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 June 30, 2011 | ||
|
|
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
DYNEGY INC.
DYNEGY HOLDINGS INC.
(Exact name of registrant as specified in its charter)
|
Entity |
|
Commission |
|
State of |
|
I.R.S. Employer |
|
|
Dynegy Inc. |
|
001-33443 |
|
Delaware |
|
20-5653152 |
|
|
Dynegy Holdings Inc. |
|
000-29311 |
|
Delaware |
|
94-3248415 |
|
|
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.
|
Dynegy Inc. |
|
|
Yes x No o |
|
Dynegy Holdings Inc. |
|
|
Yes x No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
|
Dynegy Inc. |
|
|
Yes x No o |
|
Dynegy Holdings Inc. |
|
|
Yes x No o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
Large accelerated |
Accelerated filer |
Non-accelerated filer (Do not check if a |
Smaller reporting company |
|
Dynegy Inc. |
o |
x |
o |
o |
|
Dynegy Holdings Inc. |
o |
o |
x |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
Dynegy Inc. |
|
|
Yes o No x |
|
Dynegy Holdings Inc. |
|
|
Yes o No x |
Indicate the number of shares outstanding of Dynegy Inc.’s classes of common stock, as of the latest practicable date: Common stock, $0.01 par value per share, 122,435,022 shares outstanding as of August 1, 2011. All of Dynegy Holdings Inc.’s outstanding common stock is owned by Dynegy Inc.
This combined Form 10-Q is separately filed by Dynegy Inc. and Dynegy Holdings Inc. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to a registrant other than itself.
DYNEGY INC. and DYNEGY HOLDINGS INC.
EXPLANATORY NOTE
This report includes the combined filing of Dynegy Inc. (“Dynegy”) and Dynegy Holdings Inc. (“DHI”). DHI is the principal subsidiary of Dynegy, providing nearly 100 percent of Dynegy’s total consolidated revenue for the six-month period ended June 30, 2011 and constituting nearly 100 percent of Dynegy’s total consolidated asset base as of June 30, 2011. Unless the context indicates otherwise, throughout this report, the terms “the Company”, “we”, “us”, “our” and “ours” are used to refer to both Dynegy and DHI and their direct and indirect subsidiaries. Discussions or areas of this report that apply only to Dynegy, DHI or specific subsidiaries are clearly noted in such section.
DEFINITIONS
As used in this Form 10-Q, the abbreviations contained herein have the meanings set forth below.
|
ASU |
|
Accounting Standards Update |
|
BACT |
|
Best available control technology |
|
BART |
|
Best available retrofit technology |
|
BTA |
|
Best technology available |
|
CAA |
|
Clean Air Act |
|
CAIR |
|
Clean Air Interstate Rule |
|
CAISO |
|
The California Independent System Operator |
|
CAMR |
|
Clean Air Mercury Rule |
|
CARB |
|
California Air Resources Board |
|
CAVR |
|
The Clean Air Visibility Rule |
|
CCR |
|
Coal Combustion Residuals |
|
CEQA |
|
California Environmental Quality Act |
|
CERCLA |
|
The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended |
|
CO2 |
|
Carbon Dioxide |
|
CSAPR |
|
Cross-State Air Pollution Rule |
|
CWA |
|
Clean Water Act |
|
DHI |
|
Dynegy Holdings Inc. |
|
DMSLP |
|
Dynegy Midstream Services L.P. |
|
EBITDA |
|
Earnings before interest, taxes, depreciation and amortization |
|
EPA |
|
Environmental Protection Agency |
|
FERC |
|
Federal Energy Regulatory Commission |
|
GAAP |
|
Generally Accepted Accounting Principles of the United States of America |
|
GEN |
|
Our power generation business |
|
GEN-MW |
|
Our power generation business - Midwest segment |
|
GEN-NE |
|
Our power generation business - Northeast segment |
|
GEN-WE |
|
Our power generation business - West segment |
|
GHG |
|
Greenhouse Gas |
|
HAPs |
|
Hazardous air pollutants, as defined by the Clean Air Act |
|
ICC |
|
Illinois Commerce Commission |
|
IMA |
|
In-market asset availability |
|
ISO |
|
Independent System Operator |
|
ISO-NE |
|
Independent System Operator New England |
|
MACT |
|
Maximum achievable control technology |
|
MGGA |
|
Midwest Greenhouse Gas Accord |
|
MGGRP |
|
Midwestern Greenhouse Gas Reduction Program |
|
MISO |
|
Midwest Independent Transmission System Operator, Inc. |
|
MMBtu |
|
One million British thermal units |
|
MW |
|
Megawatts |
|
MWh |
|
Megawatt hour |
|
NOL |
|
Net operating loss |
|
NOx |
|
Nitrogen oxide |
|
NPDES |
|
National Pollutant Discharge Elimination System |
|
NRG |
|
NRG Energy, Inc. |
|
NSPS |
|
New Source Performance Standard |
|
NYISO |
|
New York Independent System Operator |
|
NYSDEC |
|
New York State Department of Environmental Conservation |
|
OAL |
|
Office of Administrative Law |
|
OTC |
|
Over-the-counter |
|
PJM |
|
PJM Interconnection, LLC |
|
PPEA |
|
Plum Point Energy Associates, LLC |
|
PPEA Holding |
|
Plum Point Energy Associates Holding Company, LLC |
|
PSD |
|
Prevention of significant deterioration |
|
RACT |
|
Reasonably available control technology |
|
RCRA |
|
Resource Conservation and Recovery Act |
|
RGGI |
|
Regional Greenhouse Gas Initiative |
|
RMR |
|
Reliability Must Run |
|
SEC |
|
U.S. Securities and Exchange Commission |
|
SIP |
|
State Implementation Plan |
|
SO2 |
|
Sulfur dioxide |
|
SPDES |
|
State Pollutant Discharge Elimination System |
|
VaR |
|
Value at Risk |
|
VIE |
|
Variable Interest Entity |
|
WCI |
|
Western Climate Initiative |
Item 1—FINANCIAL STATEMENTS—DYNEGY INC. AND DYNEGY HOLDINGS INC.
DYNEGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions, except share data)
|
|
|
June 30, |
|
December 31, |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current Assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
399 |
|
$ |
291 |
|
|
Restricted cash and investments |
|
878 |
|
81 |
| ||
|
Short-term investments |
|
106 |
|
106 |
| ||
|
Accounts receivable, net of allowance for doubtful accounts of $31 and $32, respectively |
|
169 |
|
230 |
| ||
|
Accounts receivable, affiliates |
|
— |
|
1 |
| ||
|
Inventory |
|
125 |
|
121 |
| ||
|
Assets from risk-management activities |
|
989 |
|
1,199 |
| ||
|
Deferred income taxes |
|
12 |
|
12 |
| ||
|
Broker margin account |
|
202 |
|
80 |
| ||
|
Prepayments and other current assets |
|
137 |
|
123 |
| ||
|
Total Current Assets |
|
3,017 |
|
2,244 |
| ||
|
Property, Plant and Equipment |
|
8,700 |
|
8,593 |
| ||
|
Accumulated depreciation |
|
(2,499 |
) |
(2,320 |
) | ||
|
Property, Plant and Equipment, Net |
|
6,201 |
|
6,273 |
| ||
|
Other Assets |
|
|
|
|
| ||
|
Restricted cash and investments |
|
9 |
|
859 |
| ||
|
Assets from risk-management activities |
|
84 |
|
72 |
| ||
|
Intangible assets |
|
116 |
|
141 |
| ||
|
Other long-term assets |
|
436 |
|
424 |
| ||
|
Total Assets |
|
$ |
9,863 |
|
$ |
10,013 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current Liabilities |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
111 |
|
$ |
134 |
|
|
Accrued interest |
|
51 |
|
36 |
| ||
|
Accrued liabilities and other current liabilities |
|
86 |
|
109 |
| ||
|
Liabilities from risk-management activities |
|
1,043 |
|
1,138 |
| ||
|
Notes payable and current portion of long-term debt |
|
1,008 |
|
148 |
| ||
|
Total Current Liabilities |
|
2,299 |
|
1,565 |
| ||
|
Long-term debt |
|
3,852 |
|
4,426 |
| ||
|
Long-term debt, affiliates |
|
200 |
|
200 |
| ||
|
Long-Term Debt |
|
4,052 |
|
4,626 |
| ||
|
Other Liabilities |
|
|
|
|
| ||
|
Liabilities from risk-management activities |
|
123 |
|
99 |
| ||
|
Deferred income taxes |
|
509 |
|
641 |
| ||
|
Other long-term liabilities |
|
321 |
|
336 |
| ||
|
Total Liabilities |
|
7,304 |
|
7,267 |
| ||
|
Commitments and Contingencies (Note 7) |
|
|
|
|
| ||
|
Stockholders’ Equity |
|
|
|
|
| ||
|
Common Stock, $0.01 par value, 420,000,000 shares authorized at June 30, 2011 and December 31, 2010; 123,009,079 and 121,687,198 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively |
|
1 |
|
1 |
| ||
|
Additional paid-in capital |
|
6,071 |
|
6,067 |
| ||
|
Subscriptions receivable |
|
(2 |
) |
(2 |
) | ||
|
Accumulated other comprehensive loss, net of tax |
|
(51 |
) |
(53 |
) | ||
|
Accumulated deficit |
|
(3,389 |
) |
(3,196 |
) | ||
|
Treasury stock, at cost, 728,408 and 628,014 shares at June 30, 2011 and December 31, 2010, respectively |
|
(71 |
) |
(71 |
) | ||
|
Total Stockholders’ Equity |
|
2,559 |
|
2,746 |
| ||
|
Total Liabilities and Stockholders’ Equity |
|
$ |
9,863 |
|
$ |
10,013 |
|
See the notes to condensed consolidated financial statements.
DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions, except per share data)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
Revenues |
|
$ |
326 |
|
$ |
239 |
|
$ |
831 |
|
$ |
1,097 |
|
|
Cost of sales |
|
(225 |
) |
(231 |
) |
(503 |
) |
(539 |
) | ||||
|
Operating and maintenance expense, exclusive of depreciation shown separately below |
|
(106 |
) |
(118 |
) |
(216 |
) |
(231 |
) | ||||
|
Depreciation and amortization expense |
|
(75 |
) |
(90 |
) |
(201 |
) |
(165 |
) | ||||
|
Impairment and other charges |
|
(1 |
) |
(1 |
) |
(1 |
) |
(1 |
) | ||||
|
General and administrative expenses |
|
(25 |
) |
(28 |
) |
(65 |
) |
(59 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating income (loss) |
|
(106 |
) |
(229 |
) |
(155 |
) |
102 |
| ||||
|
Losses from unconsolidated investments |
|
— |
|
— |
|
— |
|
(34 |
) | ||||
|
Interest expense |
|
(89 |
) |
(91 |
) |
(178 |
) |
(180 |
) | ||||
|
Other income and expense, net |
|
3 |
|
1 |
|
4 |
|
2 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations before income taxes |
|
(192 |
) |
(319 |
) |
(329 |
) |
(110 |
) | ||||
|
Income tax benefit (Note 10) |
|
76 |
|
128 |
|
136 |
|
63 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations |
|
(116 |
) |
(191 |
) |
(193 |
) |
(47 |
) | ||||
|
Income from discontinued operations, net of taxes |
|
— |
|
— |
|
— |
|
1 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(116 |
) |
$ |
(191 |
) |
$ |
(193 |
) |
$ |
(46 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss Per Share (Note 11): |
|
|
|
|
|
|
|
|
| ||||
|
Basic loss per share: |
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations |
|
$ |
(0.95 |
) |
$ |
(1.59 |
) |
$ |
(1.58 |
) |
$ |
(0.39 |
) |
|
Income from discontinued operations |
|
— |
|
— |
|
— |
|
0.01 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
|
$ |
(0.95 |
) |
$ |
(1.59 |
) |
$ |
(1.58 |
) |
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Diluted loss per share: |
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations |
|
$ |
(0.95 |
) |
$ |
(1.59 |
) |
$ |
(1.58 |
) |
$ |
(0.39 |
) |
|
Income from discontinued operations |
|
— |
|
— |
|
— |
|
0.01 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share |
|
$ |
(0.95 |
) |
$ |
(1.59 |
) |
$ |
(1.58 |
) |
$ |
(0.38 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic shares outstanding |
|
122 |
|
120 |
|
122 |
|
120 |
| ||||
|
Diluted shares outstanding |
|
122 |
|
121 |
|
122 |
|
121 |
| ||||
See the notes to condensed consolidated financial statements.
DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
|
|
|
Six Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
|
Net loss |
|
$ |
(193 |
) |
$ |
(46 |
) |
|
Adjustments to reconcile net loss to net cash flows from operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
209 |
|
172 |
| ||
|
Impairment and other charges |
|
1 |
|
1 |
| ||
|
Losses from unconsolidated investments, net of cash distributions |
|
— |
|
34 |
| ||
|
Risk-management activities |
|
127 |
|
8 |
| ||
|
Deferred income taxes |
|
(135 |
) |
(62 |
) | ||
|
Other |
|
24 |
|
30 |
| ||
|
Changes in working capital: |
|
|
|
|
| ||
|
Accounts receivable |
|
60 |
|
14 |
| ||
|
Inventory |
|
(4 |
) |
3 |
| ||
|
Broker margin account |
|
(92 |
) |
255 |
| ||
|
Prepayments and other assets |
|
1 |
|
8 |
| ||
|
Accounts payable and accrued liabilities |
|
(55 |
) |
(36 |
) | ||
|
Changes in non-current assets |
|
(33 |
) |
(17 |
) | ||
|
Changes in non-current liabilities |
|
4 |
|
4 |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by (used in) operating activities |
|
(86 |
) |
368 |
| ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
|
Capital expenditures |
|
(128 |
) |
(201 |
) | ||
|
Unconsolidated investments |
|
— |
|
(15 |
) | ||
|
Maturities of short-term investments |
|
217 |
|
27 |
| ||
|
Purchases of short-term investments |
|
(247 |
) |
(331 |
) | ||
|
Decrease (increase) in restricted cash and investments |
|
53 |
|
(10 |
) | ||
|
Other investing |
|
10 |
|
9 |
| ||
|
|
|
|
|
|
| ||
|
Net cash used in investing activities |
|
(95 |
) |
(521 |
) | ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
|
Proceeds from long-term borrowings, net of financing costs |
|
399 |
|
(5 |
) | ||
|
Repayments of borrowings |
|
(113 |
) |
(31 |
) | ||
|
Net proceeds from issuance of capital stock |
|
3 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by (used in) financing activities |
|
289 |
|
(36 |
) | ||
|
|
|
|
|
|
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
108 |
|
(189 |
) | ||
|
Cash and cash equivalents, beginning of period |
|
291 |
|
471 |
| ||
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
399 |
|
$ |
282 |
|
|
|
|
|
|
|
| ||
|
Other non-cash investing activity: |
|
|
|
|
| ||
|
Non-cash capital expenditures |
|
$ |
(7 |
) |
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
Other non-cash financing activity: |
|
|
|
|
|
|
|
|
Deferred financing fees |
|
$ |
(4 |
) |
|
— |
|
See the notes to condensed consolidated financial statements.
DYNEGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Net loss |
|
$ |
(116 |
) |
$ |
(191 |
) |
|
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and $1) |
|
1 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income, net of tax |
|
1 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Comprehensive loss |
|
$ |
(115 |
) |
$ |
(191 |
) |
|
|
|
Six Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Net loss |
|
$ |
(193 |
) |
$ |
(46 |
) |
|
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and $1) |
|
2 |
|
2 |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income, net of tax |
|
2 |
|
2 |
| ||
|
|
|
|
|
|
| ||
|
Comprehensive loss |
|
$ |
(191 |
) |
$ |
(44 |
) |
See the notes to condensed consolidated financial statements.
DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in millions)
|
|
|
June 30, |
|
December 31, |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current Assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
354 |
|
$ |
253 |
|
|
Restricted cash and investments |
|
878 |
|
81 |
| ||
|
Short-term investments |
|
94 |
|
90 |
| ||
|
Accounts receivable, net of allowance for doubtful accounts of $12 and $13, respectively |
|
168 |
|
229 |
| ||
|
Accounts receivable, affiliates |
|
— |
|
1 |
| ||
|
Inventory |
|
125 |
|
121 |
| ||
|
Assets from risk-management activities |
|
989 |
|
1,199 |
| ||
|
Deferred income taxes |
|
4 |
|
3 |
| ||
|
Broker margin account |
|
202 |
|
80 |
| ||
|
Prepayments and other current assets |
|
136 |
|
123 |
| ||
|
Total Current Assets |
|
2,950 |
|
2,180 |
| ||
|
Property, Plant and Equipment |
|
8,700 |
|
8,593 |
| ||
|
Accumulated depreciation |
|
(2,499 |
) |
(2,320 |
) | ||
|
Property, Plant and Equipment, Net |
|
6,201 |
|
6,273 |
| ||
|
Other Assets |
|
|
|
|
| ||
|
Restricted cash and investments |
|
9 |
|
859 |
| ||
|
Assets from risk-management activities |
|
84 |
|
72 |
| ||
|
Intangible assets |
|
116 |
|
141 |
| ||
|
Other long-term assets |
|
436 |
|
424 |
| ||
|
Total Assets |
|
$ |
9,796 |
|
$ |
9,949 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current Liabilities |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
111 |
|
$ |
134 |
|
|
Accrued interest |
|
51 |
|
36 |
| ||
|
Accrued liabilities and other current liabilities |
|
85 |
|
106 |
| ||
|
Liabilities from risk-management activities |
|
1,043 |
|
1,138 |
| ||
|
Notes payable and current portion of long-term debt |
|
1,008 |
|
148 |
| ||
|
Total Current Liabilities |
|
2,298 |
|
1,562 |
| ||
|
Long-term debt |
|
3,852 |
|
4,426 |
| ||
|
Long-term debt, affiliates |
|
200 |
|
200 |
| ||
|
Long-Term Debt |
|
4,052 |
|
4,626 |
| ||
|
Other Liabilities |
|
|
|
|
| ||
|
Liabilities from risk-management activities |
|
123 |
|
99 |
| ||
|
Deferred income taxes |
|
474 |
|
606 |
| ||
|
Other long-term liabilities |
|
321 |
|
337 |
| ||
|
Total Liabilities |
|
7,268 |
|
7,230 |
| ||
|
Commitments and Contingencies (Note 7) |
|
|
|
|
| ||
|
Stockholder’s Equity |
|
|
|
|
| ||
|
Capital Stock, $1 par value, 1,000 shares authorized at June 30, 2011 and December 31, 2010 |
|
— |
|
— |
| ||
|
Additional paid-in capital |
|
5,135 |
|
5,135 |
| ||
|
Affiliate receivable |
|
(812 |
) |
(814 |
) | ||
|
Accumulated other comprehensive loss, net of tax |
|
(51 |
) |
(53 |
) | ||
|
Accumulated deficit |
|
(1,744 |
) |
(1,549 |
) | ||
|
Total Stockholder’s Equity |
|
2,528 |
|
2,719 |
| ||
|
Total Liabilities and Stockholder’s Equity |
|
$ |
9,796 |
|
$ |
9,949 |
|
See the notes to condensed consolidated financial statements.
DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited) (in millions)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
Revenues |
|
$ |
326 |
|
$ |
239 |
|
$ |
831 |
|
$ |
1,097 |
|
|
Cost of sales |
|
(225 |
) |
(231 |
) |
(503 |
) |
(539 |
) | ||||
|
Operating and maintenance expense, exclusive of depreciation shown separately below |
|
(106 |
) |
(118 |
) |
(216 |
) |
(231 |
) | ||||
|
Depreciation and amortization expense |
|
(75 |
) |
(90 |
) |
(201 |
) |
(165 |
) | ||||
|
Impairment and other charges |
|
(1 |
) |
(1 |
) |
(1 |
) |
(1 |
) | ||||
|
General and administrative expenses |
|
(23 |
) |
(28 |
) |
(64 |
) |
(59 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating income (loss) |
|
(104 |
) |
(229 |
) |
(154 |
) |
102 |
| ||||
|
Losses from unconsolidated investments |
|
— |
|
— |
|
— |
|
(34 |
) | ||||
|
Interest expense |
|
(89 |
) |
(91 |
) |
(178 |
) |
(180 |
) | ||||
|
Other income and expense, net |
|
3 |
|
1 |
|
4 |
|
2 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations before income taxes |
|
(190 |
) |
(319 |
) |
(328 |
) |
(110 |
) | ||||
|
Income tax benefit (Note 10) |
|
75 |
|
128 |
|
133 |
|
56 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Loss from continuing operations |
|
(115 |
) |
(191 |
) |
(195 |
) |
(54 |
) | ||||
|
Income from discontinued operations, net of taxes |
|
— |
|
— |
|
— |
|
1 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net loss |
|
$ |
(115 |
) |
$ |
(191 |
) |
$ |
(195 |
) |
$ |
(53 |
) |
See the notes to condensed consolidated financial statements.
DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in millions)
|
|
|
Six Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
|
Net loss |
|
$ |
(195 |
) |
$ |
(53 |
) |
|
Adjustments to reconcile net loss to net cash flows from operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
209 |
|
172 |
| ||
|
Impairment and other charges |
|
1 |
|
1 |
| ||
|
Losses from unconsolidated investments, net of cash distributions |
|
— |
|
34 |
| ||
|
Risk-management activities |
|
127 |
|
8 |
| ||
|
Deferred income taxes |
|
(132 |
) |
(55 |
) | ||
|
Other |
|
22 |
|
27 |
| ||
|
Changes in working capital: |
|
|
|
|
| ||
|
Accounts receivable |
|
60 |
|
19 |
| ||
|
Inventory |
|
(4 |
) |
3 |
| ||
|
Broker margin account |
|
(92 |
) |
255 |
| ||
|
Prepayments and other assets |
|
1 |
|
8 |
| ||
|
Accounts payable and accrued liabilities |
|
(54 |
) |
(37 |
) | ||
|
Changes in non-current assets |
|
(33 |
) |
(17 |
) | ||
|
Changes in non-current liabilities |
|
4 |
|
4 |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by (used in) operating activities |
|
(86 |
) |
369 |
| ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
|
Capital expenditures |
|
(128 |
) |
(201 |
) | ||
|
Unconsolidated investments |
|
— |
|
(15 |
) | ||
|
Maturities of short-term investments |
|
201 |
|
28 |
| ||
|
Purchases of short-term investments |
|
(235 |
) |
(316 |
) | ||
|
Decrease (increase) in restricted cash and investments |
|
53 |
|
(10 |
) | ||
|
Affiliate transactions |
|
— |
|
(2 |
) | ||
|
Other investing |
|
10 |
|
8 |
| ||
|
|
|
|
|
|
| ||
|
Net cash used in investing activities |
|
(99 |
) |
(508 |
) | ||
|
|
|
|
|
|
| ||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
|
Proceeds from long-term borrowings, net of financing costs |
|
399 |
|
(5 |
) | ||
|
Repayments of borrowings |
|
(113 |
) |
(31 |
) | ||
|
|
|
|
|
|
| ||
|
Net cash provided by (used in) financing activities |
|
286 |
|
(36 |
) | ||
|
|
|
|
|
|
| ||
|
Net increase (decrease) in cash and cash equivalents |
|
101 |
|
(175 |
) | ||
|
Cash and cash equivalents, beginning of period |
|
253 |
|
419 |
| ||
|
|
|
|
|
|
| ||
|
Cash and cash equivalents, end of period |
|
$ |
354 |
|
$ |
244 |
|
|
|
|
|
|
|
| ||
|
Other non-cash investing activity: |
|
|
|
|
| ||
|
Non-cash capital expenditures |
|
$ |
(7 |
) |
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
Other non-cash financing activity: |
|
|
|
|
|
|
|
|
Deferred financing fees |
|
$ |
(4 |
) |
|
— |
|
See the notes to condensed consolidated financial statements.
DYNEGY HOLDINGS INC.
CONDENSED CONSOLIDATED OF COMPREHENSIVE INCOME (LOSS)
(unaudited) (in millions)
|
|
|
Three Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Net loss |
|
$ |
(115 |
) |
$ |
(191 |
) |
|
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and $1) |
|
1 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income, net of tax |
|
1 |
|
— |
| ||
|
Comprehensive loss |
|
$ |
(114 |
) |
$ |
(191 |
) |
|
|
|
Six Months Ended |
| ||||
|
|
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Net loss |
|
$ |
(195 |
) |
$ |
(53 |
) |
|
Amortization of unrecognized prior service cost and actuarial gain (net of tax expense of $1 and $1) |
|
2 |
|
2 |
| ||
|
|
|
|
|
|
| ||
|
Other comprehensive income, net of tax |
|
2 |
|
2 |
| ||
|
Comprehensive loss |
|
$ |
(193 |
) |
$ |
(51 |
) |
See the notes to condensed consolidated financial statements.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
Note 1—Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to interim financial reporting as prescribed by the SEC. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim financial statements should be read together with the consolidated financial statements and notes thereto included in Dynegy’s and DHI’s annual report on Form 10-K for the year ended December 31, 2010, filed on March 8, 2011, which we refer to as each registrant’s “Form 10-K”.
The unaudited condensed consolidated financial statements contained in this report include all material adjustments of a normal and recurring nature that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods. The results of operations for the interim periods presented in this Form 10-Q are not necessarily indicative of the results to be expected for the full year or any other interim period due to seasonal fluctuations in demand for our energy products and services, changes in commodity prices, timing of maintenance and other expenditures and other factors. The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make informed estimates and judgments that affect our reported financial position and results of operations based on currently available information. We review significant estimates and judgments affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustments. Uncertainties with respect to such estimates and judgments are inherent in the preparation of financial statements. Estimates and judgments are used in, among other things, (i) developing fair value assumptions, including estimates of future cash flows and discount rates, (ii) analyzing tangible and intangible assets for possible impairment, (iii) estimating the useful lives of our assets, (iv) assessing future tax exposure and the realization of deferred tax assets, (v) determining amounts to accrue for contingencies, guarantees and indemnifications, (vi) estimating various factors used to value our pension assets and liabilities and (vii) determining the primary beneficiary of variable interest entities (“VIEs”). Actual results could differ materially from our estimates.
Going Concern. Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve month period following the date of these unaudited condensed consolidated financial statements. However, continued low power prices over the past two years have had a significant adverse impact on our business and continue to negatively impact our projected future liquidity.
We recently completed a reorganization of our subsidiaries and in connection therewith, certain of our subsidiaries (GasCo and CoalCo, as defined in Note 13—Subsequent Events) entered into two new credit facilities on August 5, 2011 which resulted in the repayment in full and termination of commitments under DHI’s Fifth Amended and Restated Credit Agreement. However, these new credit facilities contain certain restrictions related to distributions to their respective parent companies, including Dynegy and DHI (please read Note 13—Subsequent Events for further discussion). Although these new credit facilities are designed to provide sufficient operating liquidity for GasCo and CoalCo for the foreseeable future, there still remain significant debt service requirements for the unsecured notes and debentures at DHI as well as the operating lease payment obligations related to the Danskammer and Roseton operating leases at a wholly-owned subsidiary of DHI. We currently project that we will have minimal liquidity at DHI subsequent to funding of the debt service requirements and operating lease payment obligations beyond the next eighteen months absent a significant positive change in the forecasted operating results of the Roseton and Danskammer facilities.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
The August 2011 reorganization represents our first step in addressing our liquidity concerns. Over the next eighteen months, under the strategic direction of the Finance and Restructuring Committee of Dynegy’s Board of Directors, we may participate in additional debt restructuring activities, which may include direct or indirect transfers of our subsidiaries’ equity interests, refinancing of existing debt and lease obligations, and/or further reorganizations of our subsidiaries as well as other similar initiatives. However, we cannot provide any assurances that we will be successful in accomplishing any such activities.
Our ability to continue as a going concern is dependent on many factors, including, among other things, GasCo and CoalCo generating sufficient positive operating results to enable GasCo and CoalCo to make certain restricted distributions to their parents (as described in Note 13—Subsequent Events), Roseton and Danskammer producing positive operating results, successfully executing any further restructuring strategies, and continuing to execute the company-wide cost reduction initiatives that are ongoing. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of the foregoing uncertainties.
Accounting Principles Not Yet Adopted
Fair Value Measurement Disclosures. In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04—Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). This authoritative guidance changes the wording used to describe the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011. We do not expect the implementation of this guidance to have a significant impact on our financial condition, results of operations or cash flows.
Presentation of Comprehensive Income. In June 2011, the FASB issued ASU 2011-05—Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU No. 2011-05”). The FASB’s objective in issuing this guidance is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. ASU No. 2011-05 eliminates the option of presenting components of other comprehensive income as part of the statement of changes in stockholders’ equity. The standard requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not expect the implementation of this guidance to have a significant impact on our financial condition, results of operations or cash flows.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
Note 2—Investments
The amortized cost basis, unrealized gains and losses and fair values of investments in available for sale investments is shown in the tables below:
|
|
|
Investments as of June 30, 2011 |
| ||||||||||
|
|
|
Cost Basis |
|
Gross |
|
Gross |
|
Fair Value |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Available for Sale investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial Paper |
|
$ |
45 |
|
$ |
— |
|
$ |
— |
|
$ |
45 |
|
|
Certificates of Deposit |
|
13 |
|
— |
|
— |
|
13 |
| ||||
|
U.S. Treasury and Government Securities (1) |
|
151 |
|
— |
|
— |
|
151 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—DHI |
|
$ |
209 |
|
$ |
— |
|
$ |
— |
|
$ |
209 |
|
|
Commercial Paper |
|
2 |
|
— |
|
— |
|
2 |
| ||||
|
Certificates of Deposit |
|
8 |
|
— |
|
— |
|
8 |
| ||||
|
Corporate Securities |
|
2 |
|
— |
|
— |
|
2 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—Dynegy |
|
$ |
221 |
|
$ |
— |
|
$ |
— |
|
$ |
221 |
|
(1) Includes $115 million in Broker margin account on our unaudited condensed consolidated balance sheets in support of transactions with our futures clearing manager.
|
|
|
Investments as of December 31, 2010 |
| ||||||||||
|
|
|
Cost Basis |
|
Gross |
|
Gross |
|
Fair Value |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Available for Sale investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial Paper |
|
$ |
41 |
|
$ |
— |
|
$ |
— |
|
$ |
41 |
|
|
Certificates of Deposit |
|
12 |
|
— |
|
— |
|
12 |
| ||||
|
Corporate Securities |
|
2 |
|
— |
|
— |
|
2 |
| ||||
|
U.S. Treasury and Government Securities (1) |
|
120 |
|
— |
|
— |
|
120 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—DHI |
|
$ |
175 |
|
$ |
— |
|
$ |
— |
|
$ |
175 |
|
|
Commercial Paper |
|
4 |
|
— |
|
— |
|
4 |
| ||||
|
Certificates of Deposit |
|
8 |
|
— |
|
— |
|
8 |
| ||||
|
Corporate Securities |
|
4 |
|
— |
|
— |
|
4 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—Dynegy |
|
$ |
191 |
|
$ |
— |
|
$ |
— |
|
$ |
191 |
|
(1) Includes $85 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
During the three and six months ended June 30, 2011, we received proceeds of $36 million from the sale of available for sale securities for which we realized less than $1 million of gains for the three and six months ended June 30, 2011.
Note 3—Risk Management Activities, Derivatives and Financial Instruments
The nature of our business necessarily involves market and financial risks. Specifically, we are exposed to commodity price variability related to our power generation business. Our commercial team manages these commodity price risks with financially settled and other types of contracts consistent with our commodity risk management policy. Our commercial team also uses financial instruments in an attempt to capture the benefit of fluctuations in market prices in the geographic regions where our assets operate. Our treasury team manages our financial risks and exposures associated with interest expense variability.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
Our commodity risk management strategy gives us the flexibility to sell energy and capacity through a combination of spot market sales and near-term contractual arrangements (generally over a rolling 1 to 3 year time frame). Our commodity risk management goal is to protect cash flow in the near-term while keeping the ability to capture value longer-term. Increasing collateral requirements and our liquidity position could impact our ability to effectively employ our risk management strategy. Many of our contractual arrangements are derivative instruments and must be accounted for at fair value. We also manage commodity price risk by entering into capacity forward sales arrangements, tolling arrangements, RMR contracts, fixed price coal purchases and other arrangements that do not receive fair value accounting treatment because these arrangements do not meet the definition of a derivative or are designated as “normal purchase normal sales”. As a result, the gains and losses with respect to these arrangements are not reflected in the unaudited condensed consolidated statements of operations until the settlement dates.
Quantitative Disclosures Related to Financial Instruments and Derivatives
The following disclosures and tables present information concerning the impact of derivative instruments on our unaudited condensed consolidated balance sheets and statements of operations. In the table below, commodity contracts primarily consist of derivative contracts related to our power generation business that we have not designated as accounting hedges, that are entered into for purposes of economically hedging future fuel requirements and sales commitments and securing commodity prices. As of June 30, 2011, our commodity derivatives were comprised of both long and short positions; a long position is a contract to purchase a commodity, while a short position is a contract to sell a commodity. As of June 30, 2011, we had net long/(short) commodity derivative contracts outstanding in the following quantities:
|
Contract Type |
|
Hedge Designation |
|
Quantity |
|
Unit of Measure |
|
Net Fair Value |
| |
|
|
|
|
|
(in millions) |
|
|
|
(in millions) |
| |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
| |
|
Electric energy (1) |
|
Not designated |
|
(39 |
) |
MW |
|
$ |
109 |
|
|
Natural gas (1) |
|
Not designated |
|
227 |
|
MMBtu |
|
$ |
(187 |
) |
|
Heat rate derivatives |
|
Not designated |
|
(4)/39 |
|
MW/MMBtu |
|
$ |
(22 |
) |
|
Other (2) |
|
Not designated |
|
3 |
|
Misc. |
|
$ |
7 |
|
(1) Mainly comprised of swaps, options and physical forwards.
(2) Comprised of emissions, coal, crude oil and fuel oil options, swaps and physical forwards.
Derivatives on the Balance Sheet. We execute a significant volume of transactions through a futures clearing manager. Our daily cash payments (receipts) to (from) our futures clearing manager consist of three parts: (i) fair value of open positions (exclusive of options) (“Daily Cash Settlements”); (ii) initial margin requirements related to open positions (exclusive of options) (“Initial Margin”); and (iii) fair value and margin requirements related to options (“Options”, and collectively with Initial Margin, “Collateral”). We do not offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement and we do not elect to offset the fair value amounts recognized for the Daily Cash Settlements paid or received against the fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.
As a result, our unaudited condensed consolidated balance sheets present derivative assets and liabilities, as well as related Daily Cash Settlements and Collateral, as applicable, on a gross basis. As of June 30, 2011, of the approximately $202 million included in the Broker margin account on our unaudited condensed consolidated balance sheets, approximately $137 million represents Collateral and approximately $61 million represents Daily Cash Settlements. As of December 31, 2010, of the approximately $80 million included in the Broker margin account on our unaudited condensed consolidated balance sheets, approximately $75 million represented Collateral offset by approximately $5 million of Daily Cash Settlements. We use short-term investments to collateralize a portion of our collateral requirements. The broker requires that we post approximately 103 percent of any collateral requirement collateralized with short-term investments. Accordingly, our Broker margin account includes approximately $3 million related to this requirement at June 30, 2011 and December 31, 2010. Additionally, we posted $1 million and $7 million of short-term investments which were not utilized as collateral at June 30, 2011 and December 31, 2010, respectively.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
The following table presents the fair value and balance sheet classification of derivatives in the unaudited condensed consolidated balance sheet as of June 30, 2011, and December 31, 2010 segregated between designated, qualifying hedging instruments and those that are not, and by type of contract segregated by assets and liabilities.
|
Contract Type |
|
Balance Sheet Location |
|
June 30, |
|
December 31, |
| ||
|
|
|
|
|
(in millions) |
| ||||
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
| ||
|
Derivative Assets: |
|
|
|
|
|
|
| ||
|
Interest rate contracts |
|
Assets from risk management activities |
|
$ |
— |
|
$ |
1 |
|
|
|
|
|
|
|
|
|
| ||
|
Total derivatives designated as hedging instruments |
|
|
|
— |
|
1 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
| ||
|
Derivative Assets: |
|
|
|
|
|
|
| ||
|
Commodity contracts |
|
Assets from risk management activities |
|
1,073 |
|
1,265 |
| ||
|
Interest rate contracts |
|
Assets from risk management activities |
|
— |
|
5 |
| ||
|
Derivative Liabilities: |
|
|
|
|
|
|
| ||
|
Commodity contracts |
|
Liabilities from risk management activities |
|
(1,166 |
) |
(1,231 |
) | ||
|
Interest rate contracts |
|
Liabilities from risk management activities |
|
— |
|
(6 |
) | ||
|
|
|
|
|
|
|
|
| ||
|
Total derivatives not designated as hedging instruments |
|
|
|
(93 |
) |
33 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total derivatives, net |
|
|
|
$ |
(93 |
) |
$ |
34 |
|
Impact of Derivatives on the Consolidated Statements of Operations
The following discussion and tables present the disclosure of the location and amount of gains and losses on derivative instruments in our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010 segregated between designated, qualifying hedging instruments and those that are not, by type of contract.
Cash Flow Hedges. We may enter into financial derivative instruments that qualify, and that we may elect to designate, as cash flow hedges. Interest rate swaps have been used to convert floating interest rate obligations to fixed interest rate obligations. We had no cash flow hedges in place during the three and six months ended June 30, 2011 and 2010.
Fair Value Hedges. We also enter into derivative instruments that qualify, and that we may elect to designate, as fair value hedges. We use interest rate swaps to convert a portion of our non-prepayable fixed-rate debt into floating-rate debt. These derivatives and the corresponding hedged debt matured April 1, 2011. During the three and six months ended June 30, 2011 and 2010, there was no ineffectiveness from changes in the fair value of hedge positions and no amounts were excluded from the assessment of hedge effectiveness. During the three and six months ended June 30, 2011 and 2010, there were no gains or losses related to the recognition of firm commitments that no longer qualified as fair value hedges.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
The impact of interest rate swap contracts designated as fair value hedges and the related hedged item on our unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2011 and 2010 was immaterial.
Financial Instruments Not Designated as Hedges. We elect not to designate derivatives related to our power generation business and certain interest rate instruments as cash flow or fair value hedges. Thus, we account for changes in the fair value of these derivatives within the consolidated statements of operations (herein referred to as “mark-to-market accounting treatment”). As a result, these mark-to-market gains and losses are not reflected in the unaudited condensed consolidated statements of operations in the same period as the underlying activity for which the derivative instruments serve as economic hedges.
For the three-month period ended June 30, 2011, our revenues included approximately $129 million of mark-to-market losses related to this activity compared to $258 million of mark-to-market losses in the same period in the prior year. For the six months ended June 30, 2011, our revenues included approximately $127 million of mark-to-market losses related to this activity compared to $5 million of mark-to-market losses in the same period in the prior year.
The impact of derivative financial instruments that have not been designated as hedges on our unaudited condensed consolidated statement of operations for the three months ended June 30, 2011 and 2010 is presented below. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments. Therefore, this presentation is not indicative of the economic gross margin we expect to realize when the underlying physical transactions settle.
|
Derivatives Not Designated as |
|
Location of Loss |
|
Amount of Loss Recognized in |
| ||||
|
Hedging Instruments |
|
Derivatives |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
(in millions) |
| ||||
|
Commodity contracts |
|
Revenues |
|
$ |
(89 |
) |
$ |
(185 |
) |
The impact of derivative financial instruments that have not been designated as hedges on our unaudited condensed consolidated statement of operations for the six months ended June 30, 2011 and 2010 is presented below. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions associated with these financial instruments. Therefore, this presentation is not indicative of the economic gross margin we expect to realize when the underlying physical transactions settle.
|
Derivatives Not Designated as Hedging |
|
Location of Gain (Loss) |
|
Amount of Gain (Loss) Recognized in Income |
| ||||
|
Instruments |
|
Derivatives |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
(in millions) |
| ||||
|
Commodity contracts |
|
Revenues |
|
$ |
(70 |
) |
$ |
140 |
|
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
Note 4—Fair Value Measurements
The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
|
|
|
Fair Value as of June 30, 2011 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Assets from commodity risk management activities: |
|
|
|
|
|
|
|
|
| ||||
|
Electricity derivatives |
|
$ |
— |
|
$ |
325 |
|
$ |
48 |
|
$ |
373 |
|
|
Natural gas derivatives |
|
— |
|
658 |
|
— |
|
658 |
| ||||
|
Other derivatives |
|
— |
|
42 |
|
— |
|
42 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total assets from commodity risk management activities |
|
|
— |
|
|
1,025 |
|
|
48 |
|
|
1,073 |
|
|
DHI Short-term investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial paper |
|
— |
|
45 |
|
— |
|
45 |
| ||||
|
Certificates of deposit |
|
— |
|
13 |
|
— |
|
13 |
| ||||
|
U.S. Treasury and government securities (1) |
|
— |
|
151 |
|
— |
|
151 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—DHI short-term investments |
|
— |
|
209 |
|
— |
|
209 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—DHI |
|
— |
|
1,234 |
|
48 |
|
1,282 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dynegy Short-term investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial paper |
|
— |
|
2 |
|
— |
|
2 |
| ||||
|
Corporate Securities |
|
— |
|
2 |
|
— |
|
2 |
| ||||
|
Certificates of deposit |
|
— |
|
8 |
|
— |
|
8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—Dynegy |
|
$ |
— |
|
$ |
1,246 |
|
$ |
48 |
|
$ |
1,294 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Liabilities from commodity risk management activities: |
|
|
|
|
|
|
|
|
| ||||
|
Electricity derivatives |
|
$ |
— |
|
$ |
(250 |
) |
$ |
(13 |
) |
$ |
(263 |
) |
|
Natural gas derivatives |
|
— |
|
(845 |
) |
— |
|
(845 |
) | ||||
|
Heat rate derivatives |
|
— |
|
— |
|
(23 |
) |
(23 |
) | ||||
|
Other derivatives |
|
— |
|
(35 |
) |
— |
|
(35 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—Dynegy and DHI |
|
$ |
— |
|
$ |
(1,130 |
) |
$ |
(36 |
) |
$ |
(1,166 |
) |
(1) Includes $115 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
|
|
|
Fair Value as of December 31, 2010 |
| ||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Assets: |
|
|
|
|
|
|
|
|
| ||||
|
Assets from commodity risk management activities: |
|
|
|
|
|
|
|
|
| ||||
|
Electricity derivatives |
|
$ |
— |
|
$ |
526 |
|
$ |
77 |
|
$ |
603 |
|
|
Natural gas derivatives |
|
— |
|
613 |
|
5 |
|
618 |
| ||||
|
Other derivatives |
|
— |
|
44 |
|
— |
|
44 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total assets from commodity risk management activities |
|
|
— |
|
|
1,183 |
|
|
82 |
|
|
1,265 |
|
|
Assets from interest rate swaps |
|
— |
|
6 |
|
— |
|
6 |
| ||||
|
DHI Short-term investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial paper |
|
— |
|
41 |
|
— |
|
41 |
| ||||
|
Certificates of deposit |
|
— |
|
12 |
|
— |
|
12 |
| ||||
|
Corporate securities |
|
— |
|
2 |
|
— |
|
2 |
| ||||
|
U.S. Treasury and government securities (1) |
|
— |
|
120 |
|
— |
|
120 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total DHI short-term investments |
|
— |
|
175 |
|
— |
|
175 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—DHI |
|
— |
|
1,364 |
|
82 |
|
1,446 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Dynegy Short-term investments: |
|
|
|
|
|
|
|
|
| ||||
|
Commercial paper |
|
— |
|
4 |
|
— |
|
4 |
| ||||
|
Certificates of deposit |
|
— |
|
8 |
|
— |
|
8 |
| ||||
|
Corporate securities |
|
— |
|
4 |
|
— |
|
4 |
| ||||
|
Total—Dynegy |
|
$ |
— |
|
$ |
1,380 |
|
$ |
82 |
|
$ |
1,462 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities: |
|
|
|
|
|
|
|
|
| ||||
|
Liabilities from commodity risk management activities: |
|
|
|
|
|
|
|
|
| ||||
|
Electricity derivatives |
|
$ |
— |
|
$ |
(311 |
) |
$ |
(28 |
) |
$ |
(339 |
) |
|
Natural gas derivatives |
|
— |
|
(825 |
) |
— |
|
(825 |
) | ||||
|
Heat rate derivatives |
|
— |
|
— |
|
(31 |
) |
(31 |
) | ||||
|
Other derivatives |
|
— |
|
(36 |
) |
— |
|
(36 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total liabilities from commodity risk management activities |
|
$ |
— |
|
$ |
(1,172 |
) |
$ |
(59 |
) |
$ |
(1,231 |
) |
|
Liabilities from interest rate swaps |
|
— |
|
(6 |
) |
— |
|
(6 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total—Dynegy and DHI |
|
$ |
— |
|
$ |
(1,178 |
) |
$ |
(59 |
) |
$ |
(1,237 |
) |
(1) Includes $85 million in Broker margin account on our consolidated balance sheets in support of transactions with our futures clearing manager.
We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. For example, assets and liabilities from risk management activities may include exchange-traded derivative contracts and OTC derivative contracts. Some exchange-traded derivatives are valued using broker or dealer quotations, or market transactions in either the listed or OTC markets. In such cases, these exchange-traded derivatives are classified within Level 2. OTC derivative trading instruments include swaps, forwards, options and complex structures that are valued at fair value. In certain instances, these instruments may utilize models to measure fair value. Generally, we use a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives trade in less active markets with a lower availability of pricing information. In addition, complex or structured transactions, such as heat-rate call options, can introduce the need for internally-developed model inputs that might not be observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. We have consistently used this valuation technique for all periods presented. Please read Note 2—Summary of Significant Accounting Policies—Fair Value Measurements in our Form 10-K for further discussion.
DYNEGY INC. and DYNEGY HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
For the Interim Periods Ended June 30, 2011 and 2010
The following tables set forth a reconciliation of changes in the fair value of financial instruments classified as Level 3 in the fair value hierarchy:
|
|
|
Three Months Ended June 30, 2011 |
| ||||||||||
|
|
|
Electricity |
|
Natural Gas |
|
Heat Rate |
|
Total |
| ||||
|
|
|
(in millions) |
| ||||||||||
|
Balance at March 31, 2011 |
|
$ |
48 |
|
$ |
5 |
|
$ |
(26 |
) |
$ |
27 |
|
|
Total losses included in earnings |
|
(12 |
) |
(5 |
) |
(1 |
) |
(18 |
) | ||||
|
Settlements |
|
(1 |
) |
— |
|
4 |
|
3 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||