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 September 30, 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, 283,135,636 shares outstanding as of November 8, 2004; Class B common stock, no par value per share, 96,891,014 shares outstanding as of November 8, 2004.
DYNEGY INC.
| Page | ||
| PART I. FINANCIAL INFORMATION |
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| Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: |
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| Condensed Consolidated Balance Sheets: |
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| 4 | ||
| Condensed Consolidated Statements of Operations: |
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| For the three and nine months ended September 30, 2004 and 2003 |
5 | |
| Condensed Consolidated Statements of Cash Flows: |
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| 6 | ||
| Condensed Consolidated Statements of Comprehensive Income (Loss): |
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| For the three and nine months ended September 30, 2004 and 2003 |
7 | |
| 8 | ||
| Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
46 | |
| Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
78 | |
| 79 | ||
| PART II. OTHER INFORMATION |
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| 81 | ||
| Item 6. EXHIBITS |
81 | |
Explanatory Note
On September 22, 2004, we filed a Current Report on Form 8-K with the SEC announcing restatements of our previously issued financial statements contained in our 2003 Form 10-K and first and second quarter 2004 Form 10-Qs. The restatements relate to our previously disclosed goodwill impairment charge associated with the sale of Illinois Power and our deferred income tax accounts. The financial information in this report has been revised to reflect the effects of these items. These items are discussed in more detail in the Introductory Note to the accompanying unaudited condensed consolidated financial statements.
We expect to file amendments to our 2003 Form 10-K and first and second quarter 2004 Form 10-Qs as soon as practicable after the date of this report.
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 | |
| 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 8-K | Our Current Report on Form 8-K filed on September 22, 2004 | |
| Form 10-K | Our Annual Report on Form 10-K for the year ended December 31, 2003, filed on February 27, 2004, as amended by Amendment No. 1 on Form 10-K/A filed on July 20, 2004 | |
| GAAP | Accounting principles generally accepted in the United States of America | |
| GEN | Our power generation business segment | |
| ICC | Illinois Commerce Commission | |
| KWH | Kilowatt hours | |
| kW-yr | Kilowatts per year | |
| LIBOR | The London Interbank Offered Rate | |
| LNG | Liquefied natural gas | |
| MBbls/d | Thousands of barrels per day | |
| MISO | Midwest Independent Transmission System Operator, Inc. | |
| 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 | |
| NSPS | New Source Performance Standard | |
| PGA | Purchase Gas Adjustment | |
| PPO | Power Purchase Option | |
| PRB | Powder River Basin | |
| PSD | Prevention of Significant Deterioration | |
| REG | Our regulated energy delivery business segment | |
| RTO | Regional Transmission Organization | |
| 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 | |
| WEN | Our former wholesale energy business segment |
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
| September 30, 2004 |
December 31, 2003 |
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| (Restated) | ||||||||
| ASSETS | ||||||||
| Current Assets |
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| Cash and cash equivalents |
$ | 926 | $ | 477 | ||||
| Restricted cash |
— | 19 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $161 and $184, respectively |
698 | 1,010 | ||||||
| Accounts receivable, affiliates |
19 | 25 | ||||||
| Inventory |
260 | 279 | ||||||
| Assets from risk-management activities |
797 | 818 | ||||||
| Prepayments and other current assets |
463 | 402 | ||||||
| Total Current Assets |
3,163 | 3,030 | ||||||
| Property, Plant and Equipment |
7,774 | 9,867 | ||||||
| Accumulated depreciation |
(1,626 | ) | (1,664 | ) | ||||
| Property, Plant and Equipment, Net |
6,148 | 8,203 | ||||||
| Other Assets |
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| Unconsolidated investments |
459 | 612 | ||||||
| Assets from risk-management activities |
634 | 629 | ||||||
| Goodwill |
15 | 15 | ||||||
| Other long-term assets |
312 | 472 | ||||||
| Total Assets |
$ | 10,731 | $ | 12,961 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ | 553 | $ | 664 | ||||
| Accounts payable, affiliates |
84 | 74 | ||||||
| Accrued liabilities and other current liabilities |
510 | 669 | ||||||
| Liabilities from risk-management activities |
879 | 838 | ||||||
| Notes payable and current portion of long-term debt |
24 | 245 | ||||||
| Current portion of long-term debt to affiliates |
125 | 86 | ||||||
| Total Current Liabilities |
2,175 | 2,576 | ||||||
| Long-term debt |
4,151 | 5,124 | ||||||
| Long-term debt to affiliates |
200 | 769 | ||||||
| Long-Term Debt |
4,351 | 5,893 | ||||||
| Other Liabilities |
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| Liabilities from risk-management activities |
718 | 746 | ||||||
| Deferred income taxes |
533 | 524 | ||||||
| Other long-term liabilities |
355 | 750 | ||||||
| Total Liabilities |
8,132 | 10,489 | ||||||
| Minority Interest |
108 | 121 | ||||||
| Commitments and Contingencies (Note 9) |
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| Redeemable Preferred Securities, redemption value of $400 at September 30, 2004 and $411 at December 31, 2003 |
400 | 411 | ||||||
| Stockholders’ Equity |
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| Class A Common Stock, no par value, 900,000,000 shares authorized at September 30, 2004 and December 31, 2003; 284,699,441 and 280,350,169 shares issued and outstanding at September 30, 2004 and December 31, 2003, respectively |
2,858 | 2,848 | ||||||
| Class B Common Stock, no par value, 360,000,000 shares authorized at September 30, 2004 and December 31, 2003; 96,891,014 shares issued and outstanding at September 30, 2004 and December 31, 2003 |
1,006 | 1,006 | ||||||
| Additional paid-in capital |
47 | 41 | ||||||
| Subscriptions receivable |
(8 | ) | (8 | ) | ||||
| Accumulated other comprehensive loss, net of tax |
(24 | ) | (20 | ) | ||||
| Accumulated deficit |
(1,720 | ) | (1,859 | ) | ||||
| Treasury stock, at cost, 1,679,183 shares at September 30, 2004 and December 31, 2003 |
(68 | ) | (68 | ) | ||||
| Total Stockholders’ Equity |
2,091 | 1,940 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 10,731 | $ | 12,961 | ||||
See the notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2004 |
2003 |
2004 |
2003 |
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| Revenues |
$ | 1,650 | $ | 1,385 | $ | 4,747 | $ | 4,331 | ||||||||
| Cost of sales, exclusive of depreciation shown separately below |
(1,327 | ) | (1,095 | ) | (3,803 | ) | (3,822 | ) | ||||||||
| Depreciation and amortization expense |
(79 | ) | (109 | ) | (249 | ) | (340 | ) | ||||||||
| Impairment and other charges |
(2 | ) | (1 | ) | (83 | ) | 6 | |||||||||
| Gain (loss) on sale of assets, net |
(24 | ) | — | 14 | 15 | |||||||||||
| General and administrative expenses |
(79 | ) | (79 | ) | (247 | ) | (276 | ) | ||||||||
| Operating income (loss) |
139 | 101 | 379 | (86 | ) | |||||||||||
| Earnings from unconsolidated investments |
102 | 51 | 194 | 142 | ||||||||||||
| Interest expense |
(125 | ) | (145 | ) | (402 | ) | (364 | ) | ||||||||
| Other income and expense, net |
3 | 2 | 10 | 13 | ||||||||||||
| Minority interest income (expense) |
(9 | ) | (2 | ) | (19 | ) | 7 | |||||||||
| Accumulated distributions associated with trust preferred securities |
— | — | — | (8 | ) | |||||||||||
| Income (loss) from continuing operations before income taxes |
110 | 7 | 162 | (296 | ) | |||||||||||
| Income tax benefit (expense) (Note 12) |
(30 | ) | (3 | ) | 1 | 109 | ||||||||||
| Income (loss) from continuing operations |
80 | 4 | 163 | (187 | ) | |||||||||||
| Income (loss) from discontinued operations, net of taxes (Notes 2 and 12) |
(2 | ) | 1 | (7 | ) | (6 | ) | |||||||||
| Income (loss) before cumulative effect of change in accounting principles |
78 | 5 | 156 | (193 | ) | |||||||||||
| Cumulative effect of change in accounting principles, net of taxes (Note 1) |
— | — | — | 55 | ||||||||||||
| Net income (loss) |
78 | 5 | 156 | (138 | ) | |||||||||||
| Less: preferred stock dividends (gain) |
6 | (1,183 | ) | 17 | (1,018 | ) | ||||||||||
| Net income applicable to common stockholders |
$ | 72 | $ | 1,188 | $ | 139 | $ | 880 | ||||||||
| Earnings Per Share (Note 8): |
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| Basic earnings per share: |
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| Income from continuing operations |
$ | 0.20 | $ | 3.17 | $ | 0.39 | $ | 2.23 | ||||||||
| Income (loss) from discontinued operations |
(0.01 | ) | 0.00 | (0.02 | ) | (0.02 | ) | |||||||||
| Cumulative effect of change in accounting principles |
— | — | — | 0.15 | ||||||||||||
| Basic earnings per share |
$ | 0.19 | $ | 3.17 | $ | 0.37 | $ | 2.36 | ||||||||