28.2.2005: Meldung: Calpine Corporation: 2004 Financial and Operating Results
Thursday February 24, 8:21 am ET
SAN JOSE, Calif., Feb. 24 / Calpine Corporation (NYSE: CPN - News) reported financial and operating results for the three and twelve months ended Dec. 31, 2004. A conference call, set for 8:30 a.m. PST today, will be accompanied by a comprehensive presentation of the 2004 results and 2005 guidance. The presentation will be posted on Calpine"s investor relations page at www.calpine.com prior to the conference call.
For the twelve months ended Dec. 31, 2004, the company reported a loss per share of $0.51, or a net loss of $221.2 million, compared to earnings per share of $0.71, or net income of $282.0 million, for the year ended Dec. 31, 2003. The year-end results include a correction to the tax provision within discontinued operations previously recorded in the consolidated statements of operations for the three and nine months ended Sept. 30, 2004. The company will restate earnings for the three and nine months ended Sept. 30, 2004 to make the correction, which will lower the effective tax rate on discontinued operations and improve net results by approximately $36.5 million, or $0.09 per share, for the nine months ended Sept. 30, 2004.
Pete Cartwright, Calpine president and chief executive officer, stated, "Despite ongoing business challenges, Calpine enhanced the value of the enterprise through successful financing activities, advancement of our business strategy and the strengthening of our commercial operations. During the year, we completed $2.1 billion of liquidity-enhancing transactions, repurchased or refinanced approximately $1.8 billion of corporate debt, redeemed in full our HIGH TIDES I and II preferred securities and refinanced $2.4 billion of maturing project debt. Calpine also increased power production by 17% and improved plant efficiencies.
"Earnings were disappointing for the year," continued Cartwright. "Although we continued to see improvements in spark spreads, the margins for our product remained low in certain markets and were offset by increased operating costs, depreciation and interest expense associated with additional capacity coming into service. And while our gas portfolio remains strong, we recorded a non-cash impairment charge associated with certain oil and gas fields in South Texas and Offshore Louisiana. Also, during the quarter, earnings were impacted by equipment failures on some of Calpine"s gas and steam turbines.
"I expect Calpine will continue to face its share of challenges in 2005, but I am confident that we will successfully execute our programs to further enhance liquidity, reduce corporate debt and strengthen our core operations. Today, we are evaluating the potential sale of certain power plants, including our Saltend facility in the United Kingdom. We expect these opportunities, together with the completion of nearly $900 million of liquidity-enhancing transactions, will allow us to repurchase more than $1 billion of corporate debt.
"We will continue to focus on increasing the value of our contractual portfolio, Calpine Energy Services" activities, and our power services and parts manufacturing businesses. Longer-term, Calpine will work to advance open, competitive markets and enhance value for our customers."
Restatement of Third Quarter 2004 Results
As indicated above, the company will restate earnings for the three and nine months ended Sept. 30, 2004 to make a correction to the tax provision within discontinued operations. The correction will lower the effective tax rate on discontinued operations and improve net results by approximately $36.5 million, or $0.09 per share, for the nine months ended Sept. 30, 2004. The company had provided for taxes on the discontinued operations income at statutory rates, rather than a lower effective rate, to reflect the benefits of permanent differences associated with tax laws versus GAAP accounting rules. See the schedule included in Supplemental Data for further details of the impact. The company will also make reclassifications of the tax provision between continuing and discontinued operations for prior reporting periods, which will not change total net income in these prior periods. The company detected the error in the first quarter of 2005 and has made changes to its internal controls. The company intends to file an amended Form 10-Q for the period ended Sept. 30, 2004, on or prior to the date that it files its Form 10-K for the year ended Dec. 31, 2004, to restate the tax provision within discontinued operations for the affected periods and to amend its disclosure in Part I, Item 4 "Controls and Procedures" to report its conclusion that its controls over the recording of the tax provision at Sept. 30, 2004 were ineffective due to the error, which constituted a "material weakness" under Public Company Accounting Oversight Board standards. In accordance with Section 404 of the Sarbanes-Oxley Act, the company and its auditors continue to assess the overall controls environment and its effectiveness. As a result of the third quarter error, the company may conclude that, with respect to the recording of taxes within discontinued operations, its controls environment as of Dec. 31, 2004 was ineffective, and the company"s external auditors may issue an adverse opinion on the company"s controls environment as of Dec. 31, 2004 because of this issue. The auditors" opinion on controls will be provided with the company"s year-end audited financial statements when they are completed and filed, which is expected to be on or before March 16, 2005.
2004 Fourth Quarter and Year-End Financial Results
For the three months ended Dec. 31, 2004, the company reported revenue of $2.3 billion, representing an increase of 22% over the same period in the prior year, and a net loss per share of $0.39, or a net loss of $172.8 million, compared to earnings per share of $0.29, or net income of $119.6 million for the same quarter in the prior year.
For the three months ended Dec. 31, 2004, average capacity in operation increased by 23% to 26,435 megawatts. The company generated approximately 24.0 million megawatt-hours, which equated to a baseload capacity factor of 45.6%, and realized an average spark spread of $21.36 per megawatt-hour. For the same period in 2003, Calpine generated 20.4 million megawatt-hours, which equated to a capacity factor of 48.9%, and realized an average spark spread of $23.90 per megawatt-hour.
Despite improvements in market fundamentals, total spark spread, which increased by $25.3 million, or 5%, in the fourth quarter of 2004 compared to the same period in 2003, did not increase commensurately with the increases in plant operating expense, transmission purchase expense, depreciation and interest expense associated with new power plants coming on-line.
Calpine recorded an impairment charge of approximately $201.5 million for certain oil and gas reserves, most notably on South Texas properties, following the receipt of the independent engineer"s report for year-end 2004, which reduced proved reserves 6% below Calpine"s year-end projection before receiving the engineer"s report. Following the reduction in proved reserves and the non-cash impairment charge, Calpine"s estimated total proved reserves of 389 billion cubic feet equivalent (bcfe) will have an estimated value of approximately $912 million (based on the present value of estimated future cash flows discounted at 10% in accordance with SEC guidelines), compared to a carrying value of approximately $607 million.
In addition, during the fourth quarter of 2004 Calpine recorded approximately $45.3 million for equipment failure costs and a charge of $28.6 million for the cancellation of heat recovery steam generator orders on two of its development projects. The company also recognized gains totaling $76.4 million on debt repurchases of $394.0 million.
As a result of provisions in The American Jobs Creation Act of 2004 signed into law on Oct. 22, 2004, Calpine recorded a reduction of $66.9 million, or $0.15 per share, in tax expense in the fourth quarter of 2004 on repatriated funds, which is mostly netted within the discontinued operations gain. The company had recorded approximately $78.8 million of tax expense in the third quarter of 2004 related to the repatriation of net cash proceeds from Canada to the United States following the sale of oil and gas assets in Canada.
2004 Twelve-Month Results
For the twelve months ended Dec. 31, 2004, the company reported revenue of $9.2 billion, representing an increase of 4% over the same period in the prior year. For the twelve months ended Dec. 31, 2004, Calpine netted approximately $1.7 billion of sales of purchased power for hedging and optimization with purchased power expense, compared to $0.3 billion in the prior year (netting in 2003 occurred only in the fourth quarter). This was due to the adoption on Oct. 1, 2003, on a prospective basis, of new accounting rules related to presentation of non-trading derivative activity. Adjusted for the netting, total revenue would have grown by approximately 19% versus the reported 4% growth in revenue. For the twelve months ended Dec. 31, 2004, the company reported a loss per share of $0.51, or a net loss of $221.2 million, compared to earnings per share of $0.71, or net income of $282.0 million, for the same period in the prior year.
For the twelve months ended Dec. 31, 2004, the company generated 96.5 million megawatt-hours, which equated to a baseload capacity factor of 49.8%, and realized an average spark spread of $21.24 per megawatt-hour. For the same period in 2003, Calpine generated 82.4 million megawatt-hours, which equated to a capacity factor of 53.2%, and realized an average spark spread of $23.90 per megawatt-hour.
Gross profit decreased by $409.1 million, or 54%, to $355.1 million in the twelve months ended Dec. 31, 2004, over the same period in the prior year, primarily due to: i) $202.1 million of impairment charges for certain oil and gas reserves; ii) non-recurring other revenue of $67.3 million recognized in the twelve months ended Dec. 31, 2003 from the settlement of contract disputes with, and claims against, Enron Corp.; iii) the recording of approximately $54.3 million for equipment failure costs within plant operating expense in 2004, compared to $11.0 million in 2003; iv) the amortization of $29.0 million in the twelve months of 2004 of the DIG C-20 gain recorded in the fourth quarter of 2003 due to the cumulative effect of a change in accounting principle; and v) market fundamentals, which caused total spark spread, despite a total increase of $79.2 million, or 4%, to not increase commensurately with additional plant operating expense, transmission purchase expense and depreciation costs associated with new power plants coming on-line.
During the twelve months ended Dec. 31, 2004, financial results were affected by a $387.9 million increase in interest expense and distributions on trust preferred securities, as compared to the same period in 2003. This occurred as a result of higher debt balances, higher average interest rates and lower capitalization of interest expense as new plants entered commercial operation. In addition, prior year results benefited from recording $52.8 million in income from unconsolidated investments in power projects, from the termination of a power purchase agreement by the Acadia joint venture.
Other income increased by $103.0 million to $149.1 million during the twelve months ended Dec. 31, 2004, as compared to the same period in 2003, primarily due to: i) pre-tax income in the amount of $171.5 million, net of transaction costs and the write-off of unamortized deferred financing costs, associated with the restructuring of power purchase agreements for the Newark and Parlin power plants and the sale of an entity holding a power purchase agreement; ii) a $16.4 million pre-tax gain from the restructuring of a long-term gas supply contract net of transaction costs; and iii) a $12.3 million pre-tax gain from the King City restructuring transaction related to the sale of the company"s debt securities that had served as collateral under the King City lease, net of transaction costs. In 2003, the company recorded a gain of $62.2 million on the sale of oil and gas properties and a gain of $57.0 million from a contract termination at the RockGen facility.
In 2004, the company recorded a charge of $42.4 million for equipment cancellation costs, primarily related to cancellation of heat recovery steam generator orders on two of its development projects. In 2003, there were $64.4 million in equipment cancellation charges. Also, during the twelve months ended Dec. 31, 2004, foreign currency transaction losses were $25.1 million, compared to losses of $33.3 million in the corresponding period in 2003.
The company also recognized gains totaling $246.9 million on repurchases of debt for the twelve months ended Dec. 31, 2004 compared to $278.6 million for the twelve months ended Dec. 31, 2003. Loss before discontinued operations and cumulative effect of a change in accounting principle was $418.0 million, or $0.97 per share, in 2004.
Income from discontinued operations, net of tax increased by $181.9 million during the twelve months ended Dec. 31, 2004, as compared to the same period in 2003, as a result of the sale of its Canadian and certain U.S. oil and gas assets during the third quarter of 2004 and the sale of the company"s interest in the Lost Pines facility in the first quarter of 2004.
Liquidity and Finance Program Highlights
Enhancing liquidity, reducing corporate debt and addressing near-term debt maturities continued to drive Calpine"s financing program in 2004. During the year, Calpine successfully enhanced its financial position through a significant number of transactions:
-- Refinanced Calpine Construction Finance Company II project debt through
the issuance of $2.4 billion of Calpine Generating Company bonds and
-- Completed approximately $2.1 billion of liquidity transactions
including the sale of its Canadian and certain U.S. natural gas
reserves for $847.8 million;
-- Redeemed in full $598.5 million of HIGH TIDES I and II, and a portion
of HIGH TIDES III, totaling $115.0 million; and
-- Repurchased approximately $1.8 billion of existing corporate debt,
resulting in a net gain of $246.9 million after the write-off of
unamortized discounts and deferred financing costs.
-- A detailed listing of debt repurchased along with the current
outstanding debt is included in the appendices to the conference call
During the past several months, Calpine:
-- Obtained a $100 million, non-recourse credit facility to complete
construction of the Metcalf Energy Center in San Jose, Calif. This is
the first single-asset, merchant project financing in California since
the energy crisis;
-- Received funding on Calpine European Funding (Jersey) Limited"s
$260 million offering of Redeemable Preferred Shares due on July 30,
2005. The net proceeds from this offering will ultimately be used as
permitted by Calpine"s existing bond indentures;
-- Completed a $400 million, 25-year, non-recourse sale/leaseback
transaction for the 560-megawatt Fox Energy Center under construction
in Kaukauna, Wis.; and
-- Completed a $195 million, non-recourse project financing for
construction of the 525-megawatt Valladolid III Energy Center in
Calpine ended the year with approximately $1.6 billion of cash and credit available upon meeting certain conditions. This included cash and cash equivalents on hand of approximately $0.8 billion, the current portion of restricted cash of approximately $0.6 billion and approximately $0.2 billion of borrowing capacity available under the company"s various credit facilities upon meeting certain conditions.
2004 Operations Update
The company turned in another strong year of operations, adding more than 4,400 megawatts of power generation capacity, improving plant performance and reducing turbine inventory. Today, Calpine owns or leases 92 natural gas-fired and geothermal power plants. These efficient, reliable power plants can generate more than 26,560 megawatts of electricity for wholesale and retail customers. In 2004, Calpine:
-- Exceeded the industry average safety performance, with a 0.48 Lost Time
Accident (LTA) rate for all Calpine employees -- well below the Bureau
of Labor Statistics LTA industry benchmark of 0.80;
-- Operated its natural gas-fired and geothermal power plants with an
average availability of 92.6%, compared to 91.2% in 2003;
-- Generated a record 96.5 million megawatt-hours, representing a
17% increase over 2003 levels, and delivered 147.7 million
megawatt-hours to load-serving and end-use customers;
-- Lowered Calpine"s average baseload heat rate to 7,120 million British
thermal units per kilowatt-hour for the year, compared to 7,253 in
-- Benefited from productivity improvements and economies of scale, with
regular plant operating expense (based on a trailing 12-month period at
an assumed 70% capacity factor) declining to $4.56 per megawatt-hour
from $4.96 per megawatt-hour in 2003;
-- Decreased total plant operating expense, including major maintenance
expense, (based on a trailing 12-month period at an assumed 70%
capacity factor) to $5.24 per megawatt-hour from $5.38 per
megawatt-hour in 2003;
-- Completed construction of five power plants, totaling more than
2,700 megawatts, and two expansion projects, representing an additional
930 megawatts of capacity;
-- Acquired the 570-megawatt Brazos Valley power plant in ERCOT under a
tax-deferred exchange with the sale of the Lost Pines power plant;
-- Reduced the company"s F technology turbine inventory from 22 to 17, as
units were placed into four projects currently under construction, all
four of which have long-term power sales agreements; and
-- Produced 46 bcfe of proved natural gas reserves, representing
approximately 7% of Calpine"s fuel consumption. Total proved reserves
as of Dec. 31, 2004 were 389 bcfe.
New Power Contracts
Throughout 2004, Calpine continued to enhance its portfolio of contracted generation with the addition of new power contracts. Today, the company is pursuing more than 22,000 megawatts of power sales opportunities throughout the North American market. As of Dec. 31, 2004, Calpine"s contractual portfolio included:
-- A total of 149 power sales contracts with an average life of
approximately eight years. These represent power sales to 97 customers
with an average credit rating of BBB+;
-- More than $1.9 billion of estimated spark spread to be generated from
Calpine"s 2005 contracted power sales (55% of total 2005 generation
capacity under contract); and
-- A backlog of more than 900 million megawatt-hours.
For the year, the company signed 90 new power contracts representing nearly 7,200 megawatts of capacity and approximately 315 million megawatt-hours. These sales increased the contractual backlog by nearly 200 million megawatt-hours. The weighted average on-peak spark spread for these contracts is approximately $17 per megawatt-hour, with an average life of approximately four years.
During the fourth quarter of 2004, Calpine entered into 23 new power contracts representing nearly 1,500 megawatts of generation.
Included in the attached Supplemental Data to this news release is an updated report summarizing Calpine"s total estimated generation capacity and capacity currently under contract through 2009. A full detailed report is available on the company"s website at www.calpine.com.
New Market Opportunities
As market conditions have improved in several major U.S. power markets, so have Calpine"s commercial operations, including its power services and parts and manufacturing businesses. In 2004, Calpine:
-- Signed a letter of intent for the joint construction of the first North
American power plant utilizing General Electric"s (GE) new H-System gas
turbine technology at Calpine"s Inland Empire site in southern
California. GE will purchase development rights and fund construction
for a 775-megawatt combined-cycle plant. Calpine will provide program
management services during construction, market electricity from the
plant and, after an extended period of GE ownership and operation,
ultimately purchase the plant;
-- Launched NewSouth Energy LLC (NSE). This new Atlanta, Ga.-based energy
venture was created to better focus on wholesale power customers and
energy markets in the Southeast. NSE will have access to Calpine"s
7,100-megawatt portfolio of efficient, gas-fired power plants in
operation and under construction throughout the Southeast.
-- Entered into 20 new power services transactions of various lengths, a
25% increase over 2003, most recently entering into a three-year
agreement to provide operations and maintenance services to two Indiana
generation and transmission cooperatives;
-- Achieved a performance milestone for Power Systems Mfg., LLC"s (PSM"s)
new 501F transition piece. Completed a successful first phase of
inspection of its transition pieces at the Channel Energy Center after
more than 8,000 hours of operation and 60 equivalent starts; and
-- Enhanced PSM"s competitive advantage. Calpine"s parts and manufacturing
subsidiary was awarded 14 patents in 2004, bringing its total patents
held to 31.
2005 Earnings Guidance
For the year ending Dec. 31, 2005, Calpine is expecting its GAAP loss per share to be in the range of ($0.80) - ($0.90). EBITDA, as adjusted for non-cash and other charges, is expected to be in the range of $1.6 - $1.7 billion.
In addition, the company has outlined a comprehensive program for 2005 that includes the completion of identified liquidity transactions, the repurchase of more than $1 billion of corporate debt, credit enhancement for Calpine Energy Services, additional power sales contracts, reductions in plant operating costs, turbine deployment and the expansion of its services business. The impact from these transactions has not been included in the above guidance. Further details regarding the company"s 2005 outlook will be provided in today"s conference call and is included in the conference call presentation.
Conference Call Information
Calpine will host a conference call to discuss its fourth quarter and year-end 2004 financial and operating results on Thursday, Feb. 24, 2005, at 8:30 a.m. PST. To participate via the teleconference (in listen-only mode), dial 1-888-603-6685 at least five minutes before the start of the call. In addition, Calpine will simulcast the conference call and presentation live via the Internet. The web cast and presentation will be available for 30 days on Calpine"s investor relations page at www.calpine.com.
A major power company, Calpine Corporation supplies customers and communities with electricity from clean, efficient, natural gas-fired and geothermal power plants. Calpine owns, leases and operates integrated systems of plants in 21 U.S. states, three Canadian provinces and the United Kingdom. Its customized products and services include wholesale and retail electricity, natural gas, gas turbine components and services, energy management, and a wide range of power plant engineering, construction and operations services. Calpine was founded in 1984. It is included in the S&P 500 Index and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information, visit http://www.calpine.com .
Source: Calpine Corporation