Dynegy Inc. shares tumbled sharply last week, dipping to less than $3 at times, after the company cut its full-year earnings guidance estimate to ($0.07) to $0.01 per share from the $0.10 to $0.18 per share it predicted in April and reported that its liquidity position fell about $364 million since last month to $1.7 billion, including $644 million in cash.

However, CEO Bruce A. Williamson said the company’s liquidity position remains strong and could get even stronger with some selective asset sales. He said the company is pursuing $100-150 million in domestic and international power plant sales and is considering selling other unnamed assets. It also is looking for additional ways to cut costs and streamline operations.

Williamson noted that the lower earnings guidance mainly reflected higher interest expenses ($31 million) associated with the recent $1.625 billion capital refinancing and the restructuring of Series B preferred stock previously held by ChevronTexaco, a $50 million legal reserve associated with unspecified litigation, as well as $21 million in charges associated with the acceleration of unamortized financing costs.

“If I could characterize the first half of 2003, it’s about restoring and protecting value and continuing to meet our goal,” Williamson said during a conference call. “The Dynegy that you see today has made significant progress in achieving strategic, financial and governance milestones. These were very important initiatives that have stabilized the company. Now our focus shifts from stabilizing the company to running the company strategically.”

He said Dynegy will focus on operational performance and customer service and will continue to look at cutting costs. Capital expenditures are being focused mainly on maintenance, reliability and safety, rather than on development. The company’s 2003 capital expenditures have been cut to $380 million.

According to Williamson, the second quarter went “much as expected for a shoulder period.” The company had a good quarter in its gas liquids division. But milder than normal weather had a slightly negative impact on regulated utility operations.

Regarding full-year guidance, the company said it expects a net loss of $270 to $250 million, or ($0.73) to ($0.67) per share, from its customer risk management business and discontinued operations. Dynegy already recorded net income for 2003 of $55 million, or $0.15 per share, relating to a cumulative effect of changes in accounting principles. As a result, for general accounting purposes, the company expects to report a net loss for 2003 of $240 to $190 million from its customer risk management business and discontinued operations.

Its full-year guidance also continues to exclude the non-cash, implied dividends associated with the Series B preferred stock previously held by ChevronTexaco, as well as the benefit associated with the recently completed restructuring. After giving effect to these items, for GAAP purposes, Dynegy expects to report net income applicable to common stockholders for 2003 of $780 to $835 million, or $2.10 to $2.24 per share, based on 372 million common shares outstanding.

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