Calpine Reports Second Quarter 2013 Results, Reaffirms 2013 Adjusted Free Cash Flow Per Share Guidan

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Calpine Reports Second Quarter 2013 Results, Reaffirms 2013 Adjusted Free Cash Flow Per Share Guidance, Tightens 2013 Adjusted EBITDA and Free Cash Flow Guidance Ranges

HOUSTON--(BUSINESS WIRE)-- Calpine Corporation (NYS: CPN) :

Summary of Second Quarter 2013 Financial Results (in millions, except per share amounts):

 Three Months Ended June 30, Six Months Ended June 30,
2013 2012 % Change2013 2012 % Change
 
Operating Revenues$1,572$87978.8%$2,813$2,11533.0%
Commodity Margin$533$609(12.5)%$994$1,126(11.7)%
Adjusted EBITDA$343$403(14.9)%$629$728(13.6)%
Adjusted Free Cash Flow$38$87(56.3)%$(5)$60(108.3)%
Per Share (diluted)$0.08$0.19(57.9)%$(0.01)$0.13(107.7)%
Net Loss1$(70)$(329)$(195)$(338)
Per Share (diluted)$(0.16)$(0.69)$(0.43)$(0.71)
Net Income (Loss), As Adjusted2$(33)$14$(103)$(51)
 

2013 Full Year Guidance (in millions, except per share amounts):

Prior Guidance (as of May 2, 2013) Current Guidance
 
Adjusted EBITDA$1,800 - 1,960$1,800 - 1,875
Adjusted Free Cash Flow$615 - 775$640 - 715
Per Share Estimate (diluted)$1.50$1.50
 

Recent Achievements:

  • Operations:
    — Generated approximately 23 million MWh3 of electricity in the second quarter of 2013
    — Achieved record-low second quarter fleetwide forced outage factor: 1.6%
    — Delivered exceptional second quarter fleetwide starting reliability: 99%
  • Commercial:
    — Entered into three-year PPA with South Carolina Electric and Gas to provide 200 MW of power from our Columbia Energy Center commencing in January 2014
    — Entered into two new resource adequacy contracts with Pacific Gas and Electric Company for our Delta and Sutter Energy Centers for the full capacity of each plant, commencing in January and June 2014, respectively
    — Entered into two new contracts with Marin Energy Authority to provide up to 10 MW of renewable power from our Geysers assets
  • Capital Management:
    — Completed $400 million share repurchase authorization, bringing the cumulative total of shares repurchased to $1 billion, or approximately 11% of our outstanding shares4
    — Refinanced our CCFC notes and Corporate Revolver, providing material interest savings and extending maturities

Calpine Corporation (NYS: CPN) today reported second quarter 2013 Adjusted EBITDA of $343 million, compared to $403 million in the prior year period, and Adjusted Free Cash Flow of $38 million, or $0.08 per diluted share, compared to $87 million, or $0.19 per diluted share, in the prior year period. Net Loss1 for the second quarter of 2013 was $70 million, or $0.16 per diluted share, compared to $329 million, or $0.69 per diluted share, in the prior year period. Net Loss, As Adjusted2, for the second quarter of 2013 was $33 million compared to Net Income, As Adjusted2, of $14 million in the prior year period. The declines in Adjusted EBITDA, Adjusted Free Cash Flow and Net Income, As Adjusted2, in the second quarter of 2013 compared to the prior year period were driven primarily by lower Commodity Margin, largely as a result of changes in our portfolio, milder weather and lower generation due to the reversal in 2013 of the coal-to-gas switching that we benefited from during the first half of 2012.

Year-to-date 2013 Adjusted EBITDA was $629 million, compared to $728 million in the prior year period, and Adjusted Free Cash Flow was $(5) million, or $(0.01) per diluted share, compared to $60 million, or $0.13 per diluted share, in the prior year period. Net Loss1 for the first half of 2013 was $195 million, or $0.43 per diluted share, compared to $338 million, or $0.71 per diluted share, in the prior year period. Net Loss, As Adjusted2, for the first half of 2013 was $103 million compared to $51 million in the prior year period. The declines in year-to-date 2013 Adjusted EBITDA, Adjusted Free Cash Flow and Net Income, As Adjusted2, compared to the prior year period were primarily due to the same factors that drove comparative performance for the second quarter, as previously discussed.

"We remain steadfastly focused on positioning Calpine to take advantage of the secular shift in the U.S. power generation industry to clean, efficient and dispatchable combined-cycle gas turbines," said Jack Fusco, Calpine's Chief Executive Officer.

"Today, we are reaffirming our Adjusted Free Cash Flow Per Share guidance of $1.50 for 2013, despite challenging market conditions during the first half of this year. Our second quarter and year-to-date results reflect milder weather this year, as well as the sale of two contracted power plants late last year. We expect these headwinds to be offset during the balance of the year by higher regulatory capacity revenues in PJM, the commencement of operations at our two new contracted plants in California and the acquisition of Bosque Energy Center in Texas. Our hedge position in the second half of the year also allows us to benefit from any improved conditions in our markets.

"Meanwhile, we continue to proactively enhance shareholder value through commercial origination and capital allocation. We recently signed new multiyear capacity contracts for 1,645 MW in California and the Southeast as we continue to identify solutions for our customers. In addition, we expect to bring approximately 900 MW of contracted capacity on-line in California during the third quarter. Construction is also advancing on our two expansion projects in Texas with in-service expected next summer, and we recently broke ground on our new 309 MW plant in Delaware. Finally, we recently completed our $1 billion of share repurchase authorizations, demonstrating our commitment to returning capital to our shareholders."

SUMMARY OF FINANCIAL PERFORMANCE

Second Quarter Results

Adjusted EBITDA for the second quarter of 2013 was $343 million, compared to $403 million in the prior year period. The year-over-year decrease in Adjusted EBITDA was primarily due to a $76 million decrease in Commodity Margin, partially offset by a $15 million decrease in plant operating expense5. The decrease in Commodity Margin was primarily due to:

      - the sale of Broad River and Riverside Energy Centers, partially offset by the acquisition of Bosque Energy Center in the fourth quarter of 2012
 
-weaker market conditions due to milder weather, an increase in wind generation in Texas and higher natural gas prices primarily in our Texas, North and Southeast segments in the second quarter of 2013 compared to the prior year period and
 
-lower contribution from hedges, partially offset by
 
+higher regulatory capacity revenue in the North and
 
+higher revenue from a tolling contract in our West segment that became effective in January 2013.

The offsetting decrease in plant operating expense5 was primarily due to lower equipment failure costs and other miscellaneous expenses.

Net Loss1 was $70 million for the second quarter of 2013, compared to a Net Loss1 of $329 million in the prior year period. As detailed in Table 1, Net Loss, As Adjusted2, was $33 million in the second quarter of 2013 compared to Net Income, As Adjusted2, of $14 million in the prior year period. The year-over-year decline was driven largely by:

      - lower Commodity Margin, as previously discussed, partially offset by
 
+lower plant operating expense, as previously discussed, and
 
+lower interest expense associated with a decrease in our annual effective interest rate as a result of the refinancing activities completed during the fourth quarter of 2012 and first half of 2013.

Adjusted Free Cash Flow was $38 million in the second quarter of 2013 compared to $87 million in the prior year period. Adjusted Free Cash Flow decreased during the period primarily due to a decrease in Adjusted EBITDA, as previously discussed. Partially offsetting this decline was lower interest expense, as previously discussed.

Year-to-Date Results

Adjusted EBITDA for the six months ended June 30, 2013, was $629 million compared to $728 million in the prior year period. The year-over-year decrease in Adjusted EBITDA was primarily due to a $132 million decrease in Commodity Margin, partially offset by a $31 million decrease in plant operating expense5. The decrease in Commodity Margin was primarily due to:

      - the sale of Broad River and Riverside Energy Centers, partially offset by the acquisition of Bosque Energy Center in the fourth quarter of 2012
 
-weaker market conditions due to milder weather, an increase in wind generation in Texas and higher natural gas prices primarily in our Texas, North and Southeast segments in the first half of 2013 compared to the prior year period and
 
-lower contribution from hedges, partially offset by
 
+higher regulatory capacity revenue in the North and
 
+higher revenue from a tolling contract in our West segment that became effective in January 2013.

The offsetting decrease in plant operating expense5 was primarily due to the reversal of previously recognized regulatory fees for which we determined that we have no obligation, as well as lower equipment failure costs.

Net Loss1 was $195 million for the six months ended June 30, 2013, compared to $338 million in the prior year period. As detailed in Table 1, Net Loss, As Adjusted2, was $103 million in the six months ended June 30, 2013, compared to $51 million in the prior year period. The year-over-year change in Net Loss, As Adjusted2, was driven largely by:

      - lower Commodity Margin, as previously discussed, and
 
-higher depreciation and amortization expense primarily resulting from our acquisition of our Bosque Energy Center, partially offset by
 
+an increase in various state and foreign jurisdiction income tax benefits and
 
+lower interest expense associated with a decrease in our annual effective interest rate, as previously discussed.

Adjusted Free Cash Flow was $(5) million for the six months ended June 30, 2013, compared to $60 million in the prior year period. Adjusted Free Cash Flow decreased during the period primarily due to the same factors that drove comparative performance for the second quarter, as previously discussed.

__________

1 Reported as net loss attributable to Calpine on our Consolidated Condensed Statements of Operations.

2 Refer to Table 1 for further detail of Net Income (Loss), As Adjusted.

3 Includes generation from power plants owned but not operated by Calpine and our share of generation from unconsolidated power plants.

4 Based upon shares outstanding (including shares held in reserve) as of June 30, 2011, immediately prior to the initial announcement of the repurchase program.

5 Decrease 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 six months ended June 30, 2013 and 2012.

  

Table 1: Net Income (Loss), As Adjusted

 
Three Months Ended June 30,Six Months Ended June 30,
2013 20122013 2012
(in millions)(in millions)
Net loss attributable to Calpine$(70)$(329)$(195)$(338)
Debt extinguishment costs(1)686812
Unrealized MtM (gain) loss on derivatives(1) (2)(31)34324119
Other items (1) (3)   156 
Net Income (Loss), As Adjusted(4)$(33)$14 $(103)$(51)

__________

(1) Shown net of tax, assuming a 0% effective tax rate for these items.

(2) In addition to changes in market value on derivatives not designated as hedges, changes in unrealized (gain) loss also includes de-designation of interest rate swap cash flow hedges and related reclassification from AOCI into earnings, hedge ineffectiveness and adjustments to reflect changes in credit default risk exposure.

(3) Other items include realized mark-to-market losses associated with the settlement of non-hedged interest rate swaps totaling nil and $156 million for the three and six months ended June 30, 2012.

(4) See "Regulation G Reconciliations" for further discussion of Net Income (Loss), As Adjusted.

 

REGIONAL SEGMENT REVIEW OF RESULTS

 

Table 2: Commodity Margin by Segment (in millions)

  
Three Months Ended June 30,Six Months Ended June 30,
2013 2012 Variance2013 2012 Variance
West$198$210$(12)$400$418$(18)
Texas133145(12)209254(45)
North159181(22)301325(24)
Southeast43 73 (30)84 129 (45)
Total$533 $609 $(76)$994 $1,126 $(132)
 

West Region

Second Quarter: Commodity Margin in our West segment decreased by $12 million in the second quarter of 2013 compared to the prior year period. Primary drivers were:

      - lower contribution from hedges, partially offset by
 
+higher revenue from a tolling contract and
 
+higher spark spreads on increased generation driven by improved market conditions associated with lower hydroelectric generation, warmer weather and the implementation of the AB32 carbon market.

Year-to-Date: Commodity Margin in our West segment decreased by $18 million for the six months ended June 30, 2013, compared to the prior year period. The year-to-date results were largely impacted by the same factors that drove comparative performance for the second quarter, as previously discussed.

Texas Region

Second Quarter: Commodity Margin in our Texas segment decreased by $12 million in the second quarter of 2013 compared to the prior year period. Primary drivers were:

      - lower spark spreads resulting from milder weather and an increase in wind generation and
 
-lower generation output resulting from a reversal of coal-to-gas switching due to higher natural gas prices, partially offset by
 
+higher contribution from hedges and
 
+the acquisition of Bosque Energy Center in November 2012.

Year-to-Date: Commodity Margin in our Texas segment decreased by $45 million for the six months ended June 30, 2013, compared to the prior year period. The year-to-date results were largely impacted by the same factors that drove comparative performance for the second quarter, as previously discussed.

North Region

Second Quarter: Commodity Margin in our North segment decreased by $22 million in the second quarter of 2013 compared to the prior year period. Primary drivers were:

      - the sale of Riverside Energy Center in December 2012 and
 
-lower spark spreads and lower generation output resulting from a reversal of coal-to-gas switching due to higher natural gas prices, partially offset by
 
+higher regulatory capacity revenues.

Year-to-Date: Commodity Margin in our North segment decreased by $24 million for the six months ended June 30, 2013, compared to the prior year period. The year-to-date results were largely impacted by the same factors that drove comparative performance for the second quarter, as previously discussed.

Southeast Region

Second Quarter: Commodity Margin in our Southeast segment decreased by $30 million in the second quarter of 2013 compared to the prior year period. Primary drivers were:

      - the sale of Broad River Energy Center in December 2012 and
 
-lower spark spreads and lower generation output resulting from milder weather and a reversal of coal-to-gas switching due to higher natural gas prices.

Year-to-Date: Commodity Margin in our Southeast segment decreased by $45 million in the six months ended June 30, 2013, compared to the prior year period. The year-to-date results were largely impacted by the same factors that drove comparative performance for the second quarter, as previously discussed.

 

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

 

Table 3: Liquidity

 

    June 30,    

 December 31,

 

2013

2012
(in millions)
Cash and cash equivalents, corporate(1)$588$1,153
Cash and cash equivalents, non-corporate127  Read Full Story

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