to be generated by the acquired assets were discounted to their present value equivalent using the rate of return that reflects the relative risk of each asset, as well as the time value of money. This return, known as the weighted average cost of capital (“WACC”), is an overall rate based upon the individual rates of return for invested capital (equity and interest-bearing debt), and was calculated by weighting the acquired return on interest-bearing debt and common equity capital in proportion to their estimated percentage in the expected capital structure. The estimates for the WACC, which ranged from 9.5% to 14.0%, developed in the valuation are for independent power producers and geothermal power producers.

The following table summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date:

	(dollars in thousands)
Assets:
Cash and cash equivalents	$	7,983
Trade receivables		3,239
Prepaid expenses and other		254
Deposits and other		622
Property, plant and equipment, net (including construction-in-process)		129,764
Total identifiable assets acquired		141,862
Liabilities:
Current liabilities — accounts payable and accrued expenses		(1,072	)
Asset retirement obligation		(3,342	)
Total identifiable liabilities assumed		(4,414	)
Total net assets acquired	$	137,448

The acquired property, plant and equipment will be depreciated over their estimated useful lives.

The revenues of the Mammoth complex and the net loss of the Mammoth complex were $7,567,000 and $645,000, respectively, for the period from August 2, 2010 to December 31, 2010.

The following unaudited consolidated pro forma financial information for the year ended December 31, 2010, assumes the Mammoth Pacific acquisition occurred as of January 1, 2010, after giving effect to certain adjustments, including the depreciation based on the adjustments to the fair market value of the property, plant and equipment acquired, and related income tax effects. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that may occur in the future or that would have occurred had the acquisition of Mammoth Pacific been effected on the date indicated.

	(Dollars in thousands, except per share data)
Revenues	$	384,706
Loss from continuing operations		8,954
Net income		13,304
Net loss attributable to noncontrolling interest		90
Net income attributable to the Company’s stockholders	$	13,394
Earnings per share attributable to the Company’s stockholders — basic and diluted:
Income from continuing operations	$	0.20
Income from discontinued operations		0.10
Net income	$	0.30