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 HOLDINGS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-29311 94-3248415
(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 Holdings 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 Holdings
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 Holdings or its employees or affiliates. A
Dynegy Holdings subsidiary serves as general partner of DMT Supply LP. Dynegy
Holdings 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 Holdings'
consolidated balance sheet and as a financing cash inflow in Dynegy Holdings'
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 Holdings' 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 L.P. entered into a five-year physical
natural gas supply contract with ABG Gas Supply LLC. Under the gas supply
contract, DMT Supply L.P. 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 L.P.
under the contract. DMT Supply L.P. 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 Holdings. Dynegy Holdings realized approximately $80 million
of this benefit in its 2001 results, which helped reduce Dynegy Holdings' 2001
effective tax rate from a statutory rate of 35% to 30%. Costs associated with
this transaction were approximately $35 million on a pre-tax basis.
Dynegy Holdings 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 Holdings acquires gas at above market prices as described above.
Dynegy Holdings 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 Holdings 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 Holdings 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 $452 million to
approximately $152 million, with a corresponding increase in financing cash flow
from $846 million to approximately $1.1 billion. Dynegy Holdings' consolidated
balance sheet, consolidated statement of operations and consolidated statement
of changes in stockholder's equity are unaffected by the cash flow statement
change.
As described above, Dynegy Holdings consolidates the results of DMT Supply
LP but not the Transaction Entities. Dynegy Holdings 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 Holdings during 2001, the effect on
Dynegy Holdings' 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.
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 Holdings' Exchange Act reports.
Dynegy Holdings 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 Holdings will cooperate fully
with the informal inquiry. Before releasing the information contained in this
Current Report on Form 8-K, Dynegy Holdings received concurrence from the SEC
staff on the presentation of cash flows associated with the Transaction.
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 Holdings files herewith a press release, attached as Exhibit 99.1
hereto, issued by its parent company, Dynegy Inc., 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 Holdings' 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 Holdings' ability to effectively compete for market share with industry
participants;
... Beliefs about the outcome of Dynegy Inc.'s and Dynegy Holdings' legal and
administrative proceedings, including matters involving Enron; and
... The expected commencement date for commercial operations for new power plants.
Any or all of Dynegy Holdings' 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;
... 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 Holdings' ability to maintain its investment grade credit
ratings;
... The effectiveness of Dynegy Holdings' risk-management policies and procedures
and the ability of Dynegy Holdings' 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 Holdings' 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 Holdings' financing activities;
... 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 Holdings' 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 Holdings'
actual future results. Consequently, no forward-looking statement can be
guaranteed. Dynegy Holdings' actual future results may vary materially from
those expressed or implied in any forward-looking statements.
All of Dynegy Holdings' 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 Holdings 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 HOLDINGS 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