Merger Approvals on Track for First Quarter
2018 Close
Calpine Corporation (NYSE: CPN):
Summary of Third Quarter 2017 Financial Results (in
millions):
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 %
Change 2017 2016 % Change
Operating Revenues $ 2,586 $ 2,355 9.8
%
$ 6,951 $ 5,134 35.4
%
Income from operations $ 393 $ 462 (14.9 )% $ 478 $ 605 (21.0 )%
Cash provided by operating activities $ 561 $ 542 3.5
%
$ 807 $ 667 21.0
%
Net Income (Loss)1 $ 225 $ 295 (23.7 )% $ (47 ) $ 68 NM Commodity
Margin2 $ 864 $ 820 5.4
%
$ 2,069 $ 2,057 0.6
%
Adjusted EBITDA2 $ 669 $ 632 5.9
%
$ 1,414 $ 1,458 (3.0 )% Adjusted Unlevered Free Cash Flow2 $ 604 $
549 10.0
%
$ 1,074 $ 1,139 (5.7 )% Adjusted Free Cash Flow2 $ 442 $ 383 15.4
%
$ 588 $ 643 (8.6 )% Weighted Average Shares Outstanding (diluted)
359 356 355 356
Calpine Corporation (NYSE: CPN) today reported Net Income1 of
$225 million, or $0.63 per diluted share, for the third quarter of
2017 compared to $295 million, or $0.83 per diluted share, in the
prior year period. The period-over-period decrease in Net Income
was primarily due to an unfavorable variance in mark-to-market
gain/loss, net, and increases in plant operating expense and
depreciation and amortization expense, partially offset by higher
Commodity Margin2 associated with retail as well as higher
regulatory capacity revenue. Cash provided by operating activities
for the third quarter of 2017 was $561 million compared to $542
million in the prior year period. The increase in cash provided by
operating activities in the third quarter of 2017 was primarily due
to an increase in income from operations, adjusted for non-cash
items.
Adjusted EBITDA2 for the third quarter of 2017 was $669 million
compared to $632 million in the prior year period. The increase in
Adjusted EBITDA was primarily due to higher Commodity Margin2,
largely driven by hedge revenues from our retail operations and
higher regulatory capacity revenue, partially offset by higher
plant operating expense primarily associated with our retail
acquisitions. Adjusted Unlevered Free Cash Flow2 for the third
quarter of 2017 was $604 million compared to $549 million in the
prior year period, and Adjusted Free Cash Flow2 was $442 million
compared to $383 million in the prior year period. The increases in
Adjusted Unlevered Free Cash Flow and Adjusted Free Cash Flow were
primarily driven by higher Adjusted EBITDA, as previously
discussed, and lower major maintenance expense and capital
expenditures due to the timing of our outage schedule.
Net Loss for the first nine months of 2017 was $47 million, or
$0.13 per diluted share, compared to Net Income of $68 million, or
$0.19 per diluted share in the prior year period. The
period-over-period decrease was primarily due to increases in plant
operating expense and depreciation and amortization expense
primarily associated with our retail acquisitions, partially offset
by an increase in Commodity Margin largely driven by our retail
acquisitions. Cash provided by operating activities for the first
nine months of 2017 was $807 million compared to $667 million in
the prior year period. The increase in cash provided by operating
activities in the first nine months of 2017 was primarily due to a
decrease in working capital employed resulting from the
period-over-period change in net margining requirements associated
with our commodity hedging activity, partially offset by a decrease
in income from operations, adjusted for non-cash items.
Adjusted EBITDA for the first nine months of 2017 was $1,414
million compared to $1,458 million in the prior year period. The
decrease in Adjusted EBITDA was primarily due to the receipt of a
$40 million natural gas transportation billing credit in the second
quarter of 2016 that did not recur in 2017, while retail
acquisitions offset a decline in our wholesale business. Adjusted
Unlevered Free Cash Flow for the first nine months of 2017 was
$1,074 million compared to $1,139 million in the prior year period,
and Adjusted Free Cash Flow was $588 million compared to $643
million in the prior year period. The decreases in Adjusted
Unlevered Free Cash Flow and Adjusted Free Cash Flow were primarily
driven by lower Adjusted EBITDA, as previously discussed, and
higher major maintenance expense and capital expenditures due to
the timing of our outage schedule.
“I am pleased to report that once again the Calpine team has
risen to meet significant challenges,” said Thad Hill, Calpine’s
President and Chief Executive Officer. “Since our last earnings
call, we endured Hurricane Harvey in Texas and the wildfires in
Northern California safely and without any material damage to our
facilities. I am particularly proud of team members on the front
lines who kept our plants and operations going in the face of
adversity. A number of our employees suffered personal losses, and
we continue to support them as they rebuild.
“As we look to the balance of this year, we remain committed to
achieving superior operational performance while we work to
complete the previously announced merger, which remains on target
for a first quarter of 2018 close.”
________
1 Reported as Net Income (Loss) attributable to Calpine on our
Consolidated Condensed Statements of Operations.
2 Non-GAAP financial measure, see “Regulation G Reconciliations”
for further details.
SUMMARY OF FINANCIAL
PERFORMANCE
Third Quarter Results
Adjusted EBITDA for the third quarter of 2017 was $669 million
compared to $632 million in the prior year period. The
year-over-year increase in Adjusted EBITDA was primarily related to
a $44 million increase in Commodity Margin, partially offset by a
$12 million increase in plant operating expense3, which was largely
driven by net portfolio changes including our retail acquisitions.
The increase in Commodity Margin was primarily due to:
+ increased contribution
from our retail hedging activity following the acquisitions of
Calpine Energy Solutions in December 2016 and North American Power
in January 2017 and + higher regulatory capacity revenue, partially
offset by – the net impact of our portfolio management activities,
including the sales of Mankato Power Plant in October 2016 and
Osprey Energy Center in January 2017, – lower market spark spreads
in the East, – lower fleetwide generation and – the expiration of a
PPA associated with our York Energy Center.
Adjusted Unlevered Free Cash Flow was $604 million in the third
quarter of 2017 compared to $549 million in the prior year period.
Adjusted Free Cash Flow was $442 million in the third quarter of
2017 compared to $383 million in the prior year period. Adjusted
Unlevered Free Cash Flow and Adjusted Free Cash Flow increased
primarily due to higher Adjusted EBITDA, as previously discussed,
and lower major maintenance expense and capital expenditures due to
outage timing.
Year-to-Date Results
Adjusted EBITDA for the first nine months of 2017 was $1,414
million compared to $1,458 million in the prior year period. The
year-over-year decrease in Adjusted EBITDA was primarily related to
the receipt of a $40 million natural gas transportation billing
credit in the second quarter of 2016 that did not recur in 2017,
while retail acquisitions offset a decline in our wholesale
business.
Commodity Margin for the first nine months of 2017 increased by
$12 million compared to the prior year period, primarily due
to:
+ increased contribution
from our retail hedging activity following the acquisitions of
Calpine Energy Solutions in December 2016 and North American Power
in January 2017 and + higher regulatory capacity revenue, partially
offset by – the receipt of a $40 million natural gas transportation
billing credit in the second quarter of 2016 that did not recur in
2017, – the net impact of our portfolio management activities,
including the sales of Mankato Power Plant in October 2016 and
Osprey Energy Center in January 2017, – lower market spark spreads
in the East, – lower fleetwide generation and – the expiration of a
PPA associated with our York Energy Center.
Adjusted Unlevered Free Cash Flow was $1,074 million for the
first nine months of 2017 compared to $1,139 million in the prior
year period. Adjusted Free Cash Flow was $588 million for the first
nine months of 2017 compared to $643 million in the prior year
period. Adjusted Unlevered Free Cash Flow and Adjusted Free Cash
Flow decreased primarily due to lower Adjusted EBITDA, as
previously discussed, and higher major maintenance expense and
capital expenditures due to outage timing.
__________
3 Increase in plant operating expense excludes changes in major
maintenance expense, stock-based compensation expense, non-cash
loss on disposition of assets and other costs. See the table titled
“Consolidated Adjusted EBITDA Reconciliation” for the actual
amounts of these items for the three and nine months ended
September 30, 2017 and 2016.
REGIONAL SEGMENT REVIEW OF
RESULTS
Table 1: Commodity Margin by Segment (in millions)
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
Variance 2017 2016
Variance West $ 327 $ 298 $ 29 $ 792 $ 749 $ 43 Texas 201
198 3 516 511 5 East 336 324 12 761 797
(36 ) Total $ 864 $ 820 $ 44 $ 2,069
$ 2,057 $ 12
West Region
Third Quarter: Commodity Margin in our West segment increased by
$29 million in the third quarter of 2017 compared to the prior year
period. Primary drivers were:
+ increased contribution
from the expansion of our retail hedging activity following the
acquisition of Calpine Energy Solutions in December 2016 and +
higher realized spark spreads during hours in which we generated,
particularly evening peak times, partially offset by – a decrease
in generation, primarily due to an extended outage at our Delta
Energy Center.
Year-to-Date: Commodity Margin in our West segment increased by
$43 million in the first nine months of 2017 compared to the prior
year period. Primary drivers were:
+ increased contribution
from the expansion of our retail hedging activity following the
acquisition of Calpine Energy Solutions in December 2016 and +
higher realized spark spreads during hours in which we generated,
particularly evening peak times, partially offset by – the receipt
of a $40 million natural gas transportation billing credit in the
second quarter of 2016 that did not recur in 2017 and – a decrease
in generation, primarily due to an increase in hydroelectric
generation in the region and an extended outage at our Delta Energy
Center.
Texas Region
Third Quarter: Commodity Margin in our Texas segment increased
by $3 million in the third quarter of 2017 compared to the prior
year period. Primary drivers were:
+ increased contribution
from hedges, partially offset by – a decrease in generation
resulting from milder weather, including the effect of Hurricane
Harvey during the third quarter of 2017, and the retirement of our
Clear Lake Power Plant in February 2017.
Year-to-Date: Commodity Margin in our Texas segment increased by
$5 million in the first nine months of 2017 compared to the prior
year period. Primary drivers were:
+ increased contribution
from hedges, partially offset by – a decrease in generation
primarily resulting from higher natural gas prices.
East Region
Third Quarter: Commodity Margin in our East segment increased
$12 million in the third quarter of 2017 compared to the prior year
period. Primary drivers were:
+ increased contribution
from hedges, including the expansion of retail hedging activity
following the acquisitions of Calpine Energy Solutions in December
2016 and North American Power in January 2017 and + higher
regulatory capacity revenue, partially offset by – the net impact
of portfolio management activities, including the sales of Mankato
Power Plant in October 2016 and Osprey Energy Center in January
2017, – the expiration of a PPA associated with our York Energy
Center in May 2017 and – lower market spark spreads.
Year-to-Date: Commodity Margin in our East segment decreased by
$36 million in the first nine months of 2017 compared to the prior
year period. Primary drivers were:
– the net impact of
portfolio management activities, including the sales of Mankato
Power Plant in October 2016 and Osprey Energy Center in January
2017, – the expiration of a PPA associated with our York Energy
Center in May 2017 and – lower market spark spreads, partially
offset by + increased contribution from the expansion of our retail
hedging activity following the acquisitions of Calpine Energy
Solutions in December 2016 and North American Power in January
2017, + higher regulatory capacity revenue and + the positive
effect of a new PPA associated with our Morgan Energy Center, which
became effective in February 2016.
LIQUIDITY, CASH FLOW AND CAPITAL
RESOURCES
Table 2: Liquidity (in
millions)
September 30, 2017 December 31, 2016
Cash and cash equivalents, corporate(1) $ 346 $ 345 Cash and cash
equivalents, non-corporate 80 73 Total cash and cash
equivalents 426 418 Restricted cash 222 188 Corporate Revolving
Facility availability(2) 1,316 1,255 CDHI letter of credit facility
availability 54 50 Total current liquidity availability(3) $
2,018 $ 1,911
____________
(1) Includes $19 million and $16 million of margin deposits
posted with us by our counterparties at September 30, 2017,
and December 31, 2016, respectively.
(2) Our ability to use availability under our Corporate
Revolving Facility is unrestricted.
(3) Our ability to use corporate cash and cash equivalents is
unrestricted. Our $300 million CDHI letter of credit facility is
restricted to support certain obligations under PPAs and power
transmission and natural gas transportation agreements.
Liquidity was approximately $2.0 billion as of
September 30, 2017. Cash and cash equivalents increased in the
first nine months of 2017 primarily due to cash provided by
operating activities, partially offset by net repayments of debt,
consistent with our announced plan to reduce leverage.
Table 3: Cash Flow Activities
(in millions)
Nine Months Ended September 30, 2017
2016 Beginning cash and cash equivalents $ 418 $ 906
Net cash provided by (used in): Operating activities 807 667
Investing activities (195 ) (841 ) Financing activities (604 ) (171
) Net increase (decrease) in cash and cash equivalents 8
(345 ) Ending cash and cash equivalents $ 426 $ 561
Cash provided by operating activities in the first nine months
of 2017 was $807 million compared to $667 million in the prior year
period. The year-over-year increase was primarily due to a decrease
in working capital employed resulting from the period-over-period
change in net margining requirements associated with our commodity
hedging activity, partially offset by a decrease in income from
operations, adjusted for non-cash items.
Cash used in investing activities was $195 million during the
first nine months of 2017 compared to $841 million in the prior
year period. The decrease was primarily related to acquisitions,
divestitures and capital expenditures. In the first quarter of
2017, we acquired North American Power for a net purchase price of
$111 million and sold Osprey Energy Center, receiving net proceeds
of $162 million. In the first quarter of 2016, we acquired Granite
Ridge Energy Center for a net purchase price of $526 million. There
was also a year-over-year decrease of $89 million in capital
expenditures, primarily due to lower expenditures on construction
projects during the first nine months of 2017 as compared to
2016.
Cash used in financing activities was $604 million during the
first nine months of 2017, primarily related to net repayment of
debt in accordance with our deleveraging plan.
Merger Agreement
On August 17, 2017, we entered into a merger agreement pursuant
to which Energy Capital Partners (ECP), along with an investor
consortium, will acquire Calpine for $15.25 per share in cash, or
approximately $5.6 billion. The agreement includes a 45-day “go
shop” period that expired on October 2, 2017, without a superior
offer having been identified. The transaction is subject to
approval by stockholders representing a majority of outstanding
shares of common stock of Calpine. In addition, the transaction is
subject to various regulatory proceedings before the Federal Energy
Regulatory Commission, New York Public Service Commission and
Public Utility Commission of Texas. The requisite waiting period
under the Hart-Scott-Rodino Act was terminated on September 27,
2017. We expect the transaction to close in the first quarter of
2018. For further information on the transaction and related merger
agreement, please refer to our Current Report on Form 8-K filed on
August 22, 2017 and our preliminary proxy statement filed on
October 19, 2017.
Additional Information and Where to Find It
This communication may be deemed solicitation material in
respect of the proposed acquisition of Calpine by ECP. This
communication does not constitute a solicitation of any vote or
approval. In connection with the proposed transaction, the Company
has filed a preliminary proxy statement and will file a definitive
proxy statement and other relevant documents with the SEC. The
definitive proxy statement (when available) will be mailed to the
Company’s stockholders. INVESTORS AND SECURITY HOLDERS ARE ADVISED
TO READ THE PRELIMINARY PROXY STATEMENT AND ANY OTHER DOCUMENTS,
INCLUDING THE DEFINITIVE PROXY STATEMENT, FILED WITH THE SEC IN
CONNECTION WITH THE PROPOSED TRANSACTION BEFORE MAKING ANY VOTING
OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors and
security holders may obtain a free copy of the proxy statement
(when available) and other documents filed by the Company with the
SEC from the SEC’s website at www.sec.gov. In addition, investors and security
holders may obtain free copies of the documents filed with the SEC
on the Company’s website at www.calpine.com/investor-relations.
Participants in the Solicitation
The Company and its directors and executive officers may be
deemed to be participants in the solicitation of proxies from the
Company’s stockholders in connection with the proposed transaction.
Investors and security holders may obtain more detailed information
regarding the names, affiliations and interests of the Company’s
directors and executive officers by reading the Company’s Annual
Report on Form 10-K, which was filed with the SEC on February 10,
2017, and proxy statement for its 2017 annual meeting of
stockholders, which was filed with the SEC on March 29, 2017.
Additional information regarding potential participants in such
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, are included in the
preliminary proxy statement filed with the SEC, and will be
included in the definitive proxy statement and other relevant
materials to be filed with the SEC when they become available.
ABOUT CALPINE
Calpine Corporation is America’s largest generator of
electricity from natural gas and geothermal resources with
operations in competitive power markets. Our fleet of 80 power
plants in operation or under construction represents approximately
26,000 megawatts of generation capacity. Through wholesale power
operations and our retail businesses Calpine Energy Solutions and
Champion Energy, we serve customers in 25 states, Canada and
Mexico. Our clean, efficient, modern and flexible fleet uses
advanced technologies to generate power in a low-carbon and
environmentally responsible manner. We are uniquely positioned to
benefit from the secular trends affecting our industry, including
the abundant and affordable supply of clean natural gas,
environmental regulation, aging power generation infrastructure and
the increasing need for dispatchable power plants to successfully
integrate intermittent renewables into the grid. Please visit
www.calpine.com to learn more about
how Calpine is creating power for a sustainable future.
Calpine’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017, has been filed with the Securities and Exchange
Commission (SEC) and is available on the SEC’s website at
www.sec.gov.
FORWARD-LOOKING
INFORMATION
In addition to historical information, this release contains
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act, and Section 21E of the Exchange Act.
Forward-looking statements may appear throughout this release. 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. We believe that the forward-looking
statements are based upon reasonable assumptions and expectations.
However, 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:
- Risks and uncertainties associated with
the Merger, including (i) any event that could give rise to
termination of the Merger Agreement or otherwise cause failure of
the Merger to close, (ii) failure to obtain requisite stockholder
or regulatory approval for the Merger, (iii) the effect of the
Merger on our relationships with customers and employees, (iv) the
effect of the Merger on our financial results and business and (v)
potential termination fees associated with the Merger Agreement and
other Merger-related fees and expenses incurred.
- Financial results that may be volatile
and may not reflect historical trends due to, among other things,
seasonality of demand, fluctuations in prices for commodities such
as natural gas and power, changes in U.S. macroeconomic conditions,
fluctuations in liquidity and volatility in the energy commodities
markets and our ability and extent to which we hedge risks;
- Laws, regulations and market rules in
the wholesale and retail markets in which we participate and our
ability to effectively respond to changes in laws, regulations or
market rules or the interpretation thereof including those related
to the environment, derivative transactions and market design in
the regions in which we operate;
- Our ability to manage our liquidity
needs, access the capital markets when necessary and comply with
covenants under our Senior Unsecured Notes, First Lien Notes, First
Lien Term Loans, Corporate Revolving Facility, CCFC Term Loans and
other existing financing obligations;
- Risks associated with the operation,
construction and development of power plants, including unscheduled
outages or delays and plant efficiencies;
- 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 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;
- Competition, including from renewable
sources of power, interference by states in competitive power
markets through subsidies or similar support for new or existing
power plants, and other risks associated with marketing and selling
power in the evolving energy markets;
- Structural changes in the supply and
demand of power resulting from the development of new fuels or
technologies and demand-side management tools (such as distributed
generation, power storage and other technologies);
- The expiration or early termination of
our PPAs and the related results on revenues;
- Future capacity revenue may not occur
at expected levels;
- Natural disasters, such as hurricanes,
earthquakes, droughts, wildfires and floods, acts of terrorism or
cyber-attacks that may affect our power plants or the markets our
power plants or retail operations serve and our corporate
offices;
- Disruptions in or limitations on the
transportation of natural gas or fuel oil and the transmission of
power;
- Our ability to manage our counterparty
and customer exposure and credit risk, including our commodity
positions;
- Our ability to attract, motivate and
retain key employees;
- Present and possible future claims,
litigation and enforcement actions that may arise from
noncompliance with market rules promulgated by the SEC, CFTC, FERC
and other regulatory bodies; and
- Other risks identified in this press
release, in our Quarterly Report on Form 10Q for the three months
ended September 30, 2017, in our Annual Report on Form 10-K for the
year ended December 31, 2016, and in other reports filed by us with
the SEC.
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 the
date of this release. 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 September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 (in millions, except share and
per share amounts) Operating revenues: Commodity revenue $
2,506 $ 2,063 $ 6,714 $ 5,199 Mark-to-market gain (loss) 76 287 224
(79 ) Other revenue 4 5 13 14 Operating
revenues 2,586 2,355 6,951 5,134
Operating expenses: Fuel and purchased energy expense: Commodity
expense 1,711 1,294 4,757 3,197 Mark-to-market (gain) loss 10
178 185 (57 ) Fuel and purchased energy
expense 1,721 1,472 4,942 3,140 Plant
operating expense 228 215 812 741 Depreciation and amortization
expense 179 161 542 490 Sales, general and other administrative
expense 37 33 117 106 Other operating expenses 23 18
63 55 Total operating expenses 2,188 1,899
6,476 4,532 Impairment losses 12 — 41 13
(Gain) on sale of assets, net — — (27 ) — (Income) from
unconsolidated subsidiaries (7 ) (6 ) (17 ) (16 ) Income from
operations 393 462 478 605 Interest expense 156 158 469 472 Debt
extinguishment costs 1 — 26 15 Other (income) expense, net 7
7 16 18 Income (loss) before income taxes 229
297 (33 ) 100 Income tax expense (benefit) (2 ) (4 ) — 17
Net income (loss) 231 301 (33 ) 83 Net income attributable
to the noncontrolling interest (6 ) (6 ) (14 ) (15 ) Net income
(loss) attributable to Calpine $ 225 $ 295 $ (47 ) $
68 Basic earnings (loss) per common share
attributable to Calpine: Weighted average shares of common stock
outstanding (in thousands) 355,442 354,215 355,164
353,929 Net income (loss) per common share
attributable to Calpine — basic $ 0.63 $ 0.83 $ (0.13
) $ 0.19 Diluted earnings (loss) per common share
attributable to Calpine: Weighted average shares of common stock
outstanding (in thousands) 358,844 356,352 355,164
355,980 Net income (loss) per common share
attributable to Calpine — diluted $ 0.63 $ 0.83 $
(0.13 ) $ 0.19
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE
SHEETS
(Unaudited)
September 30, December 31, 2017
2016 (in millions, except share and per share
amounts) ASSETS Current assets: Cash and cash
equivalents $ 426 $ 418 Accounts receivable, net of allowance of $9
and $6 935 839 Inventories 409 581 Margin deposits and other
prepaid expense 182 364 Restricted cash, current 196 173 Derivative
assets, current 206 221 Current assets held for sale — 210 Other
current assets 34 45 Total current assets 2,388 2,851
Property, plant and equipment, net 12,833 13,013 Restricted cash,
net of current portion 26 15 Investments in unconsolidated
subsidiaries 106 99 Long-term derivative assets 284 300 Goodwill
243 187 Intangible assets, net 552 650 Other assets 360 378
Total assets $ 16,792 $ 17,493
LIABILITIES
& STOCKHOLDERS’ EQUITY Current liabilities: Accounts
payable $ 756 $ 671 Accrued interest payable 129 125 Debt, current
portion 369 748 Derivative liabilities, current 113 138 Other
current liabilities 427 523 Total current liabilities
1,794 2,205 Debt, net of current portion 11,281 11,431 Long-term
derivative liabilities 103 149 Other long-term liabilities 291
369 Total liabilities 13,469 14,154
Commitments and contingencies Stockholders’ equity: Preferred
stock, $0.001 par value per share; authorized 100,000,000 shares,
none issued and outstanding — — Common stock, $0.001 par value per
share; authorized 1,400,000,000 shares, 361,695,622 and 359,627,113
shares issued, respectively, and 360,613,587 and 359,061,764 shares
outstanding, respectively — — Treasury stock, at cost, 1,082,035
and 565,349 shares, respectively (13 ) (7 ) Additional paid-in
capital 9,652 9,625 Accumulated deficit (6,260 ) (6,213 )
Accumulated other comprehensive loss (135 ) (137 ) Total Calpine
stockholders’ equity 3,244 3,268 Noncontrolling interest 79
71 Total stockholders’ equity 3,323 3,339
Total liabilities and stockholders’ equity $ 16,792 $ 17,493
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 2017
2016 (in million) Cash flows from operating
activities: Net income (loss) $ (33 ) $ 83 Adjustments to reconcile
net income (loss) to net cash provided by operating activities:
Depreciation and amortization(1) 691 659 Debt extinguishment costs
8 15 Income taxes 12 15 Impairment losses 41 13 Gain on sale of
assets, net (27 ) — Mark-to-market activity, net (40 ) 21 (Income)
from unconsolidated subsidiaries (17 ) (16 ) Return on investments
from unconsolidated subsidiaries 22 19 Stock-based compensation
expense 31 23 Other (4 ) 1 Change in operating assets and
liabilities, net of effects of acquisitions: Accounts receivable
(86 ) (168 ) Derivative instruments, net (10 ) (154 ) Other assets
60 1 Accounts payable and accrued expenses 95 53 Other liabilities
64 102 Net cash provided by operating activities 807
667 Cash flows from investing activities: Purchases
of property, plant and equipment (248 ) (337 ) Proceeds from sale
of Osprey Energy Center 162 — Purchase of Granite Ridge Energy
Center — (526 ) Purchase of North American Power, net of cash
acquired (111 ) — (Increase) decrease in restricted cash (33 ) 2
Other 35 20 Net cash used in investing activities $
(195 ) $ (841 ) Cash flows from financing activities: Borrowings
under First Lien Term Loans $ 396 $ 556 Repayment of CCFC Term
Loans and First Lien Term Loans (435 ) (1,220 ) Repurchase of First
Lien Notes (453 ) — Borrowings under First Lien Notes — 625
Repayments of project financing, notes payable and other (90 ) (98
) Distribution to noncontrolling interest holder (8 ) — Financing
costs (9 ) (27 ) Shares repurchased for tax withholding on
stock-based awards (6 ) (5 ) Other 1 (2 ) Net cash used in
financing activities (604 ) (171 ) Net increase (decrease) in cash
and cash equivalents 8 (345 ) Cash and cash equivalents, beginning
of period 418 906 Cash and cash equivalents, end of
period $ 426 $ 561 Cash paid during the period
for: Interest, net of amounts capitalized $ 412 $ 421 Income taxes
$ 10 $ 10
Supplemental disclosure of non-cash investing
and financing activities: Change in capital expenditures
included in accounts payable $ 14 $ (4 ) Purchase of King City
Cogeneration Plant lease(2) $ 15 $ —
__________
(1) Includes amortization recorded in Commodity revenue and
Commodity expense associated with intangible assets and
amortization recorded in interest expense associated with debt
issuance costs and discounts.
(2) On April 3, 2017, we completed the purchase of the King City
Cogeneration Plant lease in exchange for a three-year promissory
note with a discounted value of $57 million. We recorded a net
increase to property, plant and equipment, net on our Consolidated
Condensed Balance Sheet of $15 million due to the increased value
of the promissory note as compared to the carrying value of the
lease.
REGULATION G RECONCILIATIONS
In addition to disclosing financial results in accordance with
U.S. GAAP, the accompanying third quarter 2017 earnings release
contains non-GAAP financial measures. Commodity Margin, Adjusted
Free Cash Flow, Adjusted Unlevered Free Cash Flow and Adjusted
EBITDA are non-GAAP financial measures that we use as measures of
our performance and liquidity. These non-GAAP measures should be
viewed as a supplement to and not a substitute for our U.S. GAAP
measures of performance and liquidity, and the financial results
calculated in accordance with U.S. GAAP and reconciliations from
these results should be carefully evaluated.
Commodity Margin includes revenues recognized on our
wholesale and retail power sales activity, electric capacity sales,
renewable energy credit sales, steam sales, realized settlements
associated with our marketing, hedging, optimization and trading
activity, fuel and purchased energy expenses, commodity
transmission and transportation expenses and environmental
compliance expenses. We believe that Commodity Margin is a useful
tool for assessing the performance of our core operations and is a
key operational measure reviewed by our chief operating decision
maker. Commodity Margin is not a measure calculated in accordance
with U.S. GAAP and should be viewed as a supplement to and not a
substitute for our results of operations presented in accordance
with U.S. GAAP. Commodity Margin does not intend to represent
income (loss) from operations, the most comparable U.S. GAAP
measure, as an indicator of operating performance and is not
necessarily comparable to similarly titled measures reported by
other companies.
Adjusted Free Cash Flow represents cash flows from
operating activities including the effects of maintenance capital
expenditures, adjustments to reflect the Adjusted Free Cash Flow
from unconsolidated investments and to exclude the noncontrolling
interest and other miscellaneous adjustments such as the effect of
changes in working capital. Adjusted Unlevered Free Cash
Flow is calculated on the same basis as Adjusted Free Cash Flow
but excludes the effect of cash interest, net, and operating lease
payments, thus capturing the performance of our business
independent of its capital structure. Adjusted Free Cash Flow and
Adjusted Unlevered Free Cash Flow are presented because we believe
they are useful measures of liquidity to assist in comparing
financial results from period to period on a consistent basis and
to readily view operating trends, as measures for planning and
forecasting overall expectations and for evaluating actual results
against such expectations and in communications with our Board of
Directors, shareholders, creditors, analysts and investors
concerning our financial results. Adjusted Free Cash Flow and
Adjusted Unlevered Free Cash Flow are liquidity measures and are
not intended to represent cash flows from operations, the most
directly comparable U.S. GAAP measure, and are not necessarily
comparable to similarly titled measures reported by other
companies.
Adjusted EBITDA represents net loss attributable to
Calpine before net (income) attributable to the noncontrolling
interest, interest, taxes, depreciation and amortization, and is
also adjusted for the effects of impairment losses, gains or losses
on sales, dispositions or retirements of assets, any mark-to-market
gains or losses from accounting for derivatives, adjustments to
exclude the Adjusted EBITDA related to the noncontrolling interest,
stock-based compensation expense, operating lease expense, non-cash
gains and losses from foreign currency translations, major
maintenance expense, gains or losses on the repurchase,
modification or extinguishment of debt, non-cash GAAP-related
adjustments to levelize revenues from tolling agreements and any
unusual or non-recurring items plus adjustments to reflect the
Adjusted EBITDA from our unconsolidated investments. We adjust for
these items in our Adjusted EBITDA as our management believes that
these items would distort their ability to efficiently view and
assess our core operating trends. We believe that investors
commonly adjust EBITDA information to eliminate the effects of
restructuring and other expenses, which vary widely from company to
company and impair comparability. Adjusted EBITDA is not intended
to represent net income (loss) as defined by U.S. GAAP as an
indicator of operating performance and is not necessarily
comparable to similarly titled measures reported by other
companies. We are presenting Adjusted EBITDA along with a
reconciliation to Adjusted Unlevered Free Cash Flow to demonstrate
the relationship between our traditional performance measure,
Adjusted EBITDA, and our recently introduced liquidity measure,
Adjusted Unlevered Free Cash Flow.
Commodity Margin Reconciliation
The following tables reconcile income (loss) from operations to
Commodity Margin for the three and nine months ended September 30,
2017 and 2016 (in millions):
Three Months Ended September 30, 2017
Consolidation And West
Texas East Elimination Total Income
from operations $ 118 $ 117 $ 158 $ — $ 393 Add: Plant operating
expense 83 77 75 (7 ) 228 Depreciation and amortization expense 63
61 55 — 179 Sales, general and other administrative expense 10 16
10 1 37 Other operating expenses 13 6 6 (2 ) 23 Impairment losses —
12 — — 12 (Income) from unconsolidated subsidiaries — — (7 ) — (7 )
Less: Mark-to-market commodity activity, net and other(1) (40 ) 88
(39 ) (8 ) 1 Commodity Margin $ 327 $ 201
$ 336 $ — $ 864
Three
Months Ended September 30, 2016
Consolidation And West Texas
East Elimination Total Income from operations
$ 157 $ 175 $ 130 $ — $ 462 Add: Plant operating expense 79 65 78
(7 ) 215 Depreciation and amortization expense 56 53 52 — 161
Sales, general and other administrative expense 9 13 12 (1 ) 33
Other operating expenses 8 2 7 1 18 (Income) from unconsolidated
subsidiaries — — (6 ) — (6 ) Less: Mark-to-market commodity
activity, net and other(1) 11 110 (51 ) (7 ) 63
Commodity Margin $ 298 $ 198 $ 324 $ —
$ 820
Nine Months Ended September
30, 2017 Consolidation
And West Texas East Elimination
Total Income (loss) from operations $ 222 $ (4 ) $ 260 $ — $
478 Add: Plant operating expense 291 282 260 (21 ) 812 Depreciation
and amortization expense 189 187 166 — 542 Sales, general and other
administrative expense 31 54 31 1 117 Other operating expenses 30
12 23 (2 ) 63 Impairment losses 28 13 — — 41 (Gain) on sale of
assets, net — — (27 ) — (27 ) (Income) from unconsolidated
subsidiaries — — (17 ) — (17 ) Less: Mark-to-market commodity
activity, net and other(2) (1 ) 28 (65 ) (22 ) (60 )
Commodity Margin $ 792 $ 516 $ 761 $ —
$ 2,069
Nine Months Ended September 30,
2016 Consolidation
And West Texas East Elimination
Total Income from operations $ 245 $ 74 $ 285 $ 1 $ 605 Add:
Plant operating expense 268 236 258 (21 ) 741 Depreciation and
amortization expense 168 159 163 — 490 Sales, general and other
administrative expense 27 43 36 — 106 Other operating expenses 23 6
27 (1 ) 55 Impairment losses 13 — — — 13 (Income) from
unconsolidated subsidiaries — — (16 ) — (16 ) Less: Mark-to-market
commodity activity, net and other(2) (5 ) 7 (44 ) (21 ) (63
) Commodity Margin $ 749 $ 511 $ 797 $ —
$ 2,057
_________
(1) Includes $33 million and $40 million of lease levelization
and $39 million and $25 million of amortization expense for the
three months ended September 30, 2017 and 2016,
respectively.
(2) Includes $(13) million and $(2) million of lease
levelization and $143 million and $79 million of amortization
expense for the nine months ended September 30, 2017 and 2016,
respectively.
Consolidated Adjusted EBITDA Reconciliation
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 nine months ended September 30, 2017 and 2016.
Reconciliations for both Adjusted EBITDA and Commodity Margin to
comparable U.S. GAAP measures are provided herein. Amounts below
are shown exclusive of the noncontrolling interest (in
millions):
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 Commodity Margin $ 864 $ 820 $ 2,069
$ 2,057 Other revenue 4 4 12 13 Plant operating expense(1) (175 )
(163 ) (578 ) (524 ) Sales, general and administrative expense(2)
(31 ) (31 ) (101 ) (95 ) Other operating expenses(3) (8 ) (12 ) (33
) (37 ) Adjusted EBITDA from unconsolidated investments in power
plants 15 14 44 45 Other — — 1 (1 ) Adjusted
EBITDA $ 669 $ 632 $ 1,414 $ 1,458
_________
(1) Shown net of major maintenance expense, stock-based
compensation expense, non-cash loss on dispositions of assets and
other costs.
(2) Shown net of stock-based compensation expense and other
costs.
(3) Shown net of operating lease expense, amortization and other
costs.
In the following table, we have reconciled our net income (loss)
attributable to Calpine to Adjusted EBITDA for the three and nine
months ended September 30, 2017 and 2016, as reported under U.S.
GAAP (in millions). We also reconciled Adjusted EBITDA to Adjusted
Unlevered Free Cash Flow to demonstrate the relationship between
our traditional performance measure, Adjusted EBITDA, and our new
liquidity measure, Adjusted Unlevered Free Cash Flow.
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 Net income (loss) attributable to
Calpine $ 225 $ 295 $ (47 ) $ 68 Net income attributable to the
noncontrolling interest 6 6 14 15 Income tax expense (benefit) (2 )
(4 ) — 17 Debt extinguishment costs and other (income) expense, net
8 7 42 33 Interest expense 156 158 469 472
Income from operations $ 393 $ 462 $ 478 $ 605 Add: Adjustments to
reconcile income from operations to Adjusted EBITDA: Depreciation
and amortization expense, excluding deferred financing costs(1) 178
160 538 499 Major maintenance expense 38 43 187 186 Operating lease
expense 6 6 19 19 Mark-to-market (gain) loss on commodity
derivative activity (66 ) (109 ) (39 ) 22 Impairment loss 12 — 41 —
(Gain) on sale of assets, net — — (27 ) — Adjustments to reflect
Adjusted EBITDA from unconsolidated investments and exclude the
noncontrolling interest(2) (4 ) (4 ) 8 8 Stock-based compensation
expense 11 6 31 23 Loss on dispositions of assets 2 1 4 6 Contract
amortization 39 25 143 79 Other 60 42 31 11
Total Adjusted EBITDA $ 669 $ 632 $ 1,414 $
1,458 Less: Major maintenance expense and capital expenditures(3)
69 84 329 311 Cash taxes (7 ) (1 ) 1 7 Other 3 — 10
1 Adjusted Unlevered Free Cash Flow $ 604 $ 549
$ 1,074 $ 1,139 Less: Cash interest, net(4) 156 160
467 477 Operating lease payments 6 6 19 19
Adjusted Free Cash Flow(5) $ 442 $ 383 $ 588 $
643 Weighted Average Shares Outstanding (diluted) 359 356 355 356
____________
(1) Excludes depreciation and amortization expense attributable
to the non-controlling interest.
(2) Adjustments to reflect Adjusted EBITDA from unconsolidated
investments include (gain) loss on mark-to-market activity of nil
for each of the three and nine months ended September 30, 2017
and 2016.
(3) Includes $39 million and $190 million in major maintenance
expense for the three and nine months ended September 30, 2017,
respectively, and $30 million and $139 million in maintenance
capital expenditures for the three and nine months ended September
30, 2017, respectively. Includes $45 million and $191 million in
major maintenance expenditures for the three and nine months ended
September 30, 2016, respectively, and $39 million and $120 million
in maintenance capital expenditures for the three and nine months
ended September 30, 2016, respectively.
(4) Includes commitment, letter of credit and other bank fees
from both consolidated and unconsolidated investments, net of
capitalized interest and interest income.
(5) Adjusted Free Cash Flow, as reported, excludes changes in
working capital.
Adjusted Unlevered Free Cash Flow Reconciliation
In the following table, we have reconciled our cash flows from
operating activities to our Adjusted Free Cash Flow and Adjusted
Unlevered Free Cash Flow for the three and nine months ended
September 30, 2017 and 2016 (in millions).
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 Net cash provided by operating
activities $ 561 $ 542 $ 807 $ 667 Add: Maintenance capital
expenditures(1) (30 ) (39 ) (139 ) (120 ) Tax differences 3 (7 )
(13 ) (5 ) Adjustments to reflect Adjusted Free Cash Flow from
unconsolidated investments and exclude the non-controlling interest
(6 ) (3 ) (6 ) (5 ) Capitalized corporate interest (7 ) (5 ) (20 )
(14 ) Changes in working capital(2) (141 ) (150 ) (95 ) 101
Other(3) 62 45 54 19 Adjusted Free Cash
Flow $ 442 $ 383 $ 588 $ 643 Add: Cash
interest, net(4) 156 160 467 477 Operating lease payments 6
6 19 19 Adjusted Unlevered Free Cash Flow $
604 $ 549 $ 1,074 $ 1,139 Net
cash used in investing activities $ (144 ) $ (165 ) $ (195 ) $ (841
) Net cash used in financing activities $ (285 ) $ (31 ) $ (604 ) $
(171 )
Supplemental disclosure of cash activities:
Major maintenance expense and maintenance capital expenditures(5) $
69 $ 84 $ 329 $ 311 Cash taxes $ (7 ) $ (1 ) $ 1 $ 7 Other $ 3 $ —
$ 10 $ 1
_________
(1) Maintenance capital expenditures exclude major construction
and development projects.
(2) Adjustment excludes $(18) million and $20 million in
amortization of acquired derivatives contracts for the three months
ended September 30, 2017 and 2016, respectively, and $(28)
million and $65 million in amortization of acquired derivatives
contracts for the nine months ended September 30, 2017 and
2016, respectively.
(3) Other primarily represents miscellaneous items excluded from
Adjusted Free Cash Flow that are included in cash flow from
operations.
(4) Includes commitment, letter of credit and other bank fees
from both consolidated and unconsolidated investments, net of
capitalized interest and interest income.
(5) Includes $39 million and $190 million in major maintenance
expense for the three and nine months ended September 30, 2017,
respectively, and $30 million and $139 million in maintenance
capital expenditures for the three and nine months ended September
30, 2017, respectively. Includes $45 million and $191 million in
major maintenance expenditures for the three and nine months ended
September 30, 2016, respectively, and $39 million and $120 million
in maintenance capital expenditures for the three and nine months
ended September 30, 2016, respectively.
OPERATING PERFORMANCE METRICS
The table below shows the operating performance metrics for the
periods presented:
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 Total MWh generated (in
thousands)(1)(2) 28,834 33,552 71,507 84,032 West 6,989 8,343
16,061 19,796 Texas 12,959 13,670 33,166 37,306 East 8,886 11,539
22,280 26,930 Average availability(2) 95.1 % 97.3 % 88.2 %
90.9 % West 93.5 % 98.9 % 84.1 % 91.6 % Texas 95.7 % 97.0 % 88.9 %
90.8 % East 95.8 % 96.5 % 90.5 % 90.7 % Average capacity
factor, excluding peakers 57.4 % 62.6 % 48.3 % 53.4 % West 45.4 %
54.5 % 35.2 % 43.5 % Texas 66.3 % 67.4 % 57.2 % 61.7 % East 58.1 %
64.3 % 50.0 % 52.4 % Steam adjusted heat rate (Btu/kWh)(2)
7,407 7,333 7,362 7,307 West 7,351 7,213 7,383 7,276 Texas 7,235
7,142 7,144 7,113 East 7,714 7,660 7,692 7,614
________
(1) Excludes generation from unconsolidated power plants and
power plants owned but not operated by us.
(2) Generation, average availability and steam adjusted heat
rate exclude power plants and units that are inactive.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171101005338/en/
Calpine CorporationMedia Relations:Brett Kerr,
713-830-8809brett.kerr@calpine.comorInvestor
Relations:Bryan Kimzey,
713-830-8777bryan.kimzey@calpine.com
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