Calpine Corporation (NYSE:CPN) today reported second quarter
2010 Adjusted EBITDA of $381 million, down $76 million, or 17%,
over the prior year period. The company also reported second
quarter 2010 Adjusted Free Cash Flow of $117 million, compared to
$171 million in the second quarter of 2009. Net loss1 for the
quarter was $115 million, or $0.24 per diluted share, compared to a
net loss1 of $78 million, or $0.16 per diluted share, in the 2009
period.
“Calpine made solid progress on two important fronts during the
second quarter. First, we had solid operating performance, enabling
us not only to reaffirm our full year guidance but to tighten it by
raising the lower end of that guidance,” said Jack Fusco, Calpine’s
President and Chief Executive Officer. “Second, we executed on our
strategic initiative to diversify and expand our portfolio of
plants in the eastern U.S. markets by closing the acquisition of
the almost 4,500 MW Conectiv fleet of plants in the PJM market in a
remarkable 70 days, enabling us to benefit from the July heat wave
in the eastern United States. I also am very encouraged by the
greater-than-expected PJM 2013-14 capacity auction results in May
and the increased utilization of these plants this summer, which
reinforces our view that this was a timely and strategically
important acquisition that will deliver near-term and long-term
value to our shareholders. Also worth mentioning is that we
continue to make significant progress on our organic growth
projects, most notably the test drilling at The Geysers where we
have completed eight out of 13 exploratory wells. We are now
evaluating the feasibility of adding at least 40 MW of capacity
there to benefit from the California renewable energy market
pricing.”
SUMMARY OF FINANCIAL
PERFORMANCE
Second Quarter Results
Adjusted EBITDA was $381 million in the second quarter of 2010
compared to $457 million in the prior year period. The
year-over-year decline was primarily due to a $91 million decrease
in Commodity Margin concentrated in our Texas and West segments
that declined by $68 million and $20 million respectively. In
addition to lower average hedge prices and lower realized margin on
our open positions relative to the same period in 2009, $26 million
of the Commodity Margin decrease relates to the expiration of the
PCF arrangement in our West segment at the end of 2009, the impact
of new generation additions in Texas, which dampened prices, and
higher rainfall in the West, which caused increased hydroelectric
generation, were key drivers of the lower realized margins on open
positions.
Partially offsetting these declines, positive contributions to
Commodity Margin from the second quarter of 2009 to the second
quarter of 2010 were an increase of $23 million related to higher
renewable energy credit (REC) revenue from new contracts associated
with our Geysers power plants and an increase of $21 million
related to our Otay Mesa Energy Center, which achieved commercial
operation in October 2009. Other revenue also increased by $14
million, primarily due to revenue related to prior periods
associated with a major maintenance contract.
Net loss1 increased to $115 million for the three months ended
June 30, 2010, from $78 million in the prior year period. As
detailed in Table 1, net income, excluding reorganization items,
discontinued operations, other items and unrealized mark-to-market
gains or losses, decreased from $61 million in 2009 to a net loss
of $42 million in 2010. The decrease was primarily attributable to
the $91 million decline in Commodity Margin previously
discussed.
Year-to-Date Results
Adjusted EBITDA for the six months ended June 30, 2010, was $663
million as compared to $788 million in the prior year period. The
year-over-year decline in Adjusted EBITDA was primarily caused by a
$165 million decline in Commodity Margin. Similar to the second
quarter results discussed above, the Commodity Margin decrease was
attributable to the expiration of the PCF arrangement at the end of
2009 in our West segment, which accounted for $51 million of the
year-over-year decline, as well as lower average hedge margins and
lower realized spark spreads on open positions due to weaker market
conditions in the first half of 2010 compared to the same period in
2009.
For the year-to-date 2010 period, we have reduced aggregate
plant operating expense2, sales, general and administrative
expense2, and components of other cost of revenue by $30 million.
These cost improvements were due, in large part, to efficiency
efforts that we implemented over the course of 2009. In addition,
other revenue has increased from $11 million year-to-date 2009 to
$22 million year-to-date 2010 related to revenue from prior periods
associated with a major maintenance contract.
Cash flows provided by operating activities for the six months
ended June 30, 2010, resulted in net inflows of $156 million
compared to cash flows used in operating activities of $36 million
for the same period in 2009. The change in cash flows from
operating activities was primarily due to decreases in working
capital, which decreased by approximately $267 million during the
period after adjusting for debt related balances which did not
impact cash provided by operating activities. In addition, the
working capital decrease was due to reductions in margin deposits
and certain derivative activity. Cash paid for interest decreased
by $36 million to $362 million for the six months ended June 30,
2010, as compared to $398 million for the same period in 2009,
primarily due to the refinancing of Calpine Construction Financing
Company and other project financing. This was partially offset by a
decrease in gross profit which, after excluding non-cash items
decreased, by $126 million in 2010.
Net loss1 increased to $162 million for the six months ended
June 30, 2010, from $46 million in the prior year period. As
detailed in Table 1, net loss, excluding reorganization items,
discontinued operations, other items and unrealized mark-to-market
gains or losses, increased from $30 million in 2009 to $198 million
in 2010. The decrease was primarily due to the $165 million decline
in Commodity Margin previously discussed.
1 Reported as net loss attributable to Calpine on our
Consolidated Condensed Statements of Operations.
2 Plant operating expense and sales, general and administrative
expense exclude, in the aggregate, decreases in major maintenance
expense of $4 million, decreases in stock-based compensation
expense of $10 million, decreases in non-cash loss on dispositions
of assets of $12 million, increases in depreciation and
amortization of $53 million, Conectiv acquisition related costs of
$19 million, and plant operating expense associated with Otay Mesa
Energy Center of $7 million. See the table titled "Consolidated
Adjusted EBITDA Reconciliation" for the actual amounts of these
items for the six months ended June 30, 2010 and 2009.
Table 1: Summarized
Consolidated Condensed Statements of Operations
(Unaudited) Three Months Ended June 30,
Six Months Ended June 30, 2010 2009
2010 2009 (in millions) Operating
revenues $ 1,430 $ 1,445 $ 2,944 $ 3,097 Cost of revenue
(1,273 ) (1,256 ) (2,614 ) (2,642 ) Gross
profit 157 189 330 455 SG&A, (income) from unconsolidated
investments in power plants and other operating expense 49
30 72 62 Income
from operations 108 159 258 393 Net interest expense, debt
extinguishment costs and other (income) expense 220
231 415 434 Loss before
reorganization items, income taxes and discontinued operations (112
) (72 ) (157 ) (41 ) Reorganization items – 3 – 6 Income tax
expense 6 15 17 24
Loss before discontinued operations (118 ) (90 ) (174 ) (71
) Discontinued operations, net of tax expense 4
11 12 23 Net loss $ (114
) $ (79 ) $ (162 ) $ (48 ) Net (income) loss attributable to the
noncontrolling interest (1 ) 1 –
2 Net loss attributable to Calpine $ (115 ) $ (78 ) $
(162 ) $ (46 ) Reorganization items(1) – 3 – 6 Other
items(1)(2) 26 33 26
33 Net loss net of reorganization and other items (89
) (42 ) (136 ) (7 ) Unrealized MtM (gains) losses on
derivatives(1)(3) 47 103 (62 )
(23 ) Net income (loss), net of reorganization items, other
items and unrealized MtM impacts $ (42 ) $ 61 $ (198 ) $ (30
)
(1)
Shown net of tax, assuming a 0%
effective tax rate for these items (other than those referenced in
note 2 below).
(2)
Other items for the three and six
months ended June 30, 2010, include $7 million in debt
extinguishment costs and $19 million in Conectiv
acquisition-related costs.Other items for the three and six months
ended June 30, 2009, include $33 million in debt extinguishment
costs.
(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. Includes amounts
related to Blue Spruce and Rocky Mountain for the three and six
months ended June 30, 2009.
REGIONAL SEGMENT REVIEW OF
RESULTS
Table 2: Commodity Margin by
Segment (in millions)
Three Months Ended June 30, Six
Months Ended June 30, 2010 2009
2010 2009 West $ 258 $ 278 $ 471 $ 550
Texas 128 196 235 318 Southeast 68 80 126 141 North 79
70 131 119 Total $ 533 $ 624 $ 963 $ 1,128
West: Commodity Margin in our West segment decreased by
$20 million for the three months ended June 30, 2010 compared to
the same period in 2009, primarily resulting from a decrease of $26
million related to the expiration of the PCF arrangement in the
fourth quarter of 2009, lower average hedge prices for the second
quarter of 2010 compared to 2009, and lower realized spark spreads
on our open positions due in part to strong hydro conditions in
June 2010 compared to the same period in 2009. The decrease in
Commodity Margin was partially offset by an increase of $23 million
related to higher REC revenue from new contracts associated with
our Geysers assets, $21 million from our Otay Mesa Energy Center
(OMEC) that achieved commercial operation in October 2009 and a $12
million credit recognized in the second quarter of 2010 related to
overcharges associated with a gas transportation contract.
For the six-month period, Commodity Margin in our West segment
decreased by $79 million primarily resulting from a decrease of $51
million related to the expiration of the PCF arrangement in the
fourth quarter of 2009, lower average hedge prices in the first
half of 2010 compared to 2009, lower realized spark spreads on our
open positions and a decrease of $11 million for the sale of
surplus emission allowances in the first quarter of 2009 which did
not reoccur in the same period in 2010. The decrease in Commodity
Margin was partially offset by an increase of $26 million related
to higher REC revenue from new contracts associated with our
Geysers assets and $40 million from OMEC.
Texas: Commodity Margin in our Texas segment decreased by
$68 million for the three months ended June 30, 2010, compared to
the same period in 2009, primarily resulting from lower average
hedge prices and lower realized spark spreads on open positions,
particularly in June 2010, which did not benefit from the extreme
heat, congestion-driven pricing and tighter reserve margin that
prevailed in June 2009.
Commodity Margin in our Texas segment decreased by $83 million
for the six months ended June 30, 2010, compared to the same period
in 2009, primarily resulting from lower average hedge prices and
lower realized spark spreads on open positions.
Southeast: Commodity Margin in our Southeast segment
decreased by $12 million primarily resulting from lower average
hedge prices and lower realized spark spreads for our Oneta and
Pine Bluff power plants partially offset by the non-recurring
negative impact of the settlement of a disputed steam contract in
the second quarter of 2009.
For the first half of 2010, Commodity Margin in our Southeast
segment decreased by $15 million. The six-month results were
largely impacted by the same factors that drove performance for the
second quarter, as previously discussed.
North: Commodity Margin in our North segment increased by
$9 million primarily due to higher average hedge prices and higher
realized spark spreads on open positions driven by much warmer
weather for May and June 2010 compared to the same period in
2009.
Commodity Margin in our North segment increased by $12 million.
Again, the six month results were largely impacted by the same
factors that drove performance for the second quarter, as
previously discussed.
LIQUIDITY AND CAPITAL
RESOURCES
Table 3: Corporate
Liquidity
June 30, December 31,
2010 2009 (in millions) Cash and cash
equivalents, corporate(1) $ 758 $ 725 Cash and cash equivalents,
non-corporate 213 264 Total cash and cash equivalents
971 989 Restricted cash 345 562 Letter of credit availability(2) 65
34 Revolver availability 763 794 Total current
liquidity $ 2,144 $ 2,379
(1)
Includes $58 million and $9
million of margin deposits held by us posted by our counterparties
as of June 30, 2010, and December 31, 2009, respectively.
(2)
Includes available balances for
Calpine Development Holdings, Inc, which increased our availability
by $50 million under this letter of credit facility on June 30,
2010.
We maintained strong liquidity during the second quarter, ending
the period with liquidity in excess of $2.1 billion; however,
liquidity declined by more than $200 million during the first half
of 2010 from $2.4 billion at December 31, 2009. As previously
discussed, operating activities resulted in net cash proceeds of
$156 million during the 2010 period, compared to a net outflow of
$36 million during the 2009 period. In addition, cash flows from
investing activities resulted in a net inflow of $138 million
during the first half of 2010, driven largely by reduced restricted
cash balances associated primarily with the maturity of our PCF
project financing instrument, partially offset by $97 million in
total capital expenditures during the quarter, including $47
million spent for previously announced growth projects. Cash flows
from financing activities resulted in a net outflow of $312
million, primarily as a result of our repayment of the PCF
financing and other payments made under project debt waterfall
provisions. Additionally, consistent with our efforts to maintain
strong liquidity, during the second quarter of 2010, we increased
the availability of the Calpine Development Holdings, Inc. letter
of credit facility by $50 million to a total of $200 million.
During the first half of 2010, we generated $104 million of
Adjusted Free Cash Flow, representing a decline of $80 million over
2009 results for the same period. The year-over-year decline in
Adjusted Free Cash Flow was primarily the result of the $125
million decrease in Adjusted EBITDA, as previously discussed,
partially offset by a $53 million improvement in major maintenance
expense and capital expenditures from 2009 to 2010.
Subsequent to the end of this reporting period, the company
utilized a portion of cash and cash equivalents to help fund the
acquisition of Conectiv, as previously discussed, and retired $100
million of debt associated with the Commodity Collateral Revolver
on July 8, 2010, which together reduced liquidity by $465 million.
However, this reduction in liquidity is expected to be offset by
the anticipated receipt of net proceeds of $315 million related to
the sale of our Colorado assets, expected to close by the end of
the year.
PLANT
DEVELOPMENT
York Energy Center (formerly the Delta Project): We acquired the
565 MW dual fuel, combined-cycle power plant under construction in
Peach Bottom Township, Pennsylvania, formerly referred to as the
Delta Project, as part of the Conectiv acquisition. Because Calpine
already had a plant named Delta Energy Center, this project has
been renamed York Energy Center. The York Energy Center remains on
budget and on schedule. All permits have been received and
commercial operations are expected to commence in the summer of
2011. The York Energy Center will sell power under a six-year Power
Purchase Agreement (PPA) with a Baltimore based energy company. As
part of the Conectiv purchase, the project subsidiary (New
Development Holdings, LLC) plans to fund the remaining expected
capital expenditures of approximately $110 million to complete
construction.
Russell City Energy Center: Russell City Energy Center remains
under advanced stages of development. The Russell City Energy
Center is currently contracted to deliver its full output of 600 MW
to Pacific Gas & Electric (PG&E) under a PPA, which was
executed in December 2006 and approved by the California Public
Utilities Commission (CPUC) in January 2007. The PPA was amended in
2008 and again on April 9, 2010, to extend the expected commercial
operation date to June 2013 as a result of delays in obtaining
certain permits. We are in possession of all material permits;
however the permits are subject to an appeal period related to our
air permit and possible amendments to our California Energy
Commission license. We and other parties filed a joint petition on
April 15, 2010, seeking CPUC approval of the amendment to the PPA.
We do not expect the CPUC to act on the petition for approval prior
to September 2010. Upon completion, this project would bring on
line approximately 362 MW of net interest baseload capacity (390 MW
with peaking capacity) representing our 65% share.
Geysers Expansion: We continue to consider expanding production
from our Geysers assets in northern California. To date, we have
completed eight out of 13 planned test wells. The completed wells,
in aggregate, have met or exceeded our expectations. We expect to
make a determination before the end of 2010 if the new wells will
produce enough additional steam to warrant the construction of
additional geothermal power plants at our Geysers assets.
Los Esteros Expansion: During 2009, we and PG&E negotiated a
new PPA to replace the existing California Department of Water
Resources contract and facilitate the upgrade of our Los Esteros
Critical Energy Facility from a 188 MW simple-cycle generation
power plant to a 308 MW combined-cycle generation power 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. The PPA received approval from the CPUC on
July 29, 2010.
Turbine Upgrades: We continue to move forward with our turbine
upgrade program. We have completed the upgrade of four Siemens
turbines and plan to upgrade approximately nine additional Siemens
turbines. Our Siemens turbine upgrade program is expected to
increase our generation capacity in total by approximately 195 MW
with estimated remaining capital expenditures of approximately $90
million. These upgrades began in the fourth quarter of 2009 and are
scheduled through 2014. To date, the initial testing of the
upgraded turbines has indicated additional capacity and
improvements in operating heat rates falling in line with
expectations of 15 MW per turbine and an incremental heat rate of
less than 5,000 Btu/KWh.
OPERATIONS
UPDATE
2010 Power Operations Achievements:
- Safety Performance:
- First quartile lost-time
incident rate of 0.19 year-to-date
- No employee lost-time accidents
recorded during the second quarter of 2010
- Availability Performance:
- Achieved a strong second quarter
geothermal availability factor of 98%
- Maintained second quarter
fleet-wide average availability factor of nearly 88%
- Achieved a fleet-wide starting
reliability of nearly 98%
- Geothermal Generation: Provided
approximately 1.5 million MWh of renewable baseload generation with
95% capacity factor and 0.37% forced outage factor
- Natural Gas-fired Generation:
- Increased production from
natural gas-fired plants by nearly 5%
- Successfully integrated 18 new
operating plants into our fleet from the Conectiv acquisition
- Westbrook Energy Center earned
Star Worksite designation under the stringent federal Voluntary
Protection Program. This award is OSHA’s highest level of
recognition for exemplary workplace health and safety efforts.
- Sustainable Cost Reductions:
Reduced plant operating expense2, sales, general and administrative
expense2 and components of other cost of revenue, largely through
efficiency efforts and disciplined cost controls by $30 million
through June 2010. Along with savings achieved in 2009, we are very
close to our goal of $100 million in expense savings from our 2008
amounts.
2010 Commercial Operations Achievements:
- Customer-oriented Growth:
- Signed new seven-year, 200 MW
PPA for capacity and energy supply to Southwestern Public Service
Company, a subsidiary of Xcel Energy, from our Oneta Energy
Center
- Received CPUC approval for a 425
MW geothermal supply to Pacific Gas & Electric Company
- Received CPUC approval for a 25
MW geothermal supply to San Diego Gas & Electric, a subsidiary
of Sempra Energy
FINANCIAL
OUTLOOK
Table 4: Adjusted EBITDA and
Adjusted Free Cash Flow Guidance
Full Year 2010 (in millions) Adjusted
EBITDA $ 1,650 – 1,725 Less: Operating lease payments 45 Major
maintenance expense and capital expenditures(1) 300 Cash interest,
net 815 Cash taxes 15 Adjusted Free Cash Flow $ 475 – 550
(1)
Includes projected Major
Maintenance Expense of $180 million and maintenance Capital
Expenditures of $120 million. Capital Expenditures exclude major
construction and development projects.
(2)
Excludes changes in cash
collateral for commodity procurement and risk management
activities.
Today, we are updating and tightening our 2010 guidance, which
includes the estimated impact of the planned sale of our Colorado
power plants. Including this transaction, we are projecting
Adjusted EBITDA of $1,650 million to $1,725 million and Adjusted
Free Cash Flow of $475 million to $550 million. We are also
updating estimates of our growth capital for 2010. We expect to
invest $220 million in growth-related projects during the year,
including the ongoing projects that we have acquired from Conectiv
Energy, our ongoing turbine upgrade program, the addition of
incremental steam wells at The Geysers, and the proposed 120 MW
upgrade of our Los Esteros plant and our proposed 600 MW Russell
City Energy Center.
INVESTOR CONFERENCE CALL AND
WEBCAST
We will host a conference call to discuss our financial and
operating results for the second quarter of 2010 on Friday, July
30, 2010, at 10:00 a.m. ET / 9:00 a.m. CT. A listen-only webcast of
the call may be accessed through our website at www.calpine.com, or
by dialing 888-857-6930 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 our website. The recording also can
be accessed by dialing 888-203-1112 or 719-457-0820 for
international listeners and providing Confirmation Code 2778412.
Presentation materials to accompany the conference call will be
made available on our website on July 30, 2010.
ABOUT CALPINE
Founded in 1984, Calpine Corporation is a major U.S. power
company, currently capable of delivering nearly 29,000 megawatts of
clean, cost-effective, reliable and fuel-efficient power from its
93 operating plants to customers and communities in 21 states and
Canada. Calpine Corporation is committed to helping meet the needs
of an economy that demands more and cleaner sources of electricity.
Calpine owns, leases and operates primarily 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 our website
at www.calpine.com for more information.
Calpine’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2010, has been filed with the Securities and Exchange
Commission (SEC) and may be found on the SEC’s website at
www.sec.gov.
FORWARD-LOOKING
INFORMATION
In addition to historical information, our Quarterly Report on
Form 10-Q contains “forward-looking statements” within the meaning
of Section 27A of the U.S. Securities Act of 1933, as amended, and
Section 21E of the Exchange Act. We use words such as “believe,”
“intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,”
“estimate,” “potential,” “project” 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,
the timing and strength of an economic recovery, if any, and their
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;
- Financial results that may be
volatile and may not reflect historical trends due to, among other
things, fluctuations in prices for commodities such as natural gas
and power, fluctuations in liquidity and volatility in the energy
commodities markets and our ability to hedge risks;
- Our ability to manage our
customer and counterparty exposure and credit risk, including our
commodity positions;
- Our ability to manage our
significant liquidity needs and to comply with covenants under our
existing financing obligations, including our First Lien Credit
Facility, First Lien Notes and New Development Holdings Project
Debt;
- 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 and derivative transactions;
- Natural disasters such as
hurricanes, earthquakes and floods, or acts of terrorism 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
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 wastewater 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;
- Risks associated with the
operation, construction and development of power plants, including
unscheduled outages or delays and plant efficiencies;
- Present and possible future
claims, litigation and enforcement actions;
- The expiration or termination of
our power purchase agreements and the related results on
revenues;
- Our planned sale of Blue Spruce
and Rocky Mountain may not close as planned;
- Future PJM capacity revenues
expected from the Conectiv acquisition may not occur at expected
levels; and
- Other risks identified in this
release or in our reports and registration statements filed with
the SEC, including, without limitation, the risk factors identified
in our Quarterly Report on Form 10-Q for the three months ended
June 30, 2010, and in our Annual Report on Form 10-K for the year
ended December 31, 2009.
Given the risks and uncertainties surrounding forward-looking
statements, you should not place undue reliance on these
statements. Many of these factors are beyond our ability to control
or predict. Our forward-looking statements speak only as of today’s
date. Other than as required by law, we undertake no obligation to
update or revise forward-looking statements, whether as a result of
new information, future events, or otherwise.
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June
30, 2010 2009 2010
2009 (in millions, except share and per share
amounts) Operating revenues $ 1,430 $ 1,445 $ 2,944 $ 3,097
Cost of revenue: Fuel and purchased energy expense 904 922
1,873 1,937 Plant operating expense 213 206 431 449 Depreciation
and amortization expense 132 108 265 213 Other cost of revenue
24 20 45 43
Total cost of revenue
1,273 1,256 2,614
2,642 Gross profit 157 189 330 455 Sales, general and other
administrative expense 53 48 78 93 (Income) from unconsolidated
investments in power plants (6 ) (23 ) (13 ) (40 ) Other operating
expense 2 5 7 9
Income from operations 108 159 258 393 Interest expense 216
203 408 409 Interest (income) (4 ) (4 ) (6 ) (10 ) Debt
extinguishment costs 7 33 7 33 Other (income) expense, net 1
(1 ) 6 2 Loss before
reorganization items, income taxes and discontinued operations (112
)
(72 ) (157 ) (41 ) Reorganization items
—
3 — 6 Loss before income
taxes and discontinued operations (112 ) (75 ) (157 ) (47 ) Income
tax expense 6 15 17
24 Loss before discontinued operations $ (118 ) $ (90
) $ (174 ) $ (71 ) Discontinued operations, net of tax expense
4 11 12 23 Net
loss $ (114 ) $ (79 ) $ (162 ) $ (48 ) Net (income) loss
attributable to the noncontrolling interest (1 ) 1
— 2 Net loss attributable to
Calpine $ (115 ) $ (78 ) $ (162 ) $ (46 ) Basic and diluted
loss per common share attributable to Calpine: Weighted average
shares of common stock outstanding (in thousands) 486,057 485,675
485,989 485,560 Loss before discontinued operations $ (0.25 ) $
(0.18 ) $ (0.35 ) $ (0.14 ) Discontinued operations, net of tax
expense 0.01 0.02 0.02
0.05 Net loss per common share – basic and diluted $
(0.24 ) $ (0.16 ) $ (0.33 ) $ (0.09 )
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS
(Unaudited)
June 30,
December 31, 2010 2009
(in millions, except share and
per share amounts)
ASSETS Current assets: Cash and cash equivalents ($207 and
$242 attributable to VIEs) $ 971 $ 989 Accounts receivable, net of
allowance of $2 and $14 679 750 Margin deposits and other prepaid
expense 331 490 Restricted cash, current ($267 and $322
attributable to VIEs) 298 508 Derivative assets, current 1,240
1,119 Assets held for sale ($548 attributable to VIEs) 548 —
Inventory and other current assets 222 243
Total current assets
4,289 4,099 Property, plant and equipment, net ($5,208 and
$5,319 attributable to VIEs) 11,408 11,583 Restricted cash, net of
current portion ($40 and $45 attributable to VIEs) 47 54
Investments 89 214 Long-term derivative assets 223 127 Other assets
593 573 Total assets $ 16,649 $
16,650
LIABILITIES & STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable $ 482 $ 578 Accrued interest payable
59 54 Debt, current portion ($575 and $106 attributable to VIEs)
699 463 Derivative liabilities, current 1,244 1,360 Liabilities
held for sale 13 — Other current liabilities 276
294 Total current liabilities 2,773 2,749
Debt, net of current portion ($2,816 and $3,042 attributable to
VIEs) 8,827 8,996 Deferred income taxes, net of current portion 112
54 Long-term derivative liabilities 382 197 Other long-term
liabilities 216 208 Total liabilities
12,310 12,204 Commitments and contingencies Stockholders’
equity: Preferred stock, $.001 par value per share; 100,000,000
shares authorized; none issued and outstanding — — Common stock,
$.001 par value per share; 1,400,000,000 shares authorized;
445,034,189 and 443,325,827 shares issued, respectively, and
444,586,271 and 442,998,255 shares outstanding, respectively 1 1
Treasury stock, at cost, 447,918 and 327,572 shares, respectively
(5 ) (3 ) Additional paid-in capital 12,268 12,256 Accumulated
deficit (7,702 ) (7,540 ) Accumulated other comprehensive loss (223
) (266 ) Total Calpine stockholders’ equity 4,339 4,448
Noncontrolling interest —
(2
)
Total stockholders’ equity 4,339 4,446
Total liabilities and stockholders’ equity $ 16,649 $ 16,650
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 2010
2009 (in millions) Cash flows from operating
activities: Net loss $ (162
)
$ (48 ) Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: Depreciation and amortization
expense(1) 298 268 Debt extinguishment costs 7 7 Deferred income
taxes (4 ) 26 Loss on disposal of assets 9 20 Unrealized
mark-to-market activity, net (62 ) (23 ) Income from unconsolidated
investments in power plants (13 ) (40 ) Stock-based compensation
expense 12 22 Other 1 1 Change in operating assets and liabilities:
Accounts receivable 68 29 Derivative instruments, net (81 ) (257 )
Other assets 171 173 Accounts payable and accrued expenses (91 )
(23 ) Other liabilities 3 (191 ) Net cash
provided by (used in) operating activities 156
(36 ) Cash flows from investing activities: Purchases of property,
plant and equipment (97 ) (97 ) Cash acquired due to consolidation
of Otay Mesa Energy Center 8 — Contributions to unconsolidated
investments
—
(8
)
(Increase) decrease in restricted cash 224 (31 ) Other 3
(1 ) Net cash provided by (used in) investing
activities 138 (137 )
Cash flows from financing
activities:
Repayments of project financing,
notes payable and other
(277
)
(969
)
Borrowings from project financing,
notes payable and other
—
1,027
Issuance of First Lien Notes
400
—
Repayments on First Lien Credit
Facility
(430
)
(30
)
Refund of financing costs
10
—
Financing costs
(15
)
(29
)
Other
—
(1
)
Net cash used in financing
activities
(312
)
(2
)
Net decrease in cash and cash
equivalents
(18
)
(175
)
Cash and cash equivalents,
beginning of period
989
1,657
Cash and cash equivalents, end of
period
$
971
$
1,482
Cash paid during the period
for:
Interest, net of amounts
capitalized
$
362
$
398
Income taxes
$
9
$
2
Reorganization items included in
operating activities, net
$
—
$
6
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
$
(7
)
$
—
(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 be viewed as a supplement to and
not a substitute for our GAAP measures of performance.
Commodity Margin includes our power and steam revenues, sales of
purchased power and natural gas, capacity revenue, revenue from
renewable energy credits, sales of surplus emission allowances,
transmission revenue and expenses, fuel and purchased energy
expense, fuel transportation expense, RGGI compliance and other
environmental 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 revenues. 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. We believe that EBITDA is widely used by
investors to measure a company’s operating performance without
regard to items such as interest expense, taxes, depreciation and
amortization, which can vary substantially from company to company
depending upon accounting methods and book value of assets, capital
structure and the method by which assets were acquired. 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 June 30, 2010 and 2009:
Three Months Ended June 30, 2010
(in millions)
Consolidation And
West Texas Southeast North
Elimination Total Commodity Margin $ 258 $ 128 $ 68 $
79 $ — $ 533 Add: Mark-to-market commodity activity, net and other
revenue(1) 10 (10 ) (9 ) 3 (6 ) (12 ) Less: Plant operating expense
88 78 31 23 (7 ) 213 Depreciation and amortization expense 50 39 26
18 (1 ) 132 Other cost of revenue(2) 10 (5 ) —
7 7 19 Gross profit $ 120
$ 6 $ 2 $ 34 $ (5 ) $ 157
Three
Months Ended June 30, 2009
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 278 $ 196 $ 80 $ 70 $ — $ 624 Add:
Mark-to-market commodity activity, net and other revenue(1) 57 (140
) (25 ) 14 (9 ) (103 ) Less: Plant operating expense 96 50 35 23 2
206 Depreciation and amortization expense 47 31 17 15 (2 ) 108
Other cost of revenue(2) 12 2 1
7 (4 ) 18 Gross profit (loss) $ 180 $
(27 ) $ 2 $ 39 $ (5 ) $ 189
(1)
Mark-to-market commodity activity
represents the unrealized portion of our mark-to-market activity,
net, included in operating revenues and fuel and purchased energy
expense on our Consolidated Condensed Statements of Operations for
the three months ended June 30, 2010 and 2009.
(2)
Excludes $5 million and $2 million
of RGGI compliance and other environmental costs for the three
months ended June 30, 2010 and 2009, respectively, which are
included as a component of Commodity Margin.
The following table reconciles our Commodity Margin to its GAAP
results for the six months ended June 30, 2010 and 2009:
Six Months Ended June 30, 2010
(in millions)
Consolidation And
West Texas Southeast North
Elimination Total Commodity Margin $ 471 $ 235 $ 126
$ 131 $ — $ 963 Add: Mark-to-market commodity activity, net and
other revenue(1) 18 86 13 — (14 ) 103 Less: Plant operating expense
178 162 59 45 (13 ) 431 Depreciation and amortization expense 101
74 55 38 (3 ) 265 Other cost of revenue(2) 25 1
2 14 (2 ) 40 Gross profit $ 185
$ 84 $ 23 $ 34 $ 4 $ 330
Six months Ended
June 30, 2009
(in millions)
Consolidation And West Texas
Southeast North Elimination Total
Commodity Margin $ 550 $ 318 $ 141 $ 119 $ — $ 1,128 Add:
Mark-to-market commodity activity, net and other revenue(1) 79 (50
) 6 16 (23 ) 28 Less: Plant operating expense 218 128 67 43 (7 )
449 Depreciation and amortization expense 92 61 33 31 (4 ) 213
Other cost of revenue(2) 27 5 4
13 (10 ) 39 Gross profit $ 292 $ 74 $ 43 $ 48
$ (2 ) $ 455
(1)
Mark-to-market commodity activity
represents the unrealized portion of our mark-to-market activity,
net, included in operating revenues and fuel and purchased energy
expense on our Consolidated Condensed Statements of Operations for
the six months ended June 30, 2010 and 2009.
(2)
Excludes $5 million and $4 million
of RGGI compliance and other environmental costs for the six months
ended June 30, 2010 and 2009, respectively, which are 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 Net Income for the three and six
months ended June 30, 2010 and 2009, as reported under GAAP.
Three Months Ended June 30, Six Months
Ended June 30, 2010 2009 2010
2009 (in millions) GAAP net loss attributable
to Calpine $ (115 ) $ (78 ) $ (162 ) $ (46 ) Net income (loss)
attributable to noncontrolling interest 1 (1 ) — (2 ) Discontinued
operations, net of tax expense (4 ) (11 ) (12 ) (23 ) Income tax
expense 6 15 17 24 Reorganization items — 3 — 6 Other (income)
expense and debt extinguishment costs, net 8 32 13 35 Interest
expense, net 212 199 402
399 Income from operations $ 108 $ 159 $ 258 $ 393
Add: Adjustments to reconcile income from operations to Adjusted
EBITDA: Depreciation and amortization expense, excluding deferred
financing costs(1) 136 111 273 220 Major maintenance expense 43 40
98 102 Operating lease expense 11 11 22 23 Unrealized (gains)
losses on commodity derivative mark-to-market activity 31 108 (81 )
(17 ) Adjustments to reflect Adjusted EBITDA from unconsolidated
investments(2),(3) 8 (15 ) 15 (17 ) Stock-based compensation
expense 6 9 12 22 Non-cash loss (gain) on dispositions of assets (1
) 9 5 17 Conectiv acquisition-related costs & Other(4)
19 5 20 4 Adjusted
EBITDA from continuing operations 361 437 622 747 Adjusted EBITDA
from discontinued operations 20 20
41 41 Total adjusted EBITDA $ 381 $ 457
$ 663 $ 788 Less: Lease payments 11 11 22 23 Major maintenance
expense and capital expenditures(5) 55 76 146 199 Cash interest(6)
192 196 384 385 Cash taxes 6 1 8 (8 ) Other —
2
(1 ) 5 Adjusted Free Cash Flow(7)(8) $ 117 $
171 $ 104 $ 184
(1)
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.
(2)
Included in our Consolidated
Condensed Statements of Operations in income from unconsolidated
investments in power plants.
(3)
Adjustments to reflect Adjusted
EBITDA from unconsolidated investments include unrealized gains on
mark-to-market activity of nil and $26 million for the three months
ended June 30, 2010 and 2009, respectively, and nil and $41 million
for the six months ended June 30, 2010 and 2009, respectively.
(4)
Includes fees for letters of
credit. Includes Conectiv acquisition-related costs of $19 million
for the three and six months ended June 30, 2010.
(5)
Includes $43 million and $101
million in major maintenance expense for the three and six months
ended June 30, 2010, respectively, and $10 million and $42 million
in maintenance capital expenditures for the three and six months
ended June 30, 2010, respectively. Includes $40 million and $102
million in major maintenance expense for the three and six months
ended June 30, 2009, respectively, and $36 million and $97 million
in maintenance capital expenditures for the three and six months
ended June 30, 2009, respectively.
(6)
Includes commitment, letter of
credit and other bank fees from both consolidated and
unconsolidated investments, net of capitalized interest and
interest income.
(7)
Excludes decrease in working
capital of $141 million and $80 million for the three and six
months ended June 30, 2010 and $47 million and $29 million for the
three and six months ended June 30, 2009.
(8)
Adjusted Free Cash Flow, as
reported, excludes changes in working capital, such that it is
calculated on the same basis as our guidance. Results for the three
and six months ended June 30, 2009 have been recast to conform to
this method.
In the following table, we have reconciled our Adjusted EBITDA
to our Commodity Margin, both of which are non-GAAP measures, for
the three and six months ended June 30, 2010 and 2009.
Reconciliations for both Adjusted EBITDA and Commodity Margin to
comparable GAAP measures are provided above.
Three Months Ended June 30, Six Months
Ended June 30, 2010 2009 2010
2009 (in millions) Commodity Margin $ 533 $
624 $ 963 $ 1,128 Other revenue 19 5 22 11 Plant operating
expense(1) (168 ) (155 ) (323 ) (321 ) Other cost of revenue(2) (7
) (7 ) (16 ) (14 ) Sales, general and administrative expense(3) (27
) (38 ) (46 ) (74 ) Adjusted EBITDA from unconsolidated investments
in power plants(4) 14 9 28 24 Other operating expense (3 ) (6 ) (7
) (11 ) Adjusted EBITDA from discontinued operations(5) 20 20 41 41
Other — 5 1 4
Adjusted EBITDA $ 381 $ 457 $ 663 $ 788
(1)
Shown net of major maintenance
expense, stock-based compensation expense, and non-cash loss on
dispositions of assets.
(2)
Excludes $5 million and $2 million
of RGGI compliance and other environmental costs for the three
months ended June 30, 2010 and 2009, respectively, and $5 million
and $4 million for the six months ended June 30, 2010 and 2009,
respectively, which are included as a component of Commodity
Margin.
(3)
Shown net of depreciation and
amortization, stock-based compensation expense and
acquisition-related costs.
(4)
Amount is comprised of income from
unconsolidated investments in power plants, as well as adjustments
to reflect Adjusted EBTIDA from unconsolidated investments.
(5)
Includes Adjusted EBITDA from Blue
Spruce and Rocky Mountain.
Adjusted EBITDA and Adjusted Free Cash Flow Reconciliation
for Guidance
Full Year 2010 Range: Low High
(in millions) GAAP Net Income $ (45 ) $ 30 Plus: Interest
expense, net of interest income 800 800 Depreciation and
amortization expense 585 585 Major maintenance expense 185 185
Operating lease expense 45 45 Other(1) 80 80
Adjusted EBITDA $ 1,650 $ 1,725 Less: Operating lease payments 45
45 Major maintenance expense and maintenance capital
expenditures(2) 300 300 Cash interest, net(3) 815 815 Cash taxes
15 15 Adjusted Free Cash Flow $ 475 $
550
(1)
Other includes stock-based
compensation expense, adjustments to reflect Adjusted EBITDA from
unconsolidated investments, and other items.
(2)
Includes projected Major
Maintenance Expense of $180 million and maintenance Capital
Expenditures of $120 million. 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
six months ended June 30, 2010 and 2009:
Six Months Ended June 30, 2010
2009 (in millions) Beginning cash and cash
equivalents $ 989 $ 1,657 Net cash provided by (used
in): Operating activities 156 (36 ) Investing activities 138 (137 )
Financing activities (312 ) (2 ) Net decrease in cash
and cash equivalents (18 ) (175 ) Ending cash and
cash equivalents $ 971 $ 1,482
OPERATING PERFORMANCE METRICS
The table below shows the operating performance metrics for
continuing operations:
Three Months Ended June 30, Six
Months Ended June 30, 2010 2009
2010 2009 Total MWh generated (in thousands)
19,246 18,422 39,604 36,576 West 5,485
5,747 14,702 13,571 Texas 8,243 7,605 14,885 12,812 Southeast 4,222
3,957 7,647 7,836 North 1,296 1,113 2,370 2,357 Average
availability 87.7% 90.6% 89.0% 90.6% West 88.4% 90.7% 90.8% 89.9%
Texas 88.4% 90.7% 85.5% 89.5% Southeast 87.1% 87.7% 91.4% 90.9%
North 85.4% 96.0% 88.9% 94.0% Average capacity factor,
excluding peakers 42.5% 42.3% 44.3% 42.3% West 40.2% 46.0% 54.2%
54.9% Texas 52.4% 48.7% 47.8% 41.3% Southeast 35.3% 34.8% 32.8%
34.7% North 31.3% 26.3% 28.8% 28.6% Steam adjusted heat rate
(mmbtu/kWh) 7,306 7,274 7,266 7,239 West 7,359 7,458 7,298 7,340
Texas 7,222 7,132 7,169 7,086 Southeast 7,319 7,241 7,305 7,235
North 7,648 7,687 7,613 7,658
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