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 March 31, 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 20,105,390 shares outstanding on May 12, 1998 -1- CALPINE CORPORATION AND SUBSIDIARIES Report on Form 10-Q For the Quarter Ended March 31, 1998 INDEX PART I. FINANCIAL INFORMATION Page No. ITEM 1. Financial Statements Condensed Consolidated Balance Sheets March 31, 1998 and December 31, 1997..................................3 Condensed Consolidated Statements of Operations Three Months Ended March 31, 1998 and 1997............................4 Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 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..................................13 PART II..OTHER INFORMATION ITEM 1. Legal Proceedings...........................................20 ITEM 2. Change in Securities........................................20 ITEM 3. Defaults Upon Senior Securities.............................20 ITEM 4. Submission of Matters to a Vote of Security Holders.........20 ITEM 5. Other Information...........................................20 ITEM 6. Exhibits and Reports on Form 8-K............................21 Signatures....................................................................25 -2- ITEM 1. FINANCIAL STATEMENTS CALPINE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 1998 and December 31, 1997 (in thousands) March 31, December 31, 1998 1997 ---------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents ......................... $ 96,960 $ 48,513 Accounts receivable from related parties ......... 3,605 7,672 Accounts receivable from others .................. 69,866 35,133 Collateral securities, current portion ........... 3,387 6,036 Loans receivable from related parties, current portion ........................................ -- 30,507 Prepaid operating lease .......................... 13,652 13,652 Inventories ...................................... 9,114 6,015 Other current assets ............................. 19,920 19,050 ---------- ---------- Total current assets .......................... 216,504 166,578 Property, plant and equipment, net ................... 1,140,783 719,721 Investments in power projects ........................ 156,194 239,160 Project development costs ............................ 7,490 4,614 Collateral securities, net of current portion ........ 86,155 87,134 Loans receivable from related parties, net of current portion............................................. -- 101,304 Notes receivable from related parties ................ 13,575 16,053 Restricted cash ...................................... 15,659 15,584 Deferred financing costs ............................. 24,021 20,493 Other assets ......................................... 17,716 10,315 ---------- ---------- Total assets ................................. $1,678,097 $1,380,956 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of non-recourse project financing . $ 9,670 $ 112,966 Accounts payable .................................. 38,415 30,441 Accrued payroll and related expenses .............. 3,151 4,950 Accrued interest payable .......................... 14,286 18,025 Deferred lease incentive .......................... 3,569 3,569 Other current liabilities ......................... 30,672 8,635 ---------- ---------- Total current liabilities ..................... 99,763 178,586 Non-recourse project financing, net of current portion 227,081 182,893 Senior Notes ......................................... 859,629 560,041 Deferred income taxes, net ........................... 163,024 142,050 Deferred lease incentive ............................. 70,491 71,383 Other liabilities .................................... 20,621 6,047 ---------- ---------- Total liabilities ............................ 1,440,609 1,141,000 ---------- ---------- Stockholders' equity: Common stock ...................................... 20 20 Additional paid-in capital ........................ 168,132 167,542 Retained earnings ................................. 69,336 72,394 ---------- ---------- Total stockholders' equity .................... 237,488 239,956 ---------- ---------- Total liabilities and stockholders' equity .... $1,678,097 $1,380,956 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. -3- CALPINE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended March 31, 1998 and 1997 (in thousands, except per share amounts) (unaudited) Three Months Ended March 31, -------------------- 1998 1997 -------- -------- Revenue: Electricity and steam sales ......................... $ 43,390 $ 33,687 Service contract revenue ............................ 5,481 1,814 Income from unconsolidated investments in power projects .......................................... 3,754 2,033 Interest income on loans to power projects ......... 2,520 1,697 -------- -------- Total revenue ................................... 55,145 39,231 -------- -------- Cost of revenue: Plant operating expenses, depreciation, operating lease expense and production royalties ... 34,473 29,205 Service contract expenses ........................... 4,896 1,384 -------- -------- Total cost of revenue ........................... 39,369 30,589 -------- -------- Gross profit ........................................... 15,776 8,642 Project development expenses ........................... 1,681 2,161 General and administrative expenses .................... 5,236 4,211 -------- -------- Income from operations .......................... 8,859 2,270 Interest expense ....................................... 18,523 12,977 Interest income ........................................ (2,363) (3,401) Other (income) expense ................................. (401) (200) -------- -------- Loss before provision for income taxes .......... (6,900) (7,106) Provision for income taxes ............................. (3,843) (3,066) -------- -------- Net loss ........................................ $ (3,057) $ (4,040) ======== ======== Basic earnings per common share: Weighted average shares of common stock .............. 20,087 19,852 Basic earnings per share ............................. $ (0.15) $ (0.20) Diluted earnings per share: Weighted average shares of common stock .............. 20,087 19,852 Diluted earnings per share ........................... $ (0.15) $ (0.20) The accompanying notes are an integral part of these consolidated financial statements. -4- CALPlNE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 (in thousands) (unaudited) Three Months Ended March 31, ---------------------- 1998 1997 --------- --------- Net cash provided by operating activities ............. $ 3,545 $ 9,194 --------- --------- Cash flows from investing activities: Acquisition of property, plant and equipment ........ (12,873) (27,887) Acquisitions ........................................ (157,108) (7,462) Decrease in notes receivable ........................ 13,814 -- Maturities of collateral securities ................. 4,480 5,350 Project development costs ........................... (2,912) (1,277) Decrease(increase) in restricted cash ............... (76) 12,302 Other ............................................... 419 (34) --------- --------- Net cash used in investing activities ......... (154,256) (19,008) --------- --------- Cash flows from financing activities: Borrowings of non-recourse project financing ........ 44,450 1,650 Repayments of non-recourse project financing ........ (140,935) (139) Proceeds from Senior Notes .......................... 300,000 -- Proceeds from issuance of common stock .............. 421 419 Financing costs ..................................... (4,778) (3) --------- --------- Net cash provided by financing activities .... 199,158 1,927 --------- --------- Net increase (decrease) in cash and cash equivalents... 48,447 (7,887) Cash and cash equivalents, beginning of period ........ 48,513 100,010 --------- --------- Cash and cash equivalents, end of period .............. $ 96,960 $ 92,123 ========= ========= Cash paid during the period for: Interest ............................................ $ 23,034 $ 9,079 Income taxes ........................................ $ -- $ 435 The accompanying notes are an integral part of these consolidated financial statements. -5- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 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. 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 construction period. For the three months ended March 31, 1998 and 1997, the Company capitalized $2.0 million and $563,000 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 connection with 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 deferred and recognized in income over the remaining life of the existing swap. Reclassifications -- Prior period amounts in the consolidated condensed financial statements have been reclassified where necessary to conform to the 1998 presentation. -6- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 3. Accounts Receivable At March 31, 1998, accounts receivable totaled $73.5 million, which included $3.6 million receivable from related parties. Accounts receivable from related parties at March 31, 1998 and December 31, 1997 include the following (in thousands): March 31, December 31, 1998 1997 ------ ------ Nisseqougue Cogen Partners ........................... $2,982 $4,140 TBG Cogen Partners ................................... 34 1,490 Texas Cogeneration Company ........................... -- 903 Sumas Cogeneration Company, L.P ...................... 107 527 Geothermal Energy Partners, Ltd. ..................... 130 275 O.L.S. Energy-Agnews, Inc. ........................... 247 269 KIAC Partners ........................................ 105 68 ------ ------ Accounts receivable from related parties ........... $3,605 $7,672 ====== ====== 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 results of operations and financial position of the Company's equity-basis affiliates are summarized below (in thousands): Three Months Ended ------------------------ March 31, March 31, 1998 1997 ----------- ----------- Condensed Statement of Operations Revenue............................................. $ 190,815 $ 18,009 Net income.......................................... $ 13,236 $ 5,724 Company's share of net income......................... $ 3,754 $ 2,033 As Of As Of March 31, December 31, 1998 1997 ----------- ----------- Condensed Balance Sheet Assets.............................................. $ 1,252,719 $ 1,693,454 Liabilities......................................... $ 994,886 $ 1,276,922 Company's investment in subsidiaries.................. $ 151,422 $ 237,241 Project development costs............................. 732 1,919 ----------- ----------- Total investments....................... ........... $ 152,154 $ 239,160 =========== =========== 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): -7- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 Investments in Service Power Projects Contract Revenue ------------------- ----------------- For the three months ended March 31, Ownership -------------------------------------- Percentage 1998 1997 1998 1997 -------------- -------- -------- -------- ------ Sumas Cogeneration Company, L.P (1) $ 979 $ 2,066 $ 373 $ 518 O.L.S. Energy-Agnews, Inc 20 (88) (124) 437 459 Geothermal Energy Partners, Ltd 5 111 91 802 780 Auburndale Power Partners, L.P. 50 (163) - - - Gordonsville Energy, L.P 50 1,367 - - - KIAC Partners 50 (2,192) - - - Nissequogue Cogen Partners 50 (119) - - - Lockport Energy Associates,L.P 11 938 - - - Texas Cogeneration Company (2) 2,922 - 1,613 - (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 Cogeneration Company. 5. Repayment of Non-Recourse 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 (see Note 9). 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, subject to final adjustments. 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- -8- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 fired power plant located in Bayonne, NJ. A wholly owned subsidiary of Calpine now purchases a portion of its natural gas for the Texas power plants from Enron Capital & Trade Resources Corp. In a related transaction, the Company paid approximately $105.3 million to restructure certain gas contracts with Enron Capital & Trade Resources Corp The purchase of the capital stock from DCI and the restructuring of certain gas contracts were funded with a portion of the net proceeds from the issuance of the 7-7/8% Senior Notes Due 2008. The acquisition is being accounted for as a purchase. The effective date of the transaction was March 31, 1998. On June 23, 1997, the Company had 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 assuming the acquisition occurred as of January 1, 1997 (in thousands, except per share data): 1997 --------- Revenue $ 603,760 Net income $ 61,464 Basic earnings per share $ 3.08 Diluted earnings per share $ 2.92 7. Bethpage Transaction On February 9, 1998, the Company acquired the remaining 55% interest in TBG Cogen Partners Joint Venture ("TBG Cogen"). The partnership owns the Bethpage Power Plant, a 57 megawatt gas-fired cogeneration facility located on Long Island. 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 7-7/8% Senior Notes Due 2008. The acquisition is being accounted for as a purchase. 8. Financial Instruments On March 31, 1998, the Company completed its Rule 144A offering of $300.0 million 7-7/8% Senior Notes Due 2008 ("Senior Notes Due 2008"). After deducting discounts to initial purchasers and expenses of the offering, the net proceeds from the -9- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 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 to pay for the purchase of the remaining 50% interest in TCC (see Note 7), (ii) $105.3 million to pay for the restructuring of certain gas contracts associated with the TCC acquisition, (iii) $89.6 million to repay the outstanding principal on the non-recourse debt provided by The Bank of Nova Scotia, and (iv) $38.2 million to repay 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. In anticipation of the Senior Notes Due 2008 offering, the Company entered into a forward treasury bond during February 1998. The Company closed its position prior to the pricing date of the debt resulting in a gain of $2.3 million, which was applied against transaction costs associated with the financing. 9. Revolving Credit Facility and Line of Credit At March 31, 1998, the Company had a $50.0 million credit facility available with a consortium of commercial lending institutions which include The Bank of Nova Scotia, International Nederlanden U.S. Capital Corporation, Sumitomo Bank of California and Canadian Imperial Bank of Commerce. At March 31, 1998, the Company had no borrowings and $15.4 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. The credit facility expires in September 1999. On May 15, 1998, the Company replaced the $50.0 million credit facility with a $100.0 million credit facility which has a three year term. 10. Earnings per Share The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," which replaces the presentation of primary earnings per share and fully diluted earnings per share with a presentation of basic earnings per share and diluted earnings per share. As the Company incurred a loss during the three months ended March 31, 1998, both basic and diluted earnings per share are the same. Net Loss Shares (Numerator) (Denominator) Per Share (in thousands) (in thousands) Amount -------------------- -------------------- ----------------- For the three months ended March 31, 1997 Basic and diluted earnings per share Income available to common stockholders $ (4,040) 19,852 $ (0.20) For the three months ended March 31, 1997 Basic and diluted earnings per share Income available to common stockholders $ (3,057) 20,087 $ (0.15) Unexercised employee stock options to purchase 2.1 million and 2.4 million shares of the Company's common stock during the three months ended March 31, 1998 and -10- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 1997, respectively, were not included in the computation of diluted shares outstanding because such inclusion would be anti-dilutive. 11. Contingencies 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. All the defendants filed motions to dismiss such claims, which are currently pending. The Company believes that the claims of Indeck are without merit and that the resolution of this matter will not have a material adverse effect on the Company's financial position or results of operations. 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 December 31, 1997, TNP has withheld approximately $5.4 million related to transmission charges and has continued to withhold approximately $450,000 per month thereafter. CLC filed a petition for declaratory order with the Texas Public Utilities Commission ("Texas PUC") on October 2, 1997 requesting that the Texas PUC declare that TNP's withholding is in error. This matter is pending before the Texas PUC. In addition, as of March 31, 1998, TNP has withheld approximately $5.2 million of standby power charges and has continued to withhold approximately $270,000 per month thereafter. CLC has filed a lawsuit in Texas against TNP claiming that TNP is in breach of certain provisions of the power sales agreement, including the provisions involved in the disputes described above, and is seeking in excess of $15.0 million in damages. A trial has been rescheduled to commence from the previously reported date of June 1998 to October of 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") on August 7, 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 the Federal Energy Regulatory Commission (the "FERC") and the New York Public Service Commission ("NYPSC"), to modify contract rates to be paid to the Lockport Power Plant. On October 14, 1997, NYPSC, a named defendant in the NYSEG action, filed a cross-claim alleging that the FERC violated PURPA and the Federal Power Act by failing to reform the NYSEG contract which was previously approved by the NYPSC. LEA continues to vigorously defend this action, although it is unable to predict the outcome of this case. Calpine retains the right to require The Brooklyn Union Gas Company ("BUG") to purchase Calpine's interest in the Lockport Power Plant for $18.9 million, less equity distributions received by Calpine, at any time before December 19, 2001. In the event the NYSEG's action is successful, Calpine may choose to exercise its right to require BUG to -11- CALPINE CORPORATION AND SUBSIDIAIRIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) March 31, 1998 purchase its interest in the Lockport Power Plant. On February 17, 1998, the Company filed an action in the Superior Court of California, Sonoma County, seeking injunctive and declaratory relief to prevent Pacific Gas & Electric Company ("PG&E") from unilaterally assigning the Company's steam sales contract to the prospective winning bidder in PG&E's recently announced auction of its power plants in The Geysers. On January 14, 1998, PG&E filed an application with the CPUC pursuant to Public Utilities Code Section 851 ("851 Filing"), in which it seeks authorization to sell five electric generating plants and related assets. Included in this proposed sale are The Geysers Geothermal Power Plants (including Units 13 and 16) and certain of PG&E's fossil fueled steam-electric generating plants. In PG&E's 851 Filing, PG&E announced its intention to assign its rights and to delegate its duties under the Company's steam contract to the successful third party purchaser of the Unit 13 and Unit 16 Power Plants. The Company had been informed by PG&E that it will attempt to make such assignment and delegation without first seeking and obtaining the approval and consent of the Company. In April 1998, PG&E and the Company entered into an agreement to resolve their differences relating to the assignability of the steam sales contract. Under the terms of the agreement, Calpine has dismissed the Sonoma County Superior Court lawsuit and PG&E has withdrawn its motion to modify the Assigned Commissioners Ruling in the CPUC 851 divestiture proceeding as it relates to Calpine. As part of the agreement, PG&E and Calpine have agreed to amend the steam sales agreement to modify the steam pricing formula and to grant Calpine a right of first refusal to purchase the Units 13 and 16 power plants for the same price and terms as PG&E is willing to sell to a third party buyer in the 851 auction. 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. 12. Subsequent Event On April 9, 1998 the Company terminated an existing interest rate swap related to the debt for the Clear Lake Power Plant. Approximately $3.7 million was paid by the Company to the Bank of Nova Scotia in terminating the existing swap. -12- 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 annual 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 March 31, 1998, the Company had interests in 24 power plants and steam fields in six states and Mexico, having an aggregate capacity of 2,778 megawatts. Reflecting the seasonality of several of its long-term power sales agreements, the Company reported a net loss of $3.1 million, or ($0.15) per basic common share, for the three months ended March 31, 1998. This compared to a net loss of $4.0 million, or ($.20) per basic common share, for the same period in 1997. 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 February 18, 1998, the Company announced that it had entered into exclusive negotiations to acquire a 70 megawatt gas-fired cogeneration power plant and natural gas pipeline system from The Dow Chemical Company located in Pittsburg, California. There can be no assurance that the Company will successfully complete this acquisition. On March 31, 1998, the Company completed the acquisition of the remaining 50% interest in the Texas Cogeneration Company ("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 now is the owner of a 7.5% interest in the -13- Bayonne Power Plant, a 165 megawatt natural gas-fired cogeneration power plant located in Bayonne, New Jersey. In addition, the Company paid $105.3 million to restructure certain gas contracts related to this transaction. Included in the results of operations for the three months ended March 31, 1998 are the King City and Gilroy Power Plants which each have a generating capacity of 120 megawatts. In accordance with their power sales agreements, the King City and Gilroy Power Plants did not generate electricity during this period. As scheduled, both power plants resumed operation on May 1, 1998 and 1997. 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. Information set forth under the power plants consists of the results for the West Ford Flat, Bear Canyon, Greenleaf 1 & 2, Watsonville, King City and Gilroy Power Plants. Also included is the Bethpage Power Plant which the Company acquired February 5, 1998. Information set forth under steam fields consists of the results for the PG&E Units 13 & 16, the SMUDGEO #1 Steam Fields and the Calpine Thermal Steam Fields, (dollar amounts in thousands, except per kilowatt hour amounts). Three Months Ended March 31, ------------------------------------ Power Plants: 1998 1997 ------------------ ----------------- Electricity revenue: Energy $ 23,314 $ 18,977 Capacity $ 9,462 $ 5,181 Megawatt hours produced 334,052 268,610 Average energy price per kilowatt hour $ 0.0698 $ 0.0706 Steam Fields: Steam revenue $ 10,614 $ 9,529 Megawatt hours produced 641,833 606,838 Average price per kilowatt hour $ 0.0165 $ 0.0157 Megawatt hours produced at the power plants increased 24% for the three months ended March 31, 1998 as compared with the same period in 1997, primarily due to 72,000 megawatt hours of production at the Bethpage Power Plant. OTHER FINANCIAL DATA RATIOS - --------------------------- Set forth below are certain other financial data and ratios for the periods indicated (in thousands, except ratio data): Three Months Ended March 31, --------------------- 1998 1997 ------- ------- Depreciation and amortization ...................... $12,582 $11,333 Interest expense per indenture ..................... $19,724 $14,168 EBITDA ............................................. $25,681 $19,479 EBITDA to interest expense per indenture ........... 1.30x 1.37x 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 -14- 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. RESULTS OF OPERATIONS - --------------------- Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 REVENUE -- Total revenue increased 41% to $55.1 million for the three months ended March 31, 1998 compared to $39.2 million in 1997. Electricity and steam sales revenue increased 29% to $43.4 million in 1998 compared to $33.7 million in 1997. The Bethpage Power Plant provided $4.9 million of revenue since February 5, 1998 when the Company acquired 100% ownership. The increase in electricity and steam sales was partially due to $2.9 million of increased capacity revenue from the Gilroy and King City Power Plants, and a $1.9 million increase from geothermal operations. Service contract revenue increased to $5.5 million in 1998 compared to $1.8 million in 1997. The 206% increase was primarily attributable to a $1.9 million increase from fuel management fees, as well as an increase of $1.6 million in operations and maintenance revenue from the Texas City and Clear Lake Power Plants, which the Company acquired a 50% interest in June 1997. Income from unconsolidated investments in power projects increased 90% to $3.8 million in 1998 compared to $2.0 million during 1997. The increase is primarily attributable to $2.9 million of equity income from the Company's investment in the Texas City and Clear Lake Power Plants which were acquired in June 1997, and $1.4 million of equity income from the Company's investment in the Gordonsville Power Plant. The above increases were offset by a $1.1 million decrease in equity income from the Sumas power project and a $1.4 million loss due to seasonality at the Kennedy International Airport, Lockport and Stony Brook Power Plants. Interest income on loans to power projects increased 47% to $2.5 million in 1998 compared to $1.7 million in 1997. The increase is primarily related to loans made by the Company to the Texas City and Clear Lake Power Plants. COST OF REVENUE -- Cost of revenue increased 29% to $39.4 million in 1998 compared to $30.6 million in 1997. The increase of $8.8 million was primarily attributable to a $2.8 million increase in plant operating expenses at the Company's geothermal operations due to increased production, and due to operations at the Bethpage Power Plant since the Company's acquisition of the remaining interest in the facility on February 5, 1998. Additionally, there was a $3.5 million increase in service contract expenses, of which $1.3 million is related to the Texas City and Clear Lake Power Plants' operating and maintenance contracts, $1.3 million with the fuel management contracts and $764,300 increase due to the Calpine Gas Company. -15- PROJECT DEVELOPMENT EXPENSES -- Project development expenses decreased 23% to $1.7 million in 1998 compared to $2.2 million in 1997, due primarily to charges incurred in the first three months of 1997 related to project development activities. GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses increased 24% to $5.2 million for the three months in 1998 compared to $4.2 million in 1997. The increase was attributable to continued growth in personnel and associated overhead costs necessary to support the overall growth in the Company's operations. INTEREST EXPENSE -- Interest expense increased 42% to $18.5 million for the three months in 1998 from $13.0 million for the same period in 1997. The increase was attributable to (i) $6.0 million related to the 8-3/4% Senior Notes Due 2007 issued in July and September 1997 and (ii) $2.1 million of interest expense on debt related to the acquisition of the Texas City and Clear Lake Power Plants. These increases were partially offset by $2.0 million of interest capitalized on equity investments for the development and construction of power plants. INTEREST INCOME -- Interest income decreased 29% to $2.4 million for the three months in 1998 from $3.4 million for the same period in 1997. The decrease is the result of lower cash and cash equivalent balances. OTHER INCOME, NET -- Other income, net, increased to $401,000 for the three months in 1998 compared to $200,000 for the same period in 1997. The increase was attributable to higher royalty income. PROVISION FOR INCOME TAXES -- The effective income tax rate was approximately 56% for the three months ended March 31, 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 and a decrease in the California taxes paid 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 flow activities for the periods indicated (dollars in thousands): March 31, ------------------------------------- 1998 1997 ---------------- ---------------- Cash flows from: Operating activities $ 3,545 $ 9,195 Investing activities (154,256) (19,008) Financing activities 199,158 1,927 ---------------- ---------------- Total $ 48,447 $ (7,886) ================ ================ Operating activities for the three months ended March 31, 1998 provided $3.5 million, consisting of approximately $12.6 million of depreciation and amortization, $14.7 million net decrease in operating assets, $2.2 million of distributions from unconsolidated investments in power projects, offset by $3.1 -16- million of net loss from operations, $3.8 million of deferred income taxes and $19.1 million net increase in operating liabilities. Investing activities for the three months ended March 31, 1998 used $154.3 million, primarily due to $158.1 million for the acquisition of the remaining 50% interest in the Texas City and Clear Lake Power Plants, $4.6 million for the acquisition of the remaining 55% interest in the Bethpage Power Plant, $7.2 million of capital expenditures related to the construction of the Pasadena Power Plant, $5.8 million of other capital expenditures, $2.9 million of capitalized project development costs, offset by the receipt of $13.8 million of loan payments from Texas City and Clear Lake Power Plants and $4.5 million of maturities of collateral securities in connection with the King City Power Plant. Financing activities for the three months ended March 31, 1998 provided $199.2 million of cash consisting of $43.0 million of borrowings for the construction of the Pasadena Power Plant, $1.5 million of borrowings for contingent consideration in connection with the acquisition of the Gilroy Power Plant, and $293.5 million of net proceeds from the issuance of the Senior Notes Due 2008, partially offset by $140.9 million in repayment of non-recourse project financing and $4.8 million of costs associated with financing activities. At March 31, 1998, cash and cash equivalents were $97.0 million and working capital was $116.7 million. For the three months ended March 31, 1998, cash and cash equivalents increased by $48.4 million and working capital increased by $128.7 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. During the three months ended March 31, 1998, the credit ratings on the Company's senior unsecured debt were upgraded by Moody's Investors Service to "Ba2" from "Ba3" and by Standard & Poor's to "BB-" from "B+",. In addition, Duff & Phelps Credit Rating Co. assigned an initial credit rating of "BB" on the Company's senior unsecured debt. At March 31, 1998, the Company had a $50.0 million revolving credit facility available with a consortium of commercial lending institutions. At March 31, 1998, the Company had no borrowings and $15.4 million of letters of credit outstanding under the credit facility. (See Note 9 of Condensed Consolidated Financial Statements). On May 15, 1998, the Company replaced the $50.0 million credit facility with a $100.0 million credit facility with a three-year term. The credit facility contains certain restrictions that limit or prohibit, among -17- 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. 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 March 31, 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%. At March 31, 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 $180.0 million of outstanding 10-1/2% Senior Notes Due 2006, which mature on May 15, 2006 and bear interest payable semi-annually on May 15 and November 15 of each year. During 1997, the Company issued $275.0 million of 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. On March 31, 1998 the Company completed the Rule 144A offering of its $300.0 million 7-7/8% 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 (See Note 8 to the Condensed Consolidated Financial Statements for use of proceeds and further information). Under the provisions of the applicable indentures, the Company may, under certain circumstances, be limited in its ability to make restricted payments, as defined, which includes dividends and certain purchases and investments, incur additional indebtedness and engage in certain transactions. OUTLOOK - ------- The Company receives from 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") or the energy clearing-price of the independent power exchange which commenced operations on March 31, 1998 and is deemed to be functioning smoothly. The average prices per kilowatt for SRAC for the year 1997 and for the first three months of 1998 were 2.94 cents and 2.90 cents, respectively. Due to seasonality, such average energy prices may not be indicative of future energy prices. During the first three months of 1998, the Bear Canyon and West Ford Flat Power Plants generated approximately 100,226,000 kilowatt hours of electrical energy for sale. The Company expects decreased royalty expenses can potentially mitigate the forecasted decline in energy revenues and planned operating cost reductions 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 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, -18- 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. The CPUC subsequently extended the implementation date to 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 cannot predict the final form or timing of the proposed restructuring and the impact, if any, that such restructuring would have on the Company's existing business or results of operations. The Company believes that any such restructuring would not have a material effect on all of its power sales agreements and, accordingly, believes that its existing business and results of operations would not be materially adversely affected, although there can be no assurance in this regard. Impact of Recent Accounting Pronouncements. In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises standards for disclosures about pension and other postretirement benefit plans and is effective for fiscal years beginning after December 15, 1997. This standard expands or modifies disclosure and, accordingly will have no impact on the company's reported financial position, results of operations and cash flows. 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 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 1998, 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. -19- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 17, 1998, the Company filed an action in the Superior Court of California, Sonoma County, seeking injunctive and declaratory relief to prevent Pacific Gas & Electric Company ("PG&E") from unilaterally assigning the Company's steam sales contract to the prospective winning bidder in PG&E's recently announced auction of its power plants in The Geysers. On January 14, 1998, PG&E filed an application with the CPUC pursuant to Public Utilities Code Section 851 ("851 Filing"), in which it seeks authorization to sell five electric generating plants and related assets. Included in this proposed sale are The Geysers Geothermal Power Plants (including Units 13 and 16) and certain of PG&E's fossil fueled steam-electric generating plants. In PG&E's 851 Filing, PG&E announced its intention to assign its rights and to delegate its duties under the Company's steam contract to the successful third party purchaser of the Unit 13 and Unit 16 Power Plants. The Company had been informed by PG&E that it will attempt to make such assignment and delegation without first seeking and obtaining the approval and consent of the Company. In April 1998, PG&E and the Company entered into an agreement to resolve their differences relating to the assignability of the steam sales contract. Under the terms of the agreement, Calpine has dismissed the Sonoma County Superior Court lawsuit and PG&E has withdrawn its motion to modify the Assigned Commissioners Ruling in the CPUC 851 divestiture proceeding as it relates to Calpine. As part of the agreement, PG&E and Calpine have agreed to amend the steam sales agreement to modify the steam pricing formula and to grant Calpine a right of first refusal to purchase the Units 13 and 16 power plants for the same price and terms as PG&E is willing to sell to a third party buyer in the 851 auction. ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K Current report dated March 16, 1998 and filed on April 1, 1998 Item 5. Other Events - Proposed Rule 144A offering of $200 million principal amount of Senior Notes Due 2008 Current report dated March 26, 1998 and filed on April 3, 1998 Item 5. Other Events - Proposed Rule 144A offering of $300 -20- 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 8-K/A (b) Exhibits The following exhibits are filed herewith unless otherwise indicated: Exhibit Number Description ------ ----------- 3.1 -- Amended and Restated Certificate of Incorporation of Calpine Corporation, a Delaware corporation.(l) 3.2 -- Amended and Restated Bylaws of Calpine Corporation, a Delaware corporation.(l) 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.(m) 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.(j) 10.1.4 -- Credit Agreement, dated as of August 28, 1996, among Calpine Gilroy Cogen, L.P. and Banque Nationale de Paris.(l) 10.1.5 -- Credit Agreement, dated as of September 25, 1996, among Calpine Corporation and The Bank of Nova Scotia.(m) 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.(n) 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.(m) 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.(m) 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. (p) 10.2.4 -- Stock Purchase and redemption Agreement dated March 31, 1998, among Dominion Cogen, Inc. Dominion Energy, Inc. and Calpine Finance (q) 10.3 -- Power Sales Agreements 10.3.1 -- Long-Term Energy and Capacity Power Purchase Agreement relating -21- 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.(l) 10.3.6 -- Amended and Restated Energy Sales Agreement, dated December 16, 1996, between Phillips Petroleum Company and Pasadena Cogeneration, L.P.(n) 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 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) 10.9.1 -- 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.(l) 10.9.3 -- Calpine Corporation Employee Stock Purchase Plan and forms of agreements thereunder.(l) 10.10.1 -- Amended and Restated Employment Agreement between Calpine Corporation and Mr. Peter Cartwright.(l) 10.10.2 -- Senior Vice President Employment Agreement between Calpine Corporation and Ms. Ann B. Curtis.(l) -22- 10.10.3 -- Senior Vice President Employment Agreement between Calpine Corporation and Mr. Lynn A. Kerby.(l) 10.10.4 -- Vice President Employment Agreement between Calpine Corporation and Mr. Ron A.Walter.(l) 10.10.5 -- Vice President Employment Agreement between Calpine Corporation and Mr. Robert D.Kelly.(l) 10.10.6 -- First Amended and Restated Consulting Contract between Calpine Corporation and Mr. George J. Stathakis.(o) 10.11 -- Form of Indemnification Agreement for directors and officers. (l) 21.1 -- Subsidiaries of the Company.(m) 27.0 -- Financial Data Schedule.* - ------------ (a) Incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration Statement No. 33-73160). (b) Intentionally ommitted. (c) Intentionally ommitted. (d) Intentionally ommitted. (e) Intentionally ommitted. (f) Intentionally ommitted. (g) Intentionally ommitted. (h) Intentionally ommitted. (i) Intentionally ommitted. (j) Intentionally ommitted. (k) Intentionally ommitted. (l) Incorporated by reference to Registrant's Registration Statement on Form S-1 (Registration Statement No. 333-07497). (m) Incorporated by reference to Registrant's Current Report on Form 8-K dated August 29, 1996 and filed on September 13, 1996. (n) Incorporated by reference to Registrant's Annual Report on Form 10-K dated December 31, 1996, filed on March 27, 1996. -23- (o) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated March 31, 1997 and filed on May 12, 1997 (p) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q dated June 30, 1997 and filed on August 14, 1997. (q) Incorporated by reference to Registrant's Current Report on Form 8-K dated March 31, 1998 and filed on April 14, 1998. * Filed herewith. Exhibit 27 Financial Data Schedule -24- 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: May 15, 1997 -------------------------------------------- Ann B. Curtis Senior Vice President (Chief Financial Officer) By: /s/ Gloria S. Gee Date: May 15, 1997 -------------------------------------------- Gloria S. Gee Corporate Controller (Chief Accounting Officer) -25-