Dynegy Inc.’s CEO said Thursday that the company is well on its way to a successful self-restructuring by paring down its debt $1.5 billion and reducing collateral needs more than 50% in the past 12 months. However, said Bruce Williamson, “we’re not done.”

Dynegy reported net income of $5 million for the quarter (1 cent/share), compared with a loss of $1.6 billion (minus $4.71/share) for the same period of 2002. This year, the third quarter was impacted by an aggregate net loss of $16 million from its customer risk management segment and discontinued operations. Dynegy also recognized income of $1.188 billion ($2.69/diluted share), related to a $1.183 billion benefit from the restructuring of its Series B preferred stock once held by a ChevronTexaco Corp. subsidiary. Without the impact of the losses, Dynegy would have earned $21 million, or 5 cents/share. Revenues were $1.38 billion, up from $1.29 billion in 3Q02.

After standing on the precipice of bankruptcy last year, Dynegy now has a liquidity position of $1.4 billion, which consisted of $688 million in cash and $1.1 billion in revolving bank credit, less $353 million in letters of credit posted against that line of credit. There were no drawn amounts under the company’s revolving credit facility. Total collateral posted as of Sept. 30, including cash and letters of credit, was approximately $612 million, down from $830 million on June 30, 2003.

“We’re not out of the woods by any means,” Williamson told analysts when quizzed about the company’s debt status. He could not put a time frame on how long it will take the company to be financially strong again, noting it would depend on the strength of the U.S. economic recovery, which he said was encouraging. He also said Dynegy continued to have open discussions with the credit ratings agencies, but he did not know if and when the company’s credit status would be upgraded..

“Dynegy embarked on its self-restructuring plan in earnest in the fourth quarter 2002, and we now have a full year of results to show for our efforts,” said Williamson. “Debt and other obligations are lower by 17%, or $1.5 billion, from 2002 levels and we have recaptured more than 80% of the capital which was tied to the marketing and trading business. In addition, total collateral is less than half of what it was at last year’s peak. Through all of this, we have maintained strong cash and total liquidity levels.

“Our three energy asset businesses continue to produce strong results in terms of operating earnings, and we generated solid free cash flow after meeting our capital expenditure requirements,” Williamson added. “Our business model going forward will focus on low-cost, efficient operations. This disciplined approach will position the company to capitalize on future commodity price recovery and reduce debt to sustainable levels.”

Dynegy also reaffirmed its 2003 guidance, estimated between a loss of 7 cents to a gain of 1 cent for its generation, natural gas liquids and regulated energy delivery segments. Guidance estimates include corporate-level expenses and exclude the results associated with the company’s customer risk management business, which includes tolling contracts, and its discontinued operations, which includes the former communications business, as well as related exit costs.

In a breakdown of earnings by each of Dynegy’s three segments, the company’s power generation reported earnings before interest and taxes (EBIT) of $129 million for the quarter. The realized on-peak power price was $44.77/MWh, a 4.3% increase over the company’s forecasted price of $42.91. Due to milder-than-usual summer weather, the segment generated 10.5 million MWh in the quarter, which was 5% less than the same period of 2002. With proceeds from asset sales of approximately $50 million, free cash flow for the power generation segment was $245 million for the first nine months of 2003.

In the period, Dynegy made progress in selling its non-strategic ownership interests in some domestic and international power generation facilities. The company sold its interests in projects in Texas and Washington, which totaled approximately 130 MW of net generating capacity. In addition, the company sold its interests in facilities in Honduras and Pakistan, which totaled approximately 110 MW of net generating capacity. Total proceeds from the sales were approximately $25 million.

EBIT from the natural gas liquids business was $29 million for the period, which also benefited from higher commodity prices. The average first-of-the-month Henry Hub natural gas price of $4.97 was 24% higher than Dynegy’s forecasted price of $4.01. With proceeds from asset sales of approximately $20 million, free cash flow for the natural gas liquids segment was $135 million for the first nine months of 2003.

Field plant results were favorable due to percent-of-proceeds/percent-of-liquids contracts that benefit from higher natural gas liquids and natural gas prices, the company said. Straddle plant results were lower than planned as a result of the low fractionation spread, which has led to plant shutdowns and natural gas bypassing in keep-whole situations. Reduced volumes from both Dynegy- and third party-owned processing plants resulted in lower fractionation volumes at Dynegy’s facilities. Fractionation volumes were 186.8 thousand bbl/d, a 17% decrease from the third quarter 2002.

Illinois Power (IP), the regulated segment that Dynegy is attempting to sell to Exelon Corp., had EBIT of $64 million for the quarter. While IP experienced milder-than-usual summer weather in its service territory, sales volumes remained relatively unchanged from the company’s forecast, however, results were impacted by higher general and administrative expenses because of insurance-related claims and litigation reserves. IP delivered total electricity of 5,282 million kWh for the quarter, compared to 5,450 million kWh a year earlier. Total natural gas delivered was 92 million therms, compared to 100 million therms.

Within the customer risk management segment, losses before interest and taxes totaled $30 million. Most of the losses resulted from capacity payments in excess of realized margins related to the company’s five remaining power tolling arrangements. Williamson said the business, including obligations associated with its power tolling contracts, will continue to affect its results of operations until the related obligations have been satisfied or restructured.

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