SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 25, 2002
DYNEGY INC.
(Exact Name of Registrant as Specified in its Charter)
Illinois 1-15659 74-2928353
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1000 Louisiana, Suite 5800
Houston, Texas 77002
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 507-6400
Not Applicable
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS.
In April 2001, Dynegy entered into a structured natural gas transaction
("Transaction") involving two unrelated special purpose entities, NGAI Funding
LLC and ABG Gas Supply LLC ("Transaction Entities"), and a newly created
partnership, DMT Supply LP. The Transaction provided Dynegy with access to a
significant long-term supply of physical natural gas, cash funding and a
permanent tax benefit. The Transaction Entities were formed by third parties
unrelated to Dynegy or its employees or affiliates. A Dynegy subsidiary serves
as general partner of DMT Supply LP. Dynegy consolidates DMT Supply LP but not
the Transaction Entities.
In the Transaction, NGAI Funding LLC contributed (through a trust)
approximately $308 million in exchange for a nine-month term interest in DMT
Supply LP. The term interest entitled NGAI Funding to receive profits from the
partnership during the nine-month term. The NGAI Funding LLC contribution to DMT
Supply LP was accounted for as a minority interest in Dynegy's consolidated
balance sheet and as a financing cash inflow in Dynegy's consolidated statement
of cash flows. Subsequent cash distributions of profits generated under the gas
supply contract made by DMT Supply LP were treated as financing cash outflows in
Dynegy's consolidated statement of cash flows. At December 31, 2001, NGAI
Funding LLC no longer held an interest in DMT Supply LP.
In the Transaction, DMT Supply LP entered into a five-year physical natural
gas supply contract with ABG Gas Supply LLC. Under the gas supply contract, DMT
Supply LP bought 8,000,000 MMbtus (or about 8 Bcf) of gas per month at a
discount to market prices over the first nine months of the contract and will
buy 8,000,000 MMbtus per month at a premium to market prices over the remaining
51 months of the contract. ABG Gas Supply acquires the gas through standard
NYMEX contracts to support its gas sales commitments to DMT Supply LP under the
contract. DMT Supply LP takes title to the physical gas at Henry Hub and
markets the gas to third parties.
The Transaction structure resulted in the recognition of permanent tax
benefits to Dynegy. Dynegy realized approximately $80 million of this benefit in
its 2001 results, which helped reduce Dynegy's 2001 effective tax rate from a
statutory rate of 35% to 29.4%. Costs associated with this transaction were
approximately $35 million on a pre-tax basis.
Dynegy classified the net cash inflow from the gas supply contract as
operating cash flow in its quarterly and year-end financial statements for 2001
as a result of the physical nature of the contract. Activity under the natural
gas supply contract resulted in net cash inflow of approximately $300 million
for the full year. The cash flow generated during the first nine months of the
gas supply contract will reverse over the last 51 months of the contract as
Dynegy acquires gas at above market prices as described above. Dynegy recorded a
risk management liability in its 2001 consolidated balance sheet to reflect the
anticipated loss on the gas supply contract over the last 51 months of the
contract.
Dynegy has decided, after consultation with the staff of the Securities and
Exchange Commission, to present the cash flow associated with the gas supply
contract as a financing activity in its consolidated statement of cash flows.
The new presentation is necessary because the gas supply contract generated net
cash inflows during the first nine months and imposed an obligation to incur net
cash outflows during the remaining term of the contract, with the objective of
making ABG Gas Supply LLC whole and potentially providing a return to the third
party investors. Dynegy will file amended Exchange Act reports reflecting this
change promptly. The change will reduce operating cash flow for the year ended
December 31, 2001 from $811 million to approximately $511 million, with a
corresponding increase in financing cash flow from $2.7 billion to approximately
$3 billion. Dynegy's consolidated balance sheet, consolidated statement of
operations and consolidated statement of changes in stockholders' equity are
unaffected by the cash flow statement change. Management believes that the
change in cash flow presentation will not alter the tax benefit recognized in
2001 but will continue to assess this conclusion in connection with the
amendment of Dynegy's Exchange Act reports.
As described above, Dynegy consolidates the results of DMT Supply LP but
not the Transaction Entities. Dynegy does not consolidate the Transaction
Entities since these entities have economic substance, contain substantive
residual equity capital and such capital is subject to the residual risks and
rewards of ownership. If the Transaction Entities involved in the Transaction
had been consolidated by Dynegy during 2001, the effect on Dynegy's consolidated
financial statements would have been as follows: (i) approximately $300 million
of risk management liabilities would have been reclassified as debt in the
consolidated balance sheet, and (ii) results of operations would have been
positively affected in an immaterial amount.
Dynegy has been advised that the staff of the Securities and Exchange
Commission is conducting an informal inquiry of the facts and circumstances
surrounding the Transaction. Dynegy will cooperate fully with the informal
inquiry. Before releasing the information contained in this Current Report on
Form 8-K, Dynegy received concurrence from the SEC staff on the presentation of
cash flows associated with the Transaction. Dynegy's shelf registration
statement on Form S-3 and the Exchange Act reports incorporated by reference
therein are undergoing a customary review by the Division of Corporation Finance
of the SEC.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
c) Exhibits. The following exhibits are filed with this document.
Exhibit
Number Description
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99.1 Press Release dated April 25, 2002
ITEM 9. REGULATION FD DISCLOSURE
In accordance with General Instruction B.2. of Form 8-K, the following
information shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933, except as shall be
expressly set forth by specific reference in such a filing.
Dynegy files herewith a press release, attached as Exhibit 99.1 hereto,
issued by Dynegy on April 25, 2002. The press release relates to the above-
described Transaction, Dynegy's expected first quarter 2002 earnings and
guidance regarding year 2002 earnings.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION.
Dynegy's reports, filings and other public announcements often include
statements reflecting assumptions, expectations, projections, intentions or
beliefs about future events. These statements are intended as "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. They use words such as "anticipate," "estimate,"
"project," "forecast," "may," "will," "should," "expect" and other words of
similar meaning. In particular, these include, but are not limited to,
statements relating to the following:
.. Projected operating or financial results;
.. Expectations regarding capital expenditures, dividends and other payments;
.. Pending or recent acquisitions such as the acquisitions of Northern Natural
and BG Storage Limited, including the anticipated closing date, expected cost
savings or synergies and the accretive or dilutive impact of an acquisition on
earnings;
.. Expectations regarding transaction volume and liquidity in wholesale energy
markets in North America and Europe;
.. Beliefs or assumptions about the outlook for deregulation of retail and
wholesale energy markets in North America and Europe and anticipated business
developments in such markets;
.. Dynegy's ability to effectively compete for market share with industry
participants;
.. Beliefs about the outcome of Dynegy's legal and administrative proceedings,
including matters involving Enron;
.. The expected commencement date for commercial operations for new power plants;
and
.. Anticipated developments with respect to demand for broadband services and
applications and Dynegy's strategic plans in connection therewith.
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 and
uncertainties, including the following:
.. The timing and extent of changes in commodity prices for energy, particularly
natural gas, electricity and natural gas liquids, or communications products or
services;
.. The timing and extent of deregulation of energy markets in North America and
Europe and the rules and regulations adopted on a transitional basis in such
markets;
.. The condition of the capital markets generally, which will be affected by
interest rates, foreign currency fluctuations and general economic conditions,
as well as Dynegy's and Dynegy Holdings Inc.'s ability to maintain its
investment grade credit ratings;
.. The effectiveness of Dynegy's risk-management policies and procedures and the
ability of Dynegy's trading counterparties to satisfy their financial
commitments;
.. The liquidity and competitiveness of wholesale trading markets for energy
commodities, including the impact of electronic or online trading in these
markets;
.. Operational factors affecting the start up or ongoing commercial operations of
Dynegy's power generation or midstream natural gas facilities, including
catastrophic weather related damage, unscheduled outages or repairs,
unanticipated changes in fuel costs or availability, the unavailability of gas
transportation, the unavailability of electric transmission service or workforce
issues;
.. The cost of borrowing, availability of trade credit and other factors
affecting Dynegy's financing activities;
.. Uncertainties regarding the development of, and competition within, the market
for broadband services in North America and Europe, including risks relating to
competing technologies and standards, regulation, capital costs, the timing and
amount of customer demand for and pricing of high bandwidth applications, and
the effect of general market conditions in the telecommunications business on
customers and prospective customers and equipment and service providers;
.. Cost and other effects of legal and administrative proceedings, settlements,
investigations and claims, including legal proceedings related to the terminated
merger with Enron and environmental liabilities that may not be covered by
indemnity or insurance;
.. Other North American or European regulatory or legislative developments that
affect the demand for energy generally, increase the environmental compliance
cost for Dynegy's power generation or midstream gas facilities or impose
liabilities on the owners of such facilities; and
.. General political conditions, including any extended period of war or conflict
involving North America or Europe.
Many of these factors will be important in determining Dynegy's actual
future results. Consequently, no forward-looking statement can be guaranteed.
Dynegy's actual future results may vary materially from those expressed or
implied in any forward-looking statements.
All of Dynegy's forward-looking statements, whether written or oral, are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition,
Dynegy disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of this report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DYNEGY INC.
BY: /s/ Keith R. Fullenweider
-----------------------------------
Keith R. Fullenweider
Senior Vice President, Deputy General Counsel and
Secretary
Dated: April 25, 2002
EXHIBIT INDEX
Exhibit
Number Description
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99.1 Press Release dated April 25, 2002