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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: jim_p who wrote (21272)	8/27/2004 3:48:55 PM
From: kodiak_bull	Respond to of 23153

Probably missed more shots than previous teams as well. But, hey, it's not always about winning. No one can doubt the Olympic spirit, the true spirit of amateurism these guys displayed. No, not financial amateurism, the other kind. Professional amateurism. Kb

To: jim_p who wrote (21272)	8/28/2004 2:51:17 PM
From: Peter van Steennis	Respond to of 23153

Jim: Regarding you opinion of Calpine (CPN) I picked this up from Reuters: Calpine Accounts Questioned Sat Aug 28, 9:18 AM ET Add Business - Reuters to My Yahoo! By Arindam Nag NEW YORK (Reuters) - Calpine Corp. (NYSE:CPN - news) has been struggling badly ever since the Enron Corp. collapse in 2001 exposed the weaknesses of its power generation and trading business, but a recent study of its accounts suggests worse may still be to come. While Calpine has not violated any accounting rules, its 2003 financial statements alone cannot be trusted to provide the true financial health of the company, according to analysis by RateFinancials Inc, an independent research firm. It says that Calpine has underplayed expenses, allowing it to show better results at its gas-fired plants; that it may have to slash the value of its assets; and that it could be understating certain liabilities on its balance sheet. New York-based RateFinancials specializes in identifying red flags in company statements and then selling the research to money managers and insurance companies. "Based on what we have it looks like there is very little value for equity investors in Calpine," said David Hughes, the RateFinancials analyst who probed Calpine's accounts. Bad news is nothing new to investors in Calpine, which is saddled with about $17 billion in debt. Those who bought its shares when they were trading above $50 in 2001, and stuck with them, have lost almost all their investment as the shares now languish at $3.48. There had been some hope it could make a recovery if power markets improve in the next two to three years and Calpine can meet its debt repayments which start in two years. But the analysis of the notes to Calpine's financial statements suggest it is at best going to be a long haul back. For example, Hughes says Calpine does not recognize the cost of internally produced natural gas used in its power plants, thereby understating its fuel expense costs by $374.3 million in 2003. A similar move helped it curb these expenses by $180.4 million in 2002 and $99.9 million in 2001. Calpine Chief Accountant Chuck Clark says that under U.S. accounting rules the company does not have to show this item in the income statement, though it does disclose the figures. In a later written statement, the company said that under the rules inter-company transactions, such as Calpine's sales of its own gas production to its power-producing plants, "must be eliminated in consolidation." "The required elimination offsets both revenue (oil and gas sales) and cost of revenue (fuel expense) by the same amounts and, therefore, has no impact on net income," it said. Still, Hughes argues that the overall impression can still be misleading, and the fuel costs have to be included when analyzing the fair value of the plants. "They are understating the expenses associated with electricity production at their gas-powered plants," he said. LESS VALUE Another red flag is the true value that Calpine carries on its books for some of its power plants which seem to be chronically underutilized, operating at around 40 percent of capacity. "Given the sustained decline in operating margins for power produced by the company's plants and the lack of energy purchase agreements for the company's unused capacity, it is likely that material impairment of the company's fixed assets, including construction in progress, has occurred and remains unrecognized," Hughes wrote in his report. Under the accounting rules, if the earning ability of an asset is impaired, then it should be written down. However, companies have considerable leeway in judging what qualifies as impairment. For example, they can argue that weak industry conditions that have threatened the asset's value are only temporary in nature. Brian Russo, an analyst with Criterion Research, a New York-based independent research firm, says he has faced the same problem while trying to value Calpine's assets. He gets around it by doing his own analysis based on estimated future cash flows expected from those plants rather than taking the company's book value assessment, which might be out of date. Calpine's Clark said the company does not have to take a write-down because the long-term income it expects from the plants justifies the current book value. The company said it performs impairment tests at least annually, and more frequently when events require. The question is critical as any further asset write-offs could prompt its lenders to declare it had broken debt covenants and then slap the company with higher interest rates that could potentially force Calpine into bankruptcy, Hughes said. Best Regards Peter