Calpine Corporation

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Calpine Corporation

Question 1

After navigating through the Fortune 500 list, the following industrial observations are visible:

The top three U.S. pharmaceutical companies based on profits are: Gilead Sciences ($18,108 million), Johnson & Johnson ($15,409 million), and Pfizer ($6,960 million) (Beta.fortune.com).
The three U.S. pharmaceutical companies with the least profits are: NBTY ($74 million), Alexion Pharmaceuticals ($144 million), and Zoetis ($339 million) (Beta.fortune.com).
Merck’s U.S. sales grew over the past year because of exceptional performance of its cancer and diabetes medications, as well as its acquisition of Cubist Pharmaceuticals, an antibiotic maker (Beta.fortune.com).
Despite its remarkable total sales upsurge, Merck’s experienced a -6.5% slid in its total revenue over the past year because of currency fluctuations and divestments (Beta.fortune.com).
Calpine, which is the subject of my term paper ranks position 402 in the fortune list with a revenue estimate of $6,472 million. Over the past one year its total revenues and profits dipped by a margin of -19.4% and -75.2% respectively. Overall, it only recorded a profit of $235 million. As regards to earnings per share, there was also a slid of -72.3% from the previous year, just as it was the case with return to customers that experienced a decline of -34.6% (Beta.fortune.com).

Question 2

From the corporate website of Merck, the following are discernible:

The mission of the company is to discover, develop, and provide innovative products and services that save and improve the lives of people around the world. On the other hand its vision aims at making a difference in the lives of people through innovative health products, including medicines and vaccines (Merck.com).
In my opinion, the mission and vision statements of Merck meet the criteria we divulged in class, firstly because they are brief and precise. Secondly, both of them can be memorized and key stakeholders such as the company’s Chief Executive Officer cannot experience any difficulty memorizing them before an audience. Thirdly, they are unique in the sense that they outline the purpose of the company. Finally, both statements are realistic and current.
According to the site, the values that guide the behavior of the company include the desire to improve the quality of life, achieve scientific excellence, operate with the highest level of integrity, expand access to its products, and to employ a diverse workforce that cherishes teamwork (Merk.com).
After studying the Code of Conduct document prepared by Merc, it is clear that it is intended to inform its key stakeholders, namely, customers, employees, shareholders, suppliers, and the community. On the whole, the entire document aligns with all the core values of the parent company, especially the one where the company commits itself to the highest level of operational integrity. Notably, throughout the document it is evident that the firm believes in honest principles such as confidentiality, fairness, privacy, and respect that make it a good corporate citizen and a reliable partner to its stakeholders.
Merck & Co., Inc. “Our Values and Standards, the Basis of our Success: Code of Conduct, Edition III.” Kenilworth, New Jersey, n.d. Web. 7 February. 2017.
(Merck & Co., Inc)

Question 3

Apart from employees, the other five major stakeholders of Merck are customers, the community, suppliers, shareholders, and healthcare organizations. The customers who mainly comprise of patients are impacted by the quality of products produced by the company. The community on the other hand benefits from the environmental and sociological initiatives of the company through its corporate social responsibility (CSR) platform. Suppliers on the other hand are affected by the openness and fairness of the company in awarding tenders and its promptness in making payments. As regards to shareholders, they are directly impacted by the trading success of the company. Obviously, good profits will benefit them in terms of plentiful dividends, whereas losses will limit their proceeds. Finally, healthcare organizations are affected by the information dissemination conduct and nature of products produced by Merck. Historically, the healthcare field is dominated by information sharing and pharmaceutical companies are required to disclose the ingenuity used to make specific products.

Question 4

In the case of Calpine, its top stakeholders apart from employees and the management team include customers, the community, financial institutions, regulators, and the shareholders. As an electricity producer, the customers of the company are affected by its power tariffs as well as the reliability of its electricity. The community on the other hand is a direct beneficiary of its corporate and clean energy initiatives. Financial institutions are equally an essential part of Calpine Corp. and they are affected by its liquidity status and broad asset commitments that compel it to seek credit. Though they do not engage the company regularly, environmental regulators are adversely impacted by the level of commitment the electricity provider gives to production of clean energy. Lastly, shareholders are affected by the financial stability of the organization and presently they are worried after its earnings per share dipped by 72.3 percent.

Question 5

From the corporate website of Occidental Petroleum (OXY), it is evident that the five pillars of its social responsibility framework are the following:

Governance and transparency – The purpose of this pillar is to promote adherence to high ethical values by its employees and associates. For instance, it regularly screens its suppliers and agents to ensure that they comply not only with its policies, but also with universally accepted morals such as respect for human rights, environmental protection, and industrial hygiene. Additionally, new employees are expected to consent to the firm’s strict Code and there is periodic training for existing employees to enlighten about the firm’s principles. Also, the company has compliance officers who are responsible for enforcing its policies (Oxy.com).
Workforce development – As pertains to workforce development, OXY is an equal opportunity employer that gives emphasis to diversity, proper compensation, training, and co-curricular development through volunteerism and giving. Notably, the company supports its U.S. employees to take part in multiple social development issues that affect the Houston Astros community. The company also supports its Occidental Women’s Geoscience Network (WGN) to conduct various informative sessions with the youth to educate them about careers in geosciences (Oxy.com).
Health and safety – The purpose of this pillar is to safeguard the health and safety of people within and outside its facilities. For example, the company is a regular participant of the Voluntary Protection Programs (VPP) hosted by the Occupational Safety and Health Administration (OSHA). The VPP recognizes institutions that are committed to the development of safe worksites. Also, the company partners with local authorities to fight fire accidents. For instance, when the company realized that Levelland Texas fire departments were underequipped, it donated a foam pumper truck (Oxy.com).
Environmental stewardship – Through this pillar OXY seeks to conserve the environment through numerous mitigation initiatives. For instance, it fully owns Glenn Springs Holdings, a subsidiary it uses to remediate environmental standards at its former location. A case scenario is the restoration of the Copper Basin in Tennessee that has over the years enhanced the surrounding vegetation and improved the quality of water in Ocoee River (Oxy.com).
Economic and social development – Essentially, the aim of this pillar is to create a self-sufficient community, especially in the surrounding areas where OXY operates. In particular, the firm is committed to the success of domestic businesses by giving much focus to local purchasing. In 2015 alone the company bought goods and services worth $4.2 billion from domestic suppliers (Oxy.com).

Question 6

From the 2015 Annual Report for Occidental Petroleum it is evident that between 2011 and 2015 the sales of company reduced drastically from $20,001 million to $12,480 million. During the same period income from ongoing operations changed from making profit to incurring loss (KPMG 12).
Cash flow generated from operations between 2011 and 2015 has also declined from $9,740 million to $3,254 with a peak in 2013 when the amount generated was $10,229 million (KPMG 12).
In the 2015 Annual Report, the CEO of Occidental blames volatility in commodity as the factor behind the 2015 difficulties that affected the company and entire oil and gas industry.
To rejuvenate the growth of OXY, Vicki A. Hollub, the President and Chief Operating Officer (COO) of the company claims that commodity prices must first of all recover. She also admits that the company is attractive to both peer groups of large integrated oil producers and other exploration and production companies.
In the report OXY admits that its commitments to CSR entail provision of a safe and health workplace, protecting the environment, observing high ethical standards, and supporting human rights. To meet its financial obligations it is guided by the following core values: investment, integrity, and innovation.
“Focus, Discipline, Performance: Occidental Petroleum Coporation 2015 Annual Report.” Houston, Texas: OXY, 2016. Web. 7 February. 2017. < http://www.oxypublications.com/annualreport/PDF/2015/OXY2015_AR_WEB.pdf>

Question 7

In the 2015 Financial Report for Calpine, Thad Hill, the CEO of the company expresses optimism that the company is stable and it has adequate fleet that can benefit from the trends dominating the energy industry. However, he admitts that the management is disappointed about the low share price that was triggered by fears in the debt market, low natural gas prices, regulatory uncertainties, and broad equity risks in the energy sector. Despite these difficulties, the CEO reassures shareholders that future opportunities that will arise from the closure of coal plants and increased energy demands will benefit the company and create value for investors.
In sum, the 2015 Financial Report for Calpine shows that annual operating revenues that include sales remained relatively stagnant starting 2011 through 2015; except in 2014 when they peaked to $8,030 million as a result of an influx in consumer utility. On the other hand, earnings per share for the year ended 31 December, 2015 reduced drastically as compared to the previous year (Calpine Corporation 48). Notwithstanding, the value of asset investments owned by the company have risen steadily, a factor that has led to an increase long-term debt obligations.

Question 8

A 10K is a comprehensive annual report that gives details about a company’s financial performance. It is mandatory for companies to forward this form to the U.S. Securities and Exchange Commission (SEC).
Under Items 1 and 2 of OXY’s 10K form there is the topic of Business and Properties that has the following contents:
General – Essentially, this is an introduction that provides a list of Occidental’s three business operations or segments.
Oil and Gas Operations – This section delves further into the oil and gas operations of OXY that collectively form its first segment.

Chemical Operations – Specifically, this section analyzes the second segment that deals with the manufacturing of chemicals.

Midstream and marketing operations – This section focuses on plants that offer support services to the first and second segments.
Capital Expenditures – In this section the BK report list the cash used to finance different activities.
Employees – This section enumerates the workforce of Occidental and the numbers that are deployed to each of the three segments.

Environmental regulation – Just as its name suggests, this subtopic highlights the commitment of the company to various environmental laws and the expenses incurred in observing them.
Available Information – Lastly, this is an elucidation that directs readers to information resources about the company.

Under risk factors, the first item identified by OXY is volatility in global and local commodity prices. The factors that it feels are beyond its control include:
The global and domestic supply of, as well as for crude oil, natural gas, and refined commodities.
The cost of exploring crude oil and establishing prerequisite refinery facilities.

Variations in weather or climate.

The Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations discusses the strategy of the organization towards fulfilling key developmental goals in various business segments. The section also elucidates the impact of various market indicators on its activities.
In the Chemical section of MD&A, OXY portends that the success of the chemical industry will largely depend on the stability of the global economy. It will also be influenced by supply and demand gaps.
Scott Ryder. “Form 10-K for the Fiscal Year Ended 31, 2015: Occidental Petroleum Corporation.” United States Securities and Exchange Commission. n.d. Web. 7 February. 2017. < http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyR>
(Scott Ryder 20)

Question 9

The following are some of the risk factors identified by Calpine’s 10-K form:
Natural gas and whole power price fluctuations that are beyond the control of the company.
Adverse regulations and deregulations such as rate caps are beyond the control of the company.

Stiff competition in the electricity industry is also a danger to Calpine’s activities.

The danger of revenues diminishing drastically after the maturation of various power purchase agreements (PPAs).
Overall, in the MD&A section the company provides an overview of its core businesses and the development goals that it intends to achieve. To explain the trajectory of its growth, Calpine highlights its portfolio achievements, customer engagements in the various regions, as well as its social responsibility initiatives. Lastly, the company also lists the measures it has taken to increase benefit to its shareholders.
The segments of Calpine are regional: the West Segment that mainly entails geothermal resources, the Texas Segment, and the East Segment that also includes parts of Canada. The East Segment seems to be doing well because it has the highest power generation capacity of 10,430 MW with 760 MW still under construction (Calpine 49). On the other hand, the segment that seems to perform worst is the West Segment that largely focuses on the production of geothermal. Generally, the company provides a list of PPAs supplied by each of the aforementioned segments.

Question 10

To improve its return on invested capital (ROIC), Sysco’s three-year strategic plan proposes that the company should grow gross profit, streamline supply chain costs, and reduce administrative costs.
The three strategies mentioned above are an indicator of major gaps within the operations Sysco which if sealed will lead to greater efficiency. For instance, it is clear that the company has not reached its potential customer base and it can do so by establishing new subsidiaries that can increase its profitability.

Question 11

The latest earnings conference call for Calpine Corporation was held on October 28, 2016.
The latest financial results were more negative because they forced the company to narrow its 2016 guidance. However, to some extent they were positive because the financial commitments of 2016 provided optimism for 2017.
The factors that compelled the company to narrow its 2016 guidance included the expiry of a PPA it held at Pastoria Energy Center and lower energy margins caused by underwhelming contribution of its three segments.
In the future Calpine expects that it will maintain a strong cash flow in the coming year and the earning per share will rise to range between $2.00 and $2.40.

Question 12

The first weaknesses of Sysco stems from its highly-service oriented business activities that differ enormously from those of its competitors and which eventually prevent it from fulfilling the expectations of customers. A slender market share necessitated by stiff competition in the food service industry is its other weakness (MBASkool.com). The threats it faces include a high turnover in the sales force of North America, increasing labour and fuels costs, and competition.
Business opportunities that Sysco can exploit include the possibility of it expanding its consultancy business and the likelihood of it reinvigorating its SYGMA ancillary that distributes food and non-food items to multiple restaurants within the S. (MBASkool.com).
The main competitors of Sysco are US Foods, Performance Food Group, Edward Don & Company, and Gordon Food Service (MBASkool.com).

Question 13

The weaknesses of Calpine include the dangers of aging fixed assets, geographical underrepresentation, and a weak energy portfolio that is not adequately diversified like other big players in the industry (MBASkool.com). Its threats on the other hand are the ever-increasing cost of production, reduction in demand, dynamism of preferred energy sources, rising competition, and environmental regulations (MBASkool.com).
The opportunities of Calpine according to MBASkool.com include availability of new energy sources, the possibility of engaging in nuclear power, and reduction of carbon dioxide (CO2) emission.
The company’s top three competitors include Duke Energy Corporation, the AES Corporation, and GenOn Energy, Inc. (MBASkool.com).
com. “Calpine SWOT Analysis, USP & Competitors.” n.d. Web. 8 February. 2017. < www.mbaskool.com/brandguide/energy/6332-calpine.html>
As compared to its competitors, Calpine is disadvantaged because it is localized within North America whereas some of its competitors such as AES Corporation have venture in multiple countries all over the world. However, it equally has an advantage over its rivals die to its specialization on clean energy resources whose consumption is forecasted to rise. On the other hand some of its competitors generate their electricity from coal plants that are expected to close.

Question 14

Merck & Co., Inc is an incorporated global health solutions provider that specializes in the manufacture of medicines, vaccines, and animal health products.
The weaknesses of Merck include:
Production of generic imitations that affect is profitability
Has not diversified its geographical diversity to reach emerging markets.

It largely operates through joint ventures that occasionally limit its decision making powers.

Question 15

The trade journals with recent articles on Calpine are:
Renewable Energy World
Wall Street Journal
In the Renewable Energy World Journal, the title of the most recent article on Calpine is, “Wildfire Recovery on Track at Geysers Geothermal plant, Calpine Says.”
As regards to market share reports, I will particularly be interested the following reports:
“Geothermal Electricity Plant Operation in the US: Market Research Report,” by IBISWorld.
“The Economic Effects of Interregional Trading of Renewable Energy Certificates in the U.S. WECC,” contained in the Energy Journal.
Magazine articles that I will probably use in my research include:
“Calpine Expands Retail Footprint with Noble Energy Unit Deal,” contained in the Weekly Bloomberg Magazine on October 10, 2016.
“Where is Calpine Corporation Heading in 2016?” contained in Yahoo Finance.

Question 16

Despite maintaining a stable cash flow status, the financial situation of Calpine Corporation is extremely alarming. Foremost, comparing its present financial situation to its previous standards it is obvious that it is declining. Firstly, its earnings per share rates have been experiencing mixed results and in the last one year this rate dipped. Secondly, according to its recent balance sheet its ratio of debt to total assets currently stands at 64.19%. Fundamentally, this shows that the company is at an acute position of being denied credit that is essential in the capital intensive industry.

Question 17

The value of the U.S. Pet Supplies market in 2016 was $67.5 billion.
The pet industry is expected to grow in the coming years up to 2020. By 2021 it is forecasted that the market will have grown by a margin of 15%.
12 percent of dental owners purchased dental care supplies for their dogs.
The approach that is working in the cat litter segment is the introduction of cleaning and odor control products.

Question 18

The two companies whose ice cream products were recalled in 2015 were Blue Bell and Jeni’s Splendid Ice Creams.
According to Jeni’s, the listeria in its ice cream products was associated to contamination of its production kitchen.
According to the Wall Street Journal (WSJ) article of April 28, 2016, Caterpillar Inc. intended to close five of its plants as a result of falling demand (Tita). The act would help it scale down its costs by shedding off 820 positions.
Two examples of WSJ articles I would use in the study of Calpine are:
Raghuvanshi, Gaurav. “Noble Sells U.S Energy Business to Calpine Corp.” Wall Street Journal. 10 October 2016. Web. 8 February. 2017. < https://www.wsj.com/articles/noble-sells-u-s-energy-business-to-calpine-corp-1476058244>
Hufford, Austen. “Calpine Corp. Swings to a Loss as Revenue Falls.” Wall Street Journal. 12 February 2016. 8 February. 2017. < https://www.wsj.com/articles/calpine-corp-swings-to-a-loss-as-revenue-falls-1455294681>

Question 19

On the whole, the U.S. ice cream industry is worth $8 billion and between 2011 and 2016 it registered an annual growth rate of 1.2%.
Revenues for this industry are expected to fall because of changes in consumer tastes that are as a result of high levels of health consciousness.
The companies with the largest market shares are Dean Foods, Nestle, Unilever, and Wells’ Dairy.
According to the report, key external drivers are those factors that affect the performance of ice cream producers but which are beyond their control. They include demand from whole sale traders, demand from supermarkets and retail traders, disposable income of people, and sugar and milk prices.
The factors that determine success in the ice cream industry are:
Product differentiation
Ability to adapt to change

Ability to distribute cost fluctuations to consumers

Supply chain management, including negotiating contracts with distributers
Quality control and enhancement to safeguard the health of consumers
Economies of scale
The biggest barrier that hinders the entry of new firms is the need for significant cash investments.
The brand names under Nestle are Dreyer’s, Extreme, Haagen-Dazs, and Nestle Ice Cream.
Statistically, wages consume approximately 12 percent of the revenue generated by ice cream companies and over the years the ratio of wages to revenue has risen steadily.
Because the ratio of wages to revenue has risen steadily, the ice cream makers should look for ways to pass the additional expenses to consumers. Alternatively, they can use innovation to reduce operational expenses.
Profits for the industry have dipped because of the following reasons:
The recession of 2008
Shifts in demand

Rising health concerns

Reduction in exports
Rising number of firms.
To understand the ice cream market further, I will study the following reports:
The report on supermarkets and grocery stores in the U.S. by IBISWorld
The report on dairy product production in the U.S. by IBISWorld

The report on specialty food stores in the U.S. by IBISWorld

The report on chain restaurants in the U.S. by IBISWorld
The rep[ort on dairy wholesaling in the U.S. by IBISWorld

Question 20

According to IBISWorld statistics, the geothermal and natural gas industry where Calpine operates is projected to grow in the coming years as a result of favorable legislation and environmental concerns that will push demand upwards. Apparently, growth in the sector is widely expected even though over the last five years the industry has experienced a down surge as a result of low natural gas prices, insufficient transmission lines, and reduced capacities. Independently, the geothermal sector’s contribution to the U.S. economy is expected to rise by 4.9% annually for the years leading up to 2021. With these forecasts, Calpine’s role in the U.S. economy is expected to increase over the coming years as a result of a rise in the demand for renewable energy.
The key external drivers of the geothermal and natural gas sectors include environmental concerns, state and federal legislation, commodity price fluctuations, and decreasing power reserve capacities. Ideally, environmental concerns and legislation will affect the performance of Calpine positively, whereas price fluctuations and decrease power reserve capacities will affect it negatively.
The key factors of success in the industry are portfolio capacity, innovativeness, and geographical diversity.
The main factors that form the basis of competition in this industry are utility prices and consumer agreements.
Apart from Calpine, the other major companies in the industry are BHE, Ormat, and Terra-Gen.
As regards to operating conditions, the factors that affect Calpine include high exploration costs, high plant establishment costs, and environmental regulations.
Statistical factors that impact on the operations of Calpine are the cost of natural gas, interest rates, and demographic variations.
Additional reports where information that is relevant to Calpine can be retrieved include IBISWorld’s report on the status of the Coal and Natural Gas industry and its market research report on Natural Gas Distribution in the U.S.

Question 21

Examples of trade journals that report on the paper industry include:
PaperAge
Paper Industry

Pulp Paper World

The six segments that PaperAge reports on are:
Containerboard
Uncoated freesheet

Coated freesheet

Newsprint
Groundwood
Market pulp
In summary, the Newsprint Report of July/August 2015 observed that prices of Newsprint materials had slipped for a considerable amount of time as a result of worldwide demand decline. To avert the trend the article advocated for the introduction of capacity adjustments and leveling of exports.
Cody, Harold M. “Newsprint Market Struggles as Demand Decline Gains Speed and Prices Slip.” PaperAge. July/August 2015. Web. 8 February. 2017. (Cody 18).

 

 

Works Cited

Beta.fortune.com. “Fortune 500: Calpine – 402.” Fortune 500. n.d. Web. 8 February. 2017.

Beta.fortune.com. “Merck – 72.” Fortune 500. n.d. 8 February. 2017.

Beta.fortune.com. “Pharmaceuticals Profit Rank.” Fortune 500. n.d. Web. 8 February. 2017.

Calpine Corporation. “2015 Annual Report.” Houston, Texas, n.d. Web. 8 February. 2017.

Cody, Harold M. “Newsprint Market Struggles as Demand Decline Gains Speed and Prices Slip.” PaperAge. July/August 2015. Web. 8 February. 2017.

Hufford, Austen. “Calpine Corp. Swings to a Loss as Revenue Falls.” Wall Street Journal. 12 February 2016. Web. 8 February. 2017. < https://www.wsj.com/articles/calpine-corp-swings-to-a-loss-as-revenue-falls-1455294681>

KPMG. “Focus, Discipline, Performance: Occidental Petroleum Coporation 2015 Annual Report.” Houston, Texas: OXY, 2016. Web. 7 February. 2017. < http://www.oxypublications.com/annualreport/PDF/2015/OXY2015_AR_WEB.pdf>

MBASkool.com. “Calpine SWOT Analysis, USP & Competitiors.” n.d. Web. 8 February. 2017. < www.mbaskool.com/brandguide/energy/6332-calpine.html>

MBASkool.com. “Sysco Discount Food Center SWOT Analysis, USP & Competitiors.” n.d. 8 February. 2017.

Merck.com. “Home/About Us.” n.d. Web. 8 February. 2017.

Merck & Co., Inc. “Our Values and Standards, the Basis of our Success: Code of Conduct, Edition III.” Kenilworth, New Jersey, n.d. Web. 7 February. 2017.

Oxy.com. “Emergency Planning and Hurricane Preparedness.” OXY. n.d. Web. 8 February. 2017.

Oxy.com. “Environmental Remediation.” OXY. n.d. 8 February. 2017.

Oxy.com. “Integrity and Ethics.” OXY. n.d. Web. 8 February. 2017.

Oxy.com. “Local Purchasing.” OXY. n.d. 8 February. 2017.

Oxy.com. “Volunteerism and Giving.” OXY. n.d. Web. 8 February. 2017.

Raghuvanshi, Gaurav. “Noble Sells U.S Energy Business to Calpine Corp.” Wall Street Journal. 10 October 2016. Web. 8 February. 2017. < https://www.wsj.com/articles/noble-sells-u-s-energy-business-to-calpine-corp-1476058244>

Scott Ryder. “Form 10-K for the Fiscal Year Ended 31, 2015: Occidental Petroleum Corporation.” United States Securities and Exchange Commission. n.d. Web. 7 February. 2017. < http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1hSFIwY0RvdkwyR>

Tita, Bob. “Caterpillar to Close Five Plants, Shed 820 Jobs.” Wall Street Journal. 28 April 2016. Web. 8 February. 2017.