Acquired in 2018, Calpine sold power, steam, and other energy products and services to utilities, electric system operators, industrial and agricultural companies, municipalities, as well as retail commercial, industrial and residential customers. The company primarily operated natural gas-fired and geothermal power plants in North America, with presence in California, Texas, and the Northeast and Mid-Atlantic regions of the U.S.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On September 25, 1996, Calpine completed the initial public offering of 18,045,000 shares of its common stock with $0.001 par value per share (the Common Stock Offering). In the Common Stock Offering, the Company issued and sold 5,477,820 shares of common stock and Electrowatt sold 12,567,180 shares of common stock, representing its entire ownership interest in Calpine. As a result of the Common Stock Offering, Electrowatt no longer owns any interest in Calpine. The Company received approximately $82.1 million of net proceeds from the Common Stock Offering.
On March 26, 1999, the Company completed a public offering of 6,000,000 shares of its common stock at $31.00 per share. The net proceeds from this public offering are estimated to be approximately $177.9 million. Additionally, in April 1999, the Company sold an additional 900,000 shares of common stock at $31.00 per share pursuant to the exercise of the underwriters' over-allotment option for net proceeds of approximately $26.7 million.
On November 2, 1999, the Company completed a public offering of 7,200,000 shares of its common stock at $46.31 per share. The net proceeds from this public offering were approximately $320.3 million. The Company sold an additional 1,080,000 shares of common stock at $46.31 per share pursuant to the exercise of the underwriters' over-allotment option for net proceeds of approximately $48.2 million.
On August 9, 2000, we completed a public offering of 23,000,000 shares of our common stock at $34.75 per share. The gross proceeds were $799.3 million.
On April 19, 2001, the Company acquired all of the common shares of Encal Energy Ltd. (which was thereafter merged with and into Calpine Canada Resources Ltd.), a Calgary, Alberta-based natural gas and petroleum exploration and development company, through a stock-for-stock exchange in which Encal shareholders received, in exchange for each share of Encal common stock, .1493 shares of Calpine common equivalent shares (called "exchangeable shares") of the subsidiary, Calpine Canada Holdings Ltd. A total of 16,603,633 exchangeable shares were issued to Encal shareholders in exchange for their Encal common stock. Each exchangeable share is exchangeable for one share of Calpine common stock. The aggregate value of the transaction was approximately U.S. $1.1 billion, including the assumed indebtedness of Encal. The transaction was accounted for under the pooling-of-interests method and, accordingly, all historical amounts reflected in the consolidated condensed financial statements have been restated to reflect the transaction.
On April 30, 2002, the Company completed a public offering of common stock of 66 million shares and priced the offering at $11.50 per share. The proceeds from the offering, after underwriting fees, were $734.3 million.
Net proceeds from the 2014 Convertible Notes offering were used to redeem the Company's HIGH TIDES I and HIGH TIDES II preferred securities on October 20, 2004... In conjunction with the 2014 Convertible Notes offering, the Company entered into a ten-year Share Lending Agreement with Deutsche Bank AG London ("DB London"), under which the Company loaned DB London 89 million shares of newly issued Calpine common stock (the "loaned shares") in exchange for a loan fee of $.001 per share. The entire 89 million shares were sold by DB London on September 30, 2004, at a price of $2.75 per share in a registered public offering. The Company did not receive any of the proceeds of the public offering. DB London is required to return the loaned shares to the Company no later than the end of the ten-year term of the Share Lending Agreement, or earlier under certain circumstances.
From the Petition Date [December 20, 2005] and through the Effective Date [January 31, 2008], we operated as a debtor-in-possession under the protection of the U.S. Bankruptcy Court following filings by Calpine Corporation and 274 of its wholly owned U.S. subsidiaries for voluntary petitions for relief under Chapter 11 of the Bankruptcy Code.
U.S. Debtors' Chapter 11. Pursuant to the Plan of Reorganization, all shares of our common stock outstanding prior to the Effective Date were canceled, and we authorized the issuance of 485 million new shares of reorganized Calpine Corporation common stock, of which approximately 421 million shares have been distributed to holders of allowed unsecured claims against the U.S. Debtors (of which approximately 10 million are being held in escrow pending resolution of certain intercreditor matters), and approximately 64 million shares have been reserved for distribution to holders of disputed unsecured claims whose claims ultimately become allowed. The reorganized Calpine Corporation common stock is listed on the NYSE. Our common stock began "when issued" trading on the NYSE under the symbol "CPN-WI" on January 16, 2008, and began "regular way" trading on the NYSE under the symbol "CPN" on February 7, 2008.
We continued to return capital to our shareholders in the form of share repurchases, having cumulatively repurchased approximately $2.4 billion or 25% of our previously outstanding shares as of the filing of this Report. Specifically during 2014, we repurchased a total of 49.7 million shares of our outstanding common stock for approximately $1.1 billion at an average price of $22.14 per share.
On August 17, 2017, we entered into the Merger Agreement with Volt Parent, LP and Volt Merger Sub, Inc., a wholly-owned subsidiary of Volt Parent, pursuant to which Merger Sub merged with and into Calpine, with Calpine surviving the Merger as a subsidiary of Volt Parent. On March 8, 2018, we completed the Merger contemplated in the Merger Agreement. At the effective time of the Merger, each share of Calpine common stock outstanding as of immediately prior to the effective time of the Merger (excluding certain shares as described in the Merger Agreement) ceased to be outstanding and was converted into the right to receive $15.25 per share in cash or approximately $5.6 billion in total.