Dynegy's Q3 net loss widens to US$75M, from US$24M in year ago period, as revenues fell more than 33% to US$516M on lower prices, lower generation from newly organized coal, gas segments

HOUSTON , November 14, 2011 (press release) – Third quarter 2011 summary:

  • $106 million in Adjusted EBITDA, a decrease of $53 million compared to the third quarter 2010
  • $75 million net loss, compared to a net loss of $24 million during the third quarter 2010
  • $1,168 million in liquidity at September 30, 2011, including $1,031 million in cash on hand and letter of credit availability

Year-to-date 2011 summary:

  • $295 million in Adjusted EBITDA, a decrease of $141 million compared to the same period in 2010
  • $268 million net loss, compared to a net loss of $70 million during the same period in 2010
  • $50 million in Cash Flow from Operations

Recent Developments:

  • $287 million in restricted cash and collateral returned between August 5 and November 8, 2011, as a result of the successful implementation of the first lien collateral program and successful tender for Sithe project debt
  • $49 million lower recurring fixed costs in 2011 versus 2010; $36 million in additional savings targeted for 2012
  • Agreement reached with holders of over $1.4 billion in unsecured notes to restructure legacy debt obligations; Dynegy Holdings, LLC and four of its subsidiaries filed for relief under Chapter 11 on November 7, 2011 as part of this plan

Dynegy Inc. (NYSE: DYN) today announced a net loss of $75 million, or $(0.61) per diluted common share, during the quarter ended September 30, 2011, compared to a net loss of $24 million, or $(0.20) per diluted share, during the same period in 2010. Operating income for the third quarter of 2011 was $5 million, compared to operating income of $50 million during the third quarter 2010. These results include pre-tax, unrealized, net mark-to-market losses of $13 million ($8 million after-tax) and income of $132 million ($79 million after-tax) in the third quarter of 2011 and 2010, respectively. Additionally, results from the third quarter 2010 include after-tax impairment charges of $81 million related to the Casco Bay asset impairment. Adjusted EBITDA for the third quarter of 2011 totaled $106 million, a decrease of $53 million compared to the third quarter 2010. Lower generation for both the Coal and Gas segments together with lower realized prices and spark spreads contributed to weaker quarter over quarter performance. Reduced capacity prices and lower revenues from fewer hedging opportunities also contributed to weaker 2011 financial performance. These reductions were partially offset by a decrease in general and administrative expenses of $19 million as a result of ongoing cost savings and PRIDE initiatives.

“Our PRIDE initiative has already contributed to the Company’s liquidity and earnings through the re-establishment of the first lien collateral arrangement and lower fixed operating costs. Despite these significant changes during the quarter, our operating teams remained focused on safe and reliable operations and performed well.”

Net loss for the nine months ended September 30, 2011 totaled $268 million, or $(2.20) per diluted common share, compared to a net loss of $70 million or $(0.58) per diluted common share during the same period in 2010. Operating loss for the first nine months of 2011 was $150 million compared to operating income of $152 million during the same period in 2010. These results include pre-tax, unrealized, net mark-to-market losses of $140 million and income of $123 million during the nine months ended September 30, 2011 and 2010, respectively. Adjusted EBITDA for the first nine months of 2011 was $295 million compared to $436 million during the same period in 2010. The reduced operating results can be attributed to lower spark spreads in the Northeast and California, lower tolling and capacity payments, lower revenues from hedging activities and lower generation volumes. While operating expenses and general and administrative expenses decreased by $18 million and $13 million, respectively, due to the Vermilion mothballing, the South Bay retirement, the timing of outages, and lower salary and benefit costs; this was insufficient to offset the impact of lower revenues.

“Several milestones in Dynegy’s restructuring occurred during the third quarter. Our portfolios were realigned by fuel type and financed at the operating level, we initiated our PRIDE operating improvement program, and we made significant progress in addressing our legacy debt load,” said Robert C. Flexon, President and Chief Executive Officer of Dynegy. “Our PRIDE initiative has already contributed to the Company’s liquidity and earnings through the re-establishment of the first lien collateral arrangement and lower fixed operating costs. Despite these significant changes during the quarter, our operating teams remained focused on safe and reliable operations and performed well.”

Segment Review of Results Period-Over-Period

In August 2011, Dynegy reorganized its operations into three segments: 1) Coal, a 3,132 megawatt fleet of primarily coal based power plants located in the Midwest, 2) Gas, a 6,771 megawatt fleet of natural gas plants located primarily in California and the Northeast, and 3) DNE, 1,570 megawatts of leased natural gas and coal facilities and 123 megawatts of owned gas and oil peaking facilities. The Company has recast its segment information for all prior periods to reflect this reorganization. General and administrative expenses are allocated to each segment. Management does not allocate interest expense and income taxes on a segment level and therefore uses operating income (loss) as the most directly comparable GAAP measure to Adjusted EBITDA when performance is discussed on a segment level.

Coal –Operating income was $4 million compared to $85 million during the third quarters of 2011 and 2010, respectively. Adjusted EBITDA totaled $50 million during the third quarter 2011 compared to $71 million during the same period in 2010. Lower hedged prices and a 12% reduction in generation volumes resulted in the lower quarterly results compared to 2010.

Gas –Operating income was $28 million compared to an operating loss of $37 million during the third quarters of 2011 and 2010, respectively. A $134 million pre-tax asset impairment of the Casco Bay facility in the third quarter of 2010 is included in the operating loss for 2010. Adjusted EBITDA for the Gas segment was $52 million during the third quarter 2011 compared to $89 million during the same period in 2010. While higher tolling revenues offset the loss of the South Bay RMR status in California and weaker capacity prices in the Northeast, the Gas segment’s results were driven primarily by lower power prices and spark spreads in the Company’s key markets which resulted in lower generation volumes and lower energy margin. Additionally, the Gas segment saw lower contributions from commercial activities.

DNE –Operating loss was $27 million compared to operating income of $18 million during the third quarters of 2011 and 2010, respectively. The majority of the decrease is due to a net change in mark-to-market results from income of $16 million in 2010 to a loss of $26 million in 2011. Adjusted EBITDA was $(1) million for the quarter and was relatively flat compared to the corresponding period in 2010.

Liquidity and Debt

As of September 30, 2011, Dynegy’s consolidated liquidity was $1,168 million which included $881 million in unrestricted cash and cash equivalents, $150 million in letter of credit capacity and $137 million in unused collateral.

As previously announced, both the Gas and Coal segments entered into new five year credit agreements on August 5, 2011. The Gas segment’s term loan totaled $1,100 million while the Coal segment’s term loan was for $600 million. These credit agreements not only refinanced outstanding indebtedness of the Company, but also provided significant liquidity to the two operating companies. Additionally, on September 26, 2011, the Company completed a cash tender offer for $192 million of bonds associated with Sithe Independence LLC, a wholly-owned subsidiary of Dynegy Power, LLC. As part of the refinancing, Sithe returned $43 million in previously restricted cash and $83 million in letters of credit to the Gas segment.

During the quarter, the company also executed first lien collateral agreements with hedging counterparties which enabled the Coal and Gas segments to replace previously posted cash collateral with liens on their assets. As a result of these new arrangements, the Company was able to reduce outstanding collateral related to hedging activities by $131 million through September 30, 2011.

Between September 30 and November 8, 2011, $30 in previously posted collateral was returned to the Company as a result of the first lien structure. Together the Sithe tender and the first lien program have resulted in a total of $287 million in restricted cash and collateral returned between August 5 and November 8, 2011.

Restructuring Update

On November 7, 2011, Dynegy and its direct wholly-owned subsidiary, Dynegy Holdings, LLC (DH) reached an agreement with a group of investors holding over $1.4 billion of senior notes issued by DH regarding a framework for the consensual restructuring of over $4.0 billion of obligations owed by DH. In addition, DH and four of its wholly owned subsidiaries – Dynegy Northeast Generation, Inc., Hudson Power, L.L.C., Dynegy Danskammer, L.L.C. (Danskammer) and Dynegy Roseton, L.L.C. (Roseton) – filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court.

First day motions in the case were heard on November 8, 2011 and the Bankruptcy Court provided the debtors with the authority to continue providing pay and benefits to employees, paying suppliers for post-petition goods and services, and continuing certain other payments and policies on an interim basis. The Bankruptcy Court is expected to hear motions related to the rejection of the Roseton and Danskammer leases and other matters on December 2, 2011.

About Dynegy Inc.

Dynegy Inc.’s subsidiaries produce and sell electric energy, capacity and ancillary services in key U.S. markets. The Dynegy Power, LLC power generation portfolio consists of approximately 6,771 megawatts of primarily natural gas-fired intermediate and peaking power generation facilities, the Dynegy Midwest Generation, LLC portfolio consists of approximately 3,132 megawatts of primarily coal-fired baseload power plants, and a separate portfolio consists of approximately 1,693 megawatts from two power plants which are primarily natural gas-fired peaking and baseload coal generation facilities.

DYNEGY INC.
REPORTED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
                     
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2011   2010   2011   2010
                     
Revenues   $ 516     $ 775     $ 1,347     $ 1,872  
Cost of sales     (298 )     (334 )     (801 )     (873 )
Gross margin     218       441       546       999  
                     
Operating and maintenance expense, exclusive of depreciation and amortization expense shown separately below     (107 )     (110 )     (323 )     (341 )
Depreciation and amortization expense     (73 )     (96 )     (274 )     (261 )
Impairments and other charges     (1 )     (134 )     (2 )     (135 )
General and administrative expenses     (32 )     (51 )     (97 )     (110 )
Operating income (loss)     5       50       (150 )     152  
                     
Losses from unconsolidated investments     -       -       -       (34 )
Interest expense     (107 )     (92 )     (285 )     (272 )
Debt extinguishment costs     (21 )     -       (21 )     -  
Other income and expense, net     -       1       4       3  
Loss from continuing operations before income taxes     (123 )     (41 )     (452 )     (151 )
                     
Income tax benefit     48       17       184       80  
Loss from continuing operations     (75 )     (24 )     (268 )     (71 )
                     
Income from discontinued operations, net of tax     -       -       -       1  
Net loss   $ (75 )   $ (24 )   $ (268 )   $ (70 )
                     
Basic loss per share:                    
Loss from continuing operations (1)   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.59 )
Income from discontinued operations     -       -       -       0.01  
Basic loss per share   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.58 )
                     
Diluted loss per share:                    
Loss from continuing operations (1)   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.59 )
Income from discontinued operations     -       -       -       0.01  
Diluted loss per share   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.58 )
                     
Basic shares outstanding     122       120       122       120  
Diluted shares outstanding     122       121       122       121  
                     
(1) A reconciliation of basic loss per share from continuing operations to diluted loss per share from continuing operations is presented below:
                     
   

Three Months Ended

  Nine Months Ended
   

September 30,

  September 30,
   

2011

  2010   2011   2010
                     
Loss from continuing operations for basic and diluted loss per share   $ (75 )   $ (24 )   $ (268 )   $ (71 )
                     
Basic weighted-average shares (2)     122       120       122       120  
                     
Effect of dilutive securities:                    
Stock options and restricted stock     -       1       -       1  
Diluted weighted-average shares (2)     122       121       122       121  
                     
Loss per share from continuing operations                    
Basic   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.59 )
                     
Diluted (3)   $ (0.61 )   $ (0.20 )   $ (2.20 )   $ (0.59 )
                     
(2) Basic and diluted weighted average shares have been adjusted to reflect the May 25, 2010, one-for-five reverse stock split for all periods presented.
(3) Entities with a net loss from continuing operations are prohibited from including potential common shares in the computation of diluted per-share amounts. Accordingly, Dynegy Inc. has utilized the basic shares outstanding amount to calculate both basic and diluted loss per share for the three and nine months ended September 30, 2011 and 2010.
             

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