UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------`
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from ___________ to ___________
Commission File Number: 033-73160
CALPINE CORPORATION
(A Delaware Corporation)
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
$0.001 par value Common Stock: 20,155,931 shares outstanding on August 13, 1998
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
Report on Form 10-Q
For the Quarter Ended June 30, 1998
INDEX
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 ............................3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 1998 and 1997 ..............4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 ........................5
Notes to Condensed Consolidated Financial Statements ............6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .......................................26
ITEM 2. Change in Securities ....................................26
ITEM 3. Defaults Upon Senior Securities .........................26
ITEM 4. Submission of Matters to a Vote of Security Holders .....27
ITEM 5. Other Information .......................................27
ITEM 6. Exhibits and Reports on Form 8-K ........................27
Signatures ..................................................................32
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CALPINE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
(in thousands)
June 30, December 31,
1998 1997
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 100,359 $ 48,513
Accounts receivable from others ................... 97,211 35,133
Accounts receivable from related parties .......... 3,305 7,672
Collateral securities, current portion ............ 1,828 6,036
Loans receivable from related parties,
current portion ................................. -- 30,507
Prepaid operating lease, current portion .......... 13,652 13,652
Other current assets .............................. 25,445 25,065
---------- ----------
Total current assets .......................... 241,800 166,578
Property, plant and equipment, net ................... 1 ,136,518 719,721
Investments in power projects ........................ 140,470 222,542
Project development costs ............................ 11,754 4,614
Collateral securities, net of current portion ........ 87,042 87,134
Loans receivable from related parties, net
of current portion ................................. -- 101,304
Notes receivable from related parties ................ 12,024 16,053
Restricted cash ...................................... 15,775 15,584
Deferred financing costs ............................. 23,494 20,493
Other assets ......................................... 31,374 26,933
---------- ----------
Total assets .................................. $1,700,251 $1,380,956
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of non-recourse project financing . $ 9,670 $ 112,966
Accounts payable .................................. 33,022 30,441
Accrued payroll and related expenses .............. 4,181 4,950
Accrued interest payable .......................... 23,565 18,025
Accrued maintenance reserve ....................... 10,139 --
Other current liabilities ......................... 15,896 12,204
---------- ----------
Total current liabilities ..................... 96,473 178,586
Non-recourse project financing, net of current portion 237,456 182,893
Senior Notes ......................................... 855,618 560,041
Deferred income taxes, net ........................... 169,191 142,050
Deferred lease incentive ............................. 69,598 71,383
Other liabilities .................................... 22,795 6,047
---------- ----------
Total liabilities ............................. 1,451,131 1,141,000
---------- ----------
Stockholders' equity:
Common stock ...................................... 20 20
Additional paid-in capital ........................ 168,137 167,542
Retained earnings ................................. 80,963 72,394
---------- ----------
Total stockholders' equity .................... 249,120 239,956
---------- ----------
Total liabilities and stockholders' equity .... $1,700,251 $1,380,956
========== ==========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-3-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1998 and 1997
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenue:
<S> <C> <C> <C> <C>
Electricity and steam sales .................. $ 135,408 $ 62,639 $ 178,798 $ 96,326
Service contract revenue ..................... 3,048 1,715 8,529 3,529
Income from unconsolidated investments
in power projects ........................... 3,099 2,131 6,853 4,164
Interest income on loans to power projects ... 42 1,259 2,562 2,956
--------- --------- --------- ---------
Total revenue .......................... 141,597 67,744 196,742 106,975
--------- --------- --------- ---------
Cost of revenue:
Plant operating expenses, depreciation,
operating lease expense and production
royalties ................................. 94,864 35,537 129,337 64,276
Service contract expenses .................... 1,892 1,669 6,788 3,519
--------- --------- --------- ---------
Total cost of revenue .................. 96,756 37,206 136,125 67,795
--------- --------- --------- ---------
Gross profit .................................... 44,841 30,538 60,617 39,180
Project development expenses .................... 1,438 1,786 3,119 3,947
General and administrative expenses ............. 5,807 4,373 11,043 8,584
--------- --------- --------- ---------
Income from operations ................. 37,596 24,379 46,455 26,649
Other expense (income):
Interest expense ............................. 22,267 13,168 40,790 26,145
Interest income .............................. (3,332) (3,489) (5,695) (6,890)
Other income, net ............................ (503) (803) (904) (1,003)
--------- --------- --------- ---------
Income before provision for income taxes 19,164 15,503 12,264 8,397
Provision for income taxes ...................... 7,236 6,103 3,393 3,037
--------- --------- --------- ---------
Income before extraordinary charge ........... 11,928 9,400 8,871 5,360
Extraordinary charge for retirement of
debt, net of tax benefit of $207 ........... 302 -- 302 --
--------- --------- --------- ---------
Net income ............................. $ 11,626 $ 9,400 $ 8,569 $ 5,360
========= ========= ========= =========
Basic Earnings Per Common Share:
Weighted average shares outstanding ......... 20,105 19,911 20,056 19,882
Income before extraordinary charge .......... $ 0.59 $ 0.47 $ 0.44 $ 0.27
Extraordinary charge ........................ $ (0.01) $ -- $ (0.01) $ --
Net income .................................. $ 0.58 $ 0.47 $ 0.43 $ 0.27
Diluted Earnings Per Common Share:
Weighted average shares outstanding ......... 21,126 20,998 21,050 20,989
Income before extraordinary charge .......... $ 0.56 $ 0.45 $ 0.42 $ 0.26
Extraordinary charge ........................ $ (0.01) $ -- $ (0.01) $ --
Net income .................................. $ 0.55 $ 0.45 $ 0.41 $ 0.26
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-4-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(in thousands)
(unaudited)
Six Months Ended
June 30,
----------------------
1998 1997
--------- ---------
Net cash provided by operating activities ............ $ 23,073 $ 16,800
--------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment ...... (23,983) (57,616)
Acquisitions ...................................... (160,517) (44,032)
Purchase of loans for Texas City and
Clear Lake Power Plants ......................... -- (155,622)
Repayment of loans by Texas City and
Clear Lake Power Plants ......................... 13,814 5,737
Investments in power projects and capitalized costs (10,076) (416)
Maturities of collateral securities ............... 6,030 5,350
Decrease in restricted cash ....................... (191) 29,484
Other, net ........................................ -- (3,382)
--------- ---------
Net cash used in investing activities ....... (174,923) (220,497)
--------- ---------
Cash flows from financing activities:
Borrowings of non-recourse project financing ...... 54,974 128,300
Repayments of non-recourse project financing ...... (141,085) (16,247)
Proceeds from issuance of Senior Notes ............ 296,000 --
Borrowings from line of credit .................... -- 14,300
Proceeds from the sale of common stock ............ 427 954
Financing costs ................................... (6,620) (251)
Other, net ........................................ -- 67
--------- ---------
Net cash provided by financing activities ... 203,696 127,123
--------- ---------
Net increase (decrease) in cash and cash equivalents . 51,846 (76,574)
Cash and cash equivalents, beginning of period ....... 48,513 100,010
--------- ---------
Cash and cash equivalents, end of period ............. $ 100,359 $ 23,436
========= =========
Supplementary information cash paid
during the period for:
Interest .......................................... $ 36,121 $ 27,039
Income taxes ...................................... $ 188 $ 435
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-5-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
Note 1. Organization And Operation Of The Company
Calpine Corporation ("Calpine"), a Delaware corporation, and subsidiaries
(collectively, the "Company") is engaged in the development, acquisition,
ownership and operation of power generation facilities and the sale of
electricity and steam in the United States and selected international markets.
The Company has interests in and operates natural gas-fired power plants,
geothermal power plants and geothermal steam fields.
Note 2. Summary of Significant Accounting Policies
Basis of Interim Presentation - The accompanying interim condensed consolidated
financial statements of the Company have been prepared by the Company, without
audit by independent public accountants, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management, the
condensed consolidated financial statements include the adjustments necessary to
present fairly the information required to be set forth therein. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the audited
consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended December 31, 1997. The results for
interim periods are not necessarily indicative of the results for the entire
year.
Capitalized interest - The Company capitalizes interest on projects during the
development and construction period. For the six months ended June 30, 1998 and
1997, the Company capitalized $3.7 million and $1.3 million of interest in
connection with the construction of power plants.
Derivative financial instruments - The Company engages in activities to manage
risks associated with changes in interest rates. The Company has entered into
swap agreements to reduce exposure to interest rate fluctuations in anticipation
of certain debt commitments. The instruments' cash flows mirror those of the
underlying exposure. Unrealized gains and losses relating to the instruments are
being deferred over the lives of the contracts. The premiums paid on the
instruments, as measured at inception, are being amortized over their respective
lives as components of interest expense. Any gains or losses realized upon the
early termination of these instruments are being and are being amortized over
the respective lives of the underlying transaction or recognized immediately if
the transaction is terminated earlier than initially anticipated. Gains and
losses on any instruments not meeting the above criteria would be recognized in
income in the current period. Subsequent gains or losses on the related
financial instrument are recognized in income in each period until the
instrument matures, is terminated or is sold.
-6-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
Power Marketing - The Company, through its wholly-owned subsidiary Calpine Power
Services Company ("CPSC"), markets power and energy services to utilities,
wholesalers, and end users. CPSC provides these services by entering into
contracts to purchase or supply electricity at specified delivery points and
specified future dates. In some cases, CPSC utilizes financial instruments to
manage its exposure to commodity price fluctuations. On June 30, 1998, CPSC held
swap contracts with one entity in order to ensure fulfillment of certain sales
contracts for the period from July 1, 1998 to September 30, 1998.
At June 30, 1998, CPSC had no net open positions which would expose the Company
to risks of fluctuating market prices. These types of risks could have an
adverse impact on the Company's financial position or results of operations.
However, the Company actively manages its positions, and it is the Company's
policy to not have any open positions. CPSC values its portfolio using the
aggregate lower of cost or market method. An allowance is recorded for net
aggregate losses of the entire portfolio resulting from the effect of market
changes on net open positions. Net gains are recognized when realized.
The Company's credit risk associated with power contracts results from the
risk-of-loss on non-performance by counter parties. The Company reviews and
assesses counter party risk to limit any material impact to its financial
position and results of operations. The Company does not anticipate
non-performance by the counter parties.
Project Development Costs - The Company capitalizes project development costs
once it is determined that it is probable that such costs will be realized
through the ultimate construction of a power plant. Generally this occurs upon
the execution of a memorandum of understanding or a letter of intent for a power
or steam sales agreement. These costs include professional services, salaries,
permits and other costs directly related to the development of a new project.
Outside services and other third party costs are capitalized for acquisition
projects. Upon the start-up of plant operations or the completion of an
acquisition, these costs are generally transferred to property, plant and
equipment, net and amortized over the estimated useful life of the project.
Capitalized project costs are charged to expense when the Company determines
that the project will not be consummated or is impaired.
Reclassifications - Prior period amounts in the condensed consolidated financial
statements have been reclassified where necessary to conform to the 1998
presentation.
Impact of Recent Accounting Pronouncements - In April 1998, the American
Institute of Certified Public Accounts ("AICPA") issued Statement of Position
("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for financial statements for fiscal years beginning after December 15,
1998. For purposes of this SOP, start-up activities are defined broadly as those
one-time activities related to opening a new facility, conducting business in a
new territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing some new
operation. Start-up activities include activities related to organizing a new
entity (commonly referred to as organization costs). Although earlier adoption
is encouraged, the Company has not yet quantified or determined the timing of or
-7-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
method of the adoption.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards, requiring every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and require
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Statement must be applied to derivative instruments and to certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997.
The Company has not yet qualified the impact of adopting SFAS No. 133 on the
financial statements and has not determined the timing of or method of the
adoption of SFAS No. 133. However the Statement could increase volatility in
earnings.
Note 3. Accounts Receivable
At June 30, 1998, accounts receivable totaled $100.5 million, which included
$3.3 million receivable from related parties. Accounts receivable from related
parties at June 30, 1998, and December 31, 1997, included the following (in
thousands):
June 30, December 31,
1998 1997
------- --------
Nisseqougue Cogen Partners ......... $2,212 $4,140
O.L.S. Energy-Agnews, Inc. ......... 356 269
Sumas Cogeneration Company, L.P..... 340 527
Geothermal Energy Partners, Ltd..... 180 275
KIAC Partners ...................... 164 68
Stoneybrook Cogeneration, Inc....... 53 --
Texas Cogeneration Company (1)...... -- 903
TBG Cogen Partners (2) ............. -- 1,490
Accounts receivable from ------- ------
related parties ................. $3,305 $7,672
====== ======
(1) On March 31, 1998, the Company acquired the remaining 50% interest in
Texas Cogeneration Company.
(2) On February 5, 1998, the Company acquired the remaining 55% interest in
TBG Cogen Partners.
Note 4. Results Of Unconsolidated Investments In Power Projects
The Company has unconsolidated investments in power projects which are accounted
for under the equity method. Investments in less-than-majority-owned affiliates
and the nature and extent of these investments change over time. The combined
-8-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
results of operations and financial position of the Company's equity-basis
affiliates are summarized below (in thousands):
Six Months Ended
------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Condensed Statement of Operations:
Revenue ............................ $187,216 $ 42,744
Net income ......................... $ 19,429 $ 11,571
Company's share of net income......... $ 6,853 $ 4,164
As of As of
June 30, December 31,
1998 1997
----------- ------------
Condensed Balance Sheet:
Assets ............................... $1,247,412 $1,693,454
Liabilities .......................... $ 992,428 $1,276,922
Investments .......................... $ 139,709 $ 220,623
Project development costs............. $ 761 $ 1,919
---------- ----------
Total investments ................. $ 140,470 $ 222,542
========== ==========
The following details the Company's income from investments in unconsolidated
power projects and the service contract revenue recorded by the Company related
to those power projects (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------
Investments in Service
Ownership Power Projects Contract Revenue
Percentage 1998 1997 1998 1997
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sumas Cogeneration Company, L.P. (1) -- $ 2,872 $ 3,906 $ 809 $ --
O.L.S. Energy-Agnews, Inc. ....... 20 (98) (124) 948 869
Geothermal Energy Partners, Ltd. . 5 226 224 1,638 1,438
Auburndale Power Partners, L.P. .. 50 (590) -- -- --
Gordonsville Energy, L.P. ........ 50 1,785 -- -- --
KIAC Partners .................... 50 (2,686) -- -- --
Nissequogue Cogen Partners ....... 50 231 -- -- --
Lockport Energy Associates, L.P. . 11 1,785 -- -- --
Texas Cogeneration Company (2) ... -- 3,328 158 2,749 29
------- ------- ------- -------
Total ........................ $ 6,853 $ 4,164 $ 6,144 $ 2,336
======= ======= ======= =======
</TABLE>
(1) On September 30, 1997, the partnership agreement governing Sumas
Cogeneration Company, L.P. ("Sumas") was amended changing the distribution
percentages to the partners. As provided for in the amendment, the
Company's percentage share of the project's cash flow increased from 50% to
approximately 70% through June 30, 2001, based on certain specified
payments. Thereafter, the Company will receive 50% of the project's cash
flow until a 24.5% pre-tax rate of return on its original investment is
achieved, at which time the Company's equity interest in the partnership
will be reduced to 0.1%. As a result of the amendment of the partnership
agreement and the receipt of certain distributions during 1997, the
Company's investment in Sumas was reduced to zero. Because the investment
has been reduced to zero and there are no continuing obligations of the
Company related to Sumas, the Company expects that income recorded in
future periods will approximate the amount of cash received from
partnership distributions.
(2) On March 31, 1998, the Company acquired the remaining 50% interest in
Texas
-9-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
Cogeneration Company.
Note 5. Repayment of Non-Recourse Project Financing
On March 31, 1998, the Company repaid $89.6 million to The Bank of Nova Scotia
which represented the outstanding balance on the original $125.0 million of
non-recourse project financing utilized to fund a portion of the purchase of the
original 50% interest in Texas Cogeneration Company, and the purchase of $155.6
million of notes receivable from the related projects. The Company refinanced
the non-recourse debt with a portion of the net proceeds from the $300.0 million
offering of 7-7/8% Senior Notes Due 2008 ("Senior Notes Due 2008"),(See Note 8).
Note 6. Texas City and Clear Lake Transaction
On March 31, 1998, the Company acquired the remaining 50% interest in the Texas
City Power Plant and the Clear Lake Power Plant for a purchase price of $52.8
million in cash. The Company has certain contingent purchase payments that could
approximate 2.2% of project revenue beginning in the year 2000, increasing to
2.9% in 2002. The Company acquired the remaining interests in these plants by
purchasing the capital stock of Texas Cogeneration Company ("TCC") from Dominion
Cogen, Inc. ("DCI"). As part of this transaction, the Company now owns a 7.5%
interest in a 165 megawatt natural gas-fired power plant located in Bayonne, NJ.
The Company purchases its natural gas for the Texas power plants from Enron
Capital & Trade Resources Corp. In connection with the acquisition, the Company
was required to pay approximately $105.3 million to restructure certain gas
contracts with Enron Capital & Trade Resources Corp. Additionally, during the
three months ended June 30, 1998, the Company recorded a purchase price
adjustment for the termination of an existing interest rate swap (See Note 8).
The purchase of the capital stock from DCI and the payment for the restructuring
of certain gas contracts were funded with a portion of the net proceeds from the
issuance of the Senior Notes Due 2008 (See Note 8). The acquisition was
accounted for as a purchase.
On June 23, 1997, the Company acquired an initial 50% interest in the Texas City
and Clear Lake Power Plants through the acquisition of 50% of the capital stock
of Enron/Dominion Cogen Corp. ("EDCC") from a subsidiary of Enron Corp. EDCC was
subsequently renamed TCC. In addition to the purchase of the capital stock of
TCC in June 1997, the Company purchased from the project lenders $155.6 million
of outstanding debt on the Texas City and Clear Lake Power Plants (approximately
$53.0 and $102.6 million, respectively).
The following represents unaudited pro forma results of operations for the year
ended December 31, 1997 and for the three months ended March 31, 1998, assuming
the acquisition occurred as of January 1, 1997 (in thousands, except per share
data):
Three Months Ended Twelve Months Ended
March 31, 1998 December 31, 1997
------------------------ -----------------------
Revenue..................... $ 120,235 $ 555,955
Net income.................. $ 4,963 $ 69,275
Basic earnings per share.... $ 0.25 $ 3.47
Diluted earnings per share.. $ 0.24 $ 3.30
-10-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
Note 7. Bethpage Transaction
On February 5, 1998, the Company acquired the remaining 55% interest in TBG
Cogen Partners ("TBG Cogen"). The partnership owns the Bethpage Power Plant, a
57 megawatt gas-fired cogeneration facility located on Long Island, NY. The
total purchase price of $5.0 million consisted of: (i) a $4.6 million cash
payment and (ii) a $375,000 option applied toward the purchase, subject to final
adjustments. The Company was also assigned all of General Electric=s interest as
operator of the Bethpage Power Plant.
Upon the acquisition of the remaining 55% interest, the Company assumed the
outstanding debt of TBG Cogen. On March 31, 1998, the Company made a payment to
Toronto Dominion, Inc. of approximately $38.2 million to pay off the existing
project debt, accrued interest, and a related interest rate swap with a portion
of the net proceeds from the Senior Notes Due 2008 (See Note 8). The acquisition
was accounted for as a purchase.
Note 8. Financial Instruments
On March 5, 1998, the Company terminated an existing forward Treasury bond
entered into in February 1998 in anticipation of the Senior Notes Due 2008
offering. The Company closed its position prior to the pricing date of the debt,
which resulted in a gain of $2.3 million. The gain was deferred and is
recognized in income over the remaining life of the Senior Notes Due 2008.
On March 31, 1998, the Company completed its Rule 144A offering of $300.0
million Senior Notes Due 2008. After deducting discounts to initial purchasers
and expenses of the offering, the net proceeds from the sale of the Senior Notes
Due 2008 were approximately $293.5 million. Proceeds from the Senior Notes Due
2008 were used as follows: (i) $52.8 million for the purchase of the remaining
50% interest in TCC (See Note 6), (ii) $105.3 million for the restructuring of
certain gas contracts associated with the TCC acquisition, (iii) $89.6 million
for the outstanding principal on the non-recourse debt provided by The Bank of
Nova Scotia, and (iv) $38.2 million for the outstanding debt on the Bethpage
Power Plant. Transaction costs incurred in connection with the debt offering
were recorded as a deferred charge and are amortized over the ten-year life of
the Senior Notes Due 2008 using the effective interest rate method. On July 24,
1998, the Company issued an additional $100.0 million Senior Notes Due 2008 (See
Note 13).
On April 9, 1998, the Company terminated an existing interest rate swap related
to $102.6 million of debt for the Clear Lake Power Plant which the Company
purchased on June 23, 1997. The Company paid approximately $3.7 million to close
its position with The Bank of Nova Scotia and recorded a purchase price
adjustment of approximately $2.3 million which was the market value of the swap
on June 23, 1997. The remaining $1.4 million was deferred and is amortized over
the remaining life of the swap.
Note 9. Revolving Credit Facility and Line of Credit
On May 15, 1998, the Company replaced its $50.0 million credit facility with a
-11-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
$100.0 million credit facility, which has a three-year term expiring in May
2001. The Company's $100.0 million credit facility is available through a
consortium of commercial lending institutions with The Bank of Nova Scotia as
agent. At June 30, 1998, the Company had no borrowings and $23.2 million of
letters of credit outstanding under the credit facility. Borrowings bear
interest at The Bank of Nova Scotia's base rate plus an applicable margin or at
the London Interbank Offered Rate ("LIBOR") plus an applicable margin. Interest
is paid on the last day of each interest period for such loans, but not less
often than quarterly.
Note 10. Earnings per Share
Basic earnings per share were computed by dividing net earnings by the weighted
average number of common shares outstanding for the period. The dilutive effect
of the potential exercise of outstanding options to purchase shares of common
stock is calculated using the treasury stock method. The reconciliation of basic
earnings per share to diluted earnings per share is shown in the following table
(dollars in thousands except share data).
<TABLE>
<CAPTION>
Periods Ended June 30, 1998 1997
--------------------------------------- -------------------------------------
Net Net
Income Shares EPS Income Shares EPS
- -----------------------------------------------------------------------------------------------------------------------
Three Months:
Basic Earnings Per Common Share:
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary charge $ 11,928 20,105 $ 0.59 $ 9,400 19,911 $ 0.47
Extraordinary charge net of tax
benefit of $207 302 (0.01) -- --
----------- -------- ---------- --------
Net income $ 11,626 20,105 $ 0.58 $ 9,400 19,911 $ 0.47
----------- ------ -------- ---------- ------ --------
Common shares issuable upon
Exercise of stock options using
treasury stock method 1,021 1,087
------ ------
Diluted Earnings Per Common Share
Income before extraordinary charge $ 11,928 21,126 $ 0.56 $ 9,400 20,998 $ 0.45
Extraordinary charge net of tax
benefit of $207 302 (0.01) -- --
----------- -------- ---------- --------
Net income $ 11,626 21,126 $ 0.55 $ 9,400 20,998 $ 0.45
=========== ====== ======== ========== ====== ========
Six Months:
Basic Earnings Per Common Share:
Income before extraordinary charge $ 8,871 20,056 $ 0.44 $ 5,360 19,882 $ 0.27
Extraordinary charge net of tax
benefit of $207 302 (0.01) -- --
----------- -------- ---------- --------
Net income $ 8,569 20,056 $ 0.43 $ 5,360 19,882 $ 0.27
----------- ------ -------- ---------- ------ --------
Common shares issuable upon
Exercise of stock options using
treasury stock method 994 1,107
------ ------
Diluted Earnings Per Common Share:
Income before extraordinary charge $ 8,871 21,050 $ 0.42 $ 5,360 20,989 $ 0.26
Extraordinary charge net of tax
benefit of $207 302 (0.01) -- --
----------- -------- ---------- --------
Net income $ 8,569 21,050 $ 0.41 $ 5,360 20,989 $ 0.26
=========== ====== ======== ========== ====== ========
</TABLE>
On June 30, 1998, the Company recognized an extraordinary charge of $302,000 or
$0.01 per share net of tax benefit as a result of the repurchase of $4.0 million
of 10-1/2 Senior Notes Due 2006. The notes were redeemed at a premium plus
accrued interest to the date of repurchase.
Unexercised employee stock options to purchase 47,500 and 40,000 shares of the
-12-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
Company's common stock during the six months ended June 30, 1998 and 1997,
respectively, were not included in the computation of diluted shares outstanding
because such inclusion would be anti-dilutive.
Note 11. CCNG Investments Transaction
On May 1, 1998, the Company granted CCNG Investments, L.P. ("CCNG") options to
purchase 1.1 million shares of the Company's common stock ("Stock Purchase
Agreement"). Under the terms of the Stock Purchase Agreement, CCNG has the
one-time right prior to September 28, 1998, to elect to purchase from the
Company up to 1.0 million shares of the Company's common stock, $0.001 par
value. The per share purchase price will be determined by the average of the
closing prices of the Company's common stock for the ten trading days
immediately preceding the receipt of written notice. Additionally, prior to
December 31, 1998, CCNG has the one-time right to purchase from the Company
additional shares of common stock at a price of $17-7/8 per share. The
additional shares may be purchased in an amount equal to the greater of (i)
50,000 shares of common stock or (ii) up to ten percent of that number of shares
of common stock purchased by CCNG pursuant to the initial option for 1.0 million
shares. To date, CCNG has not exercised its option to purchase any shares.
Note 12. Commitments and Contingencies
Royalties and Leases - The Company is committed under several geothermal leases
and right-of-way, easement and surface agreements. The geothermal leases
generally provide for royalties based on production revenue with reductions for
property taxes paid. The right-of-way, easement and surface agreements are based
on flat rates and are not material.
Office and Equipment Leases - The Company leases its corporate office, Santa
Rosa and Houston office facilities and certain office equipment under
non-cancelable operating leases expiring through 2002. Future minimum lease
payments under these leases for the remainder of 1998 are approximately
$704,000.
Legal Matters - On September 30, 1997, a lawsuit was filed by Indeck North
American Power Fund ("Indeck") in the Circuit Court of Cook County, Illinois
against Norweb plc. and certain other parties, including the Company. Some of
Indeck's claims relate to Calpine Gordonsville, Inc.'s acquisition of a 50%
interest in Gordonsville Energy L.P. from Northern Hydro Limited and Calpine
Auburndale, Inc.'s acquisition of a 50% interest in Auburndale Power Plant
Partners Limited Partnership from Norweb Power Services (No. 1) Limited. Indeck
is claiming that Calpine Gordonsville, Inc., Calpine Auburndale, Inc. and the
Company tortiously interfered with Indeck's contractual rights to purchase such
interests and conspired with other parties to do so. Indeck is seeking $25.0
million in compensatory damages, $25.0 million in punitive damages, and the
recovery of attorneys' fees and costs. In July 1998, the court granted motions
to dismiss, without prejudice, the claims against Calpine Gordonsville and
Calpine Auburndale. The Company is unable to predict the outcome of these
proceedings.
There is currently a dispute between Texas-New Mexico Power Company ("TNP") and
Clear Lake Cogeneration Limited Partnership ("CLC"), which owns the Clear Lake
-13-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
Power Plant, regarding certain costs and other amounts that TNP has withheld
from payments due under the power sales agreement. As of June 30, 1998, TNP has
withheld approximately $6.0 million related to transmission charges and has
continued to withhold approximately $450,000 per month thereafter. In October
1997, CLC filed a petition for declaratory order with the Texas Public Utilities
Commission ("Texas PUC") requesting a declaration that TNP's withholding is in
error, which petition is currently pending. Also, as of June 30, 1998, TNP has
withheld approximately $7.7 million of standby power charges and has continued
to withhold approximately $270,000 per month thereafter. In addition to the
Texas PUC petition, CLC has filed an action in Texas courts alleging TNP's
breach of the power sales agreement and is seeking in excess of $15.0 million in
damages. A trial date is scheduled for October 1998. The Company is unable to
predict the outcome of either of these proceedings.
An action was filed against Lockport Energy Associates, L.P. ("LEA") and the New
York Public Service Commission ("NYPSC") in August 1997 by New York State
Electricity and Gas Company ("NYSEG") in the Federal District Court for the
Northern District of New York. NYSEG has requested the Court to direct NYPSC and
the Federal Energy Regulatory Commission (the "FERC") to modify contract rates
to be paid to the Lockport Power Plant. In October 1997, NYPSC filed a
cross-claim alleging that the FERC violated PURPA and the Federal Power Act by
failing to reform the NYSEG contract that was previously approved by the NYPSC.
Although it is unable to predict the outcome of this case, in any event, the
Company retains the right to require The Brooklyn Union Gas Company ("BUG") to
purchase the Company's interest in the Lockport Power Plant for $18.9 million,
less equity distributions received by the Company, at any time before December
19, 2001.
The Company is involved in various other claims and legal actions arising out of
the normal course of business. The Company does not expect that the outcome of
these proceedings will have a material effect on the Company's financial
position or results of operations, although no assurance can be given in this
regard.
Note 13. Subsequent Events
On July 17,1998, the Company completed the purchase of a 72 megawatt geothermal
power plant located in Sonoma County, California from the Sacramento Municipal
Utility District ("SMUD") for $13.0 million. The Company is the owner and
operator of the Sonoma geothermal steam fields (formerly the SMUDGEO#1 Steam
Fields), that provide steam to this facility (the "Sonoma Power Plant"). Under
the agreement, The Company paid SMUD $10.6 million at closing and agreed to pay
an additional $2.4 million over the next two years. In connection with the
acquisition, SMUD agreed to purchase 50 megawatts of electricity from the plant
at current market prices plus a renewable power premium through 2001. In
addition, SMUD has the option to purchase 10 megawatts of peak power production
through 2005. The Company will market the excess electricity into the California
power market.
On July 21, 1998, the Company completed the acquisition of a 70 megawatt natural
gas-fired power plant from the Dow Chemical Company ("Dow") for approximately
$12.7 million. The power plant is located at Dow's Pittsburg, California
chemical facility. The Company's Pittsburg Power Plant will sell up to 18
megawatts of electricity to Dow under a ten-year power sales agreement, with the
-14-
<PAGE>
CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 1998
balance sold to Pacific Gas & Electric Company under an existing power sales
agreement. In addition, the Company will sell approximately 200,000 lbs/hr of
steam to Dow and to USS-POSCO Industries' nearby steel mill.
On July 24, 1998, the Company completed the Rule 144A offering of an additional
$100 million Senior Notes Due 2008, which mature on April 1, 2008, and bear an
interest payable semi-annually on April 1 and October 1 of each year commencing
October 1, 1998. After deducting discounts to initial purchasers and expenses of
the offering, the net proceeds from the sale of the Senior Notes Due 2008 were
approximately $98.8 million. With the net proceeds, the Company has repaid in
full the non-recourse project financing on the Pasadena 1 Power Plant of $52.1
million to ING Capital Corp. Additionally, the Company expects to use
approximately $30.0 million for the remaining construction costs on the Pasadena
1 Power Plant. The remainder of the net proceeds will be used for the
acquisition and development of power generation facilities and for general
corporate purposes. Transaction costs incurred in connection with the debt
offering were recorded as a deferred charge and are amortized over the ten-year
life of the Senior Notes Due 2008 using the effective interest rate method.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical financial information contained herein, the matters
discussed in this quarterly report may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended and subject to
the safe harbor created by the Securities Litigation Reform Act of 1995. Such
statements include declarations regarding the intent, belief or current
expectations of the Company and its management. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties; actual results
could differ materially from those indicated by such forward-looking statements.
Among the important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are: (i) that the
information is of a preliminary nature and may be subject to further adjustment,
(ii) the possible unavailability of financing, (iii) risks related to the
development, acquisition and operation of power plants, (iv) the impact of
avoided cost pricing, energy price fluctuations and gas price increases, (v) the
impact of curtailment, (vi) the seasonal nature of the Company's business, (vii)
start-up risks, (viii) general operating risks, (ix) the dependence on third
parties, (x) risks associated with international investments, (xi) risks
associated with the power marketing business, (xii) changes in government
regulation, (xiii) the availability of natural gas, (xiv) the effects of
competition, (xv) the dependence on senior management, (xvi) volatility in the
Company's stock price, (xvii) fluctuations in quarterly results and seasonality,
and (xviii) other risks identified from time to time in the Company's reports
and registration statements filed with the Securities and Exchange Commission.
OVERVIEW
Calpine Corporation ("Calpine") a Delaware corporation, and subsidiaries
(collectively, the "Company") is engaged in the acquisition, development,
ownership and operation of power generation facilities and the sale of
electricity and steam principally in the United States. At June 30, 1998, the
Company had interests in 26 power plants and steam fields in six states and
Mexico, having an aggregate capacity of 3,097 megawatts.
On February 5, 1998, the Company acquired the remaining 55% interest in, and
assumed operations and maintenance of, the Bethpage Power Plant. The Company
purchased the remaining interests for approximately $5.0 million. Additionally,
on March 31, 1998 the Company repaid all outstanding project debt of $38.2
million.
On March 31, 1998, the Company completed the acquisition of the remaining 50%
interest in TCC, which is the owner of the Texas City and Clear Lake Power
Plants. The Company paid $52.8 million in cash and must make certain contingent
purchase payments that could approximate 2.2% of project revenue beginning in
the year 2000, increasing to 2.9% in 2002. As part of this acquisition, the
Company owns a 7.5% interest in the Bayonne Power Plant, a 165 megawatt natural
gas-fired cogeneration power plant located in Bayonne, NJ. In addition, the
Company was required to pay $105.3 million to restructure certain gas contracts
related to this acquisition.
On July 17, 1998, the Company completed the purchase of a 72 megawatt geothermal
power plant located in Sonoma County, CA from the Sacramento Municipal Utility
District ("SMUD") for $13.0 million. The Company is the owner and operator of
the geothermal steam fields that provide steam to this facility. Under the
agreement, the Company paid SMUD $10.6 million at closing, and agreed to pay an
-16-
<PAGE>
additional $2.4 million over the next two years. In connection with the
acquisition, SMUD agreed to purchase 50 megawatts of electricity from the plant
at current market prices plus a renewable power premium through 2001. In
addition, SMUD has the option to purchase 10 megawatts of peak power production
through 2005. The Company will market the excess electricity into the California
power market.
On July 21, 1998, the Company completed the acquisition of a 70 megawatt natural
gas-fired power plant from The Dow Chemical Company ("Dow") for approximately
$12.7 million. The power plant is located at Dow's Pittsburg, CA. chemical
facility. The Company will sell up to 18 megawatts of electricity to Dow under a
ten-year power sales agreement, with the balance sold to Pacific Gas & Electric
Company under an existing power sales agreement. In addition, the Company will
sell approximately 200,000 lbs./hr of steam to Dow and to USS-POSCO Industries'
nearby steel mill.
On July 13, 1998, the Company signed a letter of intent to enter into a joint
venture to develop, own and operate approximately 2,000 megawatts of new natural
gas-fired power plants in northern California, to primarily serve the San
Francisco Bay Area. The natural gas-fired plants are to be constructed by
Bechtel and operated by the Company. The Company intends for its first plant
developed under the joint venture to be a 535 to 800 megawatt unit located at
the Dow Chemical facility in Pittsburg, CA.
On July 21, 1998, the Company signed a letter of intent to enter into a joint
venture with Sonat Energy Services Company located in Birmingham, Alabama to
develop a 680 megawatt natural gas-fired peaking power plant near Columbus,
Georgia (the "Cataula Power Plant"). The Cataula Power Plant is scheduled to
begin commercial operation in June 2000 and will provide energy to the Georgia
and Southeast power markets during peak power demand periods. The joint venture
will sell approximately 215 megawatts of electricity to Georgia Power Company
under a five-year contract. The remaining plant's output capacity will be sold
to other wholesale customers.
SELECTED OPERATING INFORMATION
Set forth below is certain selected operating information for the power plants
and steam fields, for which results are consolidated in the Company's Condensed
Consolidated Statements of Operations (in thousands, except megawatts and price
per kilowatt hour data).
-17-
<PAGE>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Power Plants:
Electricity revenues:
Energy .............. $ 70,446 $ 25,293 $ 93,735 $ 44,270
Capacity ............ $ 57,616 $ 26,762 $ 67,103 $ 31,943
Megawatt hours produced 1,868,067 552,057 2,217,659 820,666
Average energy price
per kilowatt hour .. $ 0.0377 $ 0.0458 $ 0.0423 $ 0.0539
Steam Fields:
Steam Revenue: ........ $ 7,346 $ 10,584 $ 17,960 $ 20,113
Megawatt hours produced 452,571 672,233 981,114 1,279,071
Average price per
Kilowatt hour ...... $ 0.0162 $ 0.0157 $ 0.0183 $ 0.0157
Megawatt hours produced at the power plants increased 238% and 170% for the
three and six months ended June 30, 1998 as compared with the same periods in
1997. The increase was primarily due to production at the Texas City, Clear Lake
and Bethpage Power Plants for the three and first six months ended June 30,
1998.
OTHER FINANCIAL RATIO DATA
Set forth below are certain other financial data and ratios for the periods
indicated (in thousands, except ratio data):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
Depreciation and amortization .......... $19,522 $12,216 $32,104 $23,548
Interest expense per indenture ......... $23,482 $14,453 $43,212 $28,621
EBITDA ................................. $67,557 $43,218 $93,374 $62,697
EBITDA to interest expense per indenture $ 2.88x $ 2.99x $ 2.16x $ 2.19x
EBITDA is defined as income from operations plus depreciation, capitalized
interest, other income, non-cash charges and cash received from investments in
power projects, reduced by the income from unconsolidated investments in power
projects. EBITDA is presented not as a measure of operating results, but rather
as a measure of the Company's ability to service debt. EBITDA should not be
construed as an alternative either (i) to income from operations (determined in
accordance with generally accepted accounting principles) or (ii) to cash flows
from operating activities (determined in accordance with generally accepted
accounting principles).
Interest expense per indenture is defined as total interest expense plus
one-third of all operating lease obligations, dividends paid in respect to
preferred stock and cash contributions to any employee stock ownership plan used
to pay interest on loans to purchase capital stock of the company.
-18-
<PAGE>
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1998 Compared to Three and Six Months Ended
June 30, 1997
Revenue -- Total revenue was $141.6 million and $196.7 million for the three and
six months ended June 30, 1998, as compared to $67.7 and $107.0 million for the
comparable periods in 1997.
Electricity and steam sales revenue increased 116% and 86% to $135.4
million and $178.8 million in 1998 compared to $62.6 million and $96.3 million
for the comparable three and six months ended June 30, 1997. The increase for
the second quarter of 1998 was primarily due to $67.3 million in revenue from
Texas City and Clear Lake Power Plants, as well as $8.1 million of revenue from
the Bethpage Power Plant. The Company's geothermal revenues decreased by $3.5
million, primarily due to a planned maintenance outage in April and May at the
SMUD facility, and a decrease in volume at Thermal Power Company due to
competitive pricing with hydroelectric facilities. The increase in electricity
and steam sales revenues for the six months ended June 30, 1998 was due to $67.3
million from the three months of operation for the Texas City and Clear Lake
Power Plants and $12.9 million for four months of operation at the Bethpage
Power Plant. Capacity revenues increased $2.3 million for the six months ended
June 30, 1998 for the King City and Gilroy Power Plants as compared with the
same period a year ago. In accordance with a CPUC decision effective April 1,
1997, the CPUC allowed for reallocation of future capacity payments to these
facilities, decreasing the summer payments and increasing the winter payments.
Service contract revenue increased to $3.0 million and $8.5 million for the
three and six months ended June 30, 1998, as compared to $1.7 million and $3.5
million for the comparable periods in 1997. The $1.3 million or 78% increase in
service contract revenue for the three months ended was primarily attributable
to a $461,000 increase from fuel management fees and an increase of $629,000
related to third party gas sales. The Company's $5.1 million or 142% increase
for the six months ended June 30, 1998, was due to $2.4 million for fuel
management fees, $898,000 for third party gas sales and $1.6 million in
operations and maintenance revenue from the Texas City and Clear Lake Power
Plants.
Income from unconsolidated investments in power projects increased 45% to
$3.1 million for the three months ended June 30, 1998 which compared to $2.1
million for the same period in 1997. The increase of $1.0 million is primarily
attributable to equity income from the Company's investment in the Lockport
Energy Associates and equity income from the Texas City and Clear Lake Power
Plant. The increase in the Texas City and Clear Lake investment is primarily
attributable to a 7.5% interest in a natural gas-fired power plant in Bayonne,
New Jersey. For the six months ended June 30, 1998, the Company recorded equity
income of $6.9 million as compared to $4.2 million in 1997. This growth was
primarily due to equity income from the Texas City and Clear Lake Power Plants.
The Company initially acquired a 50% interest in June 1997 and subsequently
purchased the remaining interest in March 1998. The investment in the Texas
City, Clear Lake and Bayonne Power Plants contributed $3.2 million for six
months in 1998 as compared to $158,000 in 1997. Additionally, the Bethpage Power
Plant contributed $1.8 million of equity income during the first six months of
1998. These increases for the six months ended June 30, 1998 were partially
offset by a $1.0 million decrease in equity income from the Sumas Power Plant
and a $1.3
-19-
<PAGE>
million loss at the Auburndale and Gordonsville Energy Power Plants.
Interest income on loans to power projects decreased 97% and 13% to $42,000
and $2.6 million for the three and six months ended June 30, 1998 as compared to
$1.3 million and $3.0 million in 1997. These decreases were related to loans
made by the Company to the sole shareholder of Sumas Energy Inc., the Company's
partner in Sumas which were repaid to the Company on December 31, 1997.
Cost of revenue -- Cost of revenue increased 160% and 101% to $96.8 million and
$136.1 million compared to $37.2 million and $67.8 million for the comparable
three and six months in 1997. The increase of $59.6 and $68.3 million for the
three and six months ended June 30, 1998 was primarily attributable to increased
plant operating, fuel and depreciation expenses as a result of the acquisition
of the interest in the Texas City, Clear Lake and Bethpage Power Plants.
Additionally, there was a $3.3 million increase in service contract expenses, of
which $1.3 million was related to the Texas City and Clear Lake Power Plants'
operating and maintenance contracts and $1.6 million for fuel management
contracts.
Project development expenses -- Project development expenses decreased 22% and
21% to $1.4 million and $3.1 million for the three and six months ended June 30,
1998 compared to $1.8 million and $3.9 million for the comparable periods in
1997. The decrease is due primarily to certain one-time charges incurred during
the first three months of 1997 related to project development activities.
General and administrative expenses -- General and administrative expenses
increased 33% and 29% to $5.8 million and $11.0 for the three and six months
ended June 30, 1998 compared to $4.4 million and $8.6 million for the comparable
periods in 1997. The increase was attributable to continued growth in personnel
and overhead costs necessary to support the overall growth in the Company's
operations.
Interest expense -- Interest expense increased 69% to $22.3 million for the
three months ended June 30, 1998, compared to $13.2 million for the same period
in 1997. The increase was attributable to interest expense of $6.0 million
related to the 8-3/4% Senior Notes Due 2007 issued in July and September 1997
and $6.0 million related to the 7-7/8 % Senior Notes Due 2008 issued in March
1998. These increases were partially offset by $3.4 million of interest
capitalized on the development and construction of power plants. Interest
expense increased to $40.8 million for the six months ended June 30, 1998,
compared to $26.1 million for the same period in 1997. The increase was
attributable to interest expense of (i) $12.6 million related to the 8-3/4%
Senior Notes Due 2007, (ii) $6.0 million related to the 7-7/8 % Senior Notes Due
2008 issued in March 1998, (iii) $2.4 million interest for the construction for
the Pasadena Power Plant, and (iv) $2.1 million for interest related to the
purchase of the Texas City and Clear Lake Power Plants. These increases were
partially offset by $4.8 million of interest capitalized on the development and
construction of power plants and $3.8 million for the reduction for debt at
Calpine Geysers Company.
Interest income -- Interest income decreased 6% and 17% to $3.3 million and $5.7
million for the three and six months ended June 30, 1998 from $3.5 million and
$6.9 million for the same periods in 1997. The decrease was the result of lower
cash and cash equivalent balances.
-20-
<PAGE>
Other income, net -- Other income, net, decreased to $503,000 and $904,000 for
the three and six months ended June 30, 1998 compared to $803,000 and $1.0
million for the same periods in 1997. The decrease was primarily due to lower
royalty income at the Company's geothermal facilities.
Provision for income taxes -- The effective income tax rate was approximately
27.6% for the six months ended June 30, 1998. The reductions from the statutory
tax rate were primarily due to depletion in excess of tax basis benefits at the
Company's geothermal facilities, a decrease in the California tax liability due
to the Company's expansion into states other than California.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has obtained cash from its operations, borrowings under its
credit facilities and other working capital lines, sale of debt and equity, and
proceeds from non-recourse project financing. The Company utilized this cash to
fund its operations, service debt obligations, fund the acquisition, development
and construction of power generation facilities, finance capital expenditures
and meet its other cash and liquidity needs. The following table summarizes the
Company's cash flows activities for the periods indicated (dollars in
thousands):
Six Months Ended June 30,
-------------------------
1998 1997
--------- ----------
Cash flows from:
Operating activities ..... $ 23,073 $ 16,800
Investing activities ..... $(174,923) $(220,497)
Financing activities ..... $ 203,696 $ 127,123
Total .................. $ 51,846 $ (76,574)
Operating activities for the six months ended June 30, 1998 provided $23.0
million, consisting of approximately $31.4 million of depreciation and
amortization, $8.6 million of net income, $13.0 million of distributions from
unconsolidated investments in power projects, and $2.4 million of deferred
income taxes. This was offset by $6.9 million of income from unconsolidated
investments, $5.2 million net increase in operating assets and $20.3 million net
decrease in operating liabilities.
Investing activities for the six months ended June 30, 1998 used $174.9 million,
primarily due to $156.0 million for the acquisition of the remaining 50%
interest in the Texas City and Clear Lake Power Plants, $4.5 million for the
acquisition of the remaining 55% interest in the Bethpage Power Plant, $17.8
million of capital expenditures related to the construction of the Pasadena
Power Plant, $6.5 million of other capital expenditures, $7.1 million of
capitalized project development costs, $3.7 million of interest capitalized on
construction projects, offset by the receipt of $13.8 million of loan payments
from Texas City and Clear Lake Power Plants, $833,000 investments in power
projects specifically Calpine Eastern, and $6.0 million of maturities of
collateral securities in connection with the King City Power Plant.
Financing activities for the six months ended June 30, 1998 provided $203.7
million of cash consisting of $52.1 million of borrowings for the construction
of the Pasadena 1 Power Plant, $2.9 million of borrowings for contingent
-21-
<PAGE>
consideration in connection with the acquisition of the Gilroy Power Plant, and
$293.4 million of net proceeds from the issuance of the Senior Notes Due 2008,
partially offset by $141.1 million in repayment of non-recourse project
financing, $4.0 million of repurchase of Senior Notes Due 2006 which includes a
premium paid and accrued interest to the date of repurchase and $427,000 for the
issuance of common stock.
At June 30, 1998, cash and cash equivalents were $100.4 million and working
capital was $145.3 million. For the six months ended June 30, 1998, cash and
cash equivalents increased by $51.8 million and working capital increased by
$157.3 million as compared to December 31, 1997.
As a developer, owner and operator of power generation facilities, the Company
may be required to make long-term commitments and investments of substantial
capital for its projects. The Company historically has financed these capital
requirements with cash from operations, borrowings under its credit facilities,
other lines of credit, non-recourse project financing or long-term debt, and the
sale of equity.
Management continues to evaluate current and forecasted cash flow as a basis for
financing operating requirements and capital expenditures. The Company believes
that it will have sufficient liquidity from cash flow from operations,
borrowings available under the lines of credit and working capital to satisfy
all obligations under outstanding indebtedness, to finance anticipated capital
expenditures and to fund working capital requirements for the next twelve
months. The Company expects to commit significant capital in future years for
the acquisition and development of these power plants. The Company's actual
capital expenditures may vary significantly during any year.
On March 31, 1998, the Company completed the Rule 144A offering of its $300.0
million Senior Notes Due 2008 which mature on April 1, 2008 and bear an interest
payable semi-annually on April 1 and October 1 of each year commencing October
1, 1998 (See Note 8 to the Notes to Condensed Consolidated Financial
Statements). Subsequent to this offering, on July 24, 1998, the Company
completed the Rule 144A offering of an additional $100.0 million Senior Notes
Due 2008. After deducting discounts to initial purchasers and expenses of the
offering, the net proceeds from the sale of the Senior Notes Due 2008 were
approximately $98.8 million. (See Note 13 to the Notes to the Condensed
Consolidated Financial Statements).
At June 30, 1998, the Company had a $100.0 million revolving credit facility
available with a consortium of commercial lending institutions. The Company had
no borrowings and $23.2 million of letters of credit outstanding under the
credit facility (See Note 9 of Notes to Condensed Consolidated Financial
Statements). The credit facility contains certain restrictions that limit or
prohibit, among other things, the ability of the Company or its subsidiaries to
incur indebtedness, make payments of certain indebtedness, pay dividends, make
investments, engage in transactions with affiliates, create liens, sell assets
and engage in mergers and consolidations.
At June 30, 1998, the Company had $105.0 million of outstanding 9-1/4% Senior
Notes Due 2004, which mature on February 1, 2004, and bear interest payable
semi-annually on February 1 and August 1 of each year. In addition, the Company
had $176.0 million of outstanding 10-1/2% Senior Notes Due 2006, which mature on
May
-22-
<PAGE>
15, 2006, and bear interest payable semi-annually on May 15 and November 15
of each year. During 1997, the Company issued 8-3/4% Senior Notes Due 2007,
which mature on July 15, 2007, and bear interest payable semi-annually on
January 15 and July 15 of each year. At June 30, 1998, $275.0 million of these
senior notes were outstanding.
The Company has a $1.2 million working capital line with a commercial lender
that may be used to fund short-term working capital commitments and letters of
credit. At June 30, 1998, the Company had no borrowings under this working
capital line and $74,000 of letters of credit outstanding. Borrowings are at
prime plus 1%.
OUTLOOK
Expand Diversify Domestic Portfolio Of Power Projects. In pursuing its growth
strategy, the Company intends to focus on opportunities for the acquisition,
development and operation of power generation facilities. The approach includes
design, engineering, procurement, finance, construction management, fuel and
resource acquisition, operations and power marketing, which the Company believes
provides it with a competitive advantage.
Acquisition Of Power Plants. The Company has significantly expanded and
diversified its project portfolio through the acquisition of power generation
facilities. Since 1993, the Company has completed transactions involving gas
cogeneration facilities and steam fields. As a result of these transactions, the
Company has significantly increased its aggregate power generation capacity and
substantially diversified its fuel mix.
Development Of Merchant Power Plants. The Company is also pursuing the
development of efficient, low-cost power plants that seek to take advantage of
inefficiencies in the electric market. The Company intends to sell all or a
portion of the power generated by such merchant plants into the competitive
market through a portfolio of short-, medium- and long-term power sales
agreements. The Company currently plans to develop additional low-cost, gas-
fired facilities in California, Texas, New England and other high-priced power
markets.
Impact Of Avoided Cost Pricing. The Company receives from Pacific Gas & Electric
("PG&E") a fixed price of 13.83 cents for each unit of electrical energy
according to schedules set forth in the long-term power sales agreements for
Bear Canyon and West Ford Flat Power Plants. The fixed price periods under these
power sales agreements expire in September and December 1998, respectively.
After the fixed price periods expire, while the basis for the capacity and
capacity bonus payments under these power sales agreements remains the same, the
energy payments will adjust from the interim short-run avoided cost ("SRAC") to
the energy clearing price of the independent power exchange, once it is deemed
fully implemented. The average prices per kilowatt for SRAC for the year 1997
and for the first six months of 1998 were 2.94 cents and 2.88 cents,
respectively. Due to seasonality, such average energy prices may not be
indicative of future energy prices. During the first six months of 1998, the
Bear Canyon and West Ford Flat Power Plants generated approximately 202,765,000
kilowatt hours of electrical energy for sale. The Company expects decreased
royalty expenses and operating cost reductions can mitigate the forecasted
decline in energy revenues at these facilities, although there can be no
assurances in this regard. The Company expects to continue its strategy of
replacing decreased revenues through its acquisition and development
-23-
<PAGE>
program.
Deregulation Within The Power Generation Industry. Many states are implementing
or considering regulatory initiatives designed to increase competition in the
domestic power generation industry. In December 1995, the California Public
Utilities Commission ("CPUC") issued an electric industry restructuring
decision, which envisioned commencement of deregulation and implementation of
customer choice of electricity supplier by January 1, 1998. Legislation
implementing this decision was adopted in September 1996 and deregulation
commenced on April 1, 1998. As part of its policy decision, the CPUC indicated
that power sales agreements of existing qualifying facilities would be honored.
The Company believes that the restructuring will not have a material effect on
any of its power sales agreements and, accordingly, believes that its existing
business and results of operations will not be materially adversely affected,
although there can be no assurance in this regard.
Impact Of Recent Accounting Pronouncements. In April of 1998, the American
Institute of Certified Public Accounts ("AICPA") issued Statement of Position
("SOP") No. 98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for financial statements for fiscal years beginning after December 15,
1998. For purposes of this SOP, start-up activities are defined broadly as those
one-time activities related to opening a new facility, conducting business in a
new territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing some new
operation. Start-up activities include activities related to organizing a new
entity (commonly referred to as organization costs). Although earlier adoption
is encouraged, the Company has not yet quantified or determined the timing of or
method of the adoption.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards, requiring every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and require
that a company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Statement must be applied to derivative instruments and to certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997.
The Company has not yet qualified the impact of adopting SFAS No. 133 on the
financials statements and has not determined the timing of or method of the
adoption of SFAS No. 133. However the Statement could increase volatility in
earnings.
Year 2000 Compliance. To ensure that the Company's computer systems are Year
2000 compliant, the Company continues to prepare for the Year 2000 issue. The
Company has been reviewing each of its financial and operating systems to
identify those
-24-
<PAGE>
that contain two-digit year codes. The Company is assessing the
amount of programming required to upgrade or replace each of the affected
programs with the goal of completing all relevant internal software remediation
and testing by early 1999, with continuing Year 2000 compliance efforts through
1999. In addition, the Company is actively working with all of its partnerships
to assess their compliance efforts and the Company's exposure resulting from
Year 2000 issues.
Based upon current information, the Company does not anticipate costs associated
with the Year 2000 issue to have a material financial impact. However, there can
be no assurances that there will not be interruptions or other limitations of
financial and operating systems functionality or that the Company will not incur
significant costs to avoid such interruptions or limitations. The Company's
expectations about future costs associated with the Year 2000 issue are subject
to uncertainties that could cause actual results to have a greater financial
impact than currently anticipated. Factors that could influence the amount and
timing of future costs include the success of the Company in identifying systems
and programs that contain two-digit year codes, the nature and amount of
programming required to upgrade or replace each of the affected programs, the
rate and magnitude of related labor and consulting costs, and the success of the
Company's partnerships in addressing the Year 2000 issue.
The forward-looking statements discussed in this outlook section involve a
number of risks and uncertainties. Other risks and uncertainties include, but
are not limited to, the general economy, regulatory conditions, the changing
environment of the power generation industry, pricing, the effects of legal and
administrative cases and proceedings, and such other risks and uncertainties as
may be detailed from time to time in the Company's SEC reports and filings.
-25-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL
On September 30, 1997, a lawsuit was filed by Indeck North American Power Fund
("Indeck") in the Circuit Court of Cook County, Illinois against Norweb plc. and
certain other parties, including the Company. Some of Indeck's claims relate to
Calpine Gordonsville, Inc.'s acquisition of a 50% interest in Gordonsville
Energy L.P. from Northern Hydro Limited and Calpine Auburndale, Inc.'s
acquisition of a 50% interest in Auburndale Power Plant Partners Limited
Partnership from Norweb Power Services (No. 1) Limited. Indeck is claiming that
Calpine Gordonsville, Inc., Calpine Auburndale, Inc. and the Company tortiously
interfered with Indeck's contractual rights to purchase such interests and
conspired with other parties to do so. Indeck is seeking $25.0 million in
compensatory damages, $25.0 million in punitive damages, and the recovery of
attorneys' fees and costs. In July 1998, the court granted motions to dismiss,
without prejudice, the claims against Calpine Gordonsville and Calpine
Auburndale.
There is currently a dispute between Texas-New Mexico Power Company ("TNP") and
Clear Lake Cogeneration Limited Partnership ("CLC"), which owns the Clear Lake
Power Plant, regarding certain costs and other amounts that TNP has withheld
from payments due under the power sales agreement. As of June 30, 1998, TNP has
withheld approximately $6.0 million related to transmission charges and has
continued to withhold approximately $450,000 per month thereafter. In October
1997, CLC filed a petition for declaratory order with the Texas Public Utilities
Commission ("Texas PUC") requesting a declaration that TNP's withholding is in
error, which petition is currently pending. Also, as of June 30, 1998, TNP has
withheld approximately $7.7 million of standby power charges and has continued
to withhold approximately $270,000 per month thereafter. In addition to the
Texas PUC petition, CLC has filed an action in Texas courts alleging TNP's
breach of the power sales agreement and is seeking in excess of $15.0 million in
damages. A trial date is scheduled for October 1998. The Company is unable to
predict the outcome of either of these proceedings.
An action was filed against Lockport Energy Associates, L.P. ("LEA") and the New
York Public Service Commission ("NYPSC") in August 1997 by New York State
Electricity and Gas Company ("NYSEG") in the Federal District Court for the
Northern District of New York. NYSEG has requested the Court to direct NYPSC and
the Federal Energy Regulatory Commission (the "FERC") to modify contract rates
to be paid to the Lockport Power Plant. In October 1997, NYPSC filed a
cross-claim alleging that the FERC violated PURPA and the Federal Power Act by
failing to reform the NYSEG contract that was previously approved by the NYPSC.
Although it is unable to predict the outcome of this case, in any event, the
Company retains the right to require The Brooklyn Union Gas Company ("BUG") to
purchase the Company's interest in the Lockport Power Plant for $18.9 million,
less equity distributions received by the Company, at any time before December
19, 2001. The Company is involved in various other claims and legal actions
arising out of the normal course of business. The Company does not expect that
the outcome of these proceedings will have a material adverse effect on the
Company's financial position or results of operations, although no assurance can
be given in this regard.
The Company is involved in various other claims and legal actions arising out of
the normal course of business. The Company does not expect that the outcome of
-26-
<PAGE>
these proceedings will have a material effect on the Company's financial
position or results of operations, although no assurance can be given in this
regard.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 27, 1998 (the
"Annual Meeting") in San Jose, California. At the Annual Meeting, stockholders
voted on two matters: (i) the election of two Class II directors for a term of
three years expiring in 2001 and (ii) the ratification of the appointment of
Arthur Andersen L.L.P. as independent auditors for the Company for the year
ending December 31, 1998. The stockholders elected management's nominees as the
Class II directors in an uncontested election and ratified the appointment of
independent auditors by the following votes, respectively: (i) Election of Class
II directors for a three-year term expiring in 2001 for Ann B. Curtis and V.
Orville Wright, 15,649,070 FOR and 1,818,778 ABSTAIN, (ii) Election of Arthur
Andersen L.L.P. as independent auditors for the year ending December 31, 1998,
17,374,404 FOR, 17,064 AGAINST and 76,380 ABSTAIN.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)-1. Reports on Form 8-K
Current report dated March 26, 1998 and filed on April 3, 1998
Item 5. Other Events - Proposed Rule 144A offering of $300
million principal amount of 7-7/8% Senior Notes Due 2008
Current report dated March 31, 1998 and filed on April 14, 1998
Item 2. Acquisitions and Dispositions of Assets - TCC
Acquisition
Item 7. Financial Statements and Exhibits
Current report dated March 31, 1998 and filed on May 15, 1998
Item 7. Financial Statements and Exhibits - Amended Form
Form 8-K/A
Current report dated May 26, 1998 and filed on June 9, 1998
Item 5. Other Events - Announcement of Magic Valley
transactions.
Item 7. Exhibits - Stock Purchase Agreement dated
May 1, 1998 and between Calpine Corporation and CCNG
Investments, L.P.
-27-
<PAGE>
Current report dated March 16, 1998 and filed on July 31, 1998
Item 5. Other Events - Announcement in a press release that
the Company had completed its Rule 144A offering of an
additional $100 million principal amount of 7-7/8%
Senior Notes Due 2008
Item 7. Exhibits - Press release dated July 21, 1998
(a)-2. Exhibits
The following exhibits are filed herewith unless otherwise indicated:
3.1 -- Amended and Restated Certificate of Incorporation of
Calpine Corporation, a Delaware corporation.(b)
3.2 -- Amended and Restated Bylaws of Calpine Corporation, a Delaware
corporation.(b)
4.1 -- Indenture dated as of February 17, 1994 between the Company and
Shawmut Bank of Connecticut, National Association, as Trustee,
including form of Notes.(a)
4.2 -- Indenture dated as of May 16, 1996 between the Company and Fleet
National Bank, as Trustee, including form of Notes.(d)
4.3 -- Indenture dated as of July 8, 1997 between the Company and The
Bank of New York, as Trustee, including form of Notes.(g)
4.4 -- Indenture dated as of March 31, 1998 between the Company and The
Bank of New York, as Trustee, including form of Notes.(l)
10.1 -- FINANCING AGREEMENTS
10.1.1 -- Construction and Term Loan Agreement, dated as of January 30,
1992, between Sumas Cogeneration
Company, L.P., The Prudential Insurance Company of America and
Credit Suisse, New York Branch.(a)
10.1.2 -- Amendment No. 1 to Construction and Term Loan Agreement, dated
as of May 24, 1993, between Sumas Cogeneration Company, L.P.,
The Prudential Insurance Company of America and Credit Suisse,
New York Branch.(a)
10.1.3 -- Lease dated as of April 24, 1996 between BAF Energy A California
Limited Partnership, Lessor, and Calpine King City Cogen, LLC,
Lessee.(c)
10.1.4 -- Credit Agreement, dated as of August 28, 1996, among Calpine
Gilroy Cogen, L.P. and Banque Nationale de Paris.(b)
10.1.5 -- Credit Agreement, dated as of September 25, 1996, among Calpine
Corporation and The Bank of Nova Scotia.(c)
10.1.6 -- Credit Agreement, dated December 20, 1996, among Pasadena
Cogeneration L.P. and ING (U.S.) Capital Corporation and The
Bank Parties Hereto.(e)
10.2 -- PURCHASE AGREEMENTS
10.2.1 -- Asset Purchase Agreement, dated as of August 28, 1996, among
Gilroy Energy Company, McCormick & Company, Incorporated and
Calpine Gilroy Cogen, L.P.(d)
10.2.2 -- Noncompetition/Earnings Contingency Agreement, dated as of
August 28, 1996, among Gilroy Energy Company, McCormick &
Company, Incorporated and Calpine Gilroy Cogen, L.P.(d)
10.2.3 -- Purchase and Sale Agreement dated March 27, 1997 for the
purchase and sale of shares of Enron/Dominion Cogen Corp.
Common Stock among Enron Power Corporation and Calpine
Corporation. (i)
10.2.4 -- Stock Purchase and Redemption Agreement dated March 31, 1998,
among Dominion Cogen, Inc. Dominion Energy, Inc. and Calpine
Finance (i)
-28-
<PAGE>
10.2.5 -- Stock Purchase Agreement Among Gas Energy Inc., Gas Energy
Cogeneration Inc., Calpine Eastern Corporation and Calpine
Corporation dated August 22, 1997.(h)
10.2.6 -- First Amendment to the Stock Purchase Agreement Among Gas
Energy Inc., Gas Cogeneration Inc.,
The Brooklyn Union Gas Company and Calpine Eastern Corporation
and Calpine Corporation dated August 22, 1997; as amended on
December 19, 1997. (h)
10.2.7 -- Amended and Restated Cogenerated Electricity Sale and Purchase
Agreement by and between Cogenron Inc., and Texas Utilities
Electric Company dated June 12, 1985; as previously amended,
and as amended and restated on December 29, 1997. (h)
10.2.8 -- Agreement for the Purchase of Electrical Power and Energy
between Capital Cogeneration Company Ltd. And Texas-New Mexico
Power Company Agreement.(h)
10.2.9 -- Stock Purchase Agreement dated May 1, 1998 and between Calpine
Corporation and CCNG Investments, L.P.(k)
10.3 -- POWER SALES AGREEMENTS
10.3.1 -- Long-Term Energy and Capacity Power Purchase Agreement relating
to the Bear Canyon Facility, dated November 30, 1984, between
Pacific Gas & Electric and Calpine Geysers Company, L.P.(formerly
Santa Rosa Geothermal Company, L.P.), Amendment dated
October 17, 1985, Second Amendment dated October 19, 1988,
and related documents.(a)
10.3.2 -- Long-Term Energy and Capacity Power Purchase Agreement relating
to the Bear Canyon Facility, dated November 29, 1984, between
Pacific Gas & Electric and Calpine Geysers Company, L.P.(formerly
Santa Rosa Geothermal Company, L.P.), and Modification dated
November 29, 1984, Amendment dated October 17, 1985, Second
Amendment dated October 19, 1988, and related documents.(a)
10.3.3 -- Long-Term Energy and Capacity Power Purchase Agreement relating
to the West Ford Flat Facility, dated November 13, 1984, between
Pacific Gas & Electric and Calpine Geysers Company, L.P.
(formerly Santa Rosa Geothermal Company, L.P.), and Amendments
dated May 18, 1987, June 22, 1987, July 3, 1987 and January 21,
1988, and related documents.(a)
10.3.4 -- Agreement for Firm Power Purchase, dated as of February 24, 1989,
between Puget Sound Power & Light Company and Sumas Energy, Inc.
and Amendment thereto dated September 30, 1991.(a)
10.3.5 -- Long-Term Energy and Capacity Power Purchase Agreement, dated
December 5,1985, between Calpine Gilroy Cogen, L.P. and Pacific
Gas and Electric Company, and Amendments thereto dated December
19, 1993, July 18, 1985, June 9, 1986, August 18, 1988 and
June 9, 1991. (b)
10.3.6 -- Amended and Restated Energy Sales Agreement, dated December 16,
1996, between Phillips Petroleum Company and Pasadena
Cogeneration, L.P.(e)
10.4 -- STEAM SALES AGREEMENTS
10.4.1 -- Amendment to the Steam and Electricity Service Agreement
between Cogenron Inc. and Union Carbide
Corporation dated June 12, 1985. (h)
10.6 -- GAS SUPPLY AGREEMENTS
10.6.1 -- Gas Sale and Purchase Agreement, dated as of December 23,
1991, between ENCO Gas, Ltd. and Sumas Cogeneration Company,
L.P.(a)
10.6.2 -- Gas Management Agreement, dated as of December 23, 1991,
between Canadian Hydrocarbons Marketing Inc., ENCO Gas, Ltd.
And Sumas Cogeneration Company, L.P.(a)
10.8 -- GENERAL
-29-
<PAGE>
10.8.1 -- Limited Partnership Agreement of Sumas Cogeneration Company,
L.P., dated as of August 28, 1991, between Sumas Energy, Inc.
and Whatcom Cogeneration Partners, L.P.(a)
10.8.2 -- First Amendment to Limited Partnership Agreement of Sumas
Cogeneration Company, L.P., dated as of January 30, 1992, between
Whatcom Cogeneration Partners, L.P. and Sumas Energy, Inc.(a)
10.8.3 -- Second Amendment to Limited Partnership Agreement of Sumas
Cogeneration Company, L.P., dated as of May 24, 1993, between
Whatcom Cogeneration Partners, L.P. and Sumas Energy, Inc.(a)
10.8.4 -- Amended and Restated Limited Partnership Agreement of Geothermal
Energy Partners Ltd., L.P., dated as of May 19, 1989, between
Western Geothermal Company, L.P., Sonoma Geothermal Company,
L.P., and Cloverdale Geothermal Partners, L.P.(a)
10.8.5 -- Ground Lease Agreement, between Union Carbide Corporation
and Northern Cogeneration One Company, dated January 1, 1986.(h)
10.9.1 -- Calpine Corporation Stock Option Program and forms of agreements
thereunder.(a)
10.9.2 -- Calpine Corporation 1996 Stock Incentive Plan and forms of
agreements thereunder.(b)
10.9.3 -- Calpine Corporation Employee Stock Purchase Plan and forms of
agreements thereunder.(b)
10.10.1 -- Amended and Restated Employment Agreement between Calpine
Corporation and Mr. Peter Cartwright.(b)
10.10.2 -- Senior Vice President Employment Agreement between Calpine
Corporation and Ms. Ann B. Curtis.(b)
10.10.3 -- Senior Vice President Employment Agreement between Calpine
Corporation and Mr. Lynn A. Kerby.(b)
10.10.4 -- Vice President Employment Agreement between Calpine Corporation
and Mr. Ron A. Walter.(b)
10.10.5 -- Vice President Employment Agreement between Calpine Corporation
and Mr. Robert D. Kelly.(b)
10.10.6 -- First Amended and Restated Consulting Contract between Calpine
Corporation and Mr. George J. Stathakis.(b)
10.11 -- Form of Indemnification Agreement for directors and officers. (b)
21.1 -- Subsidiaries of the Company.(d)
27.0 -- Financial Data Schedule.*
____________
(a) Incorporated by reference to Registrant's Registration Statement on
Form S-1 Registration Statement No. 33-73160.
(b) Incorporated by reference to Registrant's Registration Statement on
Form S-1 Registration Statement No. 333-07497.
(c) Incorporated by reference to Registrant's Current Report on Form 8-K
dated May 1, 1996 and filed on May 14, 1996.
(d) Incorporated by reference to Registrant's Current Report on Form 8-K
dated August 29, 1996 and filed on September 13, 1996.
(e) Incorporated by reference to Registrant's Annual Report on Form 10-K
dated December 31, 1996, filed on March 27, 1996.
(f) Incorporated by reference to Registrant's Quarterly Report on
Form 10-Q dated March 31, 1997 and filed on May 12, 1997.
-30-
<PAGE>
(g) Incorporated by reference to Registrant's Quarterly Report on
Form 10-Q dated June 30, 1997 and filed on August 14, 1997.
(h) Incorporated by reference to Registrant's Annual Report on
Form 10-K/A dated December 31, 1997 and filed on April 1, 1998.
(i) Incorporated by reference to Registrant's Current Report on
Form 8-K dated March 31, 1998 and filed on April 14, 1998.
(j) Incorporated by reference to Registrant's Quarterly Report on
Form 10-Q dated March 31, 1998 and filed on April 14, 1998.
(k) Incorporated by reference to Registrant's Current Report on
Form 8-K dated May 26, 1998 and filed on June 9, 1998.
(l) Incorporated by reference to Registrant's Registration Statement on
Form S-4, filed on August 10, 1998 Registration Statement No. 333-61047.
* Filed herewith.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALPINE CORPORATION
By: /s/ Ann B. Curtis Date: August 13, 1998
--------------------------
Ann B. Curtis
Senior Vice President
(Chief Financial Officer)
By: /s/ Gloria S. Gee Date: August 13, 1998
--------------------------
Gloria S. Gee
Corporate Controller
(Chief Accounting Officer)
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CALPINE
CORPORATION'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30,1998, AND FROM
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30,1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000916457
<NAME> CALPINE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 100,359
<SECURITIES> 1,828
<RECEIVABLES> 100,516
<ALLOWANCES> 0
<INVENTORY> 9,216
<CURRENT-ASSETS> 241,800
<PP&E> 1,462,683
<DEPRECIATION> 327,264
<TOTAL-ASSETS> 1,700,251
<CURRENT-LIABILITIES> 96,473
<BONDS> 855,618
0
0
<COMMON> 20
<OTHER-SE> 249,100
<TOTAL-LIABILITY-AND-EQUITY> 1,700,251
<SALES> 178,798
<TOTAL-REVENUES> 196,742
<CGS> 129,337
<TOTAL-COSTS> 136,125
<OTHER-EXPENSES> 14,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,790
<INCOME-PRETAX> 12,264
<INCOME-TAX> 3,393
<INCOME-CONTINUING> 8,871
<DISCONTINUED> 0
<EXTRAORDINARY> 302
<CHANGES> 0
<NET-INCOME> 8,569
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.41
</TABLE>