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4.8.2005: Meldung: Calpine Reports Q2 2005 Financial and Operating Results
Calpine Corporation reported financial and operating results for the three and six months ended June 30, 2005. A conference call, set for 8:30 a.m. PDT today, will be accompanied by a comprehensive presentation of the second quarter results. The presentation will be posted on Calpine"s investor relations page at www.calpine.com prior to the conference call.
Second Quarter
(unaudited)
2005 2004
Megawatt-hours Generated (millions) (a) 20.0 20.1
Megawatts in Operation at June 30 (a) 26,599 25,085
Revenue (millions) (a) $2,226.0 $2,215.4
Net (Loss) (millions) $(298.5) $(28.7)
Basic and Diluted (Loss) Per Share $(0.66) $(0.07)
Operating Cash Flow (millions) $(124.7) $185.2
EBITDA, as adjusted (millions) (b) $215.1 $388.5
EBITDA, as adjusted, for
non-cash and other charges (millions) (c) $251.4 $446.2
Total Assets (billions) $27.8 $27.4
(a) From continuing operations.
(b) Earnings Before Interest, Tax, Depreciation and Amortization, as
adjusted; see attached Supplemental Data for reconciliation from net
income.
(c) See Supplemental Data for reconciliation from EBITDA, as adjusted.
Peter Cartwright, Calpine president and CEO, said, "During the second quarter, spark spreads were mixed, and Calpine experienced several unplanned equipment outages in key power markets. Financial results were further impacted by power plant and development project asset impairments and service agreement cancellations, totaling just over $200 million. These were partially mitigated by approximately $129 million of income from repurchase of debt.
"While results for the quarter were disappointing, Calpine continues to make significant progress in advancing our strategic initiative to de-lever our balance sheet and reduce interest expense and operating costs. In just over two months since our May rollout, Calpine has completed or announced over $2 billion of transactions toward attaining these goals, and since the beginning of the third quarter, we have lowered total debt by approximately $1.3 billion to $17.4 billion.
"Although demand in the second quarter was dampened by mild weather, especially in April and May, since June we have seen strong demand for electricity and improving spark spreads in our major power markets," continued Cartwright. "Our recently restructured long-term service arrangements with our major equipment manufacturers will advance Calpine"s program to lower operating costs, improve plant performance and enhance our major maintenance capabilities."
2005 Second Quarter Financial Results
For the three months ended June 30, 2005, Calpine reported revenue of $2.2 billion, representing an increase of 0.5% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $0.66, or a net loss of $298.5 million, compared to a net loss per share of $0.07, or a net loss of $28.7 million, for the same quarter in the prior year.
Included in the current quarter"s results are various non-routine items, which are discussed in more detail below and in the aggregate netted to a charge of $0.11 per share, consisting of impairment charges on two power plants in operation and three in development, cancellation charges to terminate several long-term service agreements, and a net gain on the repurchase of debt.
For the three months ended June 30, 2005, Calpine"s average capacity in operation for consolidated projects increased by 10.9% to 25,566 megawatts. Generation volume was flat from the prior year as mild weather in April and May decreased demand, and Calpine also experienced forced outages at certain of its power plants. The company generated approximately 20.0 million megawatt-hours, which equated to a baseload capacity factor of 39.9%, and realized an average spark spread of $22.57 per megawatt-hour. For the same period in 2004, Calpine generated 20.1 million megawatt-hours, which equated to a baseload capacity factor of 45.0%, and realized an average spark spread of $20.62 per megawatt-hour.
Gross profit decreased by $58.8 million to a loss of $31.5 million in the three months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant, which sale was pending at the end of the quarter. Although total spark spread margin increased by $38.6 million period-to-period, it did not increase in line with the increases in transmission purchase expense, depreciation and interest expense associated with new power plants coming on line.
During the three months ended June 30, 2005, financial results were positively impacted by $129.2 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $63.2 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 $25.8 million for the three months ended June 30, 2005, compared to other income of $179.5 million for the three months ended June 30, 2004. The net expense for the three months ended June 30, 2005, was due mainly to an impairment charge of $18.5 million related to the sale of Calpine"s investment in the Grays Ferry Cogeneration Facility in July 2005. Other income for the quarter ended June 30, 2004, included $171.5 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.
The discontinued operations in the three months ended June 30, 2005, are a result of the sale of the Saltend Energy Centre and Calpine"s remaining domestic oil and gas exploration and production properties and assets. Both of these sales closed in July 2005. Discontinued operations for the three months ended June 30, 2004, also included the Lost Pines I Power Project and oil and gas sales in 2004. On August 3, 2005, Calpine will file a Form 8-K for the disposition of the Saltend Energy Centre. The Form 8-K will include a pro forma balance sheet as of March 31, 2005, and pro forma income statements for the three months ended March 31, 2005, and for the years ended December 31, 2004, 2003 and 2002, that will adjust for the effects of the sale of the Saltend Energy Centre, as well as the sale of Calpine"s remaining domestic oil and gas exploration and production properties and assets.
2005 Six-Months Results
For the six months ended June 30, 2005, Calpine reported revenue of $4.3 billion, representing an increase of 4.2% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $1.04, or a net loss of $467.2 million, compared to a net loss per share of $0.24, or a net loss of $99.9 million, for the same period in the prior year.
Included in the six-months results are various non-routine items, which are discussed in more detail below and in the aggregate netted to a charge of $0.08 per share, consisting of impairment charges on two power plants in operation and three in development, cancellation charges to terminate several long-term agreements, and a net gain on the repurchase of debt.
For the six months ended June 30, 2005, Calpine"s average capacity in operation for consolidated projects increased by 16.0% to 25,330 megawatts. The company generated approximately 40.1 million megawatt-hours, which equated to a baseload capacity factor of 40.6%, and realized an average spark spread of $22.61 per megawatt-hour. For the same period in 2004, Calpine generated 38.7 million megawatt-hours, which equated to a baseload capacity factor of 46.2%, and realized an average spark spread of $19.67 per megawatt-hour.
Gross profit decreased by $24.8 million, or 34%, to $48.3 million in the six months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant. Despite improvements in market fundamentals, total spark spread -- which increased by $144.8 million, or 19%, in the six months ended June 30, 2005, compared to the same period in 2004 -- did not increase in line with the increases in plant operating expense, transmission purchase expense, depreciation, and interest expense associated with new power plants coming on line.
During the six months ended June 30, 2005, financial results were positively impacted by $150.9 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $142.3 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 $20.8 million for the six months ended June 30, 2005, compared to other income of $191.4 million for the six months ended June 30, 2004. The net expense for the six months ended June 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. Other income for the six months ended June 30, 2004, included $171.5 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.
The discontinued operations in the six months ended June 30, 2005, are a result of the July 2005 sales of the Saltend Energy Centre and Calpine"s remaining domestic oil and gas exploration and production properties and assets. Discontinued operations for the six months ended June 30, 2004, also included the Lost Pines 1 Power Project and oil and gas sales in 2004.
Strategic Initiative Update
On May 25, 2005, Calpine launched a strategic initiative aimed at reducing debt and enhancing the company"s financial strength. The program is targeting debt reduction of approximately $3 billion by the end of 2005, $275 million of annual interest savings and approximately $200 million in annual operating cost reductions. During the second quarter, Calpine entered into negotiations for the proposed sale of two gas-fired power plants, representing approximately 600 megawatts of capacity.
Subsequent to June 30, 2005, Calpine:
-- Sold all of its remaining domestic oil and gas exploration and production properties and assets for $1.05 billion, less adjustments, transaction fees and expenses, and less 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 receive the remaining consents in the near future. With the completion of this transaction, Calpine expects to record, subsequent to June 30, 2005, a pre-tax gain on the sale of assets of approximately $350.0 million;
-- Completed the sale of the 1,200-megawatt Saltend Energy Centre in Hull, England, generating total gross proceeds of $862.5 million, for an estimated pre-tax gain of $6 million. The two existing series of Redeemable Preferred Shares relating to the Saltend Energy Centre were redeemed in connection with the sale;
-- Reached an agreement with Siemens Westinghouse to restructure Calpine"s long-term relationship and service agreements. The restructuring provides greater operating and turbine maintenance flexibility for Calpine, resolves outstanding issues between the companies and provides an option to purchase extended warranties for Calpine turbines in construction and in storage;
-- Announced a 15-year Master Products and Services Agreement with General Electric International, Inc., which replaces the nine remaining long-term service agreements related to Calpine"s GE 7FA turbine fleet. Calpine will benefit from the ability to strengthen its major maintenance capabilities, improve power plant performance and lower operating costs;
-- Sold its 50% interest in the 175-megawatt Grays Ferry Cogeneration Facility for $37.4 million;
-- Completed the sale of the company"s 156-megawatt Morris Power Plant for approximately $84.5 million; and
-- Purchased approximately $138.9 million of its 9 5/8% First Priority Senior Secured Notes due 2014 under the terms of a tender offer.
Other Financing Transactions
During the second quarter, Calpine completed the following financing transactions:
-- Issued $650.0 million of 7 3/4% Contingent Convertible Notes due 2015 in June 2005. The company, in July 2005, used a portion of the net proceeds to redeem the remaining $517.5 million outstanding of 5% HIGH TIDES III preferred securities, of which $115.0 million was held by Calpine. The company used the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8 1/2% Senior Unsecured Notes due 2011;
-- Received funding for Metcalf Energy Center, LLC"s $155.0 million offering of 5.5-Year Redeemable Preferred Shares and five-year, $100.0 million Senior Term Loan. A portion of the net proceeds was used to repay $50.0 million outstanding on the original Metcalf project financing, with the remaining net proceeds to be used as permitted by the company"s existing indentures.
-- Received funding for its $123.1 million, non-recourse project finance facility to complete the construction of the 79.9-megawatt Bethpage Energy Center 3. Approximately $55.0 million of the funding was used to reimburse Calpine for costs spent to date on the Bethpage 3 project. An additional amount of approximately $11.2 million will be released upon satisfying certain conditions. The balance of funds will be used for transaction expenses, the final completion of the project and to fund certain reserve accounts.
Calpine ended the quarter with cash and cash equivalents on hand of approximately $636.2 million. In addition to this amount, the company"s current portion of restricted cash totaled approximately $993.9 million, including $402.5 million used in July 2005 to redeem the remaining HIGH TIDES III preferred securities held by third parties.
During the three months ended June 30, 2005, Calpine repurchased Senior Notes in open market transactions totaling $479.8 million in principal. The company repurchased the Senior Notes for cash totaling $337.9 million plus accrued interest as follows (in thousands):
Senior Notes Principal Cash Payment
10 1/2% due 2006 $3,485.0 $2,753.2
7 5/8% due 2006 1,335.0 1,041.3
8 3/4% due 2007 3,000.0 1,665.0
8 1/2% due 2008 25,500.0 18,297.5
7 3/4% due 2009 35,000.0 20,865.0
8 5/8% due 2010 37,468.0 24,077.4
8 1/2% due 2011 374,000.0 269,154.8
Total repurchases $479,788.0 $337,854.2
Also, in June 2005, Calpine repurchased $94.3 million in aggregate outstanding principal amount of 6% Contingent Convertible Notes due 2014 in exchange for 27,539,826 shares of Calpine common stock. The company recorded a pre-tax loss of $7.9 million on the exchange, which includes the write-off of the associated unamortized deferred financing costs and unamortized original issue discount.
For the three months ended June 30, 2005, the company recorded an aggregate pre-tax gain of $129.2 million on the above debt repurchases after the write-off of unamortized deferred financing costs and unamortized discounts.
Operations Update
During the second quarter Calpine experienced planned (4.7 million megawatt-hours) and unplanned (2.6 million megawatt-hours) outages that significantly impacted operations. Several major power plants were off-line in Calpine"s key power markets, including California, Arizona, Texas and New England. These extended forced outages were primarily related to equipment failure, which the company has since resolved.
Also during the second quarter, Calpine:
-- Generated 20.0 million megawatt-hours for the quarter, slightly lower than 2004 levels;
-- Operated its gas-fired power plants with an average baseload heat rate of 7,294 million British thermal units per kilowatt-hour, compared to 7,265 in 2004;
-- Reduced total plant operating expense (based on a trailing 12-month period ending June 30, at an assumed 70% capacity factor) to $4.95 per megawatt-hour from $5.41 per megawatt-hour in 2004;
-- Operated its natural gas-fired and geothermal power plants with an average availability of 89.0%, compared to 88.9% in 2004;
-- Started-up the 600-megawatt Metcalf Energy Center for the Northern California power market. Metcalf is the first large power plant in Silicon Valley. It will be the cornerstone of energy supply and reliability for the region;
-- Placed Phase I (300 megawatts) of the Fox Energy Center into operation. The new, natural gas-fired, combined-cycle power plant, located in Wisconsin, is providing approximately 150 megawatts of capacity to Wisconsin Public Service Corporation, with the remainder available for sale into the region"s wholesale power market; and
-- Pledged to reduce its greenhouse gas (GHG) efficiency-based emissions rate (pounds of GHG emitted per megawatt-hour of electricity generated) by 4% from 2003 levels. Compared to the average fossil-fueled power plant in the United States, Calpine"s combined-cycle, natural gas-fired units on average release nearly 54% less carbon dioxide -- the principal greenhouse gas.
Subsequent to June 30, 2005, Calpine:
-- Entered into agreements with GE Energy (GE) to begin construction this month of North America"s most advanced natural gas-fired, combined- cycle power plant at the Inland Empire site in Southern California. GE has acquired development rights for the plant from Calpine and will finance and operate the new H System(TM) power plant. Calpine will manage plant construction and will market the plant"s output and manage its fuel requirements under a long-term arrangement with GE;
-- Started-up 500 megawatts of new capacity to the Pastoria Energy Center, bringing the plant"s total output to 750 megawatts. Pastoria, located in the attractive Southern California power market, is the single- largest capacity addition to occur in the state before peak summer power demand;
-- Completed construction of the Bethpage Energy Center 3, the region"s first modern, natural gas-fired, combined-cycle power plant. Calpine"s new plant provides up to 79.9 megawatts of electricity to Long Island Power Authority customers under a 20-year contract for capacity, energy and other energy-related services; and
-- Received an award from the U.S. Department of Labor"s Occupational Safety and Health Administration"s (OSHA) highest safety recognition for Calpine"s Tiverton, R.I. and Ontelaunee, Pa. power plants under OSHA"s Voluntary Protection Program.
New Market Opportunities
During the quarter, Calpine:
-- Announced an agreement to supply up to 485 megawatts of electricity to Entergy from the Carville Energy Center in Louisiana. Carville is part of NewSouth Energy"s marketing network of nearly 6,000 megawatts of modern, gas-fired power plants in the Southeast United States;
-- Expanded and extended its power sales to Safeway Inc. The new agreement calls for the delivery of approximately 130 megawatts, a 20-megawatt increase, and extends the term of the existing contract one additional year through mid-2008. The newly expanded Safeway contract now facilitates energy deliveries to more than 400 Safeway locations throughout California; and
-- Entered into a 20-year power sales agreement in partnership with Mitsui & Co., Ltd., with the Ontario Power Authority to provide energy from a new 1,005-megawatt natural gas-fired power plant to be located in Ontario. As part of its turbine inventory deployment program, Calpine"s equity in the project will be three of the company"s gas turbines and one steam turbine.
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 six months ended June 30, 2005, on Wednesday, August 3, 2005, at 8:30 a.m. PDT. To participate via the teleconference (in listen-only mode), dial 1-888-603-6685 (1-706-634-1265 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. 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 .
This news release discusses certain matters that may be considered "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the intent, belief or current expectations of Calpine Corporation ("the company") and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. Such risks and uncertainties include, but are not limited to, (i) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (ii) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, and the impact of related derivatives transactions, (iii) unscheduled outages of operating plants, (iv) unseasonable weather patterns that reduce demand for power, (v) economic slowdowns that can adversely affect consumption of power by businesses and consumers, (vi) various development and construction risks that may delay or prevent commercial operations of new plants, such as failure to obtain the necessary permits to operate, failure of third-party contractors to perform their contractual obligations or failure to obtain project financing on acceptable terms, (vii) uncertainties associated with cost estimates, that actual costs may be higher than estimated, (viii) development of lower-cost power plants or of a lower cost means of operating a fleet of power plants by our competitors, (ix) risks associated with marketing and selling power from power plants in the evolving energy market, (x) factors that impact the exploitation of a geothermal resource, (xi) uncertainties associated with estimates of geothermal reserves, (xii) the effects on our business resulting from reduced liquidity in the trading and power generation industry, (xiii) our ability to access the capital markets or other financing sources on attractive terms or at all, (xiv) our ability to successfully implement the various components of our strategic initiative to increase liquidity, reduce debt and reduce operating costs, (xv) uncertainties associated with estimates of sources and uses of cash, that actual sources may be lower and actual uses may be higher than estimated, (xvi) the direct or indirect effects on our business of a lowering of our credit rating (or actions we may take in response to changing credit rating criteria), including increased collateral requirements, refusal by our current or potential counterparties to enter into transactions with us and our inability to obtain credit or capital in desired amounts or on favorable terms, (xvii) present and possible future claims, litigation and enforcement actions, (xviii) effects of the application of regulations, including changes in regulations or the interpretation thereof, and (xvix) other risks identified in the company"s reports and registration statements filed with the SEC, including, but not limited to, the risk factors identified in its Annual Report on Form 10-K for the year ended Dec. 31, 2004, and for the quarter ended March 31, 2005, which can also be found on the company"s website at www.calpine.com. All information set forth in this news release is as of today"s date, and the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise.
CALPINE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2005 and 2004
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenue:
Electric generation
and marketing revenue
Electricity and
steam revenue $1,298,973 $1,239,147 $2,577,252 $2,372,342
Transmission
sales revenue 3,144 4,049 6,888 9,724
Sales of purchased
power for hedging
and optimization 432,846 496,026 780,256 873,849
Total electric
generation and
marketing
revenue 1,734,963 1,739,222 3,364,396 3,255,915
Oil and gas
production and
marketing revenue
Oil and gas sales (34) 1,034 27 2,016
Sales of purchased
gas for hedging
and optimization 456,920 481,971 877,216 834,708
Total oil and gas
production and
marketing revenue 456,886 483,005 877,243 836,724
Mark-to-market
activities, net 2,874 (22,605) (657) (10,086)
Other revenue 31,234 15,781 52,420 36,803
Total revenue 2,225,957 2,215,403 4,293,402 4,119,356
Cost of revenue:
Electric generation
and marketing expense
Plant operating
expense 201,855 204,583 384,104 370,249
Transmission
purchase expense 19,807 14,651 40,681 31,078
Royalty expense 8,143 6,951 18,473 12,833
Purchased power
expense for hedging
and optimization 335,142 444,545 616,337 817,578
Total electric
generation and
marketing expense 564,947 670,730 1,059,595 1,231,738
Oil and gas operating
and marketing expense
Oil and gas
operating expense 1,124 2,076 2,925 3,986
Purchased gas expense
for hedging
and optimization 486,082 453,922 899,341 814,409
Total oil and gas
operating and
marketing expense 487,206 455,998 902,266 818,395
Fuel expense 913,531 899,291 1,807,839 1,676,077
Depreciation,
depletion and
amortization expense 127,921 112,505 248,627 216,281
Power plant
impairment 106,155 -- 106,155 --
Operating lease
expense 25,528 26,963 50,305 54,762
Other cost of revenue 32,149 22,609 70,321 48,989
Total cost of
revenue 2,257,437 2,188,096 4,245,108 4,046,242
Gross profit (31,480) 27,307 48,294 73,114
(Income) loss from
unconsolidated
investments (3,268) 2,085 (9,260) 972
Equipment cancellation
and impairment cost -- 7 (73) 2,367
Long-term service
agreement cancellation
charge 33,918 -- 33,918 --
Project development
expense 52,821 4,030 61,541 11,748
Research and
development expense 5,126 5,124 12,159 8,939
Sales, general and
administrative expense 68,993 54,283 122,627 102,932
Income from
operations (189,070) (38,222) (172,618) (53,844)
Interest expense 333,778 270,576 658,444 516,161
Interest (income) (16,793) (9,508) (30,778) (21,045)
Minority interest
expense 10,172 4,724 20,786 13,159
(Income) from
repurchase of
various issuances
of debt (129,154) (2,559) (150,926) (3,394)
Other expense
(income), net 25,765 (179,533) 20,805 (191,360)
Income (loss) before
provision or benefit
for income taxes (412,838) (121,922) 690,949 (367,365)
Provision (benefit)
for income taxes (134,862) (73,374) (233,591) (175,233)
Income (loss) before
discontinued
operations (277,976) (48,548) (457,358) (192,132)
Discontinued
operations, net
of tax provision
of $1,433, $12,770,
$15,354 and $41,005 (20,482) 19,850 (9,831) 92,242
Net income
(loss) $(298,458) $(28,698) $(467,189) $(99,890)
Basic and diluted
earnings (loss)
per common share:
Weighted average
shares of common
stock outstanding 449,183 417,357 448,391 416,332
Income (loss)
before discontinued
operations $(0.62) $(0.12) $(1.02) $(0.46)
Discontinued
operations,
net of tax $(0.04) $0.05 $(0.02) $0.22
Net income
(loss) $(0.66) $(0.07) $(1.04) $(0.24)
The financial information presented above and in the Supplemental Data is
subject to adjustment until the company files its Form 10-Q with the
United States Securities and Exchange Commission for the three and six
months ended June 30, 2005.
CALPINE CORPORATION AND SUBSIDIARIES
Supplemental Data
(unaudited)
CASH FLOW DATA
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
Cash provided by
(used in) operating
activities $(124,667) $185,223 $(239,259) $11,993
Cash used in
investing
activities (737,787) (96,020) (958,635) (167,391)
Cash provided by
financing activities 756,011 180,860 1,124,721 20,769
Effect of exchange
rate changes on cash
and cash equivalents (4,811) (8,836) (8,897) (13,146)
Reclassification of
change in cash
included in Assets
of discontinued
operations,
current portion (26,608) 53,911 254 10,582
Net increase
(decrease) in
cash and cash
equivalents $(137,862) $315,138 $(81,816) $(137,193)
RECONCILIATION OF GAAP CASH USED IN OPERATING ACTIVITIES TO EBITDA, AS
ADJUSTED (1)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
Cash provided by
(used in) operating
activities $(124,667) $185,223 $(239,259) $11,993
Less: Changes in
operating assets
and liabilities, net
of effects of
acquisitions (31,570) (86,518) 51,256 51,227
Less: Additional
adjustments to
reconcile net
income to net
cash used in
operating
activities, net (142,221) (127,403) (279,186) (163,110)
GAAP net
income (loss) (298,458) (28,698) (467,189) (99,890)
(Income) loss from
unconsolidated
investments (3,268) 2,085 (9,260) 972
Distributions from
unconsolidated
investments 5,416 9,474 10,288 14,614
Subtotal (296,310) (17,139) (466,161) (84,304)
Interest expense 333,778 270,576 658,444 516,161
1/3 of operating
lease expense 8,509 8,988 16,768 18,254
Provision (benefit)
for income taxes (134,862) (73,374) (233,591) (175,233)
Depreciation,
depletion and
amortization
expense ("DD&A") 145,362 129,726 282,794 255,491
Power plant
impairment 106,155 -- 106,155 --
Interest expense,
provision (benefit)
for income taxes,
DD&A and income
from unconsolidated
investments from
discontinued
operations 52,478 69,769 113,119 151,471
EBITDA, as adjusted $215,110 $388,546 $477,528 $681,840
RECONCILIATION OF EBITDA, AS ADJUSTED TO EBITDA, AS ADJUSTED FOR NON-CASH
AND OTHER CHARGES (2)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
EBITDA, as adjusted $215,110 $388,546 $477,528 $681,840
Equipment cancellation
and impairment cost 46,968 7 46,895 2,367
Foreign currency
transaction (gain)
loss 3,489 5,152 (1,751) (4,832)
Unrealized
mark-to-market
activity (gain) loss 40,569 28,913 31,731 33,858
(Income) from
repurchases of
various issuances
of debt (129,154) (2,559) (150,926) (3,394)
SFAS No. 123
(stock-based
compensation expense) 4,837 5,500 11,973 9,766
Minority interest
expense 10,172 4,724 20,786 13,159
(Income) loss on
interest rate swap
ineffectiveness 808 -- 841 --
Unconsolidated
investment impairment 18,542 -- 18,542 --
Long-term service
agreement cancellation
charge 33,918 -- 33,918 --
Write-off of deferred
financing costs
(not related to
bonds repurchased) 5,887 19,376 5,887 19,376
Other non-cash
and other charges 282 (3,487) 737 (1,041)
EBITDA, as adjusted,
for non-cash
and other charges $251,428 $446,172 $496,161 $751,099
SUPPLEMENTARY POWER DATA
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Generation (in MWh,
in thousands) (3) 20,042 20,066 40,078 38,710
Average electric price
realized (per MWh) $69.69 $64.32 $68.40 $62.74
Average spark spread
adjusted for benefits
of equity gas
production (per MWh) $22.57 $20.62 $22.61 $19.67
CALPINE CONTRACTUAL PORTFOLIO - AS OF JUNE 30, 2005
Jul - Dec
2005 2006 2007 2008 2009
Estimated
Generation
Capacity(in
millions of MWh)
- Baseload 92.3 189.6 200.9 211.5 214.7
- Peaking 13.0 26.0 26.5 27.1 27.0
Total 105.3 215.6 227.4 238.6 241.7
Contractual
Generation(in
millions of MWh)
- Baseload 52.8 80.5 60.3 58.1 58.8
- Peaking 10.2 18.9 18.7 18.0 15.0
Total 63.0 99.4 79.0 76.1 73.8
% Sold
- Baseload 57% 42% 30% 27% 27%
- Peaking 78% 73% 71% 66% 56%
Total 60% 46% 35% 32% 31%
Contractual
Spark Spread
(in millions) $839 $1,490 $1,228 $1,332 $1,355
As of As of
CAPITALIZATION June 30, December 31,
2005 2004
Cash and cash equivalents (in billions) $0.6 $0.7
Total debt (in billions) $18.7 $18.0
Debt to capitalization ratio 81% 78%
Present value of operating leases (in billions) $1.2 $1.3
Unconsolidated debt of equity and cost
method investments (estimated, in billions) (4) $0.2 $0.1
($ in thousands):
Short-term debt
Notes payable and borrowings under
lines of credit, current portion $209,184 $204,775
Convertible debentures payable
to Calpine Capital Trust III 517,500 --
Preferred interests, current portion 268,819 8,641
Capital lease obligation, current portion 5,918 5,490
CCFC I financing, current portion 3,208 3,208
Construction/project financing,
current portion 104,932 93,393
Senior notes and term loans,
current portion 1,069,975 718,449
Total short-term debt 2,179,536 1,033,956
Long-term debt
Notes payable and borrowings under
lines of credit, net of current portion 673,312 769,490
Convertible debentures payable
to Calpine Capital Trust III -- 517,500
Preferred interests, net of current portion 648,246 497,896
Capital lease obligation,
net of current portion 281,940 283,429
CCFC I financing, net of current portion 782,423 783,542
CalGen/CCFC II financing 2,396,257 2,395,332
Construction/project financing,
net of current portion 2,283,200 1,905,658
Convertible Senior Notes Due 2006 1,311 1,326
Convertible Notes Due 2014 546,122 620,197
Convertible Notes Due 2015 650,000 --
Convertible Senior Notes Due 2023 633,775 633,775
Senior notes, net of current portion 7,584,897 8,532,664
Total long-term debt 16,481,483 16,940,809
Total debt $18,661,019 $17,974,765
Minority interests 384,401 393,445
Total stockholders" equity 4,062,974 4,587,673
Total capitalization $23,108,394 $22,955,883
Debt to capitalization ratio
Total debt $18,661,019 $17,974,765
Total capitalization $23,108,394 $22,955,883
Debt to capitalization 81% 78%
(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) Amounts based on Calpine"s ownership percentage.
CONTACT:
Investors, Karen Bunton, +1-408-995-5115, ext. 1121, or Lisa Poelle, +1-408-995-5115, ext. 1285, all of Calpine Corporation
SOURCE Calpine Corporation
Second Quarter
(unaudited)
2005 2004
Megawatt-hours Generated (millions) (a) 20.0 20.1
Megawatts in Operation at June 30 (a) 26,599 25,085
Revenue (millions) (a) $2,226.0 $2,215.4
Net (Loss) (millions) $(298.5) $(28.7)
Basic and Diluted (Loss) Per Share $(0.66) $(0.07)
Operating Cash Flow (millions) $(124.7) $185.2
EBITDA, as adjusted (millions) (b) $215.1 $388.5
EBITDA, as adjusted, for
non-cash and other charges (millions) (c) $251.4 $446.2
Total Assets (billions) $27.8 $27.4
(a) From continuing operations.
(b) Earnings Before Interest, Tax, Depreciation and Amortization, as
adjusted; see attached Supplemental Data for reconciliation from net
income.
(c) See Supplemental Data for reconciliation from EBITDA, as adjusted.
Peter Cartwright, Calpine president and CEO, said, "During the second quarter, spark spreads were mixed, and Calpine experienced several unplanned equipment outages in key power markets. Financial results were further impacted by power plant and development project asset impairments and service agreement cancellations, totaling just over $200 million. These were partially mitigated by approximately $129 million of income from repurchase of debt.
"While results for the quarter were disappointing, Calpine continues to make significant progress in advancing our strategic initiative to de-lever our balance sheet and reduce interest expense and operating costs. In just over two months since our May rollout, Calpine has completed or announced over $2 billion of transactions toward attaining these goals, and since the beginning of the third quarter, we have lowered total debt by approximately $1.3 billion to $17.4 billion.
"Although demand in the second quarter was dampened by mild weather, especially in April and May, since June we have seen strong demand for electricity and improving spark spreads in our major power markets," continued Cartwright. "Our recently restructured long-term service arrangements with our major equipment manufacturers will advance Calpine"s program to lower operating costs, improve plant performance and enhance our major maintenance capabilities."
2005 Second Quarter Financial Results
For the three months ended June 30, 2005, Calpine reported revenue of $2.2 billion, representing an increase of 0.5% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $0.66, or a net loss of $298.5 million, compared to a net loss per share of $0.07, or a net loss of $28.7 million, for the same quarter in the prior year.
Included in the current quarter"s results are various non-routine items, which are discussed in more detail below and in the aggregate netted to a charge of $0.11 per share, consisting of impairment charges on two power plants in operation and three in development, cancellation charges to terminate several long-term service agreements, and a net gain on the repurchase of debt.
For the three months ended June 30, 2005, Calpine"s average capacity in operation for consolidated projects increased by 10.9% to 25,566 megawatts. Generation volume was flat from the prior year as mild weather in April and May decreased demand, and Calpine also experienced forced outages at certain of its power plants. The company generated approximately 20.0 million megawatt-hours, which equated to a baseload capacity factor of 39.9%, and realized an average spark spread of $22.57 per megawatt-hour. For the same period in 2004, Calpine generated 20.1 million megawatt-hours, which equated to a baseload capacity factor of 45.0%, and realized an average spark spread of $20.62 per megawatt-hour.
Gross profit decreased by $58.8 million to a loss of $31.5 million in the three months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant, which sale was pending at the end of the quarter. Although total spark spread margin increased by $38.6 million period-to-period, it did not increase in line with the increases in transmission purchase expense, depreciation and interest expense associated with new power plants coming on line.
During the three months ended June 30, 2005, financial results were positively impacted by $129.2 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $63.2 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 $25.8 million for the three months ended June 30, 2005, compared to other income of $179.5 million for the three months ended June 30, 2004. The net expense for the three months ended June 30, 2005, was due mainly to an impairment charge of $18.5 million related to the sale of Calpine"s investment in the Grays Ferry Cogeneration Facility in July 2005. Other income for the quarter ended June 30, 2004, included $171.5 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.
The discontinued operations in the three months ended June 30, 2005, are a result of the sale of the Saltend Energy Centre and Calpine"s remaining domestic oil and gas exploration and production properties and assets. Both of these sales closed in July 2005. Discontinued operations for the three months ended June 30, 2004, also included the Lost Pines I Power Project and oil and gas sales in 2004. On August 3, 2005, Calpine will file a Form 8-K for the disposition of the Saltend Energy Centre. The Form 8-K will include a pro forma balance sheet as of March 31, 2005, and pro forma income statements for the three months ended March 31, 2005, and for the years ended December 31, 2004, 2003 and 2002, that will adjust for the effects of the sale of the Saltend Energy Centre, as well as the sale of Calpine"s remaining domestic oil and gas exploration and production properties and assets.
2005 Six-Months Results
For the six months ended June 30, 2005, Calpine reported revenue of $4.3 billion, representing an increase of 4.2% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $1.04, or a net loss of $467.2 million, compared to a net loss per share of $0.24, or a net loss of $99.9 million, for the same period in the prior year.
Included in the six-months results are various non-routine items, which are discussed in more detail below and in the aggregate netted to a charge of $0.08 per share, consisting of impairment charges on two power plants in operation and three in development, cancellation charges to terminate several long-term agreements, and a net gain on the repurchase of debt.
For the six months ended June 30, 2005, Calpine"s average capacity in operation for consolidated projects increased by 16.0% to 25,330 megawatts. The company generated approximately 40.1 million megawatt-hours, which equated to a baseload capacity factor of 40.6%, and realized an average spark spread of $22.61 per megawatt-hour. For the same period in 2004, Calpine generated 38.7 million megawatt-hours, which equated to a baseload capacity factor of 46.2%, and realized an average spark spread of $19.67 per megawatt-hour.
Gross profit decreased by $24.8 million, or 34%, to $48.3 million in the six months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant. Despite improvements in market fundamentals, total spark spread -- which increased by $144.8 million, or 19%, in the six months ended June 30, 2005, compared to the same period in 2004 -- did not increase in line with the increases in plant operating expense, transmission purchase expense, depreciation, and interest expense associated with new power plants coming on line.
During the six months ended June 30, 2005, financial results were positively impacted by $150.9 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $142.3 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 $20.8 million for the six months ended June 30, 2005, compared to other income of $191.4 million for the six months ended June 30, 2004. The net expense for the six months ended June 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. Other income for the six months ended June 30, 2004, included $171.5 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.
The discontinued operations in the six months ended June 30, 2005, are a result of the July 2005 sales of the Saltend Energy Centre and Calpine"s remaining domestic oil and gas exploration and production properties and assets. Discontinued operations for the six months ended June 30, 2004, also included the Lost Pines 1 Power Project and oil and gas sales in 2004.
Strategic Initiative Update
On May 25, 2005, Calpine launched a strategic initiative aimed at reducing debt and enhancing the company"s financial strength. The program is targeting debt reduction of approximately $3 billion by the end of 2005, $275 million of annual interest savings and approximately $200 million in annual operating cost reductions. During the second quarter, Calpine entered into negotiations for the proposed sale of two gas-fired power plants, representing approximately 600 megawatts of capacity.
Subsequent to June 30, 2005, Calpine:
-- Sold all of its remaining domestic oil and gas exploration and production properties and assets for $1.05 billion, less adjustments, transaction fees and expenses, and less 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 receive the remaining consents in the near future. With the completion of this transaction, Calpine expects to record, subsequent to June 30, 2005, a pre-tax gain on the sale of assets of approximately $350.0 million;
-- Completed the sale of the 1,200-megawatt Saltend Energy Centre in Hull, England, generating total gross proceeds of $862.5 million, for an estimated pre-tax gain of $6 million. The two existing series of Redeemable Preferred Shares relating to the Saltend Energy Centre were redeemed in connection with the sale;
-- Reached an agreement with Siemens Westinghouse to restructure Calpine"s long-term relationship and service agreements. The restructuring provides greater operating and turbine maintenance flexibility for Calpine, resolves outstanding issues between the companies and provides an option to purchase extended warranties for Calpine turbines in construction and in storage;
-- Announced a 15-year Master Products and Services Agreement with General Electric International, Inc., which replaces the nine remaining long-term service agreements related to Calpine"s GE 7FA turbine fleet. Calpine will benefit from the ability to strengthen its major maintenance capabilities, improve power plant performance and lower operating costs;
-- Sold its 50% interest in the 175-megawatt Grays Ferry Cogeneration Facility for $37.4 million;
-- Completed the sale of the company"s 156-megawatt Morris Power Plant for approximately $84.5 million; and
-- Purchased approximately $138.9 million of its 9 5/8% First Priority Senior Secured Notes due 2014 under the terms of a tender offer.
Other Financing Transactions
During the second quarter, Calpine completed the following financing transactions:
-- Issued $650.0 million of 7 3/4% Contingent Convertible Notes due 2015 in June 2005. The company, in July 2005, used a portion of the net proceeds to redeem the remaining $517.5 million outstanding of 5% HIGH TIDES III preferred securities, of which $115.0 million was held by Calpine. The company used the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8 1/2% Senior Unsecured Notes due 2011;
-- Received funding for Metcalf Energy Center, LLC"s $155.0 million offering of 5.5-Year Redeemable Preferred Shares and five-year, $100.0 million Senior Term Loan. A portion of the net proceeds was used to repay $50.0 million outstanding on the original Metcalf project financing, with the remaining net proceeds to be used as permitted by the company"s existing indentures.
-- Received funding for its $123.1 million, non-recourse project finance facility to complete the construction of the 79.9-megawatt Bethpage Energy Center 3. Approximately $55.0 million of the funding was used to reimburse Calpine for costs spent to date on the Bethpage 3 project. An additional amount of approximately $11.2 million will be released upon satisfying certain conditions. The balance of funds will be used for transaction expenses, the final completion of the project and to fund certain reserve accounts.
Calpine ended the quarter with cash and cash equivalents on hand of approximately $636.2 million. In addition to this amount, the company"s current portion of restricted cash totaled approximately $993.9 million, including $402.5 million used in July 2005 to redeem the remaining HIGH TIDES III preferred securities held by third parties.
During the three months ended June 30, 2005, Calpine repurchased Senior Notes in open market transactions totaling $479.8 million in principal. The company repurchased the Senior Notes for cash totaling $337.9 million plus accrued interest as follows (in thousands):
Senior Notes Principal Cash Payment
10 1/2% due 2006 $3,485.0 $2,753.2
7 5/8% due 2006 1,335.0 1,041.3
8 3/4% due 2007 3,000.0 1,665.0
8 1/2% due 2008 25,500.0 18,297.5
7 3/4% due 2009 35,000.0 20,865.0
8 5/8% due 2010 37,468.0 24,077.4
8 1/2% due 2011 374,000.0 269,154.8
Total repurchases $479,788.0 $337,854.2
Also, in June 2005, Calpine repurchased $94.3 million in aggregate outstanding principal amount of 6% Contingent Convertible Notes due 2014 in exchange for 27,539,826 shares of Calpine common stock. The company recorded a pre-tax loss of $7.9 million on the exchange, which includes the write-off of the associated unamortized deferred financing costs and unamortized original issue discount.
For the three months ended June 30, 2005, the company recorded an aggregate pre-tax gain of $129.2 million on the above debt repurchases after the write-off of unamortized deferred financing costs and unamortized discounts.
Operations Update
During the second quarter Calpine experienced planned (4.7 million megawatt-hours) and unplanned (2.6 million megawatt-hours) outages that significantly impacted operations. Several major power plants were off-line in Calpine"s key power markets, including California, Arizona, Texas and New England. These extended forced outages were primarily related to equipment failure, which the company has since resolved.
Also during the second quarter, Calpine:
-- Generated 20.0 million megawatt-hours for the quarter, slightly lower than 2004 levels;
-- Operated its gas-fired power plants with an average baseload heat rate of 7,294 million British thermal units per kilowatt-hour, compared to 7,265 in 2004;
-- Reduced total plant operating expense (based on a trailing 12-month period ending June 30, at an assumed 70% capacity factor) to $4.95 per megawatt-hour from $5.41 per megawatt-hour in 2004;
-- Operated its natural gas-fired and geothermal power plants with an average availability of 89.0%, compared to 88.9% in 2004;
-- Started-up the 600-megawatt Metcalf Energy Center for the Northern California power market. Metcalf is the first large power plant in Silicon Valley. It will be the cornerstone of energy supply and reliability for the region;
-- Placed Phase I (300 megawatts) of the Fox Energy Center into operation. The new, natural gas-fired, combined-cycle power plant, located in Wisconsin, is providing approximately 150 megawatts of capacity to Wisconsin Public Service Corporation, with the remainder available for sale into the region"s wholesale power market; and
-- Pledged to reduce its greenhouse gas (GHG) efficiency-based emissions rate (pounds of GHG emitted per megawatt-hour of electricity generated) by 4% from 2003 levels. Compared to the average fossil-fueled power plant in the United States, Calpine"s combined-cycle, natural gas-fired units on average release nearly 54% less carbon dioxide -- the principal greenhouse gas.
Subsequent to June 30, 2005, Calpine:
-- Entered into agreements with GE Energy (GE) to begin construction this month of North America"s most advanced natural gas-fired, combined- cycle power plant at the Inland Empire site in Southern California. GE has acquired development rights for the plant from Calpine and will finance and operate the new H System(TM) power plant. Calpine will manage plant construction and will market the plant"s output and manage its fuel requirements under a long-term arrangement with GE;
-- Started-up 500 megawatts of new capacity to the Pastoria Energy Center, bringing the plant"s total output to 750 megawatts. Pastoria, located in the attractive Southern California power market, is the single- largest capacity addition to occur in the state before peak summer power demand;
-- Completed construction of the Bethpage Energy Center 3, the region"s first modern, natural gas-fired, combined-cycle power plant. Calpine"s new plant provides up to 79.9 megawatts of electricity to Long Island Power Authority customers under a 20-year contract for capacity, energy and other energy-related services; and
-- Received an award from the U.S. Department of Labor"s Occupational Safety and Health Administration"s (OSHA) highest safety recognition for Calpine"s Tiverton, R.I. and Ontelaunee, Pa. power plants under OSHA"s Voluntary Protection Program.
New Market Opportunities
During the quarter, Calpine:
-- Announced an agreement to supply up to 485 megawatts of electricity to Entergy from the Carville Energy Center in Louisiana. Carville is part of NewSouth Energy"s marketing network of nearly 6,000 megawatts of modern, gas-fired power plants in the Southeast United States;
-- Expanded and extended its power sales to Safeway Inc. The new agreement calls for the delivery of approximately 130 megawatts, a 20-megawatt increase, and extends the term of the existing contract one additional year through mid-2008. The newly expanded Safeway contract now facilitates energy deliveries to more than 400 Safeway locations throughout California; and
-- Entered into a 20-year power sales agreement in partnership with Mitsui & Co., Ltd., with the Ontario Power Authority to provide energy from a new 1,005-megawatt natural gas-fired power plant to be located in Ontario. As part of its turbine inventory deployment program, Calpine"s equity in the project will be three of the company"s gas turbines and one steam turbine.
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 six months ended June 30, 2005, on Wednesday, August 3, 2005, at 8:30 a.m. PDT. To participate via the teleconference (in listen-only mode), dial 1-888-603-6685 (1-706-634-1265 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. 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 .
This news release discusses certain matters that may be considered "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the intent, belief or current expectations of Calpine Corporation ("the company") and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that could materially affect actual results. Such risks and uncertainties include, but are not limited to, (i) the timing and extent of deregulation of energy markets and the rules and regulations adopted on a transitional basis with respect thereto, (ii) the timing and extent of changes in commodity prices for energy, particularly natural gas and electricity, and the impact of related derivatives transactions, (iii) unscheduled outages of operating plants, (iv) unseasonable weather patterns that reduce demand for power, (v) economic slowdowns that can adversely affect consumption of power by businesses and consumers, (vi) various development and construction risks that may delay or prevent commercial operations of new plants, such as failure to obtain the necessary permits to operate, failure of third-party contractors to perform their contractual obligations or failure to obtain project financing on acceptable terms, (vii) uncertainties associated with cost estimates, that actual costs may be higher than estimated, (viii) development of lower-cost power plants or of a lower cost means of operating a fleet of power plants by our competitors, (ix) risks associated with marketing and selling power from power plants in the evolving energy market, (x) factors that impact the exploitation of a geothermal resource, (xi) uncertainties associated with estimates of geothermal reserves, (xii) the effects on our business resulting from reduced liquidity in the trading and power generation industry, (xiii) our ability to access the capital markets or other financing sources on attractive terms or at all, (xiv) our ability to successfully implement the various components of our strategic initiative to increase liquidity, reduce debt and reduce operating costs, (xv) uncertainties associated with estimates of sources and uses of cash, that actual sources may be lower and actual uses may be higher than estimated, (xvi) the direct or indirect effects on our business of a lowering of our credit rating (or actions we may take in response to changing credit rating criteria), including increased collateral requirements, refusal by our current or potential counterparties to enter into transactions with us and our inability to obtain credit or capital in desired amounts or on favorable terms, (xvii) present and possible future claims, litigation and enforcement actions, (xviii) effects of the application of regulations, including changes in regulations or the interpretation thereof, and (xvix) other risks identified in the company"s reports and registration statements filed with the SEC, including, but not limited to, the risk factors identified in its Annual Report on Form 10-K for the year ended Dec. 31, 2004, and for the quarter ended March 31, 2005, which can also be found on the company"s website at www.calpine.com. All information set forth in this news release is as of today"s date, and the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise.
CALPINE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2005 and 2004
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenue:
Electric generation
and marketing revenue
Electricity and
steam revenue $1,298,973 $1,239,147 $2,577,252 $2,372,342
Transmission
sales revenue 3,144 4,049 6,888 9,724
Sales of purchased
power for hedging
and optimization 432,846 496,026 780,256 873,849
Total electric
generation and
marketing
revenue 1,734,963 1,739,222 3,364,396 3,255,915
Oil and gas
production and
marketing revenue
Oil and gas sales (34) 1,034 27 2,016
Sales of purchased
gas for hedging
and optimization 456,920 481,971 877,216 834,708
Total oil and gas
production and
marketing revenue 456,886 483,005 877,243 836,724
Mark-to-market
activities, net 2,874 (22,605) (657) (10,086)
Other revenue 31,234 15,781 52,420 36,803
Total revenue 2,225,957 2,215,403 4,293,402 4,119,356
Cost of revenue:
Electric generation
and marketing expense
Plant operating
expense 201,855 204,583 384,104 370,249
Transmission
purchase expense 19,807 14,651 40,681 31,078
Royalty expense 8,143 6,951 18,473 12,833
Purchased power
expense for hedging
and optimization 335,142 444,545 616,337 817,578
Total electric
generation and
marketing expense 564,947 670,730 1,059,595 1,231,738
Oil and gas operating
and marketing expense
Oil and gas
operating expense 1,124 2,076 2,925 3,986
Purchased gas expense
for hedging
and optimization 486,082 453,922 899,341 814,409
Total oil and gas
operating and
marketing expense 487,206 455,998 902,266 818,395
Fuel expense 913,531 899,291 1,807,839 1,676,077
Depreciation,
depletion and
amortization expense 127,921 112,505 248,627 216,281
Power plant
impairment 106,155 -- 106,155 --
Operating lease
expense 25,528 26,963 50,305 54,762
Other cost of revenue 32,149 22,609 70,321 48,989
Total cost of
revenue 2,257,437 2,188,096 4,245,108 4,046,242
Gross profit (31,480) 27,307 48,294 73,114
(Income) loss from
unconsolidated
investments (3,268) 2,085 (9,260) 972
Equipment cancellation
and impairment cost -- 7 (73) 2,367
Long-term service
agreement cancellation
charge 33,918 -- 33,918 --
Project development
expense 52,821 4,030 61,541 11,748
Research and
development expense 5,126 5,124 12,159 8,939
Sales, general and
administrative expense 68,993 54,283 122,627 102,932
Income from
operations (189,070) (38,222) (172,618) (53,844)
Interest expense 333,778 270,576 658,444 516,161
Interest (income) (16,793) (9,508) (30,778) (21,045)
Minority interest
expense 10,172 4,724 20,786 13,159
(Income) from
repurchase of
various issuances
of debt (129,154) (2,559) (150,926) (3,394)
Other expense
(income), net 25,765 (179,533) 20,805 (191,360)
Income (loss) before
provision or benefit
for income taxes (412,838) (121,922) 690,949 (367,365)
Provision (benefit)
for income taxes (134,862) (73,374) (233,591) (175,233)
Income (loss) before
discontinued
operations (277,976) (48,548) (457,358) (192,132)
Discontinued
operations, net
of tax provision
of $1,433, $12,770,
$15,354 and $41,005 (20,482) 19,850 (9,831) 92,242
Net income
(loss) $(298,458) $(28,698) $(467,189) $(99,890)
Basic and diluted
earnings (loss)
per common share:
Weighted average
shares of common
stock outstanding 449,183 417,357 448,391 416,332
Income (loss)
before discontinued
operations $(0.62) $(0.12) $(1.02) $(0.46)
Discontinued
operations,
net of tax $(0.04) $0.05 $(0.02) $0.22
Net income
(loss) $(0.66) $(0.07) $(1.04) $(0.24)
The financial information presented above and in the Supplemental Data is
subject to adjustment until the company files its Form 10-Q with the
United States Securities and Exchange Commission for the three and six
months ended June 30, 2005.
CALPINE CORPORATION AND SUBSIDIARIES
Supplemental Data
(unaudited)
CASH FLOW DATA
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
Cash provided by
(used in) operating
activities $(124,667) $185,223 $(239,259) $11,993
Cash used in
investing
activities (737,787) (96,020) (958,635) (167,391)
Cash provided by
financing activities 756,011 180,860 1,124,721 20,769
Effect of exchange
rate changes on cash
and cash equivalents (4,811) (8,836) (8,897) (13,146)
Reclassification of
change in cash
included in Assets
of discontinued
operations,
current portion (26,608) 53,911 254 10,582
Net increase
(decrease) in
cash and cash
equivalents $(137,862) $315,138 $(81,816) $(137,193)
RECONCILIATION OF GAAP CASH USED IN OPERATING ACTIVITIES TO EBITDA, AS
ADJUSTED (1)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
Cash provided by
(used in) operating
activities $(124,667) $185,223 $(239,259) $11,993
Less: Changes in
operating assets
and liabilities, net
of effects of
acquisitions (31,570) (86,518) 51,256 51,227
Less: Additional
adjustments to
reconcile net
income to net
cash used in
operating
activities, net (142,221) (127,403) (279,186) (163,110)
GAAP net
income (loss) (298,458) (28,698) (467,189) (99,890)
(Income) loss from
unconsolidated
investments (3,268) 2,085 (9,260) 972
Distributions from
unconsolidated
investments 5,416 9,474 10,288 14,614
Subtotal (296,310) (17,139) (466,161) (84,304)
Interest expense 333,778 270,576 658,444 516,161
1/3 of operating
lease expense 8,509 8,988 16,768 18,254
Provision (benefit)
for income taxes (134,862) (73,374) (233,591) (175,233)
Depreciation,
depletion and
amortization
expense ("DD&A") 145,362 129,726 282,794 255,491
Power plant
impairment 106,155 -- 106,155 --
Interest expense,
provision (benefit)
for income taxes,
DD&A and income
from unconsolidated
investments from
discontinued
operations 52,478 69,769 113,119 151,471
EBITDA, as adjusted $215,110 $388,546 $477,528 $681,840
RECONCILIATION OF EBITDA, AS ADJUSTED TO EBITDA, AS ADJUSTED FOR NON-CASH
AND OTHER CHARGES (2)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2005 2004 2005 2004
EBITDA, as adjusted $215,110 $388,546 $477,528 $681,840
Equipment cancellation
and impairment cost 46,968 7 46,895 2,367
Foreign currency
transaction (gain)
loss 3,489 5,152 (1,751) (4,832)
Unrealized
mark-to-market
activity (gain) loss 40,569 28,913 31,731 33,858
(Income) from
repurchases of
various issuances
of debt (129,154) (2,559) (150,926) (3,394)
SFAS No. 123
(stock-based
compensation expense) 4,837 5,500 11,973 9,766
Minority interest
expense 10,172 4,724 20,786 13,159
(Income) loss on
interest rate swap
ineffectiveness 808 -- 841 --
Unconsolidated
investment impairment 18,542 -- 18,542 --
Long-term service
agreement cancellation
charge 33,918 -- 33,918 --
Write-off of deferred
financing costs
(not related to
bonds repurchased) 5,887 19,376 5,887 19,376
Other non-cash
and other charges 282 (3,487) 737 (1,041)
EBITDA, as adjusted,
for non-cash
and other charges $251,428 $446,172 $496,161 $751,099
SUPPLEMENTARY POWER DATA
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Generation (in MWh,
in thousands) (3) 20,042 20,066 40,078 38,710
Average electric price
realized (per MWh) $69.69 $64.32 $68.40 $62.74
Average spark spread
adjusted for benefits
of equity gas
production (per MWh) $22.57 $20.62 $22.61 $19.67
CALPINE CONTRACTUAL PORTFOLIO - AS OF JUNE 30, 2005
Jul - Dec
2005 2006 2007 2008 2009
Estimated
Generation
Capacity(in
millions of MWh)
- Baseload 92.3 189.6 200.9 211.5 214.7
- Peaking 13.0 26.0 26.5 27.1 27.0
Total 105.3 215.6 227.4 238.6 241.7
Contractual
Generation(in
millions of MWh)
- Baseload 52.8 80.5 60.3 58.1 58.8
- Peaking 10.2 18.9 18.7 18.0 15.0
Total 63.0 99.4 79.0 76.1 73.8
% Sold
- Baseload 57% 42% 30% 27% 27%
- Peaking 78% 73% 71% 66% 56%
Total 60% 46% 35% 32% 31%
Contractual
Spark Spread
(in millions) $839 $1,490 $1,228 $1,332 $1,355
As of As of
CAPITALIZATION June 30, December 31,
2005 2004
Cash and cash equivalents (in billions) $0.6 $0.7
Total debt (in billions) $18.7 $18.0
Debt to capitalization ratio 81% 78%
Present value of operating leases (in billions) $1.2 $1.3
Unconsolidated debt of equity and cost
method investments (estimated, in billions) (4) $0.2 $0.1
($ in thousands):
Short-term debt
Notes payable and borrowings under
lines of credit, current portion $209,184 $204,775
Convertible debentures payable
to Calpine Capital Trust III 517,500 --
Preferred interests, current portion 268,819 8,641
Capital lease obligation, current portion 5,918 5,490
CCFC I financing, current portion 3,208 3,208
Construction/project financing,
current portion 104,932 93,393
Senior notes and term loans,
current portion 1,069,975 718,449
Total short-term debt 2,179,536 1,033,956
Long-term debt
Notes payable and borrowings under
lines of credit, net of current portion 673,312 769,490
Convertible debentures payable
to Calpine Capital Trust III -- 517,500
Preferred interests, net of current portion 648,246 497,896
Capital lease obligation,
net of current portion 281,940 283,429
CCFC I financing, net of current portion 782,423 783,542
CalGen/CCFC II financing 2,396,257 2,395,332
Construction/project financing,
net of current portion 2,283,200 1,905,658
Convertible Senior Notes Due 2006 1,311 1,326
Convertible Notes Due 2014 546,122 620,197
Convertible Notes Due 2015 650,000 --
Convertible Senior Notes Due 2023 633,775 633,775
Senior notes, net of current portion 7,584,897 8,532,664
Total long-term debt 16,481,483 16,940,809
Total debt $18,661,019 $17,974,765
Minority interests 384,401 393,445
Total stockholders" equity 4,062,974 4,587,673
Total capitalization $23,108,394 $22,955,883
Debt to capitalization ratio
Total debt $18,661,019 $17,974,765
Total capitalization $23,108,394 $22,955,883
Debt to capitalization 81% 78%
(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) Amounts based on Calpine"s ownership percentage.
CONTACT:
Investors, Karen Bunton, +1-408-995-5115, ext. 1121, or Lisa Poelle, +1-408-995-5115, ext. 1285, all of Calpine Corporation
SOURCE Calpine Corporation