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, 2005
| ¨ | 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, 284,688,181 shares outstanding as of May 5, 2005; Class B common stock, no par value per share, 96,891,014 shares outstanding as of May 5, 2005.
TABLE OF CONTENTS
| Page | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||||
|
Condensed Consolidated Balance Sheets: |
4 | |||
|
Condensed Consolidated Statements of Operations: |
5 | |||
|
Condensed Consolidated Statements of Cash Flows: |
6 | |||
| 7 | ||||
| Notes to Condensed Consolidated Financial Statements | 8 | |||
| Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
35 | |||
| Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 57 | |||
| Item 4. CONTROLS AND PROCEDURES | 58 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. LEGAL PROCEEDINGS | 60 | |||
| Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 60 | |||
| Item 6. EXHIBITS | 60 | |||
2
DEFINITIONS
As used in this Form 10-Q, the abbreviations contained herein have the meanings set forth below. Additionally, the terms “Dynegy,” “we,” “us” and “our” refer to Dynegy Inc. and its subsidiaries, unless the context clearly indicates otherwise.
| ARO |
Asset retirement obligation | |
| ARB |
Accounting Research Bulletin | |
| Bcf/d |
Billion cubic feet 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 Chevron Corporation | |
| 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 | |
| DNE |
Dynegy Northeast Generation | |
| 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 | |
| GAAP |
Generally Accepted Accounting Principles of the United States of America | |
| GEN |
Our power generation business segment | |
| GCF |
Gulf Coast Fractionators | |
| ISO |
Independent System Operator | |
| KW—yr |
Kilowatt year | |
| KWH |
Kilowatt hour | |
| LNG |
Liquefied natural gas | |
| LPG |
Liquefied petroleum gas | |
| MBbls/d |
Thousands of barrels per day | |
| Mcf |
Thousand cubic feet | |
| MISO |
Midwest Independent Transmission Operator, Inc. | |
| MMBtu |
Millions of British thermal units | |
| MMCFD |
Million cubic feet per day | |
| MW |
Megawatts | |
| MWh |
Megawatt hour | |
| NGL |
Our natural gas liquids business segment | |
| NOL |
Net operating loss | |
| NOV |
Notice of Violation issued by the EPA | |
| NYISO |
New York Independent System Operator | |
| POL |
Percentage of liquids | |
| POP |
Percentage of proceeds | |
| PRB |
Powder River Basin coal | |
| REG |
Our regulated energy delivery business segment | |
| RMR |
Reliability Must Run | |
| 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 |
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents |
$ | 371 | $ | 628 | ||||
| Restricted cash |
61 | — | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $162 and $159, respectively |
967 | 810 | ||||||
| Accounts receivable, affiliates |
11 | 14 | ||||||
| Inventory |
228 | 233 | ||||||
| Assets from risk-management activities |
764 | 565 | ||||||
| Deferred income taxes |
132 | 74 | ||||||
| Prepayments and other current assets |
484 | 428 | ||||||
| Total Current Assets |
3,018 | 2,752 | ||||||
| Property, Plant and Equipment | 8,250 | 7,822 | ||||||
| Accumulated depreciation |
(1,752 | ) | (1,692 | ) | ||||
| Property, Plant and Equipment, Net |
6,498 | 6,130 | ||||||
| Other Assets | ||||||||
| Unconsolidated investments |
416 | 421 | ||||||
| Restricted cash |
49 | — | ||||||
| Restricted investments |
36 | — | ||||||
| Assets from risk-management activities |
299 | 313 | ||||||
| Goodwill |
15 | 15 | ||||||
| Intangible assets |
462 | — | ||||||
| Deferred income taxes |
13 | 12 | ||||||
| Other long-term assets |
179 | 209 | ||||||
| Total Assets | $ | 10,985 | $ | 9,852 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable |
$ | 491 | $ | 561 | ||||
| Accounts payable, affiliates |
— | 23 | ||||||
| Accrued interest |
138 | 118 | ||||||
| Accrued liabilities and other current liabilities |
780 | 450 | ||||||
| Liabilities from risk-management activities |
798 | 616 | ||||||
| Notes payable and current portion of long-term debt |
64 | 34 | ||||||
| Total Current Liabilities |
2,271 | 1,802 | ||||||
| Long-term debt |
4,862 | 4,132 | ||||||
| Long-term debt to affiliates |
200 | 200 | ||||||
| Long-Term Debt |
5,062 | 4,332 | ||||||
| Other Liabilities | ||||||||
| Liabilities from risk-management activities |
348 | 395 | ||||||
| Deferred income taxes |
764 | 597 | ||||||
| Other long-term liabilities |
434 | 353 | ||||||
| Total Liabilities |
8,879 | 7,479 | ||||||
| Minority Interest |
107 | 106 | ||||||
| Commitments and Contingencies (Note 9) |
||||||||
| Redeemable Preferred Securities, redemption value of $400 at March 31, 2005 and December 31, 2004, respectively |
400 | 400 | ||||||
| Stockholders’ Equity |
||||||||
| Class A Common Stock, no par value, 900,000,000 shares authorized at March 31, 2005 and December 31, 2004; 286,186,244 and 285,012,203 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively |
2,862 | 2,859 | ||||||
| Class B Common Stock, no par value, 360,000,000 shares authorized at March 31, 2005 and December 31, 2004; 96,891,014 shares issued and outstanding at March 31, 2005 and December 31, 2004 |
1,006 | 1,006 | ||||||
| Additional paid-in capital |
43 | 41 | ||||||
| Subscriptions receivable |
(8 | ) | (8 | ) | ||||
| Accumulated other comprehensive loss, net of tax |
(19 | ) | (13 | ) | ||||
| Accumulated deficit |
(2,217 | ) | (1,950 | ) | ||||
| Treasury stock, at cost, 1,686,526 shares at March 31, 2005 and 1,679,183 shares at December 31, 2004 |
(68 | ) | (68 | ) | ||||
| Total Stockholders’ Equity |
1,599 | 1,867 | ||||||
| Total Liabilities and Stockholders’ Equity |
$ | 10,985 | $ | 9,852 | ||||
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, |
||||||||
| 2005 |
2004 |
|||||||
| Revenues |
$ | 1,499 | $ | 1,657 | ||||
| Cost of sales, exclusive of depreciation shown separately below |
(1,479 | ) | (1,378 | ) | ||||
| Depreciation and amortization expense |
(75 | ) | (88 | ) | ||||
| Impairment and other charges |
1 | (16 | ) | |||||
| Gain (loss) on sale of assets, net |
(1 | ) | 2 | |||||
| General and administrative expenses |
(269 | ) | (69 | ) | ||||
| Operating income (loss) |
(324 | ) | 108 | |||||
| Earnings from unconsolidated investments |
4 | 40 | ||||||
| Interest expense |
(100 | ) | (132 | ) | ||||
| Other income and expense, net |
4 | 13 | ||||||
| Minority interest expense |
(6 | ) | (2 | ) | ||||
| Income (loss) from continuing operations before income taxes |
(422 | ) | 27 | |||||
| Income tax benefit |
157 | 29 | ||||||
| Income (loss) from continuing operations |
(265 | ) | 56 | |||||
| Income from discontinued operations, net of tax expense of $1 and $6, respectively |
3 | 14 | ||||||
| Net income (loss) |
(262 | ) | 70 | |||||
| Less: preferred stock dividends |
5 | 5 | ||||||
| Net income (loss) applicable to common stockholders |
$ | (267 | ) | $ | 65 | |||
| Earnings (Loss) Per Share (Note 8): | ||||||||
| Basic earnings (loss) per share: |
||||||||
| Earnings (loss) from continuing operations |
$ | (0.71 | ) | $ | 0.14 | |||
| Earnings from discontinued operations |
0.01 | 0.03 | ||||||
| Basic earnings (loss) per share |
$ | (0.70 | ) | $ | 0.17 | |||
| Diluted earnings (loss) per share: |
||||||||
| Earnings (loss) from continuing operations |
$ | (0.71 | ) | $ | 0.11 | |||
| Earnings from discontinued operations |
0.01 | 0.03 | ||||||
| Diluted earnings (loss) per share |
$ | (0.70 | ) | $ | 0.14 | |||
| Basic shares outstanding |
379 | 376 | ||||||
| Diluted shares outstanding |
505 | 502 | ||||||
See the notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) |
$ | (262 | ) | $ | 70 | |||
| Adjustments to reconcile net income (loss) to net cash flows from operating activities: |
||||||||
| Depreciation and amortization |
79 | 97 | ||||||
| Impairment and other charges |
(1 | ) | 16 | |||||
| Earnings from unconsolidated investments, net of cash distributions |
(1 | ) | (4 | ) | ||||
| Risk-management activities |
(11 | ) | (24 | ) | ||||
| Loss (gain) on sale of assets, net |
1 | (2 | ) | |||||
| Deferred income taxes |
(156 | ) | (23 | ) | ||||
| Legal and settlement charges |
68 | 9 | ||||||
| Independence toll settlement charge |
183 | — | ||||||
| Other |
(5 | ) | (21 | ) | ||||
| Changes in working capital: |
||||||||
| Accounts receivable |
(128 | |||||||