Dynegy Earnings Meet Targets Despite Enron Woes

HOUSTON – Power marketer Dynegy Inc. Wednesday met earnings expectations in a difficult fourth quarter that included its broken merger with bankrupt rival Enron Corp. , and saw its 2001 net income grow by more than half over the previous year.

Houston-based Dynegy reported fourth-quarter net income of $144 million or 41 cents a share, excluding one-time charges of $70 million related to the Enron affair and a special dividend issuance, compared with $106 million or 32 cents a share in the same quarter last year. Including the charges, earnings per share were 21 cents for the quarter just ended.

For the year 2001, which for Dynegy began with the acrimonious California power crisis and ended with Enron, its recurring net income was $713 million or $2.10. That represents a 57 percent increase compared with the $452 million or $1.43 per share reported for 2000.

Wall Street analysts expected earnings of 40 cents to 42 cents with a consensus estimate of 41 cents a share, according to research firm Thomson Financial/First Call.

Shares of Dynegy traded up $1.41 at $24.71 on the New York Stock Exchange, a rise of 6 percent in late morning trade. The shares fell 52 percent during 2001, far out of line with the S&P Utility index which climbed 5.9 percent in the same period.

Revenue dropped to $8.7 billion from $10.0 billion for the year-ago quarter.

"It was a tough quarter from a commmodity price standpoint and they seem to have done relatively well. The volumes grew pretty quickly year over year," Commerzbank Securities analyst Andre Meade said.

U.S. natural gas marketing volumes grew 16 percent to 11.3 billion cubic feet per day (Bcf/d) for the year 2001, up from 9.7 Bcf/d in 2000. Physical power sold increased 130 percent to 317 million megawatt hours (MWh) in 2001, compared with 138 million MWh in 2000. Power and gas prices were weak in the latter half of the year.

ENRON IMPACT

Dynegy said one-time Enron-related charges cost it $67 million against its 2001 earnings. It also paid a one-time $3 million special dividend resulting from the conversion of preferred stock given to ChevronTexaco Corp., which owns roughly 27 percent of Dynegy and provided it with $1.5 billion in cash to put toward the Enron-Dynegy merger.

Dynegy reiterated its 2002 earnings targets of $2.26 per share, reflecting dilution caused by an issuance of 10.4 million shares to minority owner ChevronTexaco Corp. last week. On Dec. 20, the company cut its 2002 profit targets to $2.30 from $2.30-$2.35. Just two weeks before that, as the fallout from the failed merger peaked, Dynegy had reiterated earnings targets of $2.50-$2.60.

Ultimately, it was forced to drop the numbers further as its credit and financial soundness were questioned following Wall Street's reassessment of the merchant energy sector which Enron pioneered and in which Dynegy operated.

"This industry lost its major player in gas and power in the energy sector, and it didn't miss a beat. The industry wired around the Enron financial collapse literally within hours and days of the Enron bankruptcy," Chairman and Chief Executive Officer Chuck Watson said during a conference call with analysts. "This ought to go down as a very good example of how free markets and competition work."

The Enron fallout resulted in a credit ratings cut to Dynegy and other merchant energy traders, and the company responded with a $1.25 billion capital restructuring plan that included asset sales to shore up its balance sheet.

On Nov. 9 Dynegy announced plans to merge with crosstown rival Enron Corp. but the $9 billion deal fell apart as Enron's finances rapidly disintegrated. The failure of the deal ultimately forced the cash-strapped and credit-poor Enron into the largest Chapter 11 bankruptcy filing in U.S. history on Dec. 2.

Dynegy, which had invested $1.5 billion in Enron at the time the deal was announced, had to go to court to enforce a deal-breaker provision that granted it Enron's Northern Natural Gas pipeline. It won that fight earlier this month, but still faces a $10 billion wrongful merger termination suit from Enron.