04.11.05

4.11.205: Meldung: Calpine Corp.: Third Quarter 2005 Financial and Operating Results

Calpine Reports Third Quarter 2005 Financial and Operating Results
Thursday November 3, 8:30 am ET
EBITDA, as Adjusted (d) for the Quarter Up 19% Over Last Year
Results Include Non-Operating, Non-Cash Items

SAN JOSE, Calif., Nov. 3 -- Calpine Corporation (NYSE: CPN - News) reported financial and operating results for the three and nine months ended Sept. 30, 2005. A conference call, set for 8:30 a.m. Pacific Standard Time today, will be accompanied by a comprehensive presentation of the third quarter results. The presentation will be posted on Calpine"s investor relations page at www.calpine.com prior to the conference call. The financial results presented herein are preliminary, and, in particular, it is possible that Calpine could make adjustments to the income tax provisions before the company files its Form 10-Q for the period ending Sept. 30, 2005.

Although on-peak market spark spreads increased during the third quarter, financial results for the quarter ended Sept. 30, 2005 were significantly impacted by a number of non-operating and other items. Noteworthy items impacting the quarter included the following:

Third Quarter
(unaudited)
2005 2004
Net Earnings (Loss) per Share $(0.45) $0.32

Less Discontinued Operations 0.06 0.25

Income (Loss) from Continuing Operations (0.51) 0.07

Calpine Construction Finance Company (CCFC)
Non-Cash Tax Reserve 0.30 --
Non-Cash Foreign Exchange Transaction Costs 0.06 0.04
Long-Term Service Agreement Cancellation Costs -- 0.01
Equipment Cancellation Costs -- 0.01
Deferred Financing Cost Writeoff -- 0.01
(Gains) on Purchases of Debt (0.02) (0.23)

Loss from Continuing Operations
After Other Items $(0.17) $(0.09)

Third Quarter
(unaudited)
2005 2004
Megawatt-hours Generated (millions) (a) 28.7 26.6
Megawatts in Operation at Sept. 30 (a) 26,459 24,516
Revenue (millions) (a) $3,281.6 $2,411.7
Net Income (Loss) (millions) (b) $(216.7) $141.1
Basic and Diluted Earnings (Loss) Per Share $(0.45) $0.32
Operating Cash Flow (millions) $(168.7) $217.9
EBITDA, as adjusted (millions) (c) $656.2 $716.5
EBITDA, as adjusted for non-cash
and other charges (millions) (d) $516.4 $433.3
Total Assets (billions) $27.1 $28.4

(a) From continuing operations.
(b) Net loss for the third quarter 2005 includes a number of significant
non-cash adjustments as described below.
(c) Earnings Before Interest, Tax, Depreciation and Amortization, as
adjusted; see attached Supplemental Data for reconciliation from net
income.
(d) See Supplemental Data for reconciliation from EBITDA, as adjusted.

Commenting on third quarter results, Peter Cartwright, Calpine chairman, president and chief executive officer, said, "During the third quarter, on-peak market spark spreads were strong. However, off-peak market spark spreads remained weak, impacting what was otherwise an improving quarter.

"U.S. consumption for electricity was up 8.2% from third quarter 2004 levels. And demand in the quarter increased dramatically in certain markets -- ERCOT, up 5.9%, the Southeast, up 9.1% and New England, up 7.5%. Reflecting improving on-peak market conditions during the quarter, Calpine"s on-peak, baseload operating capacity factor increased to 67.3% from 66.1% last year. However, our around-the-clock, baseload capacity factor was slightly down as a result of lower production during off-peak hours.

"Calpine continues to advance its strategic initiative to enhance our financial strength. Since launching this program in May 2005, we have completed more than $2 billion in asset sales. And we"ve lowered total debt by approximately $1.1 billion to $17.2 billion at the end of the third quarter, excluding new construction financing increases of $0.2 billion. Calpine remains focused on improving its financial and operating results in the growing North American power market."

2005 Third Quarter Financial Results

For the three months ended Sept. 30, 2005, Calpine reported revenue of $3.3 billion, representing an increase of 36% over the same period in the prior year due to a 28% increase in average realized power prices and additional generation. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $0.45, or a net loss of $216.7 million, compared to net income per share of $0.32, or net income of $141.1 million, for the same quarter in the prior year.

For the three months ended Sept. 30, 2005, Calpine"s average capacity in operation for consolidated projects in continuing operations increased by 7.8% over the same period in the prior year, to 26,126 megawatts. Generation volume was up 7.9% from the prior year as the company generated approximately 28.7 million megawatt-hours, which equated to an around-the-clock, baseload capacity factor of 54.0%, and realized an average spark spread of $20.74 per megawatt-hour. For the same period in 2004, Calpine generated 26.6 million megawatt-hours, which equated to an around-the-clock, baseload capacity factor of 55.4%, and realized an average spark spread of $21.15 per megawatt-hour.

Gross profit increased by $12.7 million to $239.1 million in the three months ended Sept. 30, 2005, compared to the same period in the prior year, as total spark spread of $595.3 million increased by $32.7 million from the prior period. Total spark spread did not increase in line with the increases in plant operating expense, depreciation, other cost of revenue items and interest expense.

During the three months ended Sept. 30, 2005, financial results were positively impacted by $15.5 million of income recorded from repurchase of various issuances of debt. This was lower by $151.6 million than the income recorded from repurchase of various issuances of debt in the comparable period in 2004. Costs to cancel equipment orders and long-term service agreements totaled $1.3 million in 2005, compared to $11.8 million in the prior year, and income from unconsolidated investments was also favorable, by $16.6 million versus the prior year, primarily because Calpine recorded $11.6 million of loss in the comparable period of 2004 associated with an unfavorable jury award at Androscoggin, which is under appeal. However, in the third quarter of 2005, interest expense increased by $95.5 million between periods primarily due to lower capitalization of interest expense as fewer plants were in active construction, and due to an increase in the average interest rate.

Other expense of $50.3 million for the three months ended Sept. 30, 2005, was unfavorable by $27.9 million, compared to other expense of $22.4 million for the three months ended Sept. 30, 2004, due to an increase of $31.5 million in non-cash foreign exchange transaction costs related to intercompany transactions. Additionally, Calpine recorded a reserve on certain deferred tax assets associated with CCFC in the third quarter of 2005, which had the effect of reducing the tax benefit on the company"s pre-tax loss from continuing operations by approximately $143.4 million.

In the three months ended Sept. 30, 2005, Calpine recorded a pre-tax gain from discontinued operations of $196.3 million. However, the company"s year-to-date effective tax rate on discontinued operations was 86.9% due primarily to a large taxable gain on the sale of the Saltend Energy Centre and, as a consequence, Calpine"s after-tax gain from discontinued operations was only $25.7 million. Income from discontinued operations included gains on the sale of Calpine"s remaining oil and gas assets and the Saltend Energy Centre, both of which closed in July 2005, and a loss on the sale of the Ontelaunee Energy Center, which was classified as held-for-sale at Sept. 30, 2005 and closed in October 2005. Discontinued operations includes the operating results, until the respective sales dates, for those entities and for the Morris Power Plant, for which Calpine recorded an impairment charge in the second quarter of 2005, and which was sold in the third quarter of 2005. For the three months ended Sept. 30, 2004, the company recorded net after-tax income from discontinued operations of $112.2 million related to the sale of its Canadian and U.S. Rocky Mountain gas assets.

2005 Nine-Months Results

For the nine months ended Sept. 30, 2005, Calpine reported revenue of $7.5 billion, representing an increase of 16.4% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $1.49, or a net loss of $683.9 million, compared to net income per share of $0.10, or net income of $41.2 million, for the same period in the prior year.

For the nine months ended Sept. 30, 2005, Calpine"s average capacity in operation for consolidated projects in continuing operations increased by 13.2% to 25,079 megawatts. Generation volume was up 6.0% from the prior year as the company generated approximately 68.2 million megawatt-hours, which equated to an around-the-clock, baseload capacity factor of 45.9%, and realized an average spark spread of $22.16 per megawatt-hour. For the same period in 2004, Calpine generated 64.4 million megawatt-hours, which equated to an around-the-clock, baseload capacity factor of 50.1%, and realized an average spark spread of $20.45 per megawatt-hour.

Gross profit increased by $92.8 million, or 30.1%, to $401.3 million in the nine months ended Sept. 30, 2005, compared to the same period in the prior year, as total spark spread of $1,512.2 million increased by $196.1 million from the prior period. However, spark spread did not increase in line with the increases in plant operating expense, net transmission purchase expense, depreciation, and interest expense.

During the nine months ended Sept. 30, 2005, financial results were positively impacted by $166.5 million of income recorded from repurchase of various issuances of debt (compared to $170.5 million in the same period of 2004) and negatively impacted by $34.4 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.3 million in project development expense due to the write-off of three projects in suspended development and $12.3 million in project development expense on preservation costs for suspended projects. Interest expense increased $236.1 million between periods primarily due to an increase in the average interest rate and lower capitalization of interest expense as fewer plants were in active construction.

Other expense was $71.4 million for the nine months ended Sept. 30, 2005, compared to other income of $168.9 million for the nine months ended Sept. 30, 2004. The net expense for the nine months ended Sept. 30, 2005, was due mainly to an impairment charge of $18.5 million related to the sale of Calpine"s interest in the Grays Ferry Cogeneration Facility in July 2005, $18.3 million of non-cash foreign exchange transaction costs related to intercompany transactions (versus $7.6 million in the prior year), $16.6 million in letter of credit fees (versus $8.3 million in the prior year) and higher legal reserves. Other income for the nine months ended Sept. 30, 2004, included approximately $171.0 million in pre-tax gains from the restructuring and sale of power purchase agreements for two of the company"s New Jersey plants, net of transaction costs and the write-off of unamortized deferred financing costs. As indicated in the discussion of the three-month results, Calpine recorded a reserve on certain deferred tax assets associated with CCFC in the third quarter of 2005, which had the effect of reducing the tax benefit on the company"s pre-tax loss from continuing operations by approximately $143.4 million.

In the nine months ended Sept. 30, 2005, Calpine recorded a pre-tax gain from discontinued operations of $75.2 million. However, the company"s year-to-date effective tax rate on discontinued operations was 183.0% due primarily to a large taxable gain on the sale of the Saltend Energy Centre and, as a consequence, Calpine"s after-tax loss from discontinued operations was $62.4 million. Income from discontinued operations included gains on the sale of Calpine"s remaining oil and gas assets and the Saltend Energy Centre, both of which closed in July 2005, and a loss on the sale of the Ontelaunee Energy Center, which was classified as held-for-sale at Sept. 30, 2005 and closed in October 2005. Discontinued operations also includes the operating results, until the respective sales dates, for those entities and the Morris Power Plant, for which Calpine recorded an impairment charge in the second quarter of 2005, and which was sold in the third quarter of 2005. For the nine months ended Sept. 30, 2004, Calpine recorded net income from discontinued operations of $235.7 million related to the sales of its Canadian and U. S. Rocky Mountain oil and gas assets and the Lost Pines 1 Power Project.

Strategic Initiative Update

Calpine continues to advance its May 2005 strategic initiative aimed at optimizing its power plant portfolio, reducing debt and enhancing the company"s financial strength. While the company continues to make progress toward its goal of reducing total debt by more than $3 billion by year-end 2005 and achieving an estimated $275 million of annual interest savings, the timing of accomplishing this goal may be delayed into 2006. Since May, Calpine has completed more than $2 billion of asset sale transactions related to its strategic initiative, as follows:

-- Raised gross proceeds of $1.05 billion from the sale of all of its
remaining oil and gas assets, less adjustments, transaction fees and
expenses, and approximately $75 million to reflect the value of certain
oil and gas properties for which the company was unable to obtain
consents to assignment prior to closing. The company expects to obtain
these consents by the end of the first quarter of 2006;

-- Generated $862.9 million of gross proceeds from the sale of the
1,200-megawatt Saltend Energy Centre in the United Kingdom;

-- Completed the sale of its 50% interest in the 175-megawatt Grays Ferry
Cogeneration Facility in Pennsylvania for $37.4 million; and

-- Raised gross proceeds of $84.5 million through the sale of its
156-megawatt Morris Power Plant in Illinois.

Subsequent to the quarter ended Sept. 30, 2005, Calpine:

-- Completed the sale of its 550-megawatt Ontelaunee Energy Center for
$225.0 million, less transaction costs and adjustments.

In addition to asset sales, the company completed the following transactions that further advanced its strategic initiative program:

-- Agreed to form an energy marketing and trading venture with Bear
Stearns Companies, Inc. (Bear Stearns). The new energy venture is
expected to develop a third-party customer business focused on physical
natural gas and power trading and related structured transactions.
Regulatory approval was received on Oct. 31, 2005, and it is
anticipated that operations will begin in the fourth quarter of 2005;

-- Connected with this new energy marketing and trading venture will be a
$350 million credit intermediation agreement between CalBear Energy LP,
a new Bear Stearns subsidiary, and Calpine Energy Services, L.P. (CES).
This agreement will allow short-term trading around Calpine"s assets to
be backed with the A-rated credit of Bear Stearns. This facility is
expected to eventually increase Calpine"s working capital position by
up to $350 million through the return of cash currently posted as
collateral; and

-- Mothballed its 250-megawatt Santa Rosa Energy Center in Pace, Fla. and
its 50-megawatt Newark Power Plant in Newark, N.J. By temporarily
closing uneconomic power plants, Calpine is able to further reduce
costs and more effectively focus its financial and sales resources. At
the same time, the company retains the operational flexibility to
resume operations in a relatively short timeframe as commercial and
market conditions improve.

Financing Transactions

During the third quarter, Calpine completed the following financing transactions:

-- Redeemed its outstanding 5% HIGH TIDES III preferred securities,
totaling $517.5 million, of which $115.0 million were held by Calpine;

-- Raised $150.0 million, less transaction costs, through CCFC Preferred
Holdings LLC (CCFC Holdings) CCFC Holdings" private placement of
Redeemable Preferred Shares due Feb. 13, 2006. CCFC Holdings is an
indirect, stand-alone Calpine subsidiary;

-- Repurchased or repaid the $186.1 million outstanding principal amount
of its 8 1/4% Senior Notes due 2005;

-- Utilized a portion of the proceeds from the sale of Calpine"s remaining
oil and gas assets to repurchase $138.9 million of its 9 5/8% First
Priority Senior Secured Notes due 2014; and

-- Used a portion of the proceeds from the sale of the Saltend Energy
Centre to redeem the two related series of Redeemable Preferred Shares
totaling $620.0 million in principal amount.

During the three months ended Sept. 30, 2005, Calpine also repurchased Senior Notes in open market transactions totaling $120.6 million in principal. The company repurchased the Senior Notes for cash totaling $91.0 million, plus accrued interest, as follows (in thousands):

Cash
Senior Notes Principal Payment
10 1/2% due 2006 $10,005.0 $9,671.0
7 5/8% due 2006 8,051.0 7,648.5
8 3/4% due 2007 2,000.0 1,570.0
7 7/8% due 2008 53,500.0 39,598.8
8 1/2% due 2008 41,000.0 28,632.5
7 3/4% due 2009 6,000.0 3,900.0
Total repurchases $120,556.0 $91,020.8

For the three months ended Sept. 30, 2005, the company recorded an aggregate pre-tax gain of $28.6 million on the above debt repurchases after the write-off of unamortized deferred financing costs and unamortized discounts.

Subsequent to Sept. 30, 2005, Calpine:

-- Completed a $300.0 million offering of Six-Year Redeemable Preferred
Shares due 2011 by CCFC Holdings;

-- Repurchased the $150 million of CCFC Holdings" Redeemable Preferred
Shares due Feb. 13, 2006; and

-- Repurchased $93.3 million of 8 1/2% Senior Notes due 2008 in October
2005, in open market transactions for cash totaling $55.7 million, plus
accrued interest.

Calpine ended the third quarter with cash and cash equivalents on hand of approximately $843.1 million. In addition to this amount, the company"s current portion of restricted cash totaled approximately $1,106.7 million, $609.2 million of which is proceeds of certain asset sales that is currently subject to lawsuits in Canada and in the United States.

Operations Update

Calpine is very fortunate to report that its employees were not harmed during the onslaught of the hurricanes that ravaged the Gulf Coast, Florida and the Yucatan Peninsula over the past several months. The company"s plants sustained very little damage and continued to operate or were available to deliver electricity upon restoration of transmission and gas services.

Also during the quarter, Calpine:

-- Generated 28.7 million megawatt-hours for the quarter, 7.9% higher than
2004 levels;

-- Operated its gas-fired power plants with an average baseload heat rate
of approximately 7,170 million British thermal units per kilowatt-hour,
essentially flat compared to 2004;

-- Averaged 96.5% plant availability, 1.2% lower than 2004;

-- Operated its power plants at an average, on-peak baseload capacity
factor of 67.3%, compared to 66.1% for the third quarter of 2004, as
shown below. Around-the-clock, baseload capacity factor for the
quarter averaged 54.0%, compared to 55.4% for the same period in 2004;


Around-the-
On-Peak Clock
ERCOT 85.1% 60.4%
California 84.4% 74.3%
Other West & Canada 67.3% 63.7%
Northeast 66.1% 67.5%
Midwest 49.7% 30.3%
Southeast 37.4% 29.9%

Total 67.3% 54.0%

-- Reduced total plant operating expense (based on a trailing 12-month
period ending Sept. 30, 2005 at an assumed 70% capacity factor) to
$4.97 per megawatt-hour from $5.07 per megawatt-hour in 2004; and

-- Converted one of three combustion turbine generators at Calpine"s Texas
City Power Plant to Power Systems Mfg., LLC"s patented, low-emissions
combustion system, LEC-III?. As a result, Calpine will reduce
nitrogen oxide emissions at its Texas City Power Plant by approximately
80% while maintaining single-digit carbon monoxide emission levels.

New Market Opportunities

Calpine is active in every major North American power market. The company currently serves more than 100 investment grade-rated customers across the United States and in Canada and is expanding its non-standard products and services. Highlights of the third quarter include:

Marketing and Sales -- Calpine continued to optimize its power portfolio, entering new power sales agreements as well as restructuring existing contracts. During the third quarter, Calpine executed 28 transactions, totaling approximately 1,900 megawatts of capacity, representing a 34% increase over third quarter 2004 levels. These transactions have an average life of approximately 1.8 years;

NewSouth Energy LLC -- The Atlanta-based Calpine subsidiary serves wholesale power customers throughout the Southeast and manages approximately 6,000 megawatts of generation. In conjunction with Calpine"s trading and risk management unit, NewSouth Energy announced:

-- An agreement for CES to supply Cleco Power LLC with 200 megawatts of
power for one year beginning in January 2006 from the Acadia Energy
Center in Louisiana; and

-- A long-term power supply agreement between CES and Tampa Electric
Company (TECO). The Osprey and the Auburndale Peaker Energy Centers,
located at Calpine"s Auburndale Energy Complex in Florida, will deliver
up to 170 megawatts of peaking capacity and energy to TECO in the form
of a call option from May 1, 2006, through Dec. 31, 2011.

Calpine Energy Services, L.P. -- CES manages Calpine"s 26,500-megawatt portfolio of power plants and manages more than 2.5 billion cubic feet per day of natural gas and pipeline capacity. As an energy management services provider, CES also assists customers with a broad range of commercial services and other customized energy management products. For example, during the quarter, CES:

-- Entered into new services agreements with two power generation
organizations to provide marketing, scheduling and other energy
management services for an 80-megawatt and 117-megawatt power plant.

Power Systems Mfg. LLC (PSM) -- Calpine"s parts and manufacturing subsidiary offers a wide range of proprietary, low emissions combustion systems and advanced airfoils compatible with retrofitting or replacing existing combustion systems and hot gas path components in General Electric (GE) and Siemens Westinghouse turbines, including F-class machines. During the quarter, PSM was:

-- Selected to install its low emissions combustion technology, trade
named LEC-III?, at a major merchant power generator"s 600-megawatt
cogeneration power plant in the Houston, Texas area. PSM will convert
five GE Frame 7E gas turbines with its proprietary system to eliminate
approximately 90% of the power plant"s nitrogen oxide emissions.

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.

Conference Call Information

Calpine will host a conference call to discuss its financial and operating results for the three and nine months Sept. 30, 2005, on Thursday, Nov. 3, 2005, at 8:30 a.m. Pacific Standard Time. To participate via the teleconference (in listen-only mode), dial 888-603-6685 (706-634-1265 for international callers) 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 webcast and presentation will be available for 30 days on Calpine"s investor relations page at www.calpine.com.

About Calpine

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 and three Canadian provinces and is building a plant in Mexico. Its customized products and services include wholesale and retail electricity, gas turbine components and services, energy management, and a wide range of power plant engineering, construction and maintenance, and operational 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 .



(1) This non-GAAP measure is presented not as a measure of operating
results, but rather as a measure of our ability to service debt and
to raise additional funds. It should not be construed as an
alternative to either (i) income from operations or (ii) cash flows
from operating activities. It is defined as net income less income
from unconsolidated investments, plus cash received from
unconsolidated investments, plus interest expense (including
one-third of operating lease expense, which is management"s estimate
of the component of operating lease expense that constitutes
interest expense), plus provision for tax, plus DD&A. The interest,
tax, DD&A and income from unconsolidated investments components of
discontinued operations are added back in calculating EBITDA, as
adjusted.

(2) This non-GAAP measure is presented as a further refinement of
EBITDA, as adjusted, to reflect the company"s ability to service
debt with cash.

(3) Does not include MWh generated by unconsolidated investments in
power projects.

(4) 2006 contractual spark spread is down from June 30, 2005 by
approximately $175 million due primarily to gas price increases.
However, the un-contracted portfolio increased by approximately $125
million during the same period due to spark spread expansion, which
largely resulted from the same gas price movement.

(5) Amounts based on Calpine"s ownership percentage.


Source: Calpine Corporation
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