UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 2005
CALPINE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of Other Jurisdiction of Incorporation)
Commission file number: 001-12079
I.R.S. Employer Identification No. 77-0212977
50 West San Fernando Street
San Jose, California 95113
Telephone: (408) 995-5115
(Address of principal executive offices and telephone number)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 8.01 -- OTHER EVENTS
On May 25, 2005, the Registrant issued the press release attached hereto
as Exhibit 99.1.
ITEM 9.01 -- FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
Not Applicable
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits.
99.1. Press release, dated May 25, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CALPINE CORPORATION
By: /s/ Charles B. Clark, Jr.
------------------------------------
Charles B. Clark, Jr.
Senior Vice President, Controller and
Chief Accounting Officer
Date: May 25, 2005
EXHIBIT 99.1.
NEWS RELEASE CONTACTS: (408) 995-5115
Media Relations: Katherine Potter, Ext. 1168
Investor Relations: Rick Barraza, Ext. 1125
Karen Bunton, Ext. 1121
Lisa Poelle, Ext. 1285
Calpine Launches Strategic Initiative to
Accelerate Debt Reduction and Increase Cash Flow
Program Includes Asset Sales and Operating Cost Reductions
(SAN JOSE, Calif.) /PR Newswire-First Call/ May 25, 2005 - Calpine
Corporation [NYSE:CPN] rolled out an aggressive strategic initiative today aimed
at dramatically enhancing the company's financial strength. The program is
targeting accelerated debt reduction of more than $3 billion by the end of 2005,
$275 million of annual interest savings, and approximately $200 million in
annual operating cost reductions.
The program will strengthen the company's core North American power assets
and enhance Calpine's financial flexibility by:
o Optimizing the Power Plant Portfolio - Selling certain power and gas assets
to reduce debt, lower annual interest cost and increase cash flow. In
addition to previously announced potential asset sales, the company is
targeting the sale of up to eight plants.
o Reducing Operating Costs - Decreasing operating and maintenance costs and
lowering fuel costs to improve the operating performance of power plants,
significantly boosting operating cash flow and liquidity.
o Accelerating Debt Reduction - Reducing total debt by more than $3 billion,
or 16%, by the end of 2005, one year earlier than planned. Additional
significant debt reductions are planned for 2006 and beyond.
"Calpine has set an aggressive and timely program to strengthen our
financial and competitive position," stated Calpine Chairman, President and CEO
Peter Cartwright. "To operate effectively in a business environment that has
changed dramatically over the last few years, we are reviewing all options to
provide near-term results, while continuing to focus on long-term value. We have
already recognized several attractive opportunities, which we expect will
improve our operating cash flow.
"We are refocusing and streamlining our business to take advantage of
market opportunities as industry and economic fundamentals continue to improve
in several of our key power regions. By taking these decisive actions, we're
positioning Calpine to best capture the strong cash and earnings potential of
our efficient, gas-fired and renewable, geothermal power fleet. The program
we're presenting today is in its early stages. It will serve as a blueprint for
a new and more powerful Calpine," Cartwright concluded.
PROGRAM OVERVIEW
The program is designed to improve the value of Calpine's core power plant
assets and strengthen its balance sheet.
Optimizing the Power Plant Portfolio
o Asset Sales - Calpine is pursuing opportunities to add value to its
portfolio, reduce corporate debt and increase cash flow through sales of
both its gas assets and certain of its power assets.
o Calpine is finalizing its review of bids received for the sale of its
1,200-megawatt Saltend Energy Centre in the United Kingdom. The
proceeds generated from such a sale are expected to be used to redeem
$620 million of preferred equity related to the project, with the
balance to be used in accordance with the company's existing bond
indentures.
o As announced last week, Calpine is evaluating strategic alternatives
for its U.S. oil and gas assets, including the potential sale of all
of or a portion of these resources. The proceeds generated from such a
sale are expected to be used in accordance with the company's existing
bond indentures.
o The company is also evaluating the sale of up to eight other power
plants to capture stronger market valuations.
o Mothball Plants - Calpine is considering temporarily shutting down power
plants with negative cash flow, until market conditions warrant start-up,
to further reduce costs and more effectively focus the company's financial
and sales resources.
o Credit Enhancement - The company is in discussions with a leading financial
institution to form a partnership that will lower its collateral
requirements and establish a significant third party customer business. The
combination of Calpine Energy Services' people, systems and processes, and
the credit and financial resources of an investment grade financial
institution, will enable the partnership to provide customers across the
energy industry with unique products, services and energy solutions.
Reducing Operating Costs
Through technological innovations and other programs, Calpine is enhancing
the operating performance of its power plant fleet and is working to reduce its
operating costs by approximately $200 million per year:
o Self-Perform Maintenance - Calpine is in negotiations to terminate all
remaining long-term maintenance agreements. This will allow the company's
plant and turbine maintenance groups to provide major maintenance and
component and parts repairs at considerable cost savings.
o Reduce Off-Peak Operating Losses - Calpine plans to incorporate fleet-wide
initiatives, some of which include innovative components that it has
developed to reduce off-peak operating losses, resulting in considerable
fuel cost savings. Further promoting this effort, the company's
manufacturing and parts components subsidiary, Power Systems Manufacturing
(PSM), recently installed its new combustor system, Flamesheet, at a
Calpine plant to increase the operating range of the gas turbines while
meeting the environmental permitting requirements.
o Reduce Heat Rate - Calpine will continue to incorporate fuel efficiency
technologies fleet-wide to lower its annual fuel costs. To capture these
cost savings, Calpine is targeting up to a 4% reduction in fuel costs
through incremental improvements in power plant heat rates. For example, at
Calpine's 263-megawatt Rumford Power Plant, the company recently installed
and tested PSM proprietary parts and low-emissions systems, and customized
plant operating procedures, resulting in a 2% heat rate improvement that
could provide annual savings approaching $1 million at the plant.
Accelerating Debt Reduction
Through this program of asset sales, credit enhancement, and fuel and
operating cost reductions, Calpine is accelerating by one year its plans to
repurchase more than $3 billion of corporate debt by the end of 2005. This
aggressive debt reduction program will continue in 2006 and beyond.
Calpine Chief Financial Officer Bob Kelly stated, "Our number one financial
priority is de-levering the balance sheet to bring it in line with the current
and future power markets and the related spark spread-generating capability of
our modern fleet. This program is the first step toward achieving our long-term
target of total debt equal to six times EBITDA, as adjusted(1). With the new
financial focus and power initiative outlined today, we expect to significantly
strengthen our balance sheet, lower our annual interest payments and improve our
debt coverage ratios."
Company to Host Investor Day
Calpine will host an East Coast Investor Day in the Fall to provide a
comprehensive overview of the company, including a progress report on the
strategic initiatives announced today. Further information on the date and
location of the event will be announced shortly.
Annual Meeting Web Cast
Calpine will present a web cast of its Annual Meeting of Stockholders this
morning, at 10:00 a.m. PDT. Peter Cartwright will provide a presentation on the
program outlined in today's announcement and a review of the past 12-months. The
web cast, which includes the normal business meeting and presentation, can be
accessed at Calpine's web site, www.calpine.com, under Investor Relations and
will be archived for 30 days.
About Calpine
A major power company, Calpine Corporation supplies customers and
communities with electricity from clean, efficient, natural gas-fired and
geothermal power plants. Calpine owns, leases and operates integrated systems of
plants in 21 U.S. states, three Canadian provinces and the United Kingdom. Its
customized products and services include wholesale and retail electricity,
natural gas, gas turbine components and services, energy management, and a wide
range of power plant engineering, construction and operations services. Calpine
was founded in 1984. It is included in the S&P 500 Index and is publicly traded
on the New York Stock Exchange under the symbol CPN. For more information, visit
www.calpine.com.
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(1) For the company, EBITDA is not a measure of operating results, but
rather a measure of its ability to service debt and to raise additional funds.
It should not be construed as an alternative to either (i) income from
operations or (ii) cash flows from operating activities. It is defined as net
income less income from unconsolidated investments, plus cash received from
unconsolidated investments; plus provision for tax; plus interest expense
(including distributions on trust preferred securities and one-third of
operating lease expense, which is management's estimate of the component of
operating lease expense that constitutes interest expense); plus depreciation,
depletion and amortization. The interest, tax, and depreciation and amortization
components of discontinued operations are added back in calculating EBITDA, as
adjusted. The non-GAAP measure, EBITDA, as adjusted for non-cash and other
charges, is presented as a further refinement of EBITDA, as adjusted, to reflect
the company's ability to service debt with cash.
This news release discusses certain matters that 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, including statements regarding the intent, belief or current
expectations of Calpine Corporation ("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 that could materially affect actual results such as, but not
limited to, (i) the timing and extent of deregulation of energy markets and the
rules and regulations adopted on a transitional basis with respect thereto; (ii)
the timing and extent of changes in commodity prices for energy, particularly
natural gas and electricity; (iii) commercial operations of new plants that may
be delayed or prevented because of various development and construction risks,
such as a failure to obtain the necessary permits to operate, failure of
third-party contractors to perform their contractual obligations or failure to
obtain financing on acceptable terms; (iv) unscheduled outages of operating
plants; (v) a competitor's development of lower cost generating gas-fired power
plants; (vi) risks associated with marketing and selling power from power plants
in the newly-competitive energy market; (vii) the successful exploitation of an
oil or gas resource that ultimately depends upon the geology of the resource,
the total amount and costs to develop recoverable reserves and operations
factors relating to the extraction of natural gas; (viii) the effects on the
company's business resulting from reduced liquidity in the trading and power
industry; (ix) the company's ability to access the capital markets or obtain
bank financing on attractive terms; (x) the direct or indirect effects on the
company's business of a lowering of its credit rating (or actions it may take in
response to changing credit rating criteria), including, increased collateral
requirements, refusal by the company's current or potential counterparties to
enter into transactions with it and its inability to obtain credit or capital in
desired amounts or on favorable terms; and (xi) other risks identified from
time-to-time in the company's reports and registration statements filed with the
SEC, including the risk factors identified in its Annual Report on Form 10-K for
the year ended Dec. 31, 2004, and its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2005, which can also be found on the company's website
at www.calpine.com. All information set forth in this news release is as of
today's date, and the company undertakes no duty to update this information.