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Dynegy Announces Second Quarter 2013 Results, Updates Guidance And Provides AER Integration Update

Dynegy Inc. (NYSE:DYN) reported second quarter 2013 Enterprise-wide Adjusted EBITDA of $8 million compared to $11 million for the same period in 2012. The Company’s operating loss was $111 million for the second quarter 2013 compared to an operating loss of $8 million for the same period in 2012. The net loss was $145 million for the second quarter 2013 compared to a net loss of $69 million for the same period in 2012. During 2012, Dynegy’s operating loss and net loss only included results from the Coal segment after June 5, 2012.

For the first half of 2013, Enterprise-wide Adjusted EBITDA was $51 million compared to $49 million for the same period in 2012. The operating loss for the first half of 2013 was $226 million compared to operating income of $4 million in the first half of 2012. The net loss for the first half of 2013 totaled $287 million compared to a net loss of $1,151 million for the first half of 2012. During 2012, Dynegy’s operating loss and net loss only included results from the Coal segment after June 5, 2012.

“Our Gas segment delivered a strong quarter despite a number of planned outages while our Coal segment results were negatively impacted by extended outages and transmission congestion in southern Illinois. As a result, the Gas segment is expected to exceed its previously established guidance range whereas the Coal segment’s downward revision results in the lowering of our overall Adjusted EBITDA guidance for 2013. In addition, our successful second quarter refinancing enables us to revise upward free cash flow guidance for 2013 by $50 million. Progress in addressing congestion impacting the coal segment, both near and longer term, continued as we have executed a number of commercial hedges to increase protection from this congestion and identified specific transmission system constraints we plan to address and alleviate,” said Dynegy President and Chief Executive Officer Robert C. Flexon. “We remain focused on closing the Ameren Energy Resources acquisition during the fourth quarter and on July 22, we filed a variance petition with the Illinois Pollution Control Board which remains a critical step in the approval process and is a closing condition. We made significant progress with integration during the quarter including our annual synergy analysis resulting in an upward revision from $60 million to $75 million.”

Comparative Results by Segment

  Successor
Three Months Ended June 30, 2013

(in millions)

Coal   Gas   Other   Total
Operating Loss (2) $ (49 ) $ (36 ) $ (26 ) $ (111 )
Plus / (Less):
Depreciation expense 10 39 - 49
Bankruptcy reorganization items, net - - (2 ) (2 )
Other items, net   -     (1 )   (8 )   (9 )
EBITDA (1) (39 ) 2 (36 ) (73 )
Plus / (Less):

Bankruptcy reorganization items, net

- - 2 2
Acquisition and integration costs - - 1 1
Mark-to-market (income) loss, net (18 ) 19 - 1
Amortization of intangible assets and liabilities (3) 33 31 - 64
Change in fair value of common stock warrants - - 9 9
Restructuring costs and other expenses - - 3 3
Other   -     1     -     1  
Enterprise-wide Adjusted EBITDA (1) $ (24 ) $ 53   $ (21 ) $ 8  
   
 

(1) The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used by management to evaluate Dynegy’s business on an ongoing basis. Definitions, purposes and uses of such non-GAAP measures are included in Item 2.02 of our Current Report on Form 8-K filed with the SEC on August 1, 2013, which is available on the Company’s website: www.dynegy.com. Reconciliations of these measures to the most directly comparable GAAP measures are included in the accompanying schedules to this news release. General and administrative expenses are not allocated to each segment and are included in the Other segment.

 

(2) As a result of the application of fresh-start accounting on the Chapter 11 Plan Effective Date, the financial statements on or prior to October 1, 2012 are not comparable with the financial statements after October 1, 2012. Please refer to Dynegy’s second quarter Form 10-Q (when filed) for greater discussion of the accounting impacts of fresh-start accounting on the Company’s GAAP financial statements.

 

(3) The amounts within the Coal and Gas segments relate to intangible assets and liabilities related to rail transportation, coal contracts, gas revenue contracts and gas transportation contracts recorded in connection with the application of fresh-start accounting.

 
Predecessor
Three Months Ended June 30, 2012

(in millions)

Coal   Gas   Other   Total
Operating Income / (Loss) $ (17 ) $ 28 $ (19 ) $ (8 )
Plus / (Less):
Depreciation expense 4 36 3 43
Bankruptcy reorganization items, net - - (23 ) (23 )
Other items, net   5     2     -     7  
EBITDA from continuing operations (2) (8 ) 66 (39 ) 19
Plus / (Less):
Bankruptcy reorganization items, net - - 23 23
Amortization of intangible assets 12 10 - 22
Mark-to-market (income) loss, net   2     (49 )   -     (47 )
Adjusted EBITDA from continuing operations (2) $ 6 $ 27 $ (16 ) $ 17
Adjusted EBITDA from Legacy Dynegy (1)   (1 )   -     (5 )   (6 )
Enterprise-wide Adjusted EBITDA (2) $ 5   $ 27   $ (21 ) $ 11  
   
  (1) Dynegy’s second quarter 2012 consolidated results reflect the results of the Company’s accounting predecessor, Dynegy Holdings, LLC, which was its wholly-owned subsidiary until the Merger on September 30, 2012. Additionally, effective September 1, 2011, Dynegy completed the transfer of Dynegy Midwest Generation. As a result, the results of the Coal segment, as well as certain items in the Other segment, related to Legacy Dynegy are not included in the consolidated results for the three months ended June 30, 2012. However, Adjusted EBITDA from Legacy Dynegy for the three months ended June 30, 2012 is included in this adjustment because management uses enterprise-wide Adjusted EBITDA to evaluate the operating performance of the entire power generation fleet.
 
(2) The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used by management to evaluate Dynegy’s business on an ongoing basis. Definitions, purposes and uses of such non-GAAP measures are included in Item 2.02 of our Current Report on Form 8-K filed with the SEC on August 1, 2013, which is available on the Company’s website: www.dynegy.com. Reconciliations of these measures to the most directly comparable GAAP measures are included in the accompanying schedules to this news release. General and administrative expenses are not allocated to each segment and are included in the Other segment. When the second quarter 2012 results were originally reported, Adjusted EBITDA of $(6) million associated with Dynegy Northeast Generation and its subsidiaries (DNE) was included. The DNE Debtor Entities were subsequently deconsolidated and DNE's operating results were reclassified as discontinued operations; therefore, Adjusted EBITDA associated with DNE is no longer included in the second quarter 2012 Enterprise-wide Adjusted EBITDA.

Segment Review of Results Quarter-Over-Quarter

Coal – The second quarter 2013 operating loss was $49 million compared to a second quarter 2012 operating loss of $17 million. The coal segment, including the operating results in Legacy Dynegy’s consolidated financial statements until June 5, 2012, had an operating loss of $2,720 million for the second quarter 2012, or $68 million excluding the Loss on the Coal Holdco Transfer. Adjusted EBITDA totaled $(24) million during the second quarter 2013 compared to $5 million during the same period in 2012. The $29 million decrease in Adjusted EBITDA resulted from an increase in outages, higher rail expense and a decline in hedge settlements this quarter compared to the same period last year. An increase in outages, primarily at Baldwin and Hennepin, led to lower gross margin and increased operating expenses which reduced Adjusted EBITDA by $10 million. Rail transportation costs increased $4 million as a result of the rail contract modification that was signed during 2012. Hedge settlement revenues decreased $19 million compared to the second quarter of 2012 because the company benefitted from hedges during the second quarter of 2012 when commodity prices were weak but was a net payer on its hedges during the second quarter of 2013 due to the stronger commodity price environment. These lower hedge settlements were partially offset by a $6 million increase in physical energy margin attributable to higher power prices which more than offset an increase in transmission congestion.

Gas – The second quarter 2013 operating loss was $36 million compared to second quarter 2012 operating income of $28 million. Adjusted EBITDA totaled $53 million during the second quarter 2013 compared to $27 million during the same period in 2012. The $26 million increase in Adjusted EBITDA is primarily due to the absence of $61 million in negative settlements in 2012 related to legacy put options and other commercial positions. The benefit associated with lower financial settlements was partially offset by $5 million in lower market capacity payments primarily at the Kendall facility, a $4 million decrease in tolling payments associated with the early termination of the Morro Bay contract and a $19 million decrease in physical energy margin before hedges due to lower generation volumes and spark spreads.

Liquidity

As of July 26, 2013, Dynegy’s available liquidity was $787 million which included $500 million in cash and cash equivalents and $287 million of revolver availability under the Company’s revolving credit facility.

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