HOUSTON, Texas, July 30, 2002 — Dynegy Inc. on Tuesday reported a loss of $328 million in the second quarter 2002, or $0.92 per share outstanding, compared with reported income of $146 million in the second quarter 2001, or $0.43 per fully diluted share.
The reported quarterly results include previously disclosed, pre-tax non-recurring charges of $499 million, or $324 million after-tax; and a recurring loss of $4 million in the second quarter 2002, or $0.01 per share outstanding, compared with recurring income of $146 million in the second quarter 2001, or $0.43 per share.
Dan Dienstbier, interim chief executive officer of Dynegy Inc., said, “The results for this quarter are consistent with our previously announced goal to manage for cash as we execute our capital and liquidity plan. In addition, our results were affected substantially by the decline in realized commodity prices quarter-over-quarter and lower liquidity levels in the energy business.
“We are focused on running our businesses efficiently, managing our costs and generating cash. That commitment is advancing our pursuit of three important objectives: improving customer service, stabilizing the company’s marketing and trading business and preserving our financial viability,” Dienstbier added.
Wholesale Energy Network
The company’s Wholesale Energy Network segment is focused on the physical delivery of and risk management activities around wholesale natural gas, power and coal.
Recurring net income for this segment was $11 million in the second quarter 2002, representing a 93 percent decrease compared to $150 million in the second quarter 2001.
The Asset Businesses’ (owned generation and storage) recurring operating income, after the impact of general and administrative expenses, depreciation and amortization, was $57 million in the second quarter 2002, a 16 percent decrease compared to $68 million in the second quarter 2001.
These results reflect lower earnings from the company’s generation assets due to reduced power prices. The decline was partially offset by the addition of Dynegy Storage, the company’s natural gas storage and gas processing facilities in the United Kingdom, which contributed $15 million in operating income in the second quarter 2002. Earnings from unconsolidated investments were also impacted by reduced power prices.
Customer and Risk Management activities’ (controlled assets, marketing and trading) recurring operating loss, following the deduction of general and administrative expenses, depreciation and amortization, was $48 million in the second quarter 2002, compared to $96 million in recurring operating income in the second quarter 2001. These results reflect reduced energy trading and wholesale origination activities associated with less market liquidity and Dynegy’s lower credit ratings.
With the board of directors’ support, Dynegy’s management team is exploring strategic options for this segment’s risk management business, including the creation of an independently rated joint venture with a strong investment grade credit rating — a requisite for operating in the new marketing environment, according to Dienstbier.
Dynegy Midstream Services
Dynegy Midstream Services consists of Dynegy’s North American midstream liquids processing and marketing business and worldwide natural gas liquids marketing and transportation operations.
Recurring net loss from this segment was $4 million in the second quarter 2002, compared to recurring net income of $10 million in the second quarter 2001. Lower natural gas liquids prices and liquidity levels in global energy markets impacted this segment.
Transmission and distribution
Dynegy’s regulated transmission and distribution segment includes Illinois Power (IP) and, as of February 1, 2002, Northern Natural Gas Company (NNG). Dynegy has agreed to sell NNG to MidAmerican Energy Holdings Company for $928 million in cash, subject to adjustment for working capital changes.
MidAmerican Energy will acquire all of the common and preferred stock of NNG and will assume $950 million in outstanding NNG debt. The transaction is subject to customary closing conditions, including Hart-Scott-Rodino approval, and is expected to close in August 2002.
Recurring net income for the transmission and distribution segment totaled $15 million in the second quarter 2002, compared to $6 million in the second quarter 2001. The segment’s performance benefited from the addition of NNG, as well as IP’s reduced cost of operations and above-normal weather in its service territory.
For the quarter, NNG’s recurring operating income, after the impact of general and administrative expenses, depreciation and amortization, was $14 million. IP’s recurring operating income, following the deduction of general and administrative expenses, depreciation and amortization, was $50 million.
Dynegy Global Communications
The company’s communications segment, Dynegy Global Communications, was launched during the fourth quarter 2000. Dynegy’s 16,000-route-mile, optically switched mesh network reaches 44 U.S. cities.
Recurring net loss for this segment was $26 million in the second quarter 2002. Reduced earnings from equity investments were offset by cost containment and improved revenues.
Management has previously announced its intention to reduce its financial exposure relative to this segment and with the second quarter charge has written off all its balance sheet investment. Dynegy will continue to maintain its operations in order to meet current customer commitments and obligations.
After-tax non-recurring charges
As previously announced, the company’s total after-tax non-recurring charges for the second quarter 2002 include $212 million for certain communications assets and technology investments, $80 million related to the natural gas marketing business and $32 million primarily for severance and related exit costs and other write-offs.
Disclosure and accounting
Dynegy is taking several steps to further enhance the transparency and clarity of its financial reporting. Additional information will be provided to investors beginning this quarter in its SEC filing. This information will include operating cash flow disclosure by segment and segregated financial contribution (a non-GAAP term defined as revenues less costs of sales, plus earnings for unconsolidated investments) among earnings generated from regulated operations, term contracts, fee-based operations, other assets and marketing and trading operations. In addition, Dynegy will provide a single schedule that reconciles the financial effects of risk management activities to the company’s balance sheet, income statement and cash flow statement.
2002 Earnings Guidance and Cash Flow
Management is revising the company’s 2002 recurring earnings per share guidance range of $2.00 to $2.05 to approximately $0.41, based on the assumption that results for the balance of the year are breakeven. The revised guidance reflects new capital and liquidity initiatives and takes into account lower commodity prices, reduced liquidity levels and weaker energy industry fundamentals.
Reported cash flow from operations for the first six months of 2002 totaled $375 million. The company confirmed its fiscal year 2002 guidance for cash flow from operations of $600 million to $700 million.
About Dynegy Inc.
Dynegy Inc. is a global energy merchant. Through its owned and contractually controlled network of physical assets and its marketing, logistics and risk management capabilities, Dynegy provides solutions to customers in North America, the United Kingdom and continental Europe. The company’s website is www.dynegy.com.