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: 000-29311
DYNEGY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3248415 | |
| (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 ¨ No x
All of the registrant’s outstanding common stock is owned, directly or indirectly, by Dynegy Inc.
TABLE OF CONTENTS
| Page | ||||||
| PART I. FINANCIAL INFORMATION |
||||||
| Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||||||
| Condensed Consolidated Balance Sheets: | ||||||
| March 31, 2004 and December 31, 2003 | 4 | |||||
| Condensed Consolidated Statements of Operations: | ||||||
| For the three months ended March 31, 2004 and 2003 | 5 | |||||
| Condensed Consolidated Statements of Cash Flows: | ||||||
| For the three months ended March 31, 2004 and 2003 | 6 | |||||
| Condensed Consolidated Statements of Comprehensive Income (Loss): | ||||||
| For the three months ended March 31, 2004 and 2003 | 7 | |||||
| Notes to Condensed Consolidated Financial Statements | 8 | |||||
| Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
28 | |||||
| Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 48 | |||||
| Item 4. CONTROLS AND PROCEDURES | 49 | |||||
| PART II. OTHER INFORMATION |
||||||
| Item 1. LEGAL PROCEEDINGS | 50 | |||||
| Item 6. EXHIBITS AND REPORTS ON FORM 8-K | 50 | |||||
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. | |
| $/Bbl |
Dollars per barrel. | |
| $/Gal |
Dollars per gallon. | |
| DMG |
Dynegy Midwest Generation, Inc. | |
| DMS |
Dynegy Midstream Services. | |
| DPM |
Dynegy Power Marketing Inc. | |
| Dynegy |
Dynegy Inc., our parent company, together with its subsidiaries. | |
| 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 March 5, 2004. | |
| GAAP |
Accounting principles generally accepted in the United States of America. | |
| GEN |
Our power generation business segment. | |
| Illinois Power |
Illinois Power Company. | |
| ICC |
Illinois Commerce Commission. | |
| 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. | |
| 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)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 296 | $ | 328 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $161 and $174, respectively |
713 | 806 | ||||||
| Accounts receivable, affiliates |
10 | 25 | ||||||
| Inventory |
163 | 194 | ||||||
| Assets from risk-management activities |
942 | 818 | ||||||
| Prepayments and other current assets |
342 | 324 | ||||||
| Total Current Assets |
2,466 | 2,495 | ||||||
| Property, Plant and Equipment |
7,710 | 7,691 | ||||||
| Accumulated depreciation |
(1,468 | ) | (1,389 | ) | ||||
| Property, Plant and Equipment, Net |
6,242 | 6,302 | ||||||
| Other Assets |
||||||||
| Unconsolidated investments |
581 | 577 | ||||||
| Assets from risk-management activities |
680 | 629 | ||||||
| Goodwill |
15 | 15 | ||||||
| Deferred income taxes |
117 | 106 | ||||||
| Other long-term assets |
167 | 156 | ||||||
| Total Assets |
$ | 10,268 | $ | 10,280 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY |
||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ | 541 | $ | 631 | ||||
| Accounts payable, affiliates |
151 | 195 | ||||||
| Accrued liabilities and other current liabilities |
384 | 415 | ||||||
| Liabilities from risk-management activities |
1,017 | 838 | ||||||
| Notes payable and current portion of long-term debt |
80 | 79 | ||||||
| Current portion of long-term debt to affiliates |
74 | 71 | ||||||
| Total Current Liabilities |
2,247 | 2,229 | ||||||
| Long-term debt |
3,441 | 3,464 | ||||||
| Long-term debt to affiliates |
200 | 200 | ||||||
| Long-Term Debt |
3,641 | 3,664 | ||||||
| Other Liabilities |
||||||||
| Liabilities from risk-management activities |
792 | 746 | ||||||
| Other long-term liabilities |
486 | 499 | ||||||
| Total Liabilities |
7,166 | 7,138 | ||||||
| Minority Interest |
121 | 121 | ||||||
| Commitments and Contingencies (Note 8) |
||||||||
| Stockholder’s Equity |
||||||||
| Additional paid-in capital |
2,419 | 2,419 | ||||||
| Accumulated other comprehensive income (loss), net of tax |
(28 | ) | 33 | |||||
| Accumulated deficit |
(442 | ) | (463 | ) | ||||
| Stockholder’s equity |
1,032 | 1,032 | ||||||
| Total Stockholder’s Equity |
2,981 | 3,021 | ||||||
| Total Liabilities and Stockholder’s Equity |
$ | 10,268 | $ | 10,280 | ||||
See the notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues |
$ | 1,327 | $ | 1,541 | ||||
| Cost of sales, exclusive of depreciation shown separately below |
(1,150 | ) | (1,277 | ) | ||||
| Depreciation and amortization expense |
(78 | ) | (84 | ) | ||||
| Impairment and other charges |
(10 | ) | 7 | |||||
| Gain on sale of assets |
17 | 1 | ||||||
| General and administrative expenses |
(53 | ) | (59 | ) | ||||
| Operating income |
53 | 129 | ||||||
| Earnings from unconsolidated investments |
39 | 52 | ||||||
| Interest expense |
(88 | ) | (68 | ) | ||||
| Other income and expense, net |
13 | 10 | ||||||
| Minority interest income (expense) |
(2 | ) | 17 | |||||
| Accumulated distributions associated with trust preferred securities |
— | (4 | ) | |||||
| Income from continuing operations before income taxes |
15 | 136 | ||||||
| Income tax expense |
(6 | ) | (50 | ) | ||||
| Income from continuing operations |
9 | 86 | ||||||
| Income (loss) on discontinued operations, net of taxes (Note 2) |
12 | (10 | ) | |||||
| Income before cumulative effect of change in accounting principles |
21 | 76 | ||||||
| Cumulative effect of change in accounting principles, net of taxes (Note 1) |
— | 57 | ||||||
| Net income |
$ | 21 | $ | 133 | ||||
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 |
$ | 21 | $ | 133 | ||||
| Adjustments to reconcile net income to net cash flows from operating activities: |
||||||||
| Depreciation and amortization |
84 | 93 | ||||||
| Impairment and other charges |
10 | — | ||||||
| Earnings from unconsolidated investments, net of cash distributions |
(4 | ) | (41 | ) | ||||
| Risk-management activities |
(24 | ) | 66 | |||||
| Gain on sale of assets |
(17 | ) | (1 | ) | ||||
| Deferred income taxes |
11 | 45 | ||||||
| Cumulative effect of change in accounting principles (Note 1) |
— | (57 | ) | |||||
| Other |
(18 | ) | (6 | ) | ||||
| Changes in working capital: |
||||||||
| Accounts receivable |
100 | 917 | ||||||
| Inventory |
37 | 139 | ||||||
| Prepayments and other assets |
(23 | ) | 215 | |||||
| Accounts payable and accrued liabilities |
(125 | ) | (1,182 | ) | ||||
| Changes in non-current assets and liabilities, net |
(13 | ) | (49 | ) | ||||
| Net cash provided by operating activities |
39 | 272 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(25 | ) | (52 | ) | ||||
| Proceeds from asset sales, net |
17 | 20 | ||||||
| Affiliate transactions |
(40 | ) | 93 | |||||
| Net cash provided by (used in) investing activities |
(48 | ) | 61 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Repayments of borrowings |
(19 | ) | (131 | ) | ||||
| Net cash flow from commercial paper and revolving lines of credit |
— | 712 | ||||||
| Other financing, net |
(3 | ) | — | |||||
| Net cash provided by (used in) financing activities |
(22 | ) | 581 | |||||
| Effect of exchange rate changes on cash |
(1 | ) | (6 | ) | ||||
| Net increase (decrease) in cash and cash equivalents |
(32 | ) | 908 | |||||
| Cash and cash equivalents, beginning of period |
328 | 633 | ||||||
| Cash and cash equivalents, end of period |
$ | 296 | $ | 1,541 | ||||
See the notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)