SAN JOSE, Calif., Aug. 1, 2002 — Calpine Corp. Thursday announced financial and operating results for the quarter ended June 30, 2002.
“2002 is proving to be one of the most — if not the most — challenging years for the U.S. power industry and for Calpine. Yet we continued to achieve new milestones as we execute the program that we outlined at the beginning of the year: focus on strengthening liquidity, efficiently operate our plants, complete projects currently under construction and reduce overhead and operating costs,” stated Calpine Chairman, CEO and President Peter Cartwright.
“In the quarter just ended, we made significant progress toward strengthening liquidity, while adding to our portfolio of clean, fuel- efficient power generating facilities. With our low-cost fleet, we continued to operate profitably despite low power prices.”
“Thanks to the hard work and dedication of our employees, we have, since the beginning of the year, brought on line ten new energy centers and completed three expansion projects, adding approximately 5,300 megawatts of clean, low-cost power generation.”
“On the liquidity front, Calpine raised $2.5 billion through major financings during the first six months of 2002, reduced capital spending and sold assets. We also have launched several new initiatives to strengthen Calpine’s cash resources and reduce our debt. We will only proceed with new projects that meet our stringent investment criteria, have long-term power sales contracts, and have access to attractive financing.”
2002 Second Quarter Financial Results
Financial results for the three and six months ended June 30, 2002 reflect a significant decrease in electricity prices, gas prices and spark spreads as compared with the same periods in 2001, primarily reflecting an increase in supply and a softened demand resulting from depressed economic activity. Declines in market prices for electricity were mitigated by the company’s volume of long-term contracts. The company did experience a significant drop in mark-to-market gains from trading activities, which reflects the company’s decision to limit this activity due to costs associated with credit support for trading.
Total electrical generating production for the three and six months ended June 30, 2002, increased by 99% and 101%, respectively, as the company brought additional facilities into operation. The combination of lower spark spreads on electrical generation, lower revenues on sales of oil and gas, and lower trading gains resulted in decreases of 16% and 25%, respectively, in gross profit for the three and six months ended June 30, 2002 as compared with the same periods in 2001. Calpine’s low-cost production, economies of scale and volume of long-term contracts mitigated the effect of the depressed power market.
For the three months ended June 30, 2002, fully diluted earnings per share from recurring operations was $0.19, compared with $0.39 for the second quarter of 2001. For the same periods, GAAP fully diluted earnings per share was $0.19 and $0.32 (after merger expense), respectively. For the six months ended June 30, 2002, fully diluted earnings per share from recurring operations was $0.30, compared with $0.75 for the six months ended June 30, 2001. For the same periods, GAAP fully diluted earnings (loss) per share was $(0.01) (after effects of pre-tax equipment cancellation costs of $168.5 million) and $0.68, respectively. Financial results for the second quarter of 2002 also reflect higher project development costs as the company expensed $18.1 million in costs related to the cancellation or indefinite suspension of certain development projects.
Industry-Leading Low-Cost Power Portfolio
Calpine remains committed to providing its customers with clean, reliable and low-cost electricity. The company’s highly efficient natural gas-fired and geothermal power plants represent the cleanest, most modern fleet of electric generating facilities in North America.
Calpine has slowed or suspended capital spending on a significant number of development projects. It remains focused on completing plants currently in construction and on projects that have attractive power sales contracts in place with access to financing. In addition, the company continues to reduce costs — including overhead, operating and capital — as it transitions from a development company to an operating company.
Calpine currently has 70 operating power plants that generate up to 16,300 megawatts of electricity. In 2004, upon completion of its revised construction program, Calpine expects to produce up to 28,500 megawatts of electricity from 95 power plants located in 23 states, three Canadian provinces and the United Kingdom.
Calpine Energy Services
Calpine Energy Services (CES) continues to execute on the company’s business model of entering long-term contracts directly with load-serving entities. CES remains focused on securing low-cost fuel to supply Calpine’s generating plants, selling electricity from its generating assets and optimizing the company’s portfolio.
Calpine currently has 125 power sales contracts in place with 80 major wholesale and industrial customers. These contracts represent $6.6 billion of above market value when discounted at 9% and have a seven-year weighted average life. Additional detailed information regarding the company’s long-term contracts can be found in part under the Supplemental Data and in full on the investor relations page of the company’s website at www.calpine.com.
The company continues to evaluate joint venture alliances for its energy services group and will only move forward if such alliance will add value for Calpine.
Calpine continues to take steps to strengthen its balance sheet and ensure sufficient liquidity for the company’s revised business plans.
Recent milestones since Calpine’s last quarterly update include:
— Funded and increased its two-year secured bank term loan to $1.0 billion from $600 million and reduced the size of its secured corporate revolving credit facilities to $1.0 billion from $1.4 billion; and
— Received BBB- investment grade rating on Calpine’s term loan and revolving credit facilities from Standard & Poor’s; assigned Ba3 ranking by Moody’s Investors Service.
The company reiterated its policy that only those projects with long-term power sales agreements in place and which will have access to financing will move into construction. Calpine will continue to carefully manage expenditures and plans to further reduce overhead and operating costs.
The company also stated that it is carefully evaluating alternatives with its major equipment suppliers that may enable Calpine to cancel or restructure its contracts for 89 turbines. A significant component of the company’s equipment currently on order consists of 112 “F-type” gas turbines for delivery between 2002 and 2007.
Revised 2002 Earnings Outlook
The company is updating its expectations for fully diluted earnings per share before non-recurring costs for the year ending December 31, 2002 to approximately $0.80 to $1.00 per share.
Fully diluted earnings per share for the quarters ending September 30, 2002 and December 31, 2002, are expected to be approximately $0.40 to $0.55 per share, and approximately $0.10 to $0.15 per share, respectively. These results primarily reflect lower than expected market prices and declining trading and optimization activity.
As previously discussed, the existing fully diluted earnings per share estimate of approximately $1.50 was primarily based on an expected recovery in depressed power prices, which has not materialized to date.
“While 2002 continues to be a challenging year for the entire power industry, we see opportunities and advantages that can flow to Calpine shareholders as a result of the underlying, long-term growth in electricity demand, combined with Calpine’s competitive fleet of highly efficient power plants — the cleanest, most modern plants in the United States,” said Cartwright.
“We continue to work in a systematic, disciplined fashion to adapt Calpine’s business strategies to ensure that we emerge from recently’s challenges better positioned to perform well through all phases of the economic cycle.”
Based in San Jose, Calif., Calpine Corporation is an independent power company that is dedicated to providing customers with clean, efficient, natural gas-fired power generation. It generates and markets power, through plants it develops, owns and operates, in 23 states in the United States, three provinces in Canada and in the United Kingdom. Calpine also is the world’s largest producer of renewable geothermal energy, and it owns 1.3 trillion cubic feet equivalent of proved natural gas reserves in Canada and the United States. The company was founded in 1984 and is publicly traded on the New York Stock Exchange under the symbol CPN. For more information about Calpine, visit its website at www.calpine.com.