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 23, 2003
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
On April 23, 2003, Dynegy announced that it reached an agreement in
principle with Southern Power Company ("Southern") to terminate three power
tolling arrangements among Dynegy, Southern and their respective affiliates.
Under the terms of the agreement, which is subject to definitive documentation,
Dynegy will pay Southern $155 million to terminate the contracts. The contract
terminations will result in $96 million of collateral being returned to Dynegy
and will eliminate Dynegy's obligation to make $1.7 billion in capacity payments
to Southern or its affiliates over the next 30 years. The parties expect to
close the transaction in May 2003.
Reference is made to Dynegy's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 (the "Form 10-K"). On page 52 of the Form 10-K,
Dynegy presented its commercial financial obligations, including fixed capacity
payments relating to its power tolling arrangements, as of December 31, 2002. As
described in the Form 10-K, Dynegy had approximately $3.8 billion in capacity
payments associated with its eight then-remaining power tolling arrangements at
December 31, 2002. After giving effect to the termination of the three Southern
arrangements, which relate to the Dahlberg, Daniel and Goat Rock power
generation projects, Dynegy's capacity payments associated with its power
tolling arrangements as of December 31, 2002 would have been $2.1 billion (or
$1.7 billion on a discounted basis using a LIBOR-based discount rate).
Dynegy further indicated that, based on then current estimates, the
discounted fair value of the capacity payments under these arrangements exceeded
the market value of electricity available for sale under these arrangements at
December 31, 2002 by approximately $501 million. After giving effect to the
termination of the three Southern arrangements, the discounted fair value of the
capacity payments under Dynegy's power tolling arrangements would have exceeded
the market value of electricity available for sale under these arrangements at
December 31, 2002 by approximately $409 million.
Set forth below is a revised version of the Commercial Financial
Obligations table originally included on page 52 of the Form 10-K which gives
pro forma effect to the termination of the three tolling arrangements with
Southern. This table has been revised only to give pro forma effect to the
termination of the three contracts and has not been updated to reflect
developments since December 31, 2002. Investors should be aware that these pro
forma calculations give effect to contract terminations which remain subject to
closing and definitive documentation.
Pro Forma Commercial Financial Obligations as of December 31, 2002
Payments Due By Period
----------------------------------------------------------
($ in millions)
Cash Obligations* Total 2003 2004 2005 2006 2007 Thereafter
----------------- ----- ---- ---- ---- ---- ---- ----------
Operating Leases (1) $ 1,558 $ 63 $ 63 $ 60 $ 60 $ 108 $ 1,204
Unconditional Purchase Obligations (2) 165 66 52 4 4 3 36
Pro Forma Capacity Payments (3) 2,691 294 271 249 240 241 1,396
Conditional Purchase Obligations (4) 483 6 111 116 121 104 25
Other Long Term Obligations 21 3 3 3 3 3 6
------- ----- ----- ----- ----- ----- -------
Total Pro Forma Commercial Financial Obligations $ 4,918 $ 432 $ 500 $ 432 $ 428 $ 459 $ 2,667
======= ===== ===== ===== ===== ===== =======
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* Cash obligations are presented on an undiscounted basis.
(1) Amounts include the minimum lease payment obligations associated with the
lease arrangements relating to our DNE generation facilities and our Tilton
generating facility.
(2) Amounts include natural gas, coal, systems design, various maintenance
agreements and power purchase agreements.
(3) Capacity payments include future values of payments aggregating $2.1
billion under our power tolling arrangements. Other capacity payments
totaling approximately $676 million include fixed obligations associated
with transmission, transportation and storage arrangements.
(4) Amounts include our obligations as of December 31, 2002 to purchase 14
gas-fired turbines. Commitments under the turbine purchase orders are
payable consistent with the delivery schedule. The purchase orders include
milestone requirements by the manufacturer and provide us with the ability
to cancel each discrete purchase order commitment in exchange for a fee,
which escalates over time. The amounts herein assume all 14 turbines will
be purchased. However, we can cancel these arrangements at any time,
subject to a termination fee. If we had terminated the turbine purchase
orders at December 31, 2002, the termination fee would have been
approximately $48 million, reducing our conditional purchase commitment by
$435 million. During the first quarter 2003, we renegotiated these turbine
commitments. Under the new arrangements, cash obligations total $6 million
in 2003, zero in 2004, $147 million in 2005, $193 million in 2006, $113
million in 2007 and $24 million in 2008. The termination payment remains at
approximately $48 million through the first quarter 2004 and is subject to
variable escalation thereafter.
The press release announcing the termination of the aforementioned tolling
arrangements is attached hereto as Exhibit 99.1 and incorporated herein by
reference. The press release as issued on April 23, 2003 stated that the
termination of the tolling agreements would not affect the company's reported
earnings guidance for its power generation, natural gas liquids and regulated
energy delivery segments because results related to the tolling agreements and
any exit costs were excluded from such guidance. The press release also stated
that the tolling agreements were accounted for as discontinued operations.
Results of operations relating to the tolling agreements are actually accounted
for as part of the company's Customer Risk Management segment rather than
discontinued operations. The results of the CRM segment and discontinued
operations are both excluded from the guidance estimates. The press release
attached hereto as an exhibit has been revised to correct the statements in the
fifth paragraph regarding discontinued operations accounting. The corrected
version of the release also has been posted to our web site.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements of Business Acquired - Not Applicable.
b) Pro Forma Financial Information - Not Applicable.
c) Exhibits:
99.1 Press Release of Dynegy Inc. dated April 23, 2003
(revised as of May 2, 2003).
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: May 2, 2003