Dynegy Announces Second Quarter 2013 Results, Updates Guidance and Provides AER Integration Update
Dynegy Announces Second Quarter 2013 Results, Updates Guidance and Provides AER Integration Update
Second quarter and first half 2013 summary:
- $8 million in Enterprise-wide Adjusted EBITDA for the quarter compared to $11 million in the second quarter 2012
- $51 million in Enterprise-wide Adjusted EBITDA year to date compared to $49 million in the first half of 2012
- $787 million in liquidity at July 26, 2013, including $500 million in cash and cash equivalents
- Completed $1.3 billion refinancing and placed a $475 million revolving credit facility, which together released $335 million in restricted cash and lowered annual interest payments by approximately $100 million annually as compared to October 1, 2012 levels
- Enterprise-wide Adjusted EBITDA guidance range lowered by $50 million to $200-$225 million as an increase in the Gas segment Adjusted EBITDA guidance range was more than offset by a decrease in the Coal segment Adjusted EBITDA guidance range
- Free cash flow guidance increased by $50 million to $190-$215 million
- Filed variance petition with the Illinois Pollution Control Board on July 22, 2013
- Annual synergy target revised upward from $60 million to $75 million
HOUSTON--(BUSINESS WIRE)-- Dynegy Inc. (NYS: 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 $75 million."
Comparative Results by Segment
|Three Months Ended June 30, 2013|
|Operating Loss (2)||$||(49||)||$||(36||)||$||(26||)||$||(111||)|
|Plus / (Less):|
|Bankruptcy reorganization items, net||-||-||(2||)||(2||)|
|Other items, net||-||(1||)||(8||)||(9||)|
|Plus / (Less):|
Bankruptcy reorganization items, net
|Acquisition and integration costs||-||-||1||1|
|Mark-to-market (income) loss, net||(18||)||19||-||1|
|Amortization of intangible assets and liabilities (3)||33||31||-||64|
|Change in fair value of common stock warrants||-||-||9||9|
|Restructuring costs and other expenses||-||-||3||3|
|Enterprise-wide Adjusted EBITDA (1)||$||(24||)||$||53||$||(21||)||$||8|
(1) The non-GAAP financial measures of EBITDA and Adjusted EBITDA are used by management to evaluate Dynegy's business on an ongoing basis. Definitions, purposes and uses of such non-GAAP measures are included in Item 2.02 of our Current Report on Form 8-K filed with the SEC on August 1, 2013, which is available on the Company's website: www.dynegy.com. Reconciliations of these measures to the most directly comparable GAAP measures are included in the accompanying schedules to this news release. General and administrative expenses are not allocated to each segment and are included in the Other segment.
(2) As a result of the application of fresh-start accounting on the Chapter 11 Plan Effective Date, the financial statements on or prior to October 1, 2012 are not comparable with the financial statements after October 1, 2012. Please refer to Dynegy's second quarter Form 10-Q (when filed) for greater discussion of the accounting impacts of fresh-start accounting on the Company's GAAP financial statements.
(3) The amounts within the Coal and Gas segments relate to intangible assets and liabilities related to rail transportation, coal contracts, gas revenue contracts and gas transportation contracts recorded in connection with the application of fresh-start accounting.
|Three Months Ended June 30, 2012|
|Operating Income / (Loss)||$||(17||)||$||28||$||(19||)||$||(8||)|
|Plus / (Less):|
|Bankruptcy reorganization items, net||-||-||(23||)||(23||)|
|Other items, net||5||2||-||7|
|EBITDA from continuing operations (2)||(8||)||66||(39||)||19|
|Plus / (Less):|
|Bankruptcy reorganization items, net||-||-||23||23|
|Amortization of intangible assets||12||10||-||22|
|Mark-to-market (income) loss, net||2||(49||)||-||(47||)|
|Adjusted EBITDA from continuing operations (2)||$||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.
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.
In April 2013, Dynegy closed $1.775 billion in new credit facilities including $1.3 billion in new senior, secured term loans and a $475 million corporate revolver. The proceeds of the term loans were used, together with cash on hand, to repay existing indebtedness at GasCo and CoalCo and to fund related transaction costs. In May 2013, Dynegy completed a Rule 144A private placement of $500 million in aggregate principal amount of 5.875% Senior Notes due 2023. Dynegy used the proceeds of the offering to repay $500 million of the term loans issued in April 2013. The remaining $800 million term loan matures in 2020 and is priced at LIBOR plus 300 basis points with a LIBOR floor of one percent. The new 5-year, $475 million revolving credit facility at Dynegy Inc. replaced an existing $150 million GasCo revolving credit facility. The interest rate charged on borrowings under the revolver will be LIBOR plus 275 basis points with no LIBOR floor. Together these financing activities released $335 million in restricted cash and reduced annual interest expense by approximately $100 million compared to the annual interest expense run rate at the Company's emergence from bankruptcy in October 2012.
|July 26, 2013||June 30, 2013|
|Less: Outstanding letters of credit||(188||)||(190||)|
|Cash and cash equivalents||500||461|
|Total available liquidity||$||787||$||746|
Consolidated Cash Flow
Cash flow used in operations during the first half of 2013 was $10 million compared to cash flow used in operations of $107 million during the same period in 2012. During the first half of 2013, the business provided Adjusted EBITDA of $51 million which was more than offset by $44 million in interest payments; $7 million in negative changes in working capital, which includes $2 million of increased collateral postings to satisfy counterparty collateral requirements; and $10 million related to acquisition, integration and other expenses. During the first half of 2012, the business provided Adjusted EBITDA from continuing operations of $42 million and $2 million related to receipt of a tax refund. This was more than offset by $20 million in negative Adjusted EBITDA related to discontinued operations, $34 million in interest payments and $97 million in negative working capital changes, primarily associated with collateral postings to satisfy counterparty collateral demands.
Cash flow provided by investing activities totaled $283 million during the first half of 2013 compared to cash flow provided by investing activities of $372 million during the same period in 2012. During the first half of 2013, capital expenditures totaled $55 million, including $51 million in maintenance capital expenditures and $4 million in environmental capital expenditures. During the first half of 2012, capital expenditures totaled $37 million, including $31 million in maintenance capital expenditures and $6 million in environmental capital expenditures. During the first half of 2013, there was a $335 million net cash inflow related to restricted cash balances compared to a $134 million net cash inflow in the same period in 2012. In 2012 there was a $256 million cash inflow related to the DMG acquisition that did not recur in 2013.
Cash flow used in financing activities during the first half 2013 was $160 million compared to cash flow used in financing activities of $7 million during the same period in 2012. During 2012, proceeds related to refinancing of $1,753 million were more than offset by borrowings and debt issuance costs of $1,913 million.
Dynegy continues to use the PRIDE initiative to improve operating performance, cost structure and the balance sheet and to drive recurring cash flow benefits. Total PRIDE related contributions for 2013 are expected to include margin and cost improvements of approximately $40 million. Additionally, 2013 balance sheet improvements are projected to be $162 million, an increase of $79 million from the prior forecast. Since the program's inception, a total of $157 million in margin and cost improvements compared to our 2010 baseline and $686 million in balance sheet improvements have been identified.
Enterprise-wide Adjusted EBITDA guidance range is being lowered by $50 million to $200-$225 million due to the impact of extended outages in the Coal segment and persistent, high basis differentials which negatively impacted physical energy revenues and correlations with the Company's hedges. These factors more than offset improvements in the Gas segment including higher realized prices at the Independence facility during the first quarter and increased resource adequacy sales from our California facilities. As a result of the second quarter refinancing which led to lower than expected interest rates, a higher than anticipated release of restricted cash and a reduced debt repayment net of incremental costs associated with the refinancing, Dynegy is increasing its Free Cash Flow guidance by $50 million to a range $190-$215 million.
AER Integration Update
The estimate of annual synergies of the combined operations is being increased from $60 million to $75 million. The increase is largely due to greater cost reductions than expected from corporate infrastructure and increased savings from operational and procurement initiatives. In July, Illinois Power Holdings along with AER and AmerenEnergy Medina Valley Cogen filed a new variance petition with the Illinois Pollution Control Board requesting materially the same relief that AER was granted in 2012. The Ameren Energy Resources acquisition continues to progress, with an expected closing in the fourth quarter.
Investor Conference Call/Webcast
Dynegy will discuss its second quarter 2013 financial results during an investor conference call and webcast today, August 1, 2013, at 9 a.m. ET/8 a.m. CT. Participants may access the webcast and the related presentation materials in the "Investor Relations" section of www.dynegy.com.
Dynegy'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 2,980 megawatts of primarily coal-fired baseload power plants.
This press release contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as "forward-looking statements," particularly those statements concerning Dynegy's: expectations of its segments' established guidance ranges; continued progress in addressing the impacts of transmission congestion; ability to obtain variance relief from the IPCB and close of the AER acquisition during the fourth quarter; execution of its PRIDE initiative to improve operating performance, cost structure and the balance sheet to drive cash flow benefits; anticipated earnings and cash flows and updated 2013 Adjusted EBITDA and cash flow guidance. Historically, Dynegy's performance has deviated, in some cases materially, from its cash flow and earnings guidance. Discussion of risks and uncertainties that could cause actual results to differ materially from current projections, forecasts, estimates and expectations of Dynegy is contained in Dynegy's filings with the Securities and Exchange Commission (the "SEC"). Specifically, Dynegy makes reference to, and incorporates herein by reference, the section entitled "Risk Factors" in its 2012 Form 10-K, first quarter 2013 Form 10-Q and second quarter 2013 Form 10-Q, when filed. In addition to the risks and uncertainties set forth in Dynegy's SEC filings, the forward-looking statements described in this press release could be affected by, among other things, (i) assumptions used to update the 2013 guidance estimates do not materialize, including but not limited to, assumptions regarding gas prices and basis risk (ii) Dynegy's expectations and beliefs related to the AER Acquisition and satisfying closing conditions, including obtaining variance relief from the IPCB; (iii) Dynegy's anticipated benefits and expected synergies resulting from the AER acquisition and beliefs associated with the integration of operations; (iv) Dynegy's ability to consummate the Dynegy Northeast Generation, Inc. Chapter 11 Joint Plan of Liquidation; (v) lack of comparable financial data due to the application of fresh-start accounting; (vi) beliefs and assumptions relating to Dynegy's liquidity, available borrowing capacity and capital resources, generally, including the extent to which such liquidity could be affected by poor economic and financial market conditions or new regulations and any resulting impacts on financial institutions and other current and potential counterparties; (vii) limitations on Dynegy's ability to utilize previously incurred federal net operating losses or alternative minimum tax credits; (viii) expectations regarding Dynegy's compliance with the Credit Agreement, including collateral demands, interest expense, financial ratios and other payments; (ix) the timing and anticipated benefits to be achieved through Dynegy's company-wide savings improvement programs, including its PRIDE initiative; (x) efforts to identify opportunities to reduce congestion and improve busbar power prices; (xi) assumptions to achieve benefit and fixed cost savings through negotiations with IBEW Local 51; (xii) expectations regarding environmental matters, including costs of compliance, availability and adequacy of emission credits, and the impact of ongoing proceedings and potential regulations or changes to current regulations, including those relating to climate change, air emissions, cooling water intake structures, coal combustion byproducts, and other laws and regulations to which Dynegy is, or could become, subject; (xiii) beliefs, assumptions and projections regarding the demand for power, generation volumes and commodity pricing, including natural gas prices and the timing of a recovery in natural gas prices, if any; (xiv) sufficiency of, access to and costs associated with coal, fuel oil and natural gas inventories and transportation thereof; (xv) beliefs and assumptions about market competition, generation capacity and regional supply and demand characteristics of the wholesale power generation market, including the anticipation of higher market pricing over the longer term; (xvi) the effectiveness of Dynegy's strategies to capture opportunities presented by changes in commodity prices and to manage Dynegy's exposure to energy price volatility; (xvii) beliefs and assumptions about weather and general economic conditions; (xviii) projected operating or financial results, including anticipated cash flows from operations, revenues and profitability; (xix) Dynegy's focus on safety and its ability to efficiently operate its assets so as to capture revenue generating opportunities and operating margins; (xx) beliefs about the costs and scope of the ongoing demolition and site remediation efforts at the South Bay and Vermilion facilities; (xxi) beliefs and assumptions regarding the outcome of the SCE contract terminations dispute and the impact of such terminations on the timing and amount of future cash flows; (xxii) ability to mitigate impacts associated with expiring RMR and/or capacity contracts; (xxiii) beliefs about the outcome of legal, administrative, legislative and regulatory matters, including the impact of final rules regarding derivatives issued by the CFTC under the Dodd-Frank Act; and (xxiv) expectations regarding performance standards and estimates regarding capital and maintenance expenditures. Any or all of Dynegy's forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, many of which are beyond Dynegy's control.
|REPORTED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(IN MILLIONS, EXCEPT PER SHARE DATA)|
|Three Months Ended June 30, 2013||Six Months Ended June 30, 2013||Three Months Ended June 30, 2012||Six Months Ended June 30, 2012|
|Revenues||$ 301||$ 619||$ 270||$ 538|
|Cost of sales||(253)||(537)||(170)||(350)|
|Operating and maintenance expense||(85)||(156)||(48)||(82)|
|Gain on sale of assets, net||1||2||-||-|
|General and administrative expense||(25)||(47)||(17)||(37)|
|Acquisition and integration costs||(1)||(4)||-||-|
|Operating income (loss)||(111)||(226)||(8)||4|
|Bankruptcy reorganization items, net||(2)||(3)||(23)||129|
|Loss on extinguishment of debt||(12)||(11)||-||-|
|Impairment of Undertaking receivable, affiliate||-||-||-||(832)|
|Other income and expense, net||(9)||(7)||7||31|
|Loss from continuing operations before income taxes||(150)||(292)||(65)||(740)|
|Income tax benefit||
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