Calpine Corporation (NYSE:CPN) today reported Adjusted EBITDA of
$1,374 million for the nine months ended September 30, 2009, which
matched the results reported for the same period of 2008 despite
generally weaker market conditions. Commodity Margin for the first
nine months of 2009 was $1,947 million, down slightly from $1,988
million in the prior year period. Meanwhile, the company also
reported strong 2009 nine-month Adjusted Free Cash Flow of $520
million. Net income1 during the nine months ended September 30,
2009, was $192 million, or $0.39 per diluted share, compared to net
income of $119 million, or $0.25 per diluted share, in 2008.
“Our performance this quarter demonstrates our strong and
continuing commitment to operating excellence, a hedging strategy
that mitigates market price risk in a difficult economic
environment, a customer-focused approach to our business, the
opportunistic restacking of our debt, and our organic growth
strategy,” said Jack Fusco, Calpine’s President and Chief Executive
Officer. “This combination of achievements, in addition to our
solid year over year financial performance, shows that the building
blocks of a strong foundation are in place and we are
well-positioned for the future.”
“Operationally, we improved availability across the fleet, and
our capacity factor was up significantly during the quarter, while
our adjusted EBITDA and other results show that our hedging program
worked well,” said Fusco. “On the business development front, we
announced today significant new and restructured contracts with key
customers and previously announced the successful commissioning of
Otay Mesa, both of which speak to our commitment to delivering
clean, reliable energy to the markets we serve. Financially, we
demonstrated progress and an ability to access capital markets on
favorable terms with a unique and successful exchange of $1.2
billion of term loans for bonds, which pushed out our maturities
and improved our covenant terms to provide future flexibility.
Finally, in addition to implementing our turbine blades upgrade
program, we also have announced the upgrade of Los Esteros that
will add 120 MW and improve the operating efficiency of the
plant.”
SUMMARY OF FINANCIAL
PERFORMANCE
Third Quarter Results
Adjusted EBITDA for the third quarter of 2009 was $586 million,
down modestly from $594 million in the prior year period. The
year-over-year decline was primarily due to a $32 million decrease
in Commodity Margin from $800 million in 2008 to $768 million in
2009, offset by cost reduction efforts that are further described
below. Though Commodity Margin in our West region improved by $21
million in the third quarter of 2009 compared to 2008, primarily
due to higher hedge prices and higher market heat rates, this
performance was offset by a decline of $46 million in our Texas
segment that was largely driven by weaker spark spreads and reduced
steam sales.
Adjusted EBITDA was favorably impacted by controllable expenses2
as a component of plant operating expense, which declined by $19
million in the 2009 period, after excluding $15 million in
reimbursements for insurance claims from prior periods that reduced
expenses in the 2008 period, and by controllable expenses2 as a
component of sales, general and administrative expense, which
declined by $14 million. These savings reflect the results of the
efficiency initiatives that management has instituted over the past
year.
Net income1 increased to $238 million in the third quarter of
2009 from $136 million in the third quarter of 2008. As detailed in
Table 1 below, net income, excluding reorganization items, one-time
items and unrealized mark-to-market gains or losses, declined from
$279 million in the third quarter of 2008 to $196 million in the
third quarter of 2009. This decline was primarily associated with
the $32 million year-over-year decrease in Commodity Margin, as
previously noted, as well as a $73 million increase in income tax
expense during the 2009 period due to non-cash intraperiod tax
allocations that reduced significantly from 2008 to 2009. These
factors were partially offset by a $33 million aggregate decrease
in controllable expenses2 as a component of plant operating expense
and sales, general and administrative expense, after adjusting for
insurance reimbursements, as previously discussed.
Year-to-Date Results
Unchanged from the prior year period, Adjusted EBITDA for the
nine months ended September 30, 2009, was $1,374 million. Adjusted
EBITDA remained stable despite a $41 million decrease in Commodity
Margin. Increased Commodity Margin in our West and Southeast
regions, which improved by $29 million and $25 million,
respectively, in the 2009 period, was offset by a decline of $82
million in our Texas region. The West segment benefited in 2009
from higher hedge levels, higher average hedge prices and the sale
of surplus emission allowances, while the Southeast benefited from
higher hedge levels, higher average hedge prices and higher market
heat rates related to our open positions. The decline in Texas was
due in large part to weaker natural gas prices and weaker market
heat rates.
In the 2009 period, we reduced controllable expenses2 as a
component of plant operating expense by $27 million, after
excluding $30 million in reimbursements for insurance claims from
prior periods that reduced expenses in the 2008 period. We further
reduced controllable expenses2 as a component of sales, general and
administrative expense by $23 million in the same period. Adjusted
EBITDA from unconsolidated investments increased by $19 million
year-to-date in 2009 compared to the corresponding 2008 period,
primarily as a result of the Greenfield Energy Centre achieving
commercial operations in the fourth quarter of 2008. Royalty
expenses also decreased by $10 million year-over-year as a result
of lower average power prices at The Geysers during the 2009
period.
Net income1 increased to $192 million in the nine months ended
September 30, 2009, from $119 million in the prior year period. As
detailed in Table 1 below, net income, excluding reorganization
items, one-time items and unrealized mark-to-market gains or
losses, decreased from $239 million in the first nine months of
2008 to $153 million in 2009. The decline is primarily attributable
to the $41 million decrease in Commodity Margin as well as a $77
million increase in income tax expense associated with the non-cash
intraperiod tax allocations previously mentioned. Meanwhile,
aggregate controllable expenses2 as a component of plant operating
expense and sales, general and administrative expense decreased by
$50 million, after adjusting for $30 million in insurance
reimbursements, as previously discussed. In addition, income from
unconsolidated investments in power plants increased by $37 million
(excluding an impairment loss of $179 million in 2008).
Cash flows provided by operating activities for the nine months
ended September 30, 2009, improved to $537 million compared to $355
million for the nine months ended September 30, 2008. Cash paid for
interest decreased by $310 million, to $563 million for the nine
months ended September 30, 2009, as compared to $873 million for
the same period in 2008, primarily due to the repayment of the
Second Priority Debt, the one time payments of post-petition
interest of $135 million related to pre-emergence debt and $27
million in post-petition interest paid by our Canadian subsidiaries
as a result of our emergence from Chapter 11 on January 31, 2008,
and, to a lesser extent, lower interest rates for the comparable
period in 2009. In addition, cash payments for reorganization items
decreased by $119 million. Meanwhile, working capital employed
increased by approximately $202 million for the 2009 period
compared to the 2008 period, after adjusting for debt-related
balances and derivative activities, which did not impact cash
provided by operating activities. The increase was primarily due to
a reduction in assets held for sale for the nine months ended
September 30, 2008. Finally, cash payments for debt extinguishment
costs in the 2009 period were $40 million related to the CCFC
Refinancing, compared to cash payments of $6 million related to the
refinancing of Blue Spruce and Metcalf for the comparable period in
2008.
1 Reported as net income attributable to Calpine on our
Consolidated Condensed Statements of Operations.
2 Controllable expenses include variable and fixed expenses, but
exclude major maintenance expense, stock compensation expense,
non-cash gains/losses on dispositions of assets, and depreciation
and amortization.
Table 1: Summarized
Consolidated Condensed Statements of Operations
(Unaudited) Three Months Ended September
30, Nine Months Ended September 30, 2009
2008 2009 2008 (in millions) Operating
revenues $ 1,847 $ 3,190 $ 4,995 $ 7,969 Cost of revenue
1,354 2,656 4,014 6,988 Gross profit 493 534
981 981
SG&A, (income) loss from
unconsolidated investments in
power plants and other operating
expense
56 262 118 358 Income from operations
437 272 863 623 Net interest expense, debt extinguishment costs and
other (income) expense 215 219 659 828
Income (loss) before reorganization items and income taxes 222 53
204 (205 ) Reorganization items (8 ) (2 ) (2 ) (263 ) Income tax
expense (benefit) (7 ) (80 ) 17 (60 )
Net income $ 237 $ 135 $ 189 $ 118 Net loss attributable to
the noncontrolling interest 1 1 3 1 Net
income attributable to Calpine $ 238 $ 136 $ 192 $ 119
Reorganization items(1) (8 ) (2 ) (2 ) (263 ) Other one-time
items(1)(2) 10 192 30 367 Net income
(loss), net of reorganization items and other one-time items 240
326 220 223 Unrealized MtM (gains) losses on derivatives(1)(3)
(44 ) (47 ) (67 ) 16 Net income, net of
reorganization items other one-time items and unrealized MtM
impacts $ 196 $ 279 $ 153 $ 239
(1) Shown net of tax, assuming a
0% effective tax rate for these items (other than those referenced
in note 2 below).
(2) One-time items in the three
and nine months ended September 30, 2009, include $16 million and
$49 million, respectively, in debt extinguishment costs, shown net
of tax assuming a 38.4% effective tax rate. One-time items in both
the three and nine months ended September 30, 2008, include an
impairment loss of $179 million associated with our Auburndale
plant and $13 million in settlement costs. One-time items in the
nine months ended September 30, 2008, also include $13 million in
debt extinguishment costs, as well as $135 million in post-petition
interest expense and $27 million in settlement obligations related
to the Canadian debtors and other deconsolidated foreign entities
recorded prior to their reconsolidation in February 2008, both of
which were associated with our emergence from bankruptcy.
(3) Represents unrealized
mark-to-market (MtM) (gains) losses on contracts that did not
qualify as hedges under the hedge accounting guidelines or
qualified under the hedge accounting guidelines and the hedge
accounting designation had not been elected.
REGIONAL SEGMENT REVIEW OF
RESULTS
Table 2: Commodity Margin by
Segment (in millions)
Three Months Ended September 30, Nine Months Ended
September 30, 2009 2008(1)
2009 2008(1) West $ 393 $ 372 $
994 $ 965 Texas 187 233 505 587 Southeast 92 95 233 208 North
96 100 215 228 Total $ 768 $ 800 $
1,947 $ 1,988
(1) 2008 Commodity Margin as
previously reported has been recast to conform to our current year
presentation.
West: Despite on-peak spark spreads in California
settling substantially lower for the three months ended September
30, 2009, compared to the same period in 2008, Commodity Margin in
our West region increased in the third quarter of 2009 primarily as
a result of higher hedge prices and, although spark spreads were
lower overall, the higher market heat rate component of spark
spread where we had hedged the corresponding open natural gas
position. The higher market heat rates were primarily in the
Pacific Northwest region, which experienced high market generation
outages and warmer weather. In addition, the current period
benefited from the non-recurrence in 2009 of an unfavorable natural
gas storage inventory pricing adjustment in September 2008.
For the nine month period, Commodity Margin in the West improved
by $29 million in 2009. Although spark spreads for the nine month
period settled substantially lower in 2009 than in 2008, primarily
as a result of lower natural gas prices combined with weak power
demand and conservative ISO operations during the launch of MRTU in
2009, Commodity Margin in the West improved primarily as a result
of higher hedge levels, higher average hedge prices, sales of
surplus emission allowances in the first quarter of 2009 and the
non-recurrence in 2009 of an unfavorable natural gas storage
inventory price adjustment in September 2008.
Texas: During the third quarter of 2009, Commodity Margin
for the Texas region declined from $233 million in the prior year
period to $187 million in 2009. This $46 million decrease primarily
resulted from weaker spark spreads, caused by lower natural gas
prices, which declined 64% in the third quarter of 2009 compared to
2008. The decrease in Commodity Margin was also attributable to
reduced steam sales and a relative period on period decline in the
optimization margin that benefited us during Hurricane Ike in
September 2008 when it was more advantageous to buy as opposed to
generate power to cover our hedges given the extremely low power
prices. The adverse impact of the lower spark spreads in 2009 was
partially offset by an increase in market heat rates and higher
average fleet availability.
Commodity Margin in our Texas region declined from $587 million
for the nine months ended September 30, 2008, to $505 million for
the 2009 period. This decrease is primarily attributable to weaker
natural gas prices, a decline in market heat rates and lower steam
sales resulting from weaker industrial demand.
Southeast: Commodity Margin in our Southeast segment
decreased by $3 million during the third quarter of 2009, driven by
lower on-peak spark spreads related to open positions in the third
quarter of 2009 compared to the same period in 2008, which was
largely offset by the positive impact of higher hedge volumes and
hedge prices, as well as a new tolling contract, for the three
months ended September 30, 2009, compared to 2008. Generated
volumes increased 60% for the three months ended September 30,
2009, compared to the same period in 2008, primarily due to
significantly higher off-peak dispatch in response to higher
off-peak spark spreads; however, the extra generation in the third
quarter of 2009 provided relatively less incremental Commodity
Margin than in prior quarters due to the lower off-peak margin and
the fact that many of our power plants in the Southeast have
tolling contracts. The strength in off-peak spark spreads was
attributed to higher natural gas generation displacement of coal
generation in certain sub-markets in our Southeast segment, as well
as the favorable impact of an off-take agreement at one of our
power plants.
For the nine month period, Commodity Margin in the Southeast
improved by $25 million in 2009 compared to 2008. The nine month
results were largely impacted by the same factors that drove
performance for the third quarter. In addition, the prior year
period results include a gain of $21 million related to the
temporary assignment of a transmission capacity contract in the
second quarter of 2008, which did not recur in the 2009 period.
North: In the North region, Commodity Margin declined
from $100 million in the third quarter of 2008 to $96 million in
the current year period. The decline in Commodity Margin is
primarily due to lower average hedge prices during the three months
ended September 30, 2009, compared to the same period of 2008.
Commodity Margin in the North region decreased by $13 million in
the first nine months of 2009 compared to the prior year period,
primarily driven by the same factors that influenced performance
for the third quarter.
LIQUIDITY AND CAPITAL
RESOURCES
Table 3: Corporate
Liquidity
September 30, December 31, 2009
2008 (in millions) Cash and cash equivalents,
corporate(1) $ 681 $ 1,361 Cash and cash equivalents, non-corporate
232 296 Total cash and cash equivalents 913 1,657
Restricted cash 505 503 Letter of credit availability(2) 2 2
Revolver availability 789 16 Total current
liquidity(3) $ 2,209 $ 2,178
(1) Includes $1 million and $169
million of margin deposits held by us posted by our counterparties
as of September 30, 2009, and December 31, 2008, respectively.
(2) Includes available balances
for Calpine Development Holdings, Inc.
(3) Excludes contingent amounts of
$150 million under the Knock-in Facility and $200 million under the
Commodity Collateral Revolver as of December 31, 2008.
Liquidity remained strong during the third quarter of 2009 at
over $2.2 billion. For the first nine months of 2009, we generated
$520 million of Adjusted Free Cash Flow, which nearly meets our
previous full year guidance for 2009 largely due to changes in
working capital. As previously discussed, operating activities
resulted in net cash proceeds of $537 million during the first nine
months of 2009, compared to $355 million in the prior year period.
In addition, cash flows used in investing activities resulted in a
net outflow of $164 million, driven largely by $140 million in
capital expenditures, which were primarily related to maintenance
expenditures across the fleet.
Continuing our efforts toward efficient balance sheet
management, earlier this month we completed an offering of
approximately $1.2 billion in Senior Secured Notes due 2017, which
were exchanged for an equal amount of term loans under our First
Lien Credit Facility that were due in 2014. “Our team worked hard
to come up with this somewhat unique bond-for-loan approach to
restacking our debt, and we are very pleased with the results,”
said Zamir Rauf, Calpine’s Chief Financial Officer. “We extended
the maturity of the debt by three and a half years, secured a very
attractive rate and obtained an investment grade covenant package
giving us greater flexibility. We will continue to be creative and
opportunistic about addressing our future debt maturities.”
We were able to complete this transaction as a result of the
amendment to our First Lien Credit Facility that we obtained during
the third quarter. In addition to providing us the ability to
exchange or retire term loans with bonds, the amendment also gives
us the option to buy back debt at a discount using cash on hand via
an auction process, the option to issue bonds under the accordion
provision of our First Lien Credit Facility, and the option to
extend all or a portion of our revolver and term loan maturities on
revised terms subject to acceptance by applicable lenders.
PLANT
DEVELOPMENT
Otay Mesa Energy Center: Otay Mesa, Calpine’s wholly owned 608
MW natural gas-fired power plant in southern San Diego County,
California, began commercial operations on October 3, 2009, under a
10-year tolling agreement with SDG&E. “We are excited to begin
the operating phase of this project,” said Thad Hill, Calpine’s
Chief Commercial Officer. “We look forward to extending our track
record of providing affordable, reliable and clean energy in
California at Otay Mesa and continuing our relationship with
SDG&E.”
Los Esteros Critical Energy Center: As we announced today, we
have entered into an agreement with PG&E to upgrade our Los
Esteros power plant from a 180 MW simple-cycle peaking plant to a
300 MW combined-cycle generation plant. In addition to the increase
in capacity, the upgrade will increase the efficiency and
environmental performance of the power plant by lowering the heat
rate. While the plant upgrade is under construction, we will
provide capacity from our Gilroy Cogeneration power plant. Upon
completion of the upgrade, PG&E will purchase all of the
capacity from our Los Esteros power plant for a term of 10
years.
OPERATIONS
UPDATE
Power Operations Achievements: During the third quarter of 2009,
we demonstrated our continued focus on operating excellence by:
- Safety Performance: Maintained
top-quartile safety performance with year-to-date lost-time
incident rate of 0.19
- Availability Performance:
- Provided 99% or higher
availability on nearly 60% of our capacity during the third
quarter
- Achieved fleet-wide forced
outage factor of only 2.19%
- Delivered natural gas fleet
starting reliability of 98.1%
- Geothermal Generation: Provided
1.5 million MWh of renewable baseload generation with 93% capacity
factor and 0.21% forced outage factor
- Sustainable Cost Reductions:
Reduced controllable expenses2 as a component of plant operating
expense by $19 million in the third quarter of 2009 compared to the
third quarter of 2008, after accounting for $15 million of prior
period insurance proceeds that benefited the 2008 period
Commercial Operations Achievements: We continued to benefit from
the efforts of our commercial operations team during the third
quarter of 2009, including:
- Customer-led growth: Worked with
key customers toward significant new and amended long-term
contracts covering approximately 2,800 MW of capacity in California
- Extended term and increased
volume of existing contracts with PG&E at The Geysers
geothermal plants
- Entered into replacement
contract with PG&E for our California peaking plants
- Signed new agreement with
PG&E for our Los Esteros plant, under which we will upgrade the
existing plant
- Entered into a new tolling
agreement with PG&E for all the capacity at our Delta
plant
- Executed a resource adequacy
agreement for all of the capacity from our Pastoria power plant
with Southern California Edison
- Effective hedging: Maintained
stable year-over-year Adjusted EBITDA, despite declining commodity
prices
2 Controllable expenses include variable and fixed expenses, but
exclude major maintenance expense, stock compensation expense,
non-cash gains/losses on dispositions of assets, and depreciation
and amortization.
FINANCIAL OUTLOOK
Table 4: Adjusted EBITDA and
Adjusted Free Cash Flow Guidance
Full Year 2009 Full Year 2010 (in
millions) Adjusted EBITDA $ 1,710 – 1,735 $ 1,500 – 1,600 Less:
Operating lease payments 50 50 Major maintenance expense and
capital expenditures(1) 350 290 Cash interest, net 775 750 Cash
taxes 5 10 Working capital and other adjustments(2) — - (25)
Adjusted Free Cash Flow $ 530 - 580 $ 400 - 500
(1) Includes projected Major
Maintenance Expense of $200 million and $180 million in 2009 and
2010, respectively, and maintenance Capital Expenditures of $150
million and $110 million in 2009 and 2010, respectively. Capital
expenditures exclude major construction and development
projects.
(2) Excludes changes in cash
collateral for commodity procurement and risk management
activities.
We are tightening and raising our full year guidance for 2009.
We are now projecting Adjusted EBITDA of $1.710 billion to $1.735
billion, and Adjusted Free Cash Flow of $530 million to $580
million.
Today, we are also providing our 2010 guidance for the first
time, a full four months earlier than we initially provided our
guidance for the current year. For 2010, we project Adjusted EBITDA
of $1.5 billion to $1.6 billion, and Adjusted Free Cash Flow of
$400 million to $500 million.
INVESTOR CONFERENCE CALL AND
WEBCAST
We will host a conference call to discuss our financial and
operating results for the third quarter 2009, on Friday, October
30, 2009, at 10:00 a.m. ET / 9:00 a.m. CT. A listen-only webcast of
the call may be accessed through our web site at www.calpine.com,
or by dialing 888-510-1768 (or 719-785-1748 for international
listeners) at least 10 minutes prior to the beginning of the call.
An archived recording of the call will be made available for a
limited time on the web site. The recording also can be accessed by
dialing 888-203-1112 or 719-457-0820 (International) and providing
Confirmation Code 1657864. Presentation materials to accompany the
conference call will be made available on our web site on October
30, 2009.
ABOUT CALPINE
Calpine Corporation is helping meet the needs of an economy that
demands more and cleaner sources of electricity. Founded in 1984,
Calpine is a major U.S. power company, currently capable of
delivering nearly 25,000 megawatts of clean, cost-effective,
reliable and fuel-efficient power to customers and communities in
16 states in the United States and Canada. Calpine owns, leases,
and operates low-carbon, natural gas-fired, and renewable
geothermal power plants. Using advanced technologies, Calpine
generates power in a reliable and environmentally responsible
manner for the customers and communities it serves. Please visit
www.calpine.com for more information.
Calpine’s Quarterly Report on Form 10-Q for the period ended
September 30, 2009, has been filed with the Securities and Exchange
Commission (SEC) and may be found on the SEC’s web site at
www.sec.gov.
FORWARD-LOOKING
INFORMATION
In addition to historical information, this Report contains
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. We use words such as
“believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will”
and similar expressions to identify forward-looking statements.
Such statements include, among others, those concerning our
expected financial performance and strategic and operational plans,
as well as all assumptions, expectations, predictions, intentions
or beliefs about future events. You are cautioned that any such
forward-looking statements are not guarantees of future performance
and that a number of risks and uncertainties could cause actual
results to differ materially from those anticipated in the
forward-looking statements. Such risks and uncertainties include,
but are not limited to:
- The uncertain length and
severity of the current general financial and economic downturn and
its impacts on our business including demand for our power and
steam products, the ability of customers, suppliers, service
providers and other contractual counterparties to perform under
their contracts with us and the cost and availability of capital
and credit;
- Fluctuations in prices for
commodities such as natural gas and power including the effects of
fluctuations in liquidity and volatility in the energy commodities
markets including our ability to hedge risks;
- Our ability to manage our
significant liquidity needs and to comply with covenants under our
First Lien Credit Facility, our First Lien Notes and other existing
financing obligations;
- Financial results that may be
volatile and may not reflect historical trends due to, among other
things, general economic and market conditions outside of our
control;
- Our ability to attract and
retain customers and counterparties, including suppliers and
service providers, and to manage our customer and counterparty
exposure and credit risk, including our commodity positions;
- Competition, including risks
associated with marketing and selling power in the evolving energy
markets;
- Regulation in the markets in
which we participate and our ability to effectively respond to
changes in laws and regulations or the interpretation thereof
including changing market rules and evolving federal, state and
regional laws and regulations including those related to greenhouse
gas emissions;
- Natural disasters such as
hurricanes, earthquakes and floods that may impact our power plants
or the markets our power plants serve;
- Seasonal fluctuations of our
results and exposure to variations in weather patterns;
- Disruptions in or limitations on
the transportation of natural gas and transmission of power;
- Our ability to attract, retain
and motivate key employees;
- Our ability to implement our new
business plan and strategy;
- Risks related to our geothermal
resources, including the adequacy of our steam reserves, unusual or
unexpected steam field well and pipeline maintenance requirements,
variables associated with the injection of waste water to the steam
reservoir and potential regulations or other requirements related
to seismicity concerns that may delay or increase the cost of
developing or operating geothermal resources;
- Present and possible future
claims, litigation and enforcement actions, including our ability
to complete the implementation of our Plan of Reorganization;
- The expiration or termination of
our power purchase agreements and the related results on
revenues;
- Risks associated with the
operation, construction and development of power plants including
unscheduled outages or delays and plant efficiencies; and
- Other risks identified in this
release or in our reports and registration statements filed with
the Securities and Exchange Commission (SEC), including, without
limitation, the risk factors identified in our Quarterly Reports on
Form 10-Q for the quarters ended March 31, June 30 and September
30, 2009 and in our Annual Report on Form 10-K for the year ended
December 31, 2008.
Actual results or developments may differ materially from the
expectations expressed or implied in the forward-looking
statements, and we undertake no obligation to update any
forward-looking statements, whether as a result of new information,
future developments or otherwise. Unless specified otherwise, all
information set forth in this release is as of today’s date, and we
undertake no duty to update this information. For additional
information about our general business operations, please refer to
our Annual Report on Form 10-K for the year ended December 31,
2008, and any other recent report we have filed with the SEC. These
filings are available by visiting the SEC’s web site at www.sec.gov
or our web site at www.calpine.com.
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30,
Nine Months Ended September
30,
2009 2008 2009 2008 (in millions,
except share and per share amounts) Operating revenues $ 1,847
$ 3,190 $ 4,995 $ 7,969 Cost of revenue: Fuel and purchased
energy expense 1,030 2,322 2,967 5,935 Plant operating expense 196
198 654 636 Depreciation and amortization expense 108 110 330 329
Other cost of revenue 20 26 63 88 Total
cost of revenue 1,354 2,656 4,014 6,988
Gross profit 493 534 981 981 Sales, general and other
administrative expense 38 58 131 154 (Income) loss from
unconsolidated investments in power plants 13 202 (27 ) 189 Other
operating expense 5 2 14 15 Income from
operations 437 272 863 623 Interest expense 198 212 615 837
Interest (income) (3 ) (11 ) (13 ) (38 ) Debt extinguishment costs
16 — 49 13 Other (income) expense, net 4 18 8
16 Income (loss) before reorganization items and income
taxes 222 53 204 (205 ) Reorganization items (8 ) (2
) (2 ) (263 ) Income before income taxes 230 55 206
58 Income tax expense (benefit) (7 ) (80 ) 17
(60 ) Net income $ 237 $ 135 $ 189 $ 118 Net loss
attributable to the noncontrolling interest 1 1
3 1 Net income attributable to Calpine $ 238 $ 136 $
192 $ 119 Basic earnings per common share: Weighted average
shares of common stock outstanding (in thousands) 485,736
485,076 485,619 485,027 Net income per common
share attributable to Calpine – basic $ 0.49 $ 0.28 $ 0.40 $ 0.25
Diluted earnings per common share: Weighted average shares
of common stock outstanding (in thousands) 486,585
485,744 486,171 485,588 Net income per common share
attributable to Calpine – diluted $ 0.49 $ 0.28 $ 0.39 $ 0.25
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS
(Unaudited)
September 30, December 31, 2009
2008
(in millions, except share and
per share amounts)
ASSETS Current assets: Cash and cash equivalents $ 913 $
1,657 Accounts receivable, net of allowance of $19 and $42 880 850
Inventory 164 163 Margin deposits and other prepaid expense 418 776
Restricted cash, current 461 337 Current derivative assets 2,032
3,653 Other current assets 37 64 Total current assets
4,905 7,500 Property, plant and equipment, net 11,683 11,908
Restricted cash, net of current portion 44 166 Investments 210 144
Long-term derivative assets 288 404 Other assets 571
616 Total assets $ 17,701 $ 20,738
LIABILITIES &
STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $
605 $ 574 Accrued interest payable 71 85 Debt, current portion 421
716 Current derivative liabilities 2,097 3,799 Income taxes payable
7 5 Other current liabilities 245 437 Total current
liabilities 3,446 5,616 Debt, net of current portion 9,064
9,756 Deferred income taxes, net of current portion 64 93 Long-term
derivative liabilities 421 698 Other long-term liabilities
207 203 Total liabilities 13,202 16,366 Stockholders’
equity: Preferred stock, $.001 par value per share; 100,000,000
shares authorized; none issued and outstanding at September 30,
2009 and December 31, 2008 — — Common stock, $.001 par value per
share; 1,400,000,000 shares authorized; 442,699,628 shares issued
and 442,372,296 shares outstanding at September 30, 2009;
429,025,057 shares issued and 428,960,025 shares outstanding at
December 31, 2008 1 1 Treasury stock, at cost; 327,332 shares at
September 30, 2009 and 65,032 shares at December 31, 2008 (3 ) (1 )
Additional paid-in capital 12,249 12,217 Accumulated deficit (7,497
) (7,689 ) Accumulated other comprehensive loss (250 )
(158 ) Total Calpine stockholders’ equity 4,500 4,370
Noncontrolling interest (1 ) 2 Total stockholders’
equity 4,499 4,372 Total liabilities and
stockholders’ equity $ 17,701 $ 20,738
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 2009
2008 (in millions) Cash flows from operating
activities: Net income $ 189 $ 118 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation
and amortization expense(1) 399 411 (Income) loss from
unconsolidated investments in power plants (27 ) 189 Debt
extinguishment costs 9 7 Deferred income taxes 15 (60 ) Loss on
disposal of assets, excluding reorganization items 29 6
Mark-to-market activity, net (67 ) 15 Stock-based compensation
expense 30 36 Reorganization items (7 ) (331 ) Other 6 21 Change in
operating assets and liabilities: Accounts receivable (23 ) 126
Derivative instruments (239 ) (45 ) Other assets 387 96 Accounts
payable, LSTC and accrued expenses 13 (76 ) Other liabilities
(177 ) (158 ) Net cash provided by operating
activities 537 355 Cash flows from investing
activities: Purchases of property, plant and equipment (140 ) (108
) Disposals of property, plant and equipment — 16 Proceeds from
sale of power plants, turbines and investments — 398 Cash acquired
due to reconsolidation of the Canadian Debtors and other
deconsolidated foreign entities — 64 Contributions to
unconsolidated investments (19 ) (14 )
Return of investment from
unconsolidated investments
— 26 (Increase) decrease in restricted cash (2 ) 145 Other
(3 ) 7 Net cash provided by (used in) investing activities
(164 ) 534 Cash flows from financing activities:
Repayments of notes payable
(106 )
(98 ) Repayments of project financing (889 ) (274 ) Borrowings from
project financing 1,028 356 Repayments of DIP Facility — (98 )
Borrowings under First Lien Facilities — 3,523 Repayments on First
Lien Facilities (770 ) (1,460 ) Borrowings under Commodity
Collateral Revolver — 100 Repayments on Second Priority Debt —
(3,672 ) Repayments on capital leases (34 ) (29 ) Redemptions of
preferred interests (310 ) (166 ) Financing costs (34 ) (207 )
Derivative contracts classified as financing activities — 70 Other
2 2 Net cash used in financing activities
(1,117 ) (1,953 ) Net decrease in cash and cash equivalents
(744 ) (1,064 ) Cash and cash equivalents, beginning of period
1,657 1,915 Cash and cash equivalents, end of period
$ 913 $ 851 Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 563 $ 873 Income taxes $ 6 $
16 Reorganization items included in operating activities, net $ 5 $
124 Reorganization items included in investing activities, net $ —
$ (414 )
Supplemental disclosure of non-cash investing
and financing activities: Settlement of commodity contract with
project financing $ 79 $ — Change in capital expenditures included
in accounts payable $ 3 $ 13 Settlement of LSTC through issuance of
reorganized Calpine Corporation common stock $ — $ 5,200 DIP
Facility borrowings converted into exit financing under First Lien
Facilities $ — $ 3,872 Settlement of Convertible Senior Notes and
Unsecured Senior Notes with reorganized Calpine Corporation common
stock $ — $ 3,703
(1) Includes
depreciation and amortization that is also recorded in sales,
general and other administrative expense and interest expense on
our Consolidated Condensed Statements of Operations.
REGULATION G RECONCILIATIONS
Commodity Margin, Adjusted EBITDA and Adjusted Free Cash Flow
are non-GAAP financial measures that we use as measures of our
performance. These measures should not be viewed as alternatives to
GAAP measures of performance.
Commodity Margin includes our power and steam revenues, capacity
revenue, revenue from renewable energy credits, sales of surplus
emission allowances, transmission revenue and expenses, fuel and
purchased energy expense, RGGI compliance costs and cash
settlements from our marketing, hedging and optimization activities
that are included in mark-to-market activity, but excludes the
unrealized portion of our mark-to-market activity and other
revenue. Commodity Margin is presented because we believe it is a
useful tool for assessing the performance of our core operations,
and it is a key operational measure reviewed by our chief operating
decision maker. Commodity Margin does not intend to represent gross
profit (loss), the most comparable GAAP measure, as an indicator of
operating performance and is not necessarily comparable to
similarly-titled measures reported by other companies.
Adjusted EBITDA represents net income (loss) before interest,
taxes, depreciation and amortization, adjusted for certain non-cash
and non-recurring items as detailed in the following
reconciliation. Adjusted EBITDA is presented because our management
uses Adjusted EBITDA (i) as a measure of operating performance to
assist in comparing performance from period to period on a
consistent basis and to readily view operating trends; (ii) as a
measure for planning and forecasting overall expectations and for
evaluating actual results against such expectations; and (iii) in
communications with our Board of Directors, shareholders,
creditors, analysts and investors concerning our financial
performance. We believe Adjusted EBITDA is also used by and is
useful to investors and other users of our financial statements in
evaluating our operating performance because it provides them with
an additional tool to compare business performance across companies
and across periods. Adjusted EBITDA is not a measure calculated in
accordance with GAAP, and should be viewed as a supplement to and
not a substitute for our results of operations presented in
accordance with GAAP. Adjusted EBITDA is not intended to represent
cash flows from operations or net income (loss) as defined by GAAP
as an indicator of operating performance. Furthermore, Adjusted
EBITDA is not necessarily comparable to similarly-titled measures
reported by other companies.
Adjusted Free Cash Flow represents net income before interest,
taxes, depreciation and amortization, as adjusted, less operating
lease payments, major maintenance expense and maintenance capital
expenditures, net cash interest, cash taxes, working capital and
other adjustments. Adjusted Free Cash Flow is presented because our
management uses this measure, among others, to make decisions about
capital allocation. Adjusted Free Cash Flow is not intended to
represent cash flows from operations as defined by GAAP as an
indicator of operating performance and is not necessarily
comparable to similarly-titled measures reported by other
companies.
Commodity Margin
Reconciliation
The following table reconciles our
Commodity Margin to its GAAP results for the three months ended
September 30, 2009 and 2008:
Three Months Ended September 30, 2009
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 393 $ 187 $ 92 $ 96 $ — $768 Add: Mark-to-market
commodity activity, net and other revenue(1) 41 2 (4 ) 21 (12 ) 48
Less: Plant operating expense 99 35 27 18 17 196 Depreciation and
amortization expense 49 27 17 16 (1 ) 108 Other cost of revenue(2)
18 6 3 10 (18 ) 19 Gross profit
$ 268 $ 121 $ 41 $ 73 $ (10 ) $493
Three Months Ended
September 30, 2008
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 372 $ 233 $ 95 $ 100 $ — $800 Add:
Mark-to-market commodity activity, net and other revenue(1) (45 )
188 3 (69 ) (9 ) 68 Less: Plant operating expense 96 56 31 23 (8 )
198 Depreciation and amortization expense 48 31 16 15 — 110 Other
cost of revenue(2) 19 3 5 8 (9 )
26 Gross profit (loss) $ 164 $ 331 $ 46 $ (15 ) $ 8 $534
(1) Mark-to-market commodity
activity represents the unrealized portion of our mark-to-market
activity, net, as well as a non-cash gain from amortization of
prepaid power sales agreements included in operating revenues and
fuel and purchased energy expense on our Consolidated Condensed
Statements of Operations.
(2) Excludes $1 million and nil of
RGGI compliance costs for the three months ended September 30, 2009
and 2008, respectively, which were included as a component of
Commodity Margin.
The following table reconciles our
Commodity Margin to its GAAP results for the nine months ended
September 30, 2009 and 2008:
Nine Months Ended September 30, 2009
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 994 $ 505 $ 233 $ 215 $ — $ 1,947 Add:
Mark-to-market commodity activity, net and other revenue(1) 120 (48
) 2 37 (35 ) 76 Less: Plant operating expense 326 163 94 61 10 654
Depreciation and amortization expense 150 88 50 47 (5 ) 330 Other
cost of revenue(2) 45 11 7 23
(28 ) 58 Gross profit $ 593 $ 195 $ 84 $ 121 $ (12 ) $ 981
Nine Months Ended September 30, 2008
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 965 $ 587 $ 208 $ 228 $ — $ 1,988 Add:
Mark-to-market commodity activity, net and other revenue(1) (30 )
114 6 (24 ) (20 ) 46 Less: Plant operating expense 309 178 84 73 (8
) 636 Depreciation and amortization expense 143 94 54 40 (2 ) 329
Other cost of revenue(2) 54 9 23 21
(19 ) 88 Gross profit $ 429 $ 420 $ 53 $ 70 $ 9 $ 981
(1) Mark-to-market
commodity activity represents the unrealized portion of our
mark-to-market activity, net, as well as a non-cash gain from
amortization of prepaid power sales agreements included in
operating revenues and fuel and purchased energy expense on our
Consolidated Condensed Statements of Operations.
(2) Excludes $5 million
and nil of RGGI compliance costs for the nine months ended
September 30, 2009 and 2008, respectively, which were included as a
component of Commodity Margin.
Consolidated Adjusted EBITDA
Reconciliation
In the following table, we have
reconciled our Adjusted EBITDA and Adjusted Free Cash Flow to our
Income from operations for the three and nine months ended
September 30, 2009 and 2008, as reported under GAAP.
Three Months Ended September 30, Nine Months Ended
September 30, 2009 2008(1) 2009
2008(1) (in millions) Net income attributable
to Calpine $ 238 $ 136 $ 192 $ 119 Net loss attributable to
noncontrolling interest (1 ) (1 ) (3 ) (1 ) Income tax expense
(benefit) (7 ) (80 ) 17 (60 ) Reorganization items (8 ) (2 ) (2 )
(263 ) Other (income) expense and debt extinguishment costs, net 20
18 57 29 Interest expense, net 195 201 602
799 Income from operations $ 437 $ 272 $ 863 $ 623 Add:
Adjustments to reconcile income from operations to Adjusted EBITDA:
Depreciation and amortization expense, excluding deferred financing
costs(2) 110 117 339 357 Impairment loss(3) — 179 — 185 Major
maintenance expense 22 22 124 118 Operating lease expense 12 12 35
35 Non-cash realized gains on derivatives — (13 ) — (33 )
Unrealized (gains) losses on commodity derivative mark-to-market
activity (43 ) (43 ) (60 ) 22 Adjustments to reflect Adjusted
EBITDA from unconsolidated investments(3),(4) 28 34 11 29
Stock-based compensation expense 8 17 30 36 Non-cash loss on
dispositions of assets 12 1 29 9 Other(6) — (4 )
3 (7 ) Adjusted EBITDA $ 586 $ 594 $ 1,374 $ 1,374
Less: Lease payments 12 35 Major maintenance expense and capital
expenditures(5) 67 264 Cash interest(6) 176 563 Cash taxes 4 6
Working capital and other adjustments (36 ) (14 )
Adjusted Free Cash Flow $ 363 $ 520
(1) Adjusted EBITDA for the three
and nine months ended September 30, 2008, has been recast to
conform to our current period definition.
(2) Depreciation and amortization
expense in the income from operations calculation on our
Consolidated Condensed Statements of Operations excludes
amortization of other assets and amounts classified as sales,
general and other administrative expenses.
(3) Included in our Consolidated
Condensed Statements of Operations in (income) loss from
unconsolidated investments in power plants.
(4) Adjustments to reflect
Adjusted EBITDA from unconsolidated investments include $14 million
and $12 million in unrealized (gains) losses on mark-to-market
activity for the three months ended September 30, 2009 and 2008,
respectively, and $(14) million and $4 million for the nine months
ended September 30, 2009 and 2008, respectively.
(5) Includes $22 million and $124
million in major maintenance expense for the three and nine months
ended September 30, 2009, respectively, and $45 million and $140
million in capital expenditures for the three and nine months ended
September 30, 2009, respectively.
(6) Includes fees for letters of
credit, net of interest income.
Adjusted EBITDA and Adjusted
Free Cash Flow Reconciliation for Guidance
Full Year 2009 Range: Low High
(in millions)
GAAP Net Income $ 80 $ 105 Plus: Interest expense, net of interest
income 795 795 Depreciation and amortization expense 455 455 Major
maintenance expense 200 200 Operating lease expense 50 50 Other(1)
130 130 Adjusted EBITDA $ 1,710 $ 1,735 Less:
Operating lease payments 50 50 Major maintenance expense and
maintenance capital expenditures(2) 350 350 Cash interest, net(3)
775 775 Cash taxes 5 5 Working capital and other adjustments
— (25 ) Adjusted Free Cash Flow $ 530 $ 580
Full
Year 2010 Range: Low High
(in millions)
GAAP Net Income $ (30 ) $ 70 Plus: Interest expense, net of
interest income 750 750 Depreciation and amortization expense 465
465 Major maintenance expense 180 180 Operating lease expense 50 50
Other(1) 85 85 Adjusted EBITDA $ 1,500 $ 1,600 Less:
Operating lease payments 50 50 Major maintenance expense and
maintenance capital expenditures(2) 290 290 Cash interest, net(3)
750 750 Cash taxes 10 10 Adjusted Free Cash Flow $
400 $ 500
(1) Other includes stock-based
compensation expense and other adjustments.
(2) Includes projected Major
Maintenance Expense of $200 million and $180 million in 2009 and
2010, respectively and maintenance Capital Expenditures of $150
million and $110 million in 2009 and 2010, respectively. Capital
expenditures exclude major construction and development
projects.
(3) Includes fees for letters of
credit, net of interest income.
CASH FLOW ACTIVITIES
The following table summarizes our
cash flow activities for the nine months ended September 30, 2009
and 2008:
(Unaudited) Nine Months Ended September 30,
2009 2008 (in millions) Beginning cash and
cash equivalents $ 1,657 $ 1,915 Net cash provided by (used in):
Operating activities 537 355 Investing activities (164 ) 534
Financing activities (1,117 ) (1,953 ) Net decrease
in cash and cash equivalents (744 ) (1,064 ) Ending
cash and cash equivalents $ 913 $ 851
OPERATING PERFORMANCE
METRICS
The table below shows the
operating performance metrics for continuing operations:
Three Months Ended September 30, Nine Months Ended
September 30, 2009 2008 2009 2008
Total MWh generated(1) (in thousands) 28,051 25,773
66,717 67,890 West 10,447 10,563 26,108 27,702 Texas
10,246 9,830 23,058 27,048 Southeast 6,006 3,753 13,842 9,058 North
1,352 1,627 3,709 4,082 Average availability 97.1 % 96.6 %
92.9 % 90.8 % West 95.2 % 95.8 % 92.3 % 89.6 % Texas 97.5 % 96.9 %
92.1 % 90.1 % Southeast 98.2 % 97.4 % 93.3 % 92.6 % North 98.5 %
96.7 % 95.5 % 92.0 % Average capacity factor, excluding
peakers 60.7 % 55.2 % 49.0 % 49.0 % West 73.0 % 73.9 % 62.3 % 65.9
% Texas 64.0 % 61.4 % 48.5 % 56.7 % Southeast 51.0 % 29.8 % 40.0 %
24.5 % North 31.5 % 39.1 % 30.1 % 33.8 % Steam adjusted Heat
Rate 7,268 7,274 7,246 7,237 West 7,302 7,314 7,299 7,287 Texas
7,227 7,147 7,149 7,090 Southeast 7,187 7,335 7,214 7,409 North
7,758 7,722 7,693 7,596
(1) MWh generated is shown here as
our net operating interest. Excludes generation at RockGen from
January 1 to September 30, 2008, as the plant was deconsolidated
during this period.
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