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 quarterly period ended March 31, 2004
| ¨ | 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: 1-15659
DYNEGY INC.
(Exact name of registrant as specified in its charter)
| Illinois | 74-2928353 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 507-6400
(Registrant’s telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Class A common stock, no par value per share, 282,071,325 shares outstanding as of May 3, 2004; Class B common stock, no par value per share, 96,891,014 shares outstanding as of May 3, 2004.
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION |
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| Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: |
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|
Condensed Consolidated Balance Sheets: |
4 | |
|
Condensed Consolidated Statements of Operations: |
5 | |
|
Condensed Consolidated Statements of Cash Flows: |
6 | |
| 7 | ||
| 8 | ||
| Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
31 | |
| Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
54 | |
| 55 | ||
| 56 | ||
| 56 | ||
2
DEFINITIONS
As used in this Form 10-Q, the abbreviations listed below have the following meanings:
| ARO |
Asset retirement obligation. | |
| Bbtu/d |
Billions of British thermal units per day. | |
| Cal ISO |
The California Independent System Operator. | |
| Cal PX |
The California Power Exchange. | |
| CDWR |
California Department of Water Resources. | |
| CFTC |
Commodity Futures Trading Commission. | |
| CPUC |
California Public Utilities Commission. | |
| CRM |
Our customer risk management business segment. | |
| CUSA |
Chevron U.S.A. Inc., a wholly owned subsidiary of ChevronTexaco. | |
| $/Bbl |
Dollars per barrel. | |
| $/Gal |
Dollars per gallon. | |
| DGC |
Dynegy Global Communications. | |
| DHI |
Dynegy Holdings Inc., our primary financing subsidiary. | |
| DMG |
Dynegy Midwest Generation, Inc. | |
| DMS |
Dynegy Midstream Services. | |
| DMT |
Dynegy Marketing and Trade. | |
| DPM |
Dynegy Power Marketing Inc. | |
| EITF |
Emerging Issues Task Force. | |
| EPA |
Environmental Protection Agency. | |
| ERCOT |
Electric Reliability Council of Texas, Inc. | |
| ERISA |
The Employee Retirement Income Security Act of 1974, as amended. | |
| FASB |
Financial Accounting Standards Board. | |
| FERC |
Federal Energy Regulatory Commission. | |
| FIN |
FASB Interpretation. | |
| Form 10-K |
Our Annual Report on Form 10-K for the year ended December 31, 2003, filed on February 27, 2004. | |
| FPA |
Federal Power Act of 1935, as amended. | |
| GAAP |
Accounting principles generally accepted in the United States of America. | |
| GEN |
Our power generation business segment. | |
| ICC |
Illinois Commerce Commission. | |
| KWH |
Kilowatt hours. | |
| LNG |
Liquefied natural gas. | |
| MBbls/d |
Thousands of barrels per day. | |
| MMBtu |
Millions of British thermal units. | |
| MMCFD |
Million cubic feet per day. | |
| MW |
Megawatt. | |
| MWh |
Megawatt hour. | |
| NGL |
Our natural gas liquids business segment. | |
| NOV |
Notice of Violation. | |
| PPO |
Power Purchase Option. | |
| PUCT |
Public Utility Commission of Texas. | |
| REG |
Our regulated energy delivery business segment. | |
| SEC |
U.S. Securities and Exchange Commission. | |
| SFAS |
Statement of Financial Accounting Standards. | |
| SPE |
Special Purpose Entity. | |
| VaR |
Value at Risk. | |
| VIE |
Variable Interest Entity. |
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 367 | $ | 477 | ||||
| Restricted cash |
— | 19 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $175 and $184, respectively |
721 | 1,010 | ||||||
| Accounts receivable, affiliates |
10 | 25 | ||||||
| Inventory |
164 | 279 | ||||||
| Assets from risk-management activities |
942 | 818 | ||||||
| Prepayments and other current assets |
364 | 402 | ||||||
| Assets held for sale (Note 2) |
378 | — | ||||||
| Total Current Assets |
2,946 | 3,030 | ||||||
| Property, Plant and Equipment |
7,729 | 9,867 | ||||||
| Accumulated depreciation |
(1,477 | ) | (1,471 | ) | ||||
| Property, Plant and Equipment, Net |
6,252 | 8,396 | ||||||
| Other Assets |
||||||||
| Unconsolidated investments |
611 | 612 | ||||||
| Assets from risk-management activities |
680 | 629 | ||||||
| Goodwill |
15 | 154 | ||||||
| Other long-term assets |
190 | 472 | ||||||
| Assets held for sale (Note 2) |
2,537 | — | ||||||
| Total Assets |
$ | 13,231 | $ | 13,293 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ | 547 | $ | 665 | ||||
| Accounts payable, affiliates |
83 | 74 | ||||||
| Accrued liabilities and other current liabilities |
454 | 668 | ||||||
| Liabilities from risk-management activities |
1,017 | 838 | ||||||
| Notes payable and current portion of long-term debt |
80 | 245 | ||||||
| Current portion of long-term debt to affiliates |
— | 86 | ||||||
| Liabilities held for sale (Note 2) |
421 | — | ||||||
| Total Current Liabilities |
2,602 | 2,576 | ||||||
| Long-term debt |
3,666 | 5,124 | ||||||
| Long-term debt to affiliates |
422 | 769 | ||||||
| Long-Term Debt |
4,088 | 5,893 | ||||||
| Other Liabilities |
||||||||
| Liabilities from risk-management activities |
792 | 746 | ||||||
| Deferred income taxes |
366 | 751 | ||||||
| Other long-term liabilities |
547 | 750 | ||||||
| Liabilities held for sale (Note 2) |
2,242 | — | ||||||
| Total Liabilities |
10,637 | 10,716 | ||||||
| Minority Interest |
121 | 121 | ||||||
| Commitments and Contingencies (Note 9) |
||||||||
| Redeemable Preferred Securities, redemption value of $411 at March 31, 2004 and December 31, 2003, respectively |
411 | 411 | ||||||
| Stockholders’ Equity |
||||||||
| Class A Common Stock, no par value, 900,000,000 shares authorized at March 31, 2004 and December 31, 2003; 283,362,441 and 280,350,169 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively |
2,853 | 2,848 | ||||||
| Class B Common Stock, no par value, 360,000,000 shares authorized at March 31, 2004 and December 31, 2003; 96,891,014 shares issued and outstanding at March 31, 2004 and December 31, 2003 |
1,006 | 1,006 | ||||||
| Additional paid-in capital |
44 | 41 | ||||||
| Subscriptions receivable |
(8 | ) | (8 | ) | ||||
| Accumulated other comprehensive loss, net of tax |
(80 | ) | (20 | ) | ||||
| Accumulated deficit |
(1,685 | ) | (1,754 | ) | ||||
| Treasury stock, at cost, 1,679,183 shares at March 31, 2004 and December 31, 2003 |
(68 | ) | (68 | ) | ||||
| Total Stockholders’ Equity |
2,062 | 2,045 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 13,231 | $ | 13,293 | ||||
See the notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
| Three Months Ended March 31, |
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| 2004 |
2003 |
|||||||
| Revenues |
$ | 1,657 | $ | 1,879 | ||||
| Cost of sales, exclusive of depreciation shown separately below |
(1,378 | ) | (1,512 | ) | ||||
| Depreciation and amortization expense |
(88 | ) | (115 | ) | ||||
| Impairment and other charges |
(10 | ) | 7 | |||||
| Gain on sale of assets, net |
2 | 1 | ||||||
| General and administrative expenses |
(69 | ) | (73 | ) | ||||
| Operating income |
114 | 187 | ||||||
| Earnings from unconsolidated investments |
40 | 53 | ||||||
| Interest expense |
(132 | ) | (110 | ) | ||||
| Other income and expense, net |
13 | 8 | ||||||
| Minority interest income (expense) |
(2 | ) | 17 | |||||
| Accumulated distributions associated with trust preferred securities |
— | (4 | ) | |||||
| Income from continuing operations before income taxes |
33 | 151 | ||||||
| Income tax benefit (expense) |
27 | (56 | ) | |||||
| Income from continuing operations |
60 | 95 | ||||||
| Income (loss) on discontinued operations, net of taxes (Note 2) |
14 | (3 | ) | |||||
| Income before cumulative effect of change in accounting principles |
74 | 92 | ||||||
| Cumulative effect of change in accounting principles, net of taxes (Note 1) |
— | 55 | ||||||
| Net income |
74 | 147 | ||||||
| Less: preferred stock dividends |
5 | 83 | ||||||
| Net income applicable to common stockholders |
$ | 69 | $ | 64 | ||||
| Earnings Per Share (Note 8): |
||||||||
| Basic earnings per share: |
||||||||
| Earnings from continuing operations |
$ | 0.15 | $ | 0.03 | ||||
| Earnings (loss) from discontinued operations |
0.03 | (0.01 | ) | |||||
| Cumulative effect of change in accounting principles |
— | 0.15 | ||||||
| Basic earnings per share |
$ | 0.18 | $ | 0.17 | ||||
| Diluted earnings per share: |
||||||||
| Earnings from continuing operations |
$ | 0.12 | $ | 0.03 | ||||
| Earnings (loss) from discontinued operations |
0.03 | (0.01 | ) | |||||
| Cumulative effect of change in accounting principles |
— | 0.15 | ||||||
| Diluted earnings per share |
$ | 0.15 | $ | 0.17 | ||||
| Basic shares outstanding |
376 | 371 | ||||||
| Diluted shares outstanding |
502 | 372 | ||||||
See the notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 74 | $ | 147 | ||||
| Adjustments to reconcile net income to net cash flows from operating activities: |
||||||||
| Depreciation and amortization |
97 | 125 | ||||||
| Impairment and other charges |
10 | — | ||||||
| Earnings from unconsolidated investments, net of cash distributions |
(4 | ) | (42 | ) | ||||
| Risk-management activities |
(24 | ) | 71 | |||||
| Gain on sale of assets |
(2 | ) | (22 | ) | ||||
| Deferred income taxes |
(21 | ) | 45 | |||||
| Cumulative effect of change in accounting principles (Note 1) |
— | (55 | ) | |||||
| Other |
(12 | ) | (4 | ) | ||||
| Changes in working capital: |
||||||||
| Accounts receivable |
99 | 1,061 | ||||||
| Inventory |
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