Form 8-K DYNEGY INC. For: Oct 05
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)
October 5, 2016
DYNEGY INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
001-33443 |
|
20-5653152 |
(State or Other Jurisdiction |
|
(Commission |
|
(I.R.S. Employer |
of Incorporation) |
|
File Number) |
|
Identification No.) |
601 Travis, Suite 1400, Houston, Texas |
|
77002 |
(Address of principal executive offices) |
|
(Zip Code) |
(713) 507-6400
(Registrants telephone number, including area code)
N.A.
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01 Regulation FD Disclosure
On October 5, 2016, Dynegy Inc. (the Company or Dynegy) issued a press release announcing the launch of an offering of senior notes due 2025 (the 2025 Notes) in a private placement transaction conducted pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended (the Securities Act). A copy of the press release is being furnished pursuant to Regulation FD as Exhibit 99.3 to this Current Report on Form 8-K.
Pursuant to General Instruction B.2 of Form 8-K and Securities and Exchange Commission (the SEC) Release No. 33-8176, the information contained in the press release furnished as an exhibit hereto shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section and is not deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such a filing.
Item 8.01 Other Events
The Company is hereby providing certain financial information with respect to the Companys pending acquisition of GDF SUEZ Energy North America, Inc. (GSENA). As previously disclosed in its Current Reports on Form 8-K filed on February 25, 2016, March 1, 2016 and June 28, 2016, on February 24, 2016, Atlas Power Finance, LLC, a wholly-owned subsidiary of Dynegy (the Purchaser), entered into a Stock Purchase Agreement (as amended and restated on June 27, 2016, the Delta Stock Purchase Agreement) with GSENA and International Power, S.A. (the Seller) pursuant to which the Purchaser agreed to purchase from the Seller all of the issued and outstanding shares of common stock of GSENA, thereby acquiring certain wholly owned assets of GSENA (the Thermal Assets) consisting of (i) fifteen natural gas-fire powered facilities located in Illinois, Massachusetts, New Jersey, Ohio, Pennsylvania, Texas , Virginia and West Virginia, (ii) one coal-fired facility in Texas and (iii) one waste coal fired facility in Pennsylvania (the Acquisition). The Company currently expects the Acquisition to close during the fourth quarter of 2016.
The purpose of this Current Report on Form 8-K, among other things, is to file the financial information related to the Acquisition set forth in Item 9.01 below so that such financial information is incorporated by reference into the Companys registration statements filed with the SEC under the Securities Act and into the Companys offering memorandum related to the 2025 Notes.
Included in this filing as Exhibit 99.1 are the unaudited combined financial statements of the Thermal Assets for the periods described in Item 9.01(a) below and the notes related thereto.
The Current Report on Form 8-K contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as forward looking statements. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Examples of these statements include, but are not limited to, Dynegys ability to close the Acquisition. Management cautions that any or all of Dynegys forward-looking statements may turn out to be wrong. Please read Dynegys annual, quarterly and current reports filed under the Securities Exchange Act of 1934, including its Annual Report on Form 10-K for the year ended December 31, 2015, its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2016 and June 30, 2016 for additional information about the risks, uncertainties and other factors affecting these forward-looking statements and Dynegy generally. Dynegys actual future results may vary materially from those expressed or implied in any forward-looking statements. All of Dynegys 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 disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
Included in this filing as Exhibit 99.2 is the pro forma financial information described in Item 9.01(b) below giving effect to the Acquisition, the buyout of limited liability company interests held by Energy Capital Partners III, LLC (ECP) (as previously disclosed on the Companys Current Report on Form 8-K filed on June 28, 2016), the offering of the 2025 Notes described in Item 7.01 above, the issuance of shares of common stock to ECP (as previously disclosed on the Companys Current Report on Form 8-K filed on March 1, 2016), the Companys incremental $2.0 billion term loan credit facility (as previously disclosed on the Companys Current Report on Form 8-K filed on June 28, 2016), the offering of the tangible equity units (as previously disclosed in the Companys Current Report on Form 8-K filed on June 15, 2016) and the Companys completed acquisitions of the membership interest in certain subsidiaries of affiliates of Duke Energy Corp. and Energy Capital Partners (as previously disclosed on the Companys Current Report on Form 8-K filed on August 26, 2014).
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
Unaudited combined financial statements of the Thermal Assets as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015 and the notes related thereto, attached as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information
The unaudited pro forma consolidated financial statements of the Company as of and for the six months ended June 30, 2016 and the year ended December 31, 2015, giving effect to, among other transactions, the Acquisition, attached as Exhibit 99.2 hereto.
(c) Shell Company Transactions
Not applicable.
(d) Exhibits:
Exhibit |
|
Document |
|
|
|
99.1 |
|
Unaudited combined financial statements of the Thermal Assets as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015 and the notes related thereto. |
|
|
|
99.2 |
|
Unaudited Pro Forma Consolidated Financial Information. |
|
|
|
99.3 |
|
Press Release dated October 5, 2016, announcing launch of senior notes offering. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: October 5, 2016 |
DYNEGY INC. | |
|
(Registrant) | |
|
By: |
/s/ Catherine C. James |
|
Name: |
Catherine C. James |
|
Title: |
Executive Vice President, General Counsel and Chief Compliance Officer |
EXHIBIT INDEX
Exhibit |
|
Document |
|
|
|
99.1 |
|
Unaudited combined financial statements of the Thermal Assets as of June 30, 2016 and December 31, 2015 and for the six months ended June 30, 2016 and 2015 and the notes related thereto. |
|
|
|
99.2 |
|
Unaudited Pro Forma Consolidated Financial Information. |
|
|
|
99.3 |
|
Press Release dated October 5, 2016, announcing launch of senior notes offering. |
Exhibit 99.1
Thermal Assets
(Unaudited Combined Financial Statements of certain wholly owned subsidiaries of GDF SUEZ Energy North America, Inc., See Note 1)
Unaudited Combined Financial Statements as of June 30, 2016 and December 31, 2015 and for the Three and Six Months Ended June 30, 2016 and 2015
THERMAL ASSETS
UNAUDITED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2016 AND DECEMBER 31, 2015
(In thousands)
|
|
2016 |
|
2015 |
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
73 |
|
$ |
47 |
|
Trade and other receivables |
|
231 |
|
5,935 |
| ||
Receivables from affiliates |
|
48,195 |
|
45,639 |
| ||
Inventory |
|
108,594 |
|
110,966 |
| ||
Assets from risk management activities |
|
17,783 |
|
58,102 |
| ||
Prepaid expenses |
|
139,009 |
|
111,258 |
| ||
|
|
|
|
|
| ||
Total current assets |
|
313,885 |
|
331,947 |
| ||
|
|
|
|
|
| ||
NONCURRENT ASSETS: |
|
|
|
|
| ||
Property, plant, and equipment |
|
4,478,606 |
|
4,449,384 |
| ||
Accumulated depreciation |
|
(1,373,516 |
) |
(1,280,458 |
) | ||
|
|
|
|
|
| ||
Property, plant, and equipmentnet |
|
3,105,090 |
|
3,168,926 |
| ||
|
|
|
|
|
| ||
Intangible assetsnet |
|
13,583 |
|
13,583 |
| ||
Assets from risk management activities |
|
5,790 |
|
27,842 |
| ||
Equity method investments |
|
159,635 |
|
161,640 |
| ||
|
|
|
|
|
| ||
Total noncurrent assets |
|
3,284,098 |
|
3,371,991 |
| ||
|
|
|
|
|
| ||
TOTAL |
|
$ |
3,597,983 |
|
$ |
3,703,938 |
|
(Continued)
THERMAL ASSETS
UNAUDITED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2016 AND DECEMBER 31, 2015
(In thousands)
|
|
2016 |
|
2015 |
| ||
LIABILITIES AND PARENTS EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
| ||
Trade and other payables |
|
$ |
32,386 |
|
$ |
19,424 |
|
Payables to affiliates |
|
8,081 |
|
16,924 |
| ||
Legal contingency |
|
65,000 |
|
65,000 |
| ||
Other current liabilities |
|
33,146 |
|
56,473 |
| ||
Liabilities from risk management activities |
|
44,416 |
|
7,001 |
| ||
Current portion of long-term debt payable to affiliates |
|
1,291,763 |
|
285,847 |
| ||
|
|
|
|
|
| ||
Total current liabilities |
|
1,474,792 |
|
450,669 |
| ||
|
|
|
|
|
| ||
NONCURRENT LIABILITIES: |
|
|
|
|
| ||
Long-term debt payable to affiliates |
|
37,539 |
|
1,094,815 |
| ||
Liabilities from risk management activities |
|
8,950 |
|
2,859 |
| ||
Asset retirement obligations |
|
20,928 |
|
20,297 |
| ||
Accrued pension benefit |
|
191 |
|
159 |
| ||
Deferred tax liabilities |
|
308,704 |
|
348,819 |
| ||
Other noncurrent liabilities |
|
334 |
|
298 |
| ||
|
|
|
|
|
| ||
Total noncurrent liabilities |
|
376,646 |
|
1,467,247 |
| ||
|
|
|
|
|
| ||
COMMITMENTS AND CONTINGENCIES (Note 10) |
|
|
|
|
| ||
|
|
|
|
|
| ||
PARENTS EQUITY: |
|
|
|
|
| ||
Parents equity in division |
|
1,745,650 |
|
1,785,127 |
| ||
Accumulated other comprehensive income |
|
895 |
|
895 |
| ||
|
|
|
|
|
| ||
Total parents equity |
|
1,746,545 |
|
1,786,022 |
| ||
|
|
|
|
|
| ||
TOTAL |
|
$ |
3,597,983 |
|
$ |
3,703,938 |
|
See notes to unaudited combined financial statements. |
(Concluded) |
THERMAL ASSETS
UNAUDITED COMBINED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(In thousands)
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
REVENUESElectricity and thermal sales |
|
$ |
240,121 |
|
$ |
311,070 |
|
$ |
395,452 |
|
$ |
529,689 |
|
|
|
|
|
|
|
|
|
|
| ||||
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
| ||||
Fuel purchases and other costs of operations |
|
123,423 |
|
169,229 |
|
182,348 |
|
301,587 |
| ||||
Personnel costs |
|
12,322 |
|
11,688 |
|
25,182 |
|
24,065 |
| ||||
Depreciation and amortization |
|
56,628 |
|
56,532 |
|
113,660 |
|
112,374 |
| ||||
Other operating expensesnet |
|
27,385 |
|
33,344 |
|
54,460 |
|
65,918 |
| ||||
Impairment of property, plant, and equipment |
|
|
|
|
|
6,468 |
|
|
| ||||
Loss on disposal of assets |
|
6,607 |
|
3,231 |
|
9,241 |
|
4,549 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total operating costs and expenses |
|
226,365 |
|
274,024 |
|
391,359 |
|
508,493 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
LOSS (INCOME) ON MARK-TO-MARKET ON COMMODITY CONTRACTS |
|
113,529 |
|
2,171 |
|
105,894 |
|
(30,696 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
OPERATING (LOSS) INCOME |
|
(99,773 |
) |
34,875 |
|
(101,801 |
) |
51,892 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
| ||||
Share in net income of equity method investments |
|
4,807 |
|
10,745 |
|
14,945 |
|
20,986 |
| ||||
Interest expense |
|
(7,120 |
) |
(14,946 |
) |
(18,117 |
) |
(28,906 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total other expense |
|
(2,313 |
) |
(4,201 |
) |
(3,172 |
) |
(7,920 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
(LOSS) INCOME BEFORE INCOME TAXES |
|
(102,086 |
) |
30,674 |
|
(104,973 |
) |
43,972 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
INCOME TAX BENEFIT (EXPENSE) |
|
38,997 |
|
(12,021 |
) |
40,115 |
|
(17,121 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
NET (LOSS) INCOME |
|
$ |
(63,089 |
) |
$ |
18,653 |
|
$ |
(64,858 |
) |
$ |
26,851 |
|
|
|
|
|
|
|
|
|
|
| ||||
OTHER COMPREHENSIVE LOSS: |
|
|
|
|
|
|
|
|
| ||||
Cash flow hedges |
|
$ |
|
|
$ |
25 |
|
$ |
|
|
$ |
(40 |
) |
Deferred income tax |
|
|
|
(9 |
) |
|
|
15 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive loss |
|
|
|
16 |
|
|
|
(25 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
TOTAL COMPREHENSIVE (LOSS) INCOME |
|
$ |
(63,089 |
) |
$ |
18,669 |
|
$ |
(64,858 |
) |
$ |
26,826 |
|
See notes to unaudited combined financial statements.
THERMAL ASSETS
UNAUDITED COMBINED STATEMENTS OF PARENTS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(In thousands)
|
|
Parents |
|
Accumulated Other |
|
|
| |||
|
|
Equity in |
|
Comprehensive |
|
Total |
| |||
|
|
Division |
|
(Loss) Income |
|
Equity |
| |||
|
|
|
|
|
|
|
| |||
PARENTS EQUITYJanuary 1, 2015 |
|
$ |
2,097,465 |
|
$ |
(78 |
) |
$ |
2,097,387 |
|
|
|
|
|
|
|
|
| |||
Other comprehensive loss |
|
|
|
(25 |
) |
(25 |
) | |||
Net income |
|
26,851 |
|
|
|
26,851 |
| |||
|
|
|
|
|
|
|
| |||
Total comprehensive income (loss) |
|
26,851 |
|
(25 |
) |
26,826 |
| |||
|
|
|
|
|
|
|
| |||
Net contribution from parent |
|
67,753 |
|
|
|
67,753 |
| |||
|
|
|
|
|
|
|
| |||
PARENTS EQUITYJune 30, 2015 |
|
$ |
2,192,069 |
|
$ |
(103 |
) |
$ |
2,191,966 |
|
|
|
|
|
|
|
|
| |||
PARENTS EQUITYJanuary 1, 2016 |
|
$ |
1,785,127 |
|
$ |
895 |
|
$ |
1,786,022 |
|
|
|
|
|
|
|
|
| |||
Net loss |
|
(64,858 |
) |
|
|
(64,858 |
) | |||
|
|
|
|
|
|
|
| |||
Total comprehensive loss |
|
(64,858 |
) |
|
|
(64,858 |
) | |||
|
|
|
|
|
|
|
| |||
Net contribution from parent |
|
25,381 |
|
|
|
25,381 |
| |||
|
|
|
|
|
|
|
| |||
PARENTS EQUITYJune 30, 2016 |
|
$ |
1,745,650 |
|
$ |
895 |
|
$ |
1,746,545 |
|
See notes to unaudited combined financial statements.
THERMAL ASSETS
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(In thousands)
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net (loss) income |
|
$ |
(64,858 |
) |
$ |
26,851 |
|
Adjustments to reconcile net (loss) income to net cash flows provided by operating activities: |
|
|
|
|
| ||
Share in net income of equity method investments |
|
(14,945 |
) |
(20,986 |
) | ||
Dividends received from equity method investments |
|
16,950 |
|
21,450 |
| ||
Depreciation and amortization expense |
|
113,660 |
|
112,374 |
| ||
Loss on disposal of assets |
|
9,241 |
|
4,549 |
| ||
Loss (income) on mark-to-market on commodity contracts |
|
105,894 |
|
(30,696 |
) | ||
Impairment of property, plant, and equipment |
|
6,468 |
|
|
| ||
Accrued pension and other post-retirement costs |
|
32 |
|
(2 |
) | ||
Other items with no cash impact |
|
(1,884 |
) |
341 |
| ||
Deferred income taxes |
|
(40,115 |
) |
14,414 |
| ||
Accretion expense |
|
631 |
|
21 |
| ||
Changes in non-current liabilities |
|
36 |
|
49 |
| ||
Change in working capital: |
|
|
|
|
| ||
Trade and other receivables |
|
5,704 |
|
555 |
| ||
Receivables from affiliates |
|
(2,556 |
) |
(14,635 |
) | ||
Inventory |
|
2,372 |
|
(9,107 |
) | ||
Assets/liabilities from risk management activities |
|
(17 |
) |
(177 |
) | ||
Prepaid expenses |
|
4,721 |
|
4,773 |
| ||
Trade and other payables |
|
10,444 |
|
(1,755 |
) | ||
Payables to affiliates |
|
(8,843 |
) |
(58,869 |
) | ||
Accrued interest |
|
(14,068 |
) |
(206 |
) | ||
Other current liabilities |
|
(23,327 |
) |
(21,795 |
) | ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
|
105,540 |
|
27,149 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Capital expenditures |
|
(93,603 |
) |
(102,310 |
) | ||
|
|
|
|
|
| ||
Net cash used in investing activities |
|
(93,603 |
) |
(102,310 |
) | ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Net contribution from parent |
|
25,381 |
|
67,753 |
| ||
Repayment of borrowings and debt |
|
(2,775 |
) |
(56,794 |
) | ||
Net (repayment to) proceeds from cash pool |
|
(34,517 |
) |
38,657 |
| ||
Proceeds from long-term borrowings and debt |
|
|
|
25,451 |
| ||
|
|
|
|
|
| ||
Net cash (used in) provided by financing activities |
|
(11,911 |
) |
75,067 |
| ||
|
|
|
|
|
| ||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
26 |
|
(94 |
) | ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTSBeginning of period |
|
47 |
|
144 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTSEnd of period |
|
$ |
73 |
|
$ |
50 |
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES: |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
2,132 |
|
$ |
2,176 |
|
See notes to unaudited combined financial statements.
THERMAL ASSETS
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF JUNE 30, 2016 AND DECEMBER 31, 2015 AND FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
Index to Notes to Unaudited Combined Financial Statements
Note |
|
|
|
Page | |
|
|
|
| ||
1. |
Description of Business |
|
8 | ||
|
|
|
| ||
2. |
Significant Accounting Policies |
|
9 | ||
|
|
|
| ||
3. |
Income Taxes |
|
11 | ||
|
|
|
| ||
4. |
Property, Plant, and Equipment |
|
12 | ||
|
|
|
| ||
5. |
Equity Method Investments |
|
13 | ||
|
|
|
| ||
6. |
Risk Management Activities |
|
13 | ||
|
|
|
| ||
7. |
Fair Value Measurements |
|
18 | ||
|
|
|
| ||
8. |
Inventory |
|
19 | ||
|
|
|
| ||
9. |
Debt and Borrowings |
|
19 | ||
|
|
|
| ||
10. |
Commitments and Contingencies |
|
20 | ||
|
|
|
| ||
11. |
Share-Based Compensation |
|
21 | ||
|
|
|
| ||
12. |
Related-Party Transactions |
|
22 | ||
|
|
|
| ||
13. |
Subsequent Events |
|
23 | ||
1. DESCRIPTION OF BUSINESS
These unaudited combined financial statements include the following legal entities (ANP Bellingham Energy Company, LLC, ANP Blackstone Energy Company, LLC, ANP ERCOT Acquisition, LLC, ANP Fuel Services, Inc., ANP Funding I, LLC, Armstrong Power, LLC, Calumet Energy Team, LLC, Coleto Creek Power, LP, Coleto LP, LLC, Coleto GP, LLC, Ennis Power Company, LLC, Hays Energy, LLC, Hopewell Cogeneration, LLC, Hopewell Cogeneration Limited Partnership, IPA APT Generation, LLC, IPA Central, LLC, IPA Operations, Inc., Midlothian Energy, LLC, Milford Power, LLC, NEPCO Services Company, Northeastern Power Company, Pleasants Energy, LLC, Prince George Energy Company, LLC, T-Fuels, LLC, Tractebel Associates Northeast LP, Inc., Tractebel Northeast Generation GP, Inc., Troy Energy, LLC, Wharton County Generation, LLC, Wise County Power Company, LLC, Wise-Fuels Pipeline, Inc.) (collectively, Thermal Assets or the Company) who collectively own certain power-generating facilities as shown in the table below. The Company is engaged in owning and operating retail, industrial, and non-utility wholesale power-generating facilities. The Company is owned by GDF SUEZ Energy North America, Inc. (GSENA or the Parent). GSENA is a wholly owned subsidiary of International Power, S.A. (IP), a Belgian company. IP is a wholly owned subsidiary of ENGIE S.A., formerly GDF SUEZ S.A., (ENGIE), a French-domiciled company. As ENGIE owns 100% of IP in the six months ended June 30, 2015 and 2016, it is considered GSENAs ultimate parent (the Ultimate Controlling Party).
Power-generating facilities included in the Thermal Assets are listed below and are 100% owned, with the exception of the Northeast Energy Associates and North Jersey Energy Associates assets, which are 50% owned.
Power-Generating Facilities |
|
Type |
|
Primary Fuel |
|
Location |
|
|
|
|
|
|
|
ANP Bellingham Energy Company |
|
CCGT |
|
Gas |
|
Bellingham, MA |
ANP Blackstone Energy company |
|
CCGT |
|
Gas |
|
Blackstone, MA |
Armstrong Power |
|
GT |
|
Gas/Oil |
|
Shelocta, PA |
Northeast Energy AssociatesBellingham |
|
CCGT |
|
Gas/Oil |
|
Bellingham, MA |
Calumet Energy Team |
|
GT |
|
Gas |
|
Cook, IL |
Coleto Creek Power |
|
CT/Steam |
|
Coal |
|
Fannin, TX |
Ennis Power Company |
|
CCGT |
|
Gas |
|
Ennis, TX |
Hays Energy |
|
CCGT |
|
Gas |
|
San Marcos, TX |
Hopewell Cogeneration |
|
CCGT |
|
Gas/Oil |
|
Hopewell, VA |
Midlothian Energy |
|
CCGT |
|
Gas |
|
Midlothian, TX |
Milford Power |
|
CCGT |
|
Gas |
|
Milford, MA |
Northeastern Power Company (NEPCO) |
|
CT/Steam |
|
Waste Coal |
|
McAdoo, PA |
Pleasants Energy |
|
GT |
|
Gas/Oil |
|
Saint Marys, WV |
North Jersey Energy AssociatesSayreville |
|
CCGT |
|
Gas |
|
Sayreville, NJ |
Troy Energy |
|
GT |
|
Gas/Oil |
|
Luckey, OH |
Wharton County Generation |
|
GT |
|
Gas |
|
Wharton, TX |
Wise County Power Company |
|
CCGT |
|
Gas |
|
Poolville, TX |
|
|
|
|
|
|
|
Combined Cycle Gas Turbine (CCGT) |
|
|
|
|
|
|
Combustion Turbine (CT) |
|
|
|
|
|
|
Gas Turbine (GT) |
|
|
|
|
|
|
GSENA performs management and administrative activities that support the Thermal Assets and all other GSENA entities. These activities include executive oversight, accounting, treasury, tax, legal,
procurement, and information technology. These activities are referred to as GSENA Corporate. GSENA will be included in the sale described in Note 13, which is not included in the definition of the business for these combined financial statements.
GSENA owns GDF SUEZ Energy Generation North America (GSEGNA). GSEGNA performs support activities for the Thermal Assets and other generation asset entities.
GSENA owns GDF SUEZ Energy Marketing North America (GSEMNA). GSEMNA engages in risk management and brokering activities that support the Thermal Assets and all other business units within GSENA. Activities within GSEMNA that support the Thermal Assets are (i) Gas Storage, which is all related to Thermal Assets, (ii) Local Portfolio Management (LPM), which only supports GSEGNA activities, including Thermal Assets, and (iii) all other activities which support the entirety of GSENA, including Thermal Assets.
For the unaudited combined financial statements, GSENA, GSEGNA, and GSEMNA are considered related parties of the Thermal Assets.
2. SIGNIFICANT ACCOUNTING POLICIES
Index to Accounting Policies
|
|
|
Page |
|
|
|
|
A Basis of Presentation and Principles of Combination |
|
9 | |
B Uses of Estimates |
|
10 | |
B.1 Allocation of Corporate Expenses |
|
11 | |
C Other Operating ExpensesNet |
|
11 |
A. Basis of Presentation and Principles of CombinationThe unaudited combined financial statements include the accounts of the Thermal Assets, which are entities under common control and management. All intercompany transactions and accounts between the Thermal Assets have been eliminated. All affiliate transactions between the Thermal Assets and GSENA and its subsidiaries, have been included in these unaudited combined financial statements as related party transactions.
The unaudited combined financial statements include certain assets and liabilities that have historically been held at the GSENA level but are specifically identifiable or otherwise attributable to the Company. The Company prepared its unaudited combined financial statements using the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Companys unaudited combined financial statements have been prepared under the historical cost convention, except for certain derivative financial instruments and share-based compensation measured at fair value. The policies set out below have been consistently applied to all periods presented.
Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09-Revenue from Contracts with Customers (Topic 606), which revised accounting guidance for revenue recognition from contracts with customers. This ASU was further updated through the issuance of ASU 2015-14 in August 2015, ASU 2016-08 in March 2016, ASU 2016-10 in April 2016, and ASU 2016-12 in May 2016. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-
09 also require disclosure of sufficient information to allow users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in ASU 2015-14 develop a common revenue standard for GAAP and International Financial Reporting Standards by removing inconsistencies and weaknesses in revenue requirements, providing a more robust framework for addressing revenue issues, improving comparability of revenue recognition practices, providing more useful information to users of financial statements, and simplifying the preparation of financial statements. The amendments in ASU 2016-08 are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in ASU 2016-10 amend certain aspects of ASU 2014-19. The amendments in ASU 2016-12 amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. For the Company, the guidance included within these ASUs is effective for annual periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the requirements. The ultimate impact of the new standard has not yet been determined.
In July 2015, the FASB issued an update which will require an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This update is effective on a prospective basis for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Inventory is already valued at the lower of cost or net realizable value, so there will be no impact of this update on the unaudited combined financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740). This update requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in the classified balance sheet and eliminates the requirement to allocate a valuation allowance on a pro rata basis between gross current and noncurrent deferred tax assets. The Company early adopted the provisions of this ASU, applied retrospectively as of January 1, 2013.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating leases under previous U.S. GAAP. For the Company, this guidance is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the requirements. The ultimate impact of the new standard has not yet been determined.
Other recently issued accounting pronouncements will not have a material impact on the Companys unaudited combined financial statements.
B. Use of EstimatesThe preparation of unaudited combined financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, as well as disclosures of contingent assets and liabilities. Significant estimates and judgments affecting the unaudited combined financial statements are reviewed on a recurring basis, and we record the effect of any necessary adjustments. Uncertainties with respect to such estimates and judgments are inherent in the preparation of unaudited combined financial statements. Estimates and judgments are used in, among other things, (i) developing fair value assumptions to determine the fair value of financial instruments, including derivatives, that are not actively listed on a market, (ii) estimating the useful lives of our assets and asset retirement obligations (AROs), (iii) assessing future tax exposure and the realization of deferred tax assets, (iv) determining amounts to accrue for contingencies, which include expenditure timing, the discount rate applied to future cash flows, and the actual level of expenditure, and
(v) valuing the pension assets and liabilities using models with actuarial assumptions. Delineated within the notes to the unaudited combined financial statements are areas involving at a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the unaudited combined financial statements. Actual results could differ from the estimates. Management believes the estimates and assumptions used are reasonable.
B.1 Allocation of Corporate ExpensesThe unaudited combined statements of (loss) income and comprehensive (loss) income also includes expense allocations for certain corporate functions performed by GSENA and its subsidiaries which have not been historically allocated to the Thermal Assets, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, procurement, and information technology. These expenses were systematically allocated to the Thermal Assets based on the percentage of revenues of the Thermal Assets entities to total GSENA revenues and in certain cases based on headcount. Expenses allocated to the Thermal Assets were $9.2 million and $18.5 million for the three and six months ended June 30, 2016, respectively, as compared to $11.7 million and $22.2 million for the three and six months ended June 30, 2015, and are included in other operating expensesnet in the unaudited combined statements of (loss) income and comprehensive (loss) income. These amounts are included in net contribution from parent in the unaudited combined statements of parents equity. Also included in this line are other non-cash adjustments primarily for derivatives and income taxes. Intercompany transactions between Thermal Assets and GSENA have been included in these unaudited combined financial statements and are considered to be effectively settled for cash in the unaudited combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the unaudited combined statements of cash flows as a financing activity and in the unaudited combined balance sheets as parent equity. Management believes the assumptions underlying the unaudited combined financial statements, including the assumptions regarding allocating balances are reasonable. Nevertheless, the unaudited combined financial statements may not include all of the actual expenses that would have been incurred had the Thermal Assets been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Thermal Assets had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas.
C. Other Operating ExpensesProceeds received for property claim and business interruption insurance are recorded in Other operating expenses-net.
3. INCOME TAXES
The income tax (benefit) provision for the six months ended June 30, 2016 and 2015 consists of the following (in thousands):
|
|
2016 |
|
2015 |
| ||
Income Tax Expense Items |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current: |
|
|
|
|
| ||
Federal |
|
$ |
|
|
$ |
848 |
|
State |
|
|
|
1,859 |
| ||
|
|
|
|
|
| ||
|
|
|
|
2,707 |
| ||
Deferred: |
|
|
|
|
| ||
Federal |
|
(33,047 |
) |
13,867 |
| ||
State |
|
(7,068 |
) |
547 |
| ||
|
|
|
|
|
| ||
|
|
(40,115 |
) |
14,414 |
| ||
|
|
|
|
|
| ||
Total tax (benefit) expense |
|
$ |
(40,115 |
) |
$ |
17,121 |
|
The effective tax rate for the six months ended June 30, 2016 and 2015 was 38.21%, and 38.94%, respectively. The difference between the federal statutory rate of 35% and our effective tax rate is due primarily to state and local income taxes.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences that give rise to the deferred tax liabilities as of June 30, 2016 and December 31, 2015 are largely the result of the tax effect of differences in book and tax carrying values with respect to property, plant and equipment and derivatives. The temporary differences that give rise to the deferred tax assets as of June 30, 2016 and December 31, 2015 are largely the result of net operating loss carryovers.
4. PROPERTY, PLANT, AND EQUIPMENT
Movements in property, plant, and equipment as of June 30, 2016 and December 31, 2015, are as follows (in thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
Land |
|
$ |
28,666 |
|
$ |
28,666 |
|
Plant and equipment |
|
4,350,220 |
|
4,325,188 |
| ||
Spare parts |
|
39,090 |
|
39,090 |
| ||
Construction in progress |
|
60,630 |
|
56,440 |
| ||
|
|
|
|
|
| ||
Property, plant, and equipment |
|
4,478,606 |
|
4,449,384 |
| ||
|
|
|
|
|
| ||
Accumulated depreciation |
|
(1,373,516 |
) |
(1,280,458 |
) | ||
|
|
|
|
|
| ||
Property, plant, and equipmentnet |
|
$ |
3,105,090 |
|
$ |
3,168,926 |
|
Total interest costs incurred were $7.1 million and $18.1 million for the three and six months ended June 30, 2016, respectively, as compared to $14.9 million and $28.9 million for the three and six months ended June 30, 2015. There was no interest capitalized on construction-in-progress expenditures for the three and six months ended June 30, 2016 and 2015, respectively.
The Company also transferred $0.1 million from prepaid expenses to property, plant, and equipment related to maintenance performed under long-term service agreements (LTSAs) in the six months ended June 30, 2016. $10.0 million was transferred from other payables to property, plant, and equipment in the six months ended June 30, 2016, related to maintenance performed under long-term warranty agreements. Thermal Assets accrued an insignificant amount of non-maintenance property, plant, and equipment costs in the six months ended June 30, 2016.
Capital CommitmentsIn the ordinary course of operations, the Company enters into commitments related to the purchase or construction of property, plant, and equipment. The Companys projected committed capital expenditures for maintenance performed under LTSAs are $1.0 billion.
5. EQUITY METHOD INVESTMENTS
The Company has one investment in a joint venture, Northeast Energy LP (NELP). The Company owns 50% of the equity interest, voting rights, and legal ownership interest of NELP and accounts for its interest using the equity method. NELP wholly owns the Northeast Energy Associates and North Jersey Energy Associates, LP.
Key Figures of NELP (Unaudited)As of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015, the key figures of NELP presented on a 100% basis, are as follows (in thousands):
|
|
Northeast Energy LP |
| ||||||||||
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, |
|
June 30, |
|
June 30, |
|
June 30, |
| ||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
$ |
27,488 |
|
$ |
44,340 |
|
$ |
49,408 |
|
$ |
70,312 |
|
Expense (gain) from gas and other fuel purchases |
|
6,459 |
|
11,142 |
|
(4,280 |
) |
(4,057 |
) | ||||
Operating income |
|
10,240 |
|
22,574 |
|
31,948 |
|
51,169 |
| ||||
Net income |
|
12,291 |
|
9,166 |
|
33,129 |
|
41,005 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
As of |
|
|
|
|
| ||||||
|
|
June 30, |
|
December 31, |
|
|
|
|
| ||||
|
|
2016 |
|
2015 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total non-current assets |
|
$ |
428,130 |
|
$ |
437,761 |
|
|
|
|
| ||
Total current assets |
|
78,789 |
|
86,693 |
|
|
|
|
| ||||
Total non-current liabilities |
|
43,525 |
|
62,644 |
|
|
|
|
| ||||
Total current liabilities |
|
16,769 |
|
14,414 |
|
|
|
|
| ||||
Total equity |
|
446,624 |
|
447,395 |
|
|
|
|
| ||||
% of economic interest |
|
50 |
% |
50 |
% |
|
|
|
| ||||
The Companys share of the underlying equity of NELP is not equal to its ownership percentage in NELP due to a disproportionate distribution of earnings compared to the underlying equity interests.
6. RISK MANAGEMENT ACTIVITIES
6.1 Risk Management ActivitiesThe Company utilizes a variety of financial and physical instruments to mitigate its exposures to market risk created by the Companys physical generation and financing activities. Those market risks include exposures to interest rates and energy and energy-related commodity prices. Risk management activities are broadly defined by two major categoriesfinancial and commodity.
Financial Risk Management DerivativesThe Company manages its exposure to fluctuations in interest rates using an interest-rate swap. It effectively converts a portion of its floating-rate debt to a fixed-rate basis, thus reducing the impact of interest rate changes on future income. The agreement involves the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The interest-rate swap is accounted for as a cash flow hedge designated at inception, with changes in fair value captured directly in equity until the hedged transactions occur and are recognized in earnings. The interest-rate swap expired in the second half of 2015.
ENGIE entered into warrant agreements under which it will receive cash to settle its liability incurred via stock appreciation rights issued to employees. The Company has been allocated a portion of the liability and associated warrant agreements based on headcount. The fair value of the warrants for the Thermal was $0.3 million as of June 30, 2016 and December 31, 2015, respectively, which was included in risk management assets on the unaudited combined balance sheets as of such dates. The Company recognized the warrants change in value in personnel costs. The counterparty to those warrants is an investment-grade entity, and those warrants will continue to settle throughout 2016.
Commodity Risk Management DerivativesThe Company manages commodity price risk arising from changes in fuel costs and future electricity prices related to its power-generating facilities.
The Company uses commodity swap and option contracts, forward physicals, and futures to manage its price risk exposure related to natural gas and coal purchases for its power plants. Under the swaps and futures, the Company pays a fixed price and receives a floating price, which effectively fixes the price it will pay for the natural gas.
The Company enters into commodity swap and option contracts and forward physicals to mitigate its exposure to the effect of changes in future electricity prices on its power plants sales. Under the swaps, the Company pays a variable price and receives a fixed price, which effectively fixes the price to be received for the electricity.
Other Commodity ContractsThe Companys physical electricity capacity sales contracts and gas and power contracts qualify for the election of the normal purchase, normal sale (NPNS) scope exception. Under the NPNS exception, fair value of these contracts is not recognized in the unaudited combined balance sheets.
The Companys financial and commodity derivative results as of three and six months ended June 30, 2016 and 2015, are as follows (in thousands):
|
|
Three Months Ended |
| ||||||||||||||||
|
|
June 30, 2016 |
|
June 30, 2015 |
| ||||||||||||||
|
|
Income |
|
Expenses |
|
Net |
|
Income |
|
Expenses |
|
Net |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commodity derivative income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized change in undesignated hedges |
|
$ |
|
|
$ |
(113,529 |
) |
$ |
(113,529 |
) |
$ |
|
|
$ |
(2,171 |
) |
$ |
(2,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mark to market on commodity contracts |
|
$ |
|
|
$ |
(113,529 |
) |
$ |
(113,529 |
) |
$ |
|
|
$ |
(2,171 |
) |
$ |
(2,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivative expense |
|
$ |
|
|
$ |
(113,529 |
) |
$ |
(113,529 |
) |
$ |
|
|
$ |
(2,171 |
) |
$ |
(2,171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
Six Months Ended |
| ||||||||||||||||
|
|
June 30, 2016 |
|
June 30, 2015 |
| ||||||||||||||
|
|
Income |
|
Expenses |
|
Net |
|
Income |
|
Expenses |
|
Net |
| ||||||
Commodity derivative income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized change in undesignated hedges |
|
$ |
|
|
$ |
(105,894 |
) |
$ |
(105,894 |
) |
$ |
30,696 |
|
$ |
|
|
$ |
30,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mark to market on commodity contracts |
|
$ |
|
|
$ |
(105,894 |
) |
$ |
(105,894 |
) |
$ |
30,696 |
|
$ |
|
|
$ |
30,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivative income (expense) |
|
$ |
|
|
$ |
(105,894 |
) |
$ |
(105,894 |
) |
$ |
30,696 |
|
$ |
|
|
$ |
30,696 |
|
A summary of the Companys outstanding commodity derivative volumes is shown below as of June 30, 2016 and December 31, 2015. The volumes disclosed represent the notional volumes of commodity contracts excluding NPNS (in thousands):
|
|
June 30, |
|
December 31, |
|
|
|
2016 |
|
2015 |
|
|
|
|
|
|
|
Electricity (MWh) |
|
(17,177 |
) |
(23,531 |
) |
Natural Gas (MMBtu) |
|
60,705 |
|
88,593 |
|
Balance Sheet TreatmentThe Company accounts for its derivatives at fair value on the unaudited combined balance sheet. A summary of the Companys derivative current and noncurrent assets and liabilities as of June 30, 2016 and December 31, 2015, is as follows (in thousands):
|
|
June 30, 2016 |
|
December 31, 2015 |
| ||||||||||||||
|
|
Asset |
|
Liability |
|
Total |
|
Asset |
|
Liability |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivatives at fair value through income: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivative instruments (including commodity derivatives)gross undesignated hedges |
|
$ |
66,090 |
|
$ |
(96,199 |
) |
$ |
(30,109 |
) |
$ |
169,570 |
|
$ |
(92,201 |
) |
$ |
77,369 |
|
Undesignated Hedges Netting |
|
(42,833 |
) |
42,833 |
|
|
|
(83,925 |
) |
83,925 |
|
|
| ||||||
Derivative instrumentscommercial contracts |
|
|
|
|
|
|
|
|
|
(1,584 |
) |
(1,584 |
) | ||||||
Derivative instrumentswarrants |
|
316 |
|
|
|
316 |
|
299 |
|
|
|
299 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivatives at fair value through income |
|
23,573 |
|
(53,366 |
) |
(29,793 |
) |
85,944 |
|
(9,860 |
) |
76,084 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivatives |
|
$ |
23,573 |
|
$ |
(53,366 |
) |
$ |
(29,793 |
) |
$ |
85,944 |
|
$ |
(9,860 |
) |
$ |
76,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Current asset (liability) |
|
$ |
17,783 |
|
$ |
(44,416 |
) |
$ |
(26,633 |
) |
$ |
58,102 |
|
$ |
(7,001 |
) |
$ |
51,101 |
|
Noncurrent asset (liability) |
|
5,790 |
|
(8,950 |
) |
(3,160 |
) |
27,842 |
|
(2,859 |
) |
24,983 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total derivatives |
|
$ |
23,573 |
|
$ |
(53,366 |
) |
$ |
(29,793 |
) |
$ |
85,944 |
|
$ |
(9,860 |
) |
$ |
76,084 |
|
Commercial contracts marked to market as disclosed in the table above refers to contracts that support the Companys core business lines, but are required to be marked to market under ASC 815, as they are not scoped out of ASC 815 under the NPNS exception, and they do not qualify as accounting hedges. These contracts include short-term and medium-term purchases of natural gas and coal with volumetric variability. The realized expense from these commercial contracts represent physical settlement of these contracts at contract prices, and is recorded in fuel purchases and other costs of operations with the remainder of the Companys commercial activity.
Accounting for Cash Flow HedgesFor derivatives not designated as cash flow hedges, the Company immediately recognizes changes in the fair value of nonhedge derivatives in the income on mark-to-market on commodity contracts line of the unaudited combined statements of (loss) income and comprehensive (loss) income.
The Company recognizes the effective portion of changes in fair values of derivatives appropriately documented as cash flow hedges of forecasted transactions in equity until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivatives change in fair value is recognized in earnings in the period of change.
The movements in other comprehensive loss resulting from the Companys cash flow hedge activity, including the recognition of ineffectiveness in earnings for the six months ended June 30, 2016 and 2015, are as follows (in thousands):
|
|
Six Months Ended |
| ||||
|
|
June 30, |
|
June 30, |
| ||
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
Other comprehensive income (loss) movements: |
|
|
|
|
| ||
(Loss) recognized in equityeffective portion of the hedge |
|
$ |
|
|
$ |
190 |
|
Gain in equity from reclasses to incomesettlement |
|
|
|
(230 |
) | ||
|
|
|
|
|
| ||
Total |
|
|
|
(40 |
) | ||
Accounting for the Settlement of Risk Management DerivativesWhen the Company realizes its mark to-market assets and liabilities related to its risk management activities, it records that settled result in operating earnings. The Company reflects electricity and steam sales as electricity and thermal sales and records the cost of purchasing fuel commodities to satisfy those sales in fuel purchases and other costs of operations in the unaudited combined statements of (loss) income and comprehensive (loss) income. For the three and six months ended June 30, 2016 and 2015, the Company recorded the settlement of risk management derivatives as follows (in thousands):
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
June 30, 2016 |
|
June 30, 2015 |
|
June 30, 2016 |
|
June 30, 2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenueselectricity and thermal sales |
|
$ |
33,403 |
|
$ |
66,846 |
|
$ |
66,355 |
|
$ |
49,920 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
| ||||
Fuel purchases and other costs of operations |
|
4,764 |
|
(14,863 |
) |
11,681 |
|
27,863 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
38,167 |
|
51,983 |
|
78,036 |
|
77,783 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
|
|
(56 |
) |
|
|
(230 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income taxes |
|
$ |
38,167 |
|
$ |
51,927 |
|
$ |
78,036 |
|
$ |
77,553 |
|
6.2 Market and Liquidity RiskThe commodity and financing activities of GSENA, which includes the Company, are subject to the risk of changes in forward commodity prices. GSENA has established and monitors various controls to manage its risk. A risk committee composed of members of senior management meet at least monthly to analyze any transaction that is not explicitly approved by documented hedging policies.
Market risk arising from commodity derivative instruments utilized in risk management activities is assessed, measured, and managed using sensitivity analysis, together with other market risk exposure indicators.
Because the Companys risk management activities contractually obligate it to exchange commodities and cash flows based on commodity prices at future dates, the Company is exposed to the risk that it will not be able to purchase or sell commodities at those dates to fulfill its obligations. That liquidity risk can limit the ability to mitigate market price risk exposure. The Company applies a valuation reserve to adjust the fair value of its mark-to-market commodity assets and liabilities to fair value.
6.3 Major Customers and Concentrations of Credit RiskCredit risk relates to the risk of loss associated with nonperformance by counterparties. The Company transacts with GSEMNA and GSEMNA transacts with third party counterparties. GSEMNA is considered a related party with the Company. As such, a significant concentration of credit risk for the Company is with GSEMNA, with a maximum exposure of $23.3 million and $85.9 million as of June 30, 2016 and December 31, 2015, respectively. The exposure does not include NPNS contracts. The Company is exposed to an insignificant amount of credit risk with utility and industrial off takers and other third party counterparties. The Company mitigates the risk of its credit exposure with GSEMNA through the use of standardized master agreements that allow for netting of exposures across commodities and termination upon the occurrence of certain events of default. These agreements allow the Company to settle accounts receivable and payable from GSEMNA on a net basis, thereby reducing a potential credit loss arising from GSEMNA.
GSEMNA is exposed to credit risk with third party counterparties. Credit exposure is monitored daily and the financial condition of counterparties is reviewed periodically. Credit enhancements, such as parental guarantees, letters of credit, and margin deposits, are utilized to limit GSEMNAs credit exposure. GSEMNA posts broker margin and cash collateral with counterparties.
GSENA establishes credit risk policies, which are carried out by GSEMNA. Credit risk policies govern the management of credit risk and establishes controls to determine and monitor the appropriateness of these limits on an ongoing basis. GSENAs risk mitigation tools include, but are not limited to, the use of standardized master contracts and agreements that allow for netting of exposures across commodities, and termination upon the occurrence of certain events of default.
Some of the power-generating facilities have one primary utility or industrial customer under a long-term contract. The Company does not believe that these customers represent a significant credit risk. However, changes in economic, regulatory, or other factors could have a significant effect on the Companys contractual relationships. Successful financial operations of these plants are largely dependent on the continued performance by customers and suppliers of their obligations under the relevant power sales contract and, in particular, on the credit quality of the purchasers. If a substantial portion of the Companys long-term power sales contracts was modified or terminated, the Company would be adversely affected to the extent that it might be unable to find other customers at the same level of contract profitability.
Furthermore, no significant past due financial asset is impaired. The Company assesses financial assets for impairment once those assets have become past due for greater than 60 days. The impairment
assessment takes into account the creditworthiness of the applicable counterparty and circumstances that caused the asset to become past due.
The following tables demonstrates the impacts of offsetting recognized derivative assets and liabilities as permitted when the ability and intent to settle such assets and liabilities on a net basis exists (in thousands):
|
|
June 30, 2016 |
|
December 31, 2015 |
| ||||||||
|
|
Risk Management |
|
Risk Management |
| ||||||||
|
|
Assets |
|
Liabilities |
|
Assets |
|
Liabilities |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross derivatives balances |
|
$ |
66,406 |
|
$ |
(96,199 |
) |
$ |
169,869 |
|
$ |
(93,785 |
) |
Impact of netting agreements |
|
(42,833 |
) |
42,833 |
|
(83,925 |
) |
83,925 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total net amount |
|
$ |
23,573 |
|
$ |
(53,366 |
) |
$ |
85,944 |
|
$ |
(9,860 |
) |
GSENA computes an obligation reserve for its financial liabilities based upon the expected occurrence of default using the credits ratings of ENGIE and affiliated Companies. GSENAs obligation reserve and the Companys share is insignificant in comparison to GSENAs and the Companys carrying amount of financial liabilities. As GSEMNA contracts directly with third party counterparties, the Company does not have cash collateral and margin posted, guarantees, letter of credit or other collateral. The carrying amounts of the Companys financial liabilities are representative of the obligation at maturity.
7. FAIR VALUE MEASUREMENTS
The Companys combined financial instruments and derivatives consist primarily of cash and cash equivalents, trade receivables, accounts payable, debt instruments, and commodity instruments. The book values of cash and cash equivalents, trade receivables, and accounts payable are representative of their respective fair values due to the short-term nature of these instruments.
Fair Value of DerivativesThe Companys fair value measurements by level as of June 30, 2016 and December 31, 2015, are as follows (in thousands):
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Fair value by level as of June 30, 2016: |
|
|
|
|
|
|
|
|
| ||||
Portfolio management: |
|
|
|
|
|
|
|
|
| ||||
Derivative assets |
|
$ |
20,021 |
|
$ |
46,385 |
|
$ |
|
|
$ |
66,406 |
|
Derivative liabilities |
|
(17,154 |
) |
(79,045 |
) |
|
|
(96,199 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total June 30, 2016 |
|
$ |
2,867 |
|
$ |
(32,660 |
) |
$ |
|
|
$ |
(29,793 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Fair value by level as of December 31, 2015: |
|
|
|
|
|
|
|
|
| ||||
Portfolio management: |
|
|
|
|
|
|
|
|
| ||||
Derivative assets |
|
$ |
27,118 |
|
$ |
142,751 |
|
$ |
|
|
$ |
169,869 |
|
Derivative liabilities |
|
(18,433 |
) |
(75,352 |
) |
|
|
(93,785 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Total December 31, 2015 |
|
$ |
8,685 |
|
$ |
67,399 |
|
$ |
|
|
$ |
76,084 |
|
Contract values are not presented on a net basis by counterparty as on the unaudited combined balance sheet.
For the periods ending June 30, 2016 and December 31, 2015, the Company did not recognize any transfers into or out of Level 1 and did not recognize any Level 3 inputs related to unobservable market data.
Fair values of Financial InstrumentsThe Companys carrying value of long-term fixed-rate debt and estimated fair values of long-term fixed-rate debt were as follows (in thousands):
|
|
June 30, |
|
December 31, |
| ||||||||
|
|
2016 |
|
2015 |
| ||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| ||||
|
|
Value |
|
Value |
|
Value |
|
Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Long-term fixed-rate debt |
|
$ |
1,089,590 |
|
$ |
1,080,901 |
|
$ |
1,092,366 |
|
$ |
1,104,989 |
|
8. INVENTORY
Major classes of inventory at June 30, 2016 and December 31, 2015 were as follows (in thousands):
|
|
June 30, |
|
December 31, |
| ||
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
Natural gas |
|
$ |
29,741 |
|
$ |
35,608 |
|
Coal |
|
27,217 |
|
25,571 |
| ||
Oil |
|
26,902 |
|
27,439 |
| ||
Spare partscurrent |
|
23,272 |
|
22,166 |
| ||
Greenhouse gasemission rights |
|
1,462 |
|
182 |
| ||
|
|
|
|
|
| ||
Total inventory |
|
$ |
108,594 |
|
$ |
110,966 |
|
9. DEBT AND BORROWINGS
|
|
|
|
Rate at |
|
|
|
|
| ||||
|
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
December 31, |
| ||
|
|
Maturity |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Affiliated debt: |
|
|
|
|
|
|
|
|
|
|
| ||
Revolving line of credit related to Wharton |
|
2017 |
|
1.54 |
% |
1.83 |
% |
$ |
8,000 |
|
$ |
8,000 |
|
Term loan related to Coleto Creek |
|
2017 |
|
4.11 |
|
4.11 |
|
750,750 |
|
750,750 |
| ||
Term loan related to Troy |
|
2023 |
|
3.03 |
|
3.03 |
|
11,387 |
|
12,200 |
| ||
Term loan related to Armstrong |
|
2024 |
|
2.65 |
|
2.65 |
|
14,817 |
|
15,689 |
| ||
Term loan related to Pleasants |
|
2024 |
|
2.65 |
|
2.65 |
|
14,519 |
|
15,373 |
| ||
Term loan related to Hopewell |
|
2020 |
|
2.28 |
|
2.60 |
|
2,368 |
|
2,604 |
| ||
Term loan related to IPA Central |
|
2017 |
|
3.98 |
|
3.98 |
|
295,750 |
|
295,750 |
| ||
Cash Pool |
|
2016 |
|
0.82 |
|
0.67 |
|
230,916 |
|
265,433 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total debt before accrued interest |
|
|
|
|
|
|
|
1,328,507 |
|
1,365,799 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Accrued interest |
|
|
|
|
|
|
|
795 |
|
14,863 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total debt |
|
|
|
|
|
|
|
1,329,302 |
|
1,380,662 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Less current portion of long-term debt |
|
|
|
|
|
|
|
1,291,763 |
|
285,847 |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Total long-term debt |
|
|
|
|
|
|
|
$ |
37,539 |
|
$ |
1,094,815 |
|
9.1 Notes Payable to AffiliateThe Company has a revolving line of credit with GSENA, which has a mirrored line of credit with ENGIE CC, formerly known as GDF SUEZ CC, an affiliate, for $8 million at June 30, 2016. The amount outstanding under the credit lines is included in current portion of long-term debt payable to affiliates at June 30, 2016 and December 31, 2015.
In 2016, the maturity date of the revolving line of credit related to Wharton was extended to 2017. GSENA repaid the Wharton note to ENGIE CC on June 30, 2016. GSENA still has a note receivable from Thermal Assets for this note, which will remain when the sale described in Note 13 occurs. However, a cash outflow from Thermal Assets will not be required.
9.2 Term Loans with AffiliateThe Company has term loans with ENGIE CC. All borrowings outstanding as of June 30, 2016 under the term loans bear interest at a fixed rate. The amounts outstanding under the term loans are included in long-term debt payable to affiliates and current portion of long-term debt payable to affiliates at June 30, 2016 and December 31, 2015, as appropriate.
On February 29, 2016, Coleto entered into a Novation Agreement with GSENA whereby Coleto transferred, assigned, and delivered to GSENA its rights and obligations under the Loan Agreement dated February 28, 2011 with ENGIE CC. As consideration for the assignment, assumption, and novation of the Loan Agreement, Coleto entered into a loan agreement with GSENA in the amount of $750.8 million at a rate of LIBOR plus 117 bps maturing on February 28, 2017.
On March 2, 2016, IPA Central, LLC (IPA Central) entered into a Novation Agreement with GSENA whereby IPA Central transferred, assigned, and delivered to GSENA its rights and obligations under the Loan Agreement dated March 2, 2011 with ENGIE CC. As consideration for the assignment, assumption, and novation of the Loan Agreement, IPA Central entered into a loan agreement with GSENA in the amount of $295.8 million at a rate of LIBOR plus 108 bps maturing on March 2, 2017.
GSENA will repay the Coleto Creek and IPA Central notes to ENGIE CC in August 2016, before the sale described in Note 13 using proceeds from scheduled asset sales. Subsequently, GSENA will have a note receivable from Thermal Assets for these notes, which will remain when the sale described in Note 13 occurs however, will not require a cash outflow from Thermal Assets.
9.3 Letters of CreditAt June 30, 2016 and December 31, 2015, GSENA has letters of credit available and issued for operational obligations for its subsidiaries and affiliates. The Company benefits from the letters of credit.
9.4 Scheduled MaturitiesScheduled maturities of borrowings as of June 30, 2016 are as follows (in thousands):
Years Ending |
|
|
| |
June 30 |
|
Maturities |
| |
|
|
|
| |
2017 |
|
$ |
1,291,763 |
|
2018 |
|
5,552 |
| |
2019 |
|
5,552 |
| |
2020 |
|
5,552 |
| |
2021 |
|
5,552 |
| |
Thereafter |
|
15,331 |
| |
|
|
|
| |
Total borrowings with accrued interest |
|
$ |
1,329,302 |
|
10. COMMITMENTS AND CONTINGENCIES
10.1 Contingencies and Legal ProceedingsContingencies correspond to conditions that exist as of the date of the combined financial statements that may result in a loss to the Thermal Assets, but which will only be resolved when one or more future events occur or fail to occur. Contingencies include outstanding lawsuits or claims for possible damages to third parties in the ordinary course of the Thermal Assets business, as well as third-party claims arising from disputes concerning legislative interpretation. Such contingent liabilities are assessed by management based on available evidence and legal opinion.
The Thermal Assets are defendants in various lawsuits and proceedings. The outcome of these lawsuits and proceedings cannot be predicted with certainty and could possibly have a material adverse effect on the Thermal Assets combined financial position, results of operations, and cash flows. The Thermal Assets believe they have meritorious defenses to these matters and intend to contest all such claims, and thus the timing of potential outflows from the Thermal Assets cannot be predicted with any certainty due to both the nature of legal proceedings in general, and the procedural status of such matters specifically. The Company has not assumed that it will be reimbursed for any potential outflows related to contingencies.
10.2 Contractual Commitments In the ordinary course of its activities, the Company enters into long-term contracts, some of which include take-or-pay clauses. These consist of firm commitments to purchase (sell) specified quantities of natural gas and related services, in exchange for a firm commitment from the other party to deliver (purchase) said quantities and services. The main future commitments arising from contracts entered into by the Company at June 30, 2016 and December 31, 2015 are as follows (in thousands):
|
|
June 30, |
|
Within |
|
1 to |
|
|
|
December 31, |
| |||||
|
|
2016 |
|
1 Year |
|
5 Years |
|
> 5 Years |
|
2015 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total commitments given (purchases) |
|
$ |
50,823 |
|
$ |
30,852 |
|
$ |
19,971 |
|
$ |
|
|
$ |
80,480 |
|
10.3 Operating Lease CommitmentsThe Company is contractually engaged in current lease obligations, whereby the Company has only lessee obligations in various arrangements. Payments made under operating leases are expensed on a straight-line basis over the lease term and are included in other operating expenses.
Operating Leases for which Thermal Assets Acts as LesseeColeto Creek Power, LP has an operating lease to supply the plant with water.
The following table presents future minimum lease payments as of June 30, 2016 under operating leases, which at inception had a non-cancelable term of more than one year (in thousands):
For the Year Ending |
|
|
| |
June 30, |
|
|
| |
|
|
|
| |
2017 |
|
$ |
823 |
|
2018 |
|
837 |
| |
2019 |
|
857 |
| |
2020 |
|
877 |
| |
2021 |
|
898 |
| |
Thereafter |
|
4,304 |
| |
Lease expense associated with the agreements were $0.2 million and $0.4 million for the three and six months ended June 30, 2016, respectively, as compared to $0.2 million and $0.4 million for the three and six months ended June 30, 2015.
11. SHARE-BASED COMPENSATION
Certain employees of the Company are eligible to participate in various share-based compensation awards. The shares granted or used for the basis of the awards are those of ENGIE. The plans will remain at the ENGIE level and will not go with the Company. The total expense related to these plans for the Company was $0.2 million and $0.4 million for the three and six months ended June 30, 2016, respectively, as compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2015. The expenses related to the plans were allocated based on headcount.
12. RELATED-PARTY TRANSACTIONS
All intercompany transactions and accounts within the Company have been eliminated. All affiliate transactions between the Company and GSENA and its subsidiaries have been included in these unaudited combined financial statements.
GSENA addresses cash flow needs by participating in a cash pool arrangement. The terms of the cash pool arrangement are determined by ENGIE. The cash pool provides for the subsidiaries of GSENA with excess funds to temporarily loan funds into the cash pool so that subsidiaries in need of funds can temporarily borrow from the pool. The Thermal Assets utilized this arrangement. In the three and six months ended June 30, 2016 and 2015, interest was earned at the LIBOR plus or minus a spread of basis points (bps) ranging from minus 7 bps to minus 9 bps if the subsidiary is a net lender to cash pool. Interest was paid at LIBOR plus a spread of bps ranging from 37 bps to 41 bps if the subsidiary is a net borrower from cash pool. On a combined basis, the Thermal Assets borrowed $230.9 million and $265.4 million at June 30, 2016 and December 31, 2015, respectively, which is included in the current portion of long-term debt. Interest expense related to the cash pool arrangement was $1.0 million and $1.9 million for the three and six months ended June 30, 2016, respectively, as compared to $0.8 million and $1.5 million for the three and six months ended June 30, 2015. The outstanding cash pool balance will be repaid using funding from a capital injection from GSENA before the close of the sale described in Note 13.
The Company sells power to GSEMNA. Thermal Assets recognized revenue of $208.0 million and $327.3 million for the three and six months ended June 30, 2016, respectively, as compared to $226.5 million and $434.9 million for the three and six months ended June 30, 2015. At June 30, 2016 and December 31, 2015 the receivable was $48.2 million and $45.2 million, respectively, related to these transactions.
The Company buys fuel and emission credits from GSEMNA. Thermal Assets recognized fuel expense of $105.1 million and $159.1 million for the three and six months ended June 30, 2016, respectively, as compared to $130.0 million and $251.9 million for the three and six months ended June 30, 2015. At June 30, 2016 and December 31, 2015 the payable was $3.6 million and $11.4 million, respectively, related to these transactions. At June 30, 2016 and December 31, 2015, the year to date change in inventory balance was $6.8 million and $8.6 million, respectively, related to these transactions.
The Company enters into contracts with GSEMNA that qualify as derivative instruments. Settlements related to these transactions were gains of $38.2 million and $78.0 million for the three and six months ended June 30, 2016, respectively, as compared to gains of $52.0 million and $77.8 million for the three and six months ended June 30, 2015. At June 30, 2016 and December 31, 2015 the assets from risk
management activities related to these transactions was $23.3 million and $85.6 million, respectively. At June 30, 2016 and December 31, 2015 the liabilities from risk management activities related to these transactions was $53.4 million and $9.9 million, respectively. As part of the sale described in Note 13, the Company reset prices on related party hedges executed for the purpose of mitigating earnings volatility in the Companys thermal plants and the Companys retained operations. The prices were reset on April 28, 2016 to reflect forward market prices as of January 29, 2016 for all hedges settling in or after May 2016. The impact of the price reset was a $48.7 million loss, which is recorded in Loss (income) on mark-to-market on commodity contracts as of three and six months ended June 30, 2016.
The Company buys fuel from GDF SUEZ Gas NA Holdings LLC (GSGNAH), a related party. The Company recognized fuel expense $0.3 million and $2.3 million for the three and six months ended June 30, 2016, respectively, as compared to $2.7 million and $9.8 million for the three and six months ended June 30, 2015. At June 30, 2016 and December 31, 2015, the payable related to these transactions was $0.0 million.
The Company has expenses paid on its behalf by GSENA Corporate, a related party. The Company recognized expense of $16.2 million and $37.0 million for the three and six months ended June 30, 2016, respectively, as compared to $16.9 million and $53.3 million for the three and six months ended June 30, 2015. At June 30, 2016 and December 31, 2015 the payable was $0.0 million and $0.1 million, respectively, related to these transactions.
See Note 9 for discussion of debt agreements with ENGIE and affiliates.
13. SUBSEQUENT EVENTS
On February 24, 2016, International Power, S.A. signed a Stock Purchase Agreement with Atlas Power Finance, LLC to sell GDF SUEZ Energy North America, Inc. and certain subsidiaries for $3.3 billion. The entities listed in Note 1 are included in the planned sale, which is expected to close in the fourth quarter of 2016.
Amounts recorded as Legal Contingency on the Thermal Assets Combined Balance Sheet are treated as Excluded Legal Proceedings under the Stock Purchase Agreement. The terms of the Stock Purchase Agreement provide that International Power, S.A. will indemnify Atlas Power Finance, LLC from and against any Losses based upon or resulting from the Excluded Legal Proceedings, up to the amount of the Base Purchase Price.
Subsequent events have been evaluated through August 5, 2016, the date these unaudited combined financial statements were issued and concluded that no additional subsequent events, other than as disclosed above and in Note 10, have occurred that would require recognition in the unaudited combined financial statements or disclosures in the notes to the unaudited combined financial statements.
******
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information (the Pro Forma Financial Information) sets forth selected historical consolidated financial information for Dynegy and gives effect to the Acquisition, the related financings, and the ECP Buyout as well as the previous Duke Midwest and EquiPower Acquisitions, all as described below. The historical data provided for the year ended December 31, 2015, and as of and for the six months ended June 30, 2016, are derived from our audited annual consolidated financial statements and unaudited interim consolidated financial statements included in Dynegys Annual Report on Form 10-K for the year ended December 31, 2015, and Quarterly Report on Form 10-Q for the six months ended June 30, 2016.
The unaudited pro forma condensed combined statements of operations are presented for the fiscal year ended December 31, 2015, and for the six months ended June 30, 2016. The unaudited pro forma condensed combined balance sheet is presented as of June 30, 2016. The Pro Forma Financial Information is provided for informational and illustrative purposes only and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes in Dynegys Annual Report on Form 10-K for the year ended December 31, 2015, and Dynegys Quarterly Report on Form 10-Q for the six months ended June 30, 2016, in addition to the financial statements of the GSENA Thermal Assets for the same periods included in Dynegys Current Report on Form 8-K filed on June 15, 2016 and elsewhere in this Current Report on Form 8-K. Additionally, the financial statements of Duke Midwest Generation Business (Duke Midwest) and the combined financial statements of EquiPower and its subsidiaries and Brayton and its subsidiary (collectively EquiPower) for the three months ended March 31, 2015, as included in Dynegys Current Report on Form 8-K filed on May 18, 2015, should be read in connection with the Pro Forma Financial Information.
The pro forma adjustments, as described in the notes to the Pro Forma Financial Information, are based on currently available information. Management believes such adjustments are reasonable, factually supportable and directly attributable to the events and transactions described below. The unaudited pro forma condensed combined balance sheet reflects the impact of the Acquisition and ECP Buyout and the related financing as if they had been completed on June 30, 2016. The unaudited pro forma condensed combined statements of operations give effect to the Acquisition, the related financing, and the ECP Buyout as well as the previous Duke Midwest and EquiPower Acquisitions as if they had been completed on January 1, 2015, and only include adjustments which have an ongoing impact. The Pro Forma Financial Information does not purport to represent what our actual consolidated results of operations or financial position would have been had the events and transactions occurred on the dates assumed, nor is it necessarily indicative of our future financial condition or consolidated results of operations.
The Pro Forma Financial Information gives effect to the following:
· The Acquisition. On February 24, 2016, Atlas Power, post ECP Buyout a wholly-owned subsidiary of Dynegy, entered into an acquisition agreement with GSENA and International Power, S.A., indirect subsidiaries of Engie S.A. (the Acquisition), pursuant to which Atlas Power will purchase GSENA (which at closing will consist solely of the GSENA Thermal Assets) from International Power S.A. for a purchase price of $3.3 billion, subject to customary adjustments.
· ECP Buyout. On June 27, 2016, a wholly-owned subsidiary of Dynegy acquired the 35 percent interest in Atlas Power (the ECP Buyout) held by certain affiliated investment funds of Energy Capital Partners III, LLC (the ECP Funds). As a result, Atlas Power became an indirect wholly owned subsidiary of Dynegy. In accordance with the agreement with Energy Capital Partners (ECP), Dynegy will pay ECP $375 million on the later of December 31, 2016 or three months after the closing of the Acquisition, subject to quarterly escalation up to a maximum of $468.5 million.
· Bond Offering. Dynegy intends to offer $500 million of senior notes to pay a portion of the ECP Buyout and to pay down a portion of its term loans. The Pro Forma Financial Information reflects the payment of $375 million, the full amount of the ECP Buyout, and repayment of $300 million on Dynegys term loans.
· Common Stock Issuance to ECP. Dynegy will sell 13,711,152 shares of its common stock for an aggregate purchase price of $150 million to the ECP Funds.
· Term Loan Facility. On June 27, 2016, a wholly-owned subsidiary of Dynegy entered into an incremental $2 billion term loan credit agreement (the Tranche C Term Loan), the proceeds of which have been escrowed until the closing of the Acquisition, in order to finance a portion of the purchase price of the Acquisition and pay related fees and expenses.
· Issuance of Tangible Equity Units. On June 21, 2016, Dynegy conducted a $460 million public offering of tangible equity units, or Units at $100 per Unit. Each Unit is comprised of a prepaid stock purchase contract and an amortizing note due July 1, 2019. The prepaid stock purchase contract is treated as equity and the amortizing notes are treated as debt. The earnings per share of Dynegy stock are diluted by this transaction. The basic earnings per share calculation includes the minimum number of shares to be delivered of 23.1 million pursuant to the related stock purchase contract. The diluted earnings per share calculation includes the number of shares expected to be delivered using the if-converted method.
· Previous Duke Midwest and EquiPower Acquisitions. Dynegy acquired Duke Midwest on April 2, 2015, and acquired EquiPower on April 1, 2015 (the Duke Midwest and EquiPower Acquisitions). Therefore, the results of operations of those acquisitions are only reflected in Dynegys historical consolidated statement of operations for the year ended December 31, 2015 from the respective acquisition closing dates. As a result, we have included adjustments to reflect the previous Duke Midwest and EquiPower Acquisitions as if they had occurred on January 1, 2015.
While Dynegy considers all of the intended transactions above to be probable, it is possible that any or all of the transactions may not occur. In the event the Acquisition does not close, Dynegy may re-assess its capital structure.
The Pro Forma Financial Information has been prepared using the acquisition method of accounting for business combinations under U.S. GAAP, whereby we are required to record the assets acquired and liabilities assumed in the Acquisition at their estimated fair values as of the closing date. The fair value adjustments associated with the assets and liabilities used in the preparation of the unaudited pro forma condensed combined financial statements included herein should be considered preliminary. Actual results could vary materially from the Pro Forma Financial Information. In addition, the adjustments related to the Acquisition do not reflect any of the synergies and cost reductions that may result.
DYNEGY INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
|
|
As of June 30, 2016 |
| |||||||||||||
|
|
($ in millions) |
| |||||||||||||
|
|
Dynegy |
|
Transaction |
|
GSENA Thermal Assets |
|
Acquisition |
|
Dynegy |
| |||||
|
|
As Reported |
|
Financing |
|
As Reported |
|
Adjustments |
|
As Adjusted |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
1,142 |
|
$ |
633 |
(a) |
$ |
|
|
$ |
(1,650 |
)(d) |
$ |
125 |
|
Restricted cash |
|
104 |
|
|
|
|
|
(70 |
)(e) |
34 |
| |||||
Accounts receivable, net |
|
392 |
|
|
|
|
|
48 |
(f) |
440 |
| |||||
Accounts receivable from affiliates |
|
|
|
|
|
48 |
|
(48 |
)(f) |
|
| |||||
Inventory |
|
520 |
|
|
|
109 |
|
|
|
629 |
| |||||
Assets from risk management activities |
|
64 |
|
|
|
18 |
|
|
|
82 |
| |||||
Intangible assets |
|
70 |
|
|
|
|
|
|
|
70 |
| |||||
Prepayments and other current assets |
|
149 |
|
|
|
139 |
|
|
|
288 |
| |||||
Total Current Assets |
|
2,441 |
|
633 |
|
314 |
|
(1,720 |
) |
1,668 |
| |||||
Property, plant, and equipment, net |
|
7,588 |
|
|
|
3,105 |
|
272 |
(g) |
10,965 |
| |||||
Investment in unconsolidated affiliate |
|
185 |
|
|
|
160 |
|
|
|
345 |
| |||||
Restricted cash |
|
2,000 |
|
|
|
|
|
(2,000 |
)(e) |
|
| |||||
Assets from risk management activities |
|
26 |
|
|
|
5 |
|
|
|
31 |
| |||||
Goodwill |
|
799 |
|
|
|
|
|
|
|
799 |
| |||||
Intangible assets |
|
34 |
|
|
|
14 |
|
|
|
48 |
| |||||
Other long-term assets |
|
89 |
|
|
|
|
|
|
|
89 |
| |||||
Total Assets |
|
$ |
13,162 |
|
$ |
633 |
|
$ |
3,598 |
|
$ |
(3,448 |
) |
$ |
13,945 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
286 |
|
$ |
|
|
$ |
32 |
|
$ |
8 |
(f) |
$ |
326 |
|
Accounts payable affiliates |
|
|
|
|
|
8 |
|
(8 |
)(f) |
|
| |||||
Legal contingency |
|
|
|
|
|
65 |
|
(65 |
)(h) |
|
| |||||
Accrued interest |
|
76 |
|
|
|
|
|
|
|
76 |
| |||||
Intangible liabilities |
|
45 |
|
|
|
|
|
|
|
45 |
| |||||
Accrued liabilities and other current liabilities |
|
119 |
|
|
|
33 |
|
|
|
152 |
| |||||
Liabilities from risk management activities |
|
37 |
|
|
|
44 |
|
|
|
81 |
| |||||
Asset retirement obligations |
|
45 |
|
|
|
|
|
|
|
45 |
| |||||
Debt, current portion |
|
141 |
|
|
|
1,292 |
|
(1,292 |
)(i) |
141 |
| |||||
Total Current Liabilities |
|
749 |
|
|
|
1,474 |
|
(1,357 |
) |
866 |
| |||||
Debt, long-term portion |
|
9,365 |
|
488 |
(b) |
38 |
|
(38 |
)(i) |
9,853 |
| |||||
Other Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Liabilities from risk management activities |
|
79 |
|
|
|
9 |
|
|
|
88 |
| |||||
Asset retirement obligations |
|
238 |
|
|
|
21 |
|
|
|
259 |
| |||||
Deferred income taxes |
|
38 |
|
|
|
309 |
|
(254 |
)(j) |
93 |
| |||||
Intangible liabilities |
|
45 |
|
|
|
|
|
|
|
45 |
| |||||
Other long-term liabilities |
|
184 |
|
|
|
|
|
|
|
184 |
| |||||
Total Liabilities |
|
10,698 |
|
488 |
|
1,851 |
|
(1,649 |
) |
11,388 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Equity |
|
2,464 |
|
145 |
(c) |
1,747 |
|
(1,799 |
)(k) |
2,557 |
| |||||
Total Liabilities and Equity |
|
$ |
13,162 |
|
$ |
633 |
|
$ |
3,598 |
|
$ |
(3,448 |
) |
$ |
13,945 |
|
DYNEGY INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
|
|
Six Months Ended June 30, 2016 |
| |||||||||||||
|
|
($ in millions) |
| |||||||||||||
|
|
Dynegy |
|
Transaction |
|
GSENA Thermal Assets |
|
Acquisition |
|
Dynegy |
| |||||
|
|
As Reported |
|
Financing |
|
As Reported |
|
Adjustments |
|
As Adjusted |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenues |
|
$ |
2,027 |
|
$ |
|
|
$ |
395 |
|
$ |
(107 |
)(m) |
2,315 |
| |
Cost of sales, excluding depreciation expense |
|
(1,038 |
) |
|
|
(182 |
) |
8 |
(n) |
(1,212 |
) | |||||
Gross margin |
|
989 |
|
|
|
213 |
|
(99 |
) |
1,103 |
| |||||
Operating and maintenance expense |
|
(477 |
) |
|
|
(54 |
) |
(14 |
)(o) |
(545 |
) | |||||
Depreciation expense |
|
(331 |
) |
|
|
(114 |
) |
30 |
(p) |
(415 |
) | |||||
Impairments |
|
(645 |
) |
|
|
(6 |
) |
|
|
(651 |
) | |||||
Mark-to-market loss |
|
|
|
|
|
(107 |
) |
107 |
(m) |
|
| |||||
Loss on sale of assets |
|
|
|
|
|
(9 |
) |
|
|
(9 |
) | |||||
General and administrative expense |
|
(76 |
) |
|
|
|
|
(19 |
)(q) |
(95 |
) | |||||
Acquisition and integration costs |
|
(1 |
) |
|
|
|
|
2 |
(r) |
1 |
| |||||
Other |
|
(16 |
) |
|
|
|
|
|
|
(16 |
) | |||||
Personnel costs |
|
|
|
|
|
(25 |
) |
25 |
(s) |
|
| |||||
Operating loss |
|
(557 |
) |
|
|
(102 |
) |
32 |
|
(627 |
) | |||||
Earnings from unconsolidated investments |
|
3 |
|
|
|
15 |
|
|
|
18 |
| |||||
Interest expense |
|
(283 |
) |
(82 |
) (l) |
(18 |
) |
18 |
(t) |
(365 |
) | |||||
Other income and expense, net |
|
31 |
|
|
|
|
|
|
|
31 |
| |||||
Loss before income taxes |
|
(806 |
) |
(82 |
) |
(105 |
) |
50 |
|
(943 |
) | |||||
Income tax benefit (expense) |
|
(7 |
) |
|
|
40 |
|
(38 |
)(u) |
(5 |
) | |||||
Net loss |
|
(813 |
) |
(82 |
) |
(65 |
) |
12 |
|
(948 |
) | |||||
Less: Net loss attributable to noncontrolling interest |
|
(2 |
) |
|
|
|
|
|
|
(2 |
) | |||||
Net loss attributable to Dynegy Inc. |
|
(811 |
) |
(82 |
) |
(65 |
) |
12 |
|
(946 |
) | |||||
Less: Dividends on preferred stock |
|
11 |
|
|
|
|
|
|
|
11 |
| |||||
Net loss attributable to Dynegy Inc. common stockholders |
|
$ |
(822 |
) |
$ |
(82 |
) |
$ |
(65 |
) |
$ |
12 |
|
$ |
(957 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic and diluted loss per share attributable to Dynegy Inc. common stockholders |
|
$ |
(6.97 |
) |
|
|
|
|
|
|
$ |
(6.21 |
)(v) | |||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic and diluted shares outstanding |
|
118 |
|
|
|
|
|
|
|
154 |
(v) |
DYNEGY INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
|
|
|
|
Year Ended December 31, 2015 |
| ||||||||||||||
|
|
|
|
($ in millions) |
| ||||||||||||||
|
|
Dynegy |
|
Duke Midwest |
|
Transaction |
|
GSENA Thermal Assets |
|
Acquisition |
|
Dynegy |
| ||||||
|
|
As Reported |
|
Acquisitions |
|
Financing |
|
As Reported |
|
Adjustments |
|
As Adjusted |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues |
|
$ |
3,870 |
|
$ |
981 |
(w) |
$ |
|
|
$ |
1,221 |
|
$ |
4 |
(m) |
6,076 |
| |
Cost of sales, excluding depreciation expense |
|
(2,028 |
) |
(564 |
)(x) |
|
|
(652 |
) |
20 |
(n) |
(3,224 |
) | ||||||
Gross margin |
|
1,842 |
|
417 |
|
|
|
569 |
|
24 |
|
2,852 |
| ||||||
Operating and maintenance expense |
|
(839 |
) |
(118 |
)(y) |
|
|
(135 |
) |
(19 |
)(o) |
(1,111 |
) | ||||||
Depreciation expense |
|
(587 |
) |
(120 |
)(z) |
|
|
(229 |
) |
60 |
(p) |
(876 |
) | ||||||
Impairments |
|
(99 |
) |
|
|
|
|
(576 |
) |
|
|
(675 |
) | ||||||
Mark-to-market income (loss), net |
|
|
|
|
|
|
|
4 |
|
(4 |
)(m) |
|
| ||||||
Gain (loss) on sale of assets |
|
(1 |
) |
4 |
(aa) |
|
|
(11 |
) |
|
|
(8 |
) | ||||||
General and administrative expense |
|
(128 |
) |
(9 |
)(bb) |
|
|
|
|
(51 |
)(q) |
(188 |
) | ||||||
Acquisition and integration costs |
|
(124 |
) |
|
|
|
|
|
|
86 |
(r) |
(38 |
) | ||||||
Personnel costs |
|
|
|
|
|
|
|
(50 |
) |
50 |
(s) |
|
| ||||||
Operating income (loss) |
|
64 |
|
174 |
|
|
|
(428 |
) |
146 |
|
(44 |
) | ||||||
Earnings from unconsolidated investments |
|
1 |
|
2 |
(cc) |
|
|
46 |
|
|
|
49 |
| ||||||
Interest expense |
|
(546 |
) |
(1 |
)(dd) |
(165 |
)(l) |
(58 |
) |
58 |
(t) |
(712 |
) | ||||||
Other income and expense, net |
|
54 |
|
1 |
(aa) |
|
|
|
|
|
|
55 |
| ||||||
Income (loss) before income taxes |
|
(427 |
) |
176 |
|
(165 |
) |
(440 |
) |
204 |
|
(652 |
) | ||||||
Income tax benefit (expense) |
|
474 |
|
|
(ee) |
|
|
(53 |
) |
43 |
(u) |
464 |
| ||||||
Net income (loss) |
|
47 |
|
176 |
|
(165 |
) |
(493 |
) |
247 |
|
(188 |
) | ||||||
Less: Net loss attributable to noncontrolling interest |
|
(3 |
) |
|
|
|
|
|
|
|
|
(3 |
) | ||||||
Net income (loss) attributable to Dynegy Inc. |
|
50 |
|
176 |
|
(165 |
) |
(493 |
) |
247 |
|
(185 |
) | ||||||
Less: Dividends on preferred stock |
|
22 |
|
|
|
|
|
|
|
|
|
22 |
| ||||||
Net income (loss) attributable to Dynegy Inc. common stockholders |
|
$ |
28 |
|
$ |
176 |
|
$ |
(165 |
) |
$ |
(493 |
) |
$ |
247 |
|
$ |
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic earnings (loss) per share attributable to Dynegy Inc. common stockholders |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
$ |
(1.28 |
)(v) | ||||
Diluted earnings (loss) per share attributable to Dynegy Inc. common stockholders |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
$ |
(1.28 |
)(v) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic shares outstanding |
|
125 |
|
|
|
|
|
|
|
|
|
162 |
(v) | ||||||
Diluted shares outstanding |
|
126 |
|
|
|
|
|
|
|
|
|
162 |
(v) |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Balance sheet adjustments:
Transaction Financing
a) Includes expected cash proceeds of:
· $500 million related to the senior notes;
· $366 million draw on our existing revolving credit facility; and
· $150 million related to the common stock issuance to the ECP Funds.
Less:
· $300 million related to repayment of a portion of our term loans; and
· $83 million of debt issuance costs, net of amounts incurred to date of $7 million.
b) Represents debt consisting of:
· $500 million related to the senior notes;
· $366 million draw on our existing revolving credit facility; and
· $5 million expense of a portion of unamortized debt discount and issuance costs related to the $300 million repayment of a portion of our term loans.
Less:
· $300 million related to repayment of a portion our term loans; and
· $83 million of debt issuance costs, net.
c) Represents $150 million related to the common stock to be issued to the ECP Funds, offset by a $5 million expense of unamortized debt discount and issuance costs noted in (b) above.
Acquisition Adjustments
d) Includes $3.312 billion of cash consideration for the Acquisition, $375 million related to the ECP Buyout, and $33 million in nonrecurring transaction costs, offset by the release of $2.070 billion of restricted cash noted in (e) below. The cash consideration of $3.312 billion represents the Base Purchase Price of $3.3 billion, adjusted for estimated closing adjustments of $12 million, net.
e) Represents the release from escrow of the $2 billion of proceeds from the Tranche C Term Loan and $70 million of related pre-funded interest and original issue discount, initially classified as non-current and current restricted cash, respectively.
f) Reflects the reclassification of GSENA Thermal Assets historical affiliate accounts receivable and accounts payable of $48 million and $8 million, respectively, to third party Accounts receivable and payable, respectively.
g) Represents the adjustment to reflect Property, plant, and equipment (PP&E) at its estimated fair value.
h) Reflects the removal of GSENA Thermal Assets historical legal contingency which is excluded from the Acquisition.
i) Reflects the removal of GSENA Thermal Assets historical debt with affiliates which is excluded from the Acquisition.
j) Reflects an additional long-term deferred tax liability of $102 million as part of the purchase price allocation offset by a $356 million partial release of Dynegys valuation allowance as a result of the Acquisition.
k) Reflects an adjustment to remove GSENA Thermal Assets historical equity of $1.747 billion, pay $375 million related to the ECP Buyout, and record the transaction costs of $33 million noted in (d) above, offset by a tax benefit of $356 million from the partial release of the valuation allowance on Dynegys deferred tax assets noted in (j) above.
Statement of operations adjustments:
Transaction Financing
l) Reflects an estimated interest expense of (i) 5.2% for the $2 billion Tranche C Term Loan, (ii) 7.0% for the $87 million debt portion of the Units, (iii) 8.0% for the $500 million senior notes, (iv) 5.1% for the $366 million draw on the revolving credit facility, and (v) amortization of $90 million debt issuance costs associated with these debt balances over an estimated average life of 7 years, offset by (vi) elimination of interest expense of 5.1% for the $300 million repayment of a portion of our term loans, and (vii) reduction in the unutilized commitment fee of 0.375% related to the $366 million draw on the revolving credit facility. An increase or decrease of 0.125% in the interest rate on the net additional indebtedness of $2.653 billion would result in a corresponding increase or decrease of $3.3 million in interest on an annual basis, or a corresponding increase or decrease of $0.8 million in interest on a quarterly basis.
Acquisition Adjustments
m) Represents the reclassification of GSENA Thermal Assets historical mark-to-market on commodity contracts to Revenues to conform to Dynegys presentation.
n) Represents the reclassification of $8 million and $20 million of GSENA Thermal Assets historical Cost of sales, excluding depreciation expense, for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively to Operating and maintenance (O&M) expense to conform to Dynegys presentation.
o) Represents the reclassification of GSENA Thermal Assets historical $8 million of Cost of sales and $25 million of personnel costs noted in (n) above and (s) below, respectively, to O&M expense, offset by the reclassification of $19 million of O&M expenses to General and administrative (G&A) expense to conform to Dynegys presentation for the six months ended June 30, 2016. Represents the reclassification of $20 million of GSENA Thermal Assets historical Cost of sales and $49 million of personnel costs noted in (n) above and (s) below, respectively, to O&M expense, offset by the reclassification of $50 million of O&M expense to G&A expense to conform to Dynegys presentation for the year ended December 31, 2015.
p) Reflects an adjustment to decrease GSENA Thermal Assets historical depreciation expense as a result of the fair value adjustment to PP&E, using the straight-line method of depreciation and estimated remaining useful lives of 20 years.
q) Represents the reclassification of $19 million of GSENA Thermal Assets historical O&M expense to G&A expense to conform to Dynegys presentation for the six months ended June 30, 2016. Represents the reclassification of $50 million of GSENA Thermal Assets historical O&M expense and personnel costs of $1 million noted in (s) below to G&A expense to conform to Dynegys presentation for the year ended December 31, 2015.
r) Represents the removal of $2 million and $86 million of Dynegys acquisition costs for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively, which are directly attributable to the Acquisition and the Duke Midwest and EquiPower Acquisitions, respectively.
s) Represents the reclassification of $25 million of GSENA Thermal Assets historical personnel costs to O&M expense to conform to Dynegys presentation for the six months ended June 30, 2016. Represents the reclassification of $50 million of GSENA Thermal Assets historical personnel costs, including $49 million to O&M expense and $1 million to G&A expense, to conform to Dynegys presentation for the year ended December 31, 2015.
t) Represents an adjustment to remove GSENA Thermal Assets historical interest expense.
u) Reflects the removal of GSENA Thermal Assets historical income tax expense plus an adjustment to reflect the expected income tax provision based upon a combined federal and state statutory rate of approximately 38%.
v) Reflects the addition of 13,711,152 shares of Dynegy common stock issued to the ECP Funds and 23,092,460 shares of common stock to be issued related to the Units. An additional 5,425,700 common shares could be issued related to the Units; however, no adjustment for these additional shares is reflected in the pro forma diluted earnings per share calculations as it is antidilutive.
Duke Midwest and EquiPower Acquisitions
w) Represents Duke Midwests and EquiPowers historical Revenues of $543 million and $464 million, respectively for the period ended March 31, 2015, less an adjustment of $26 million to reflect amortization of identifiable intangible assets consisting of in-the-money capacity contracts and coal contracts.
x) Represents Duke Midwests and EquiPowers historical Cost of sales of $286 million and $298 million, respectively for the period ended March 31, 2015, less an adjustment of $20 million to reflect amortization of identifiable intangible liabilities consisting of out-the-money capacity contracts, coal contracts, and coal and gas transportation contracts.
y) Represents Duke Midwests and EquiPowers historical O&M expense of $69 million and $46 million, respectively, in addition to Duke Midwests historical Property and other taxes of $7 million and EquiPowers historical Taxes other than income taxes of $5 million for the period ended March 31, 2015, less an adjustment to reclassify $9 million of Duke Midwests historical O&M expense to G&A expense to conform to Dynegys presentation.
z) Represents Duke Midwests and EquiPowers historical Depreciation and amortization expense of $40 million and $26 million, respectively for the period ended March 31, 2015, plus an adjustment of $54 million to depreciation expense as a result of the fair value adjustment to net Property, plant and equipment.
aa) Reflects Duke Midwests historical amount for the period ended March 31, 2015.
bb) Reflects an adjustment to reclassify $9 million of Duke Midwests historical O&M expense for the period ended March 31, 2015 noted in (y) above to G&A expense to conform to Dynegys presentation.
cc) Reflects EquiPowers historical amount for the period ended March 31, 2015.
dd) Reflects EquiPowers historical Interest expense of $21 million and mark-to-market on interest rate derivative contracts of $7 million for the period ended March 31, 2015, less an adjustment to remove $27 million of interest expense related to historical debt and mark-to-market interest rate swaps that were not assumed in the EquiPower acquisition. The remaining amount represents interest expense related to an inventory financing agreement.
ee) Represents the removal of Duke Midwests and EquiPowers historical Income tax expense of $48 million and $26 million, respectively for the period ended March 31, 2015. We maintain a valuation allowance against our deferred tax assets as there is not sufficient evidence to overcome our historical cumulative losses to conclude that it is more-likely-than-not our net deferred tax assets can be realized in the future. Therefore we did not estimate that we would be able to realize the associated tax benefit. In addition, Dynegy expects to utilize its historical net operating losses, and therefore no future tax expense was expected.
Exhibit 99.3
NEWS RELEASE |
NR16-31
FOR IMMEDIATE RELEASE
DYNEGY LAUNCHES SENIOR NOTES OFFERING
HOUSTON, TX (October 5, 2016) Dynegy Inc. (NYSE: DYN) is launching an offering of $500 million in aggregate principal amount of senior notes due 2025 in a private placement. Dynegy intends to use the proceeds of the offering, together with the proceeds from the previously announced sale of Elwood Energy LLC and related entities and cash-on-hand, to fund (i) the buyout price owed to Energy Capital Partners III, LLC (ECP) in connection with Dynegys buyout of ECPs interest in the joint venture created to consummate the previously announced acquisition of ownership interests in certain North American power generation assets from International Power, S.A., an indirect subsidiary of ENGIE S.A. and (ii) a partial repayment of the outstanding obligations under Dynegys term loans and to pay related fees and expenses.
The Notes are being offered in a private placement transaction to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and outside the United States in accordance with Regulation S under the Securities Act. The Notes have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
This news release does not constitute an offer to sell, or a solicitation of an offer to buy, any security, nor shall there be any sale of any security in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
ABOUT DYNEGY
At Dynegy, we generate more than just power for our customers. We are committed to being a leader in the electricity sector. Throughout the Midwest and Northeast, Dynegy operates power generating facilities capable of producing nearly 26,000 megawatts of electricityor enough energy to power about 21 million American homes. Were proud of what we do, but its about much more than just output. Were always striving to generate power safely and responsibly for our wholesale and retail electricity customers who depend on that energy to grow and thrive.
FORWARD-LOOKING STATEMENT
This news release contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as forward-looking statements, particularly those statements concerning expectations regarding the use of proceeds from the offering. Discussion of risks and uncertainties that could cause actual results to differ materially from current projections, forecasts, estimates and expectations of Dynegy is contained in Dynegys filings with the Securities and Exchange Commission. Specifically, Dynegy makes reference to, and incorporates herein by reference, the section entitled Risk Factors in its 2015 Form 10-K and its 10-Q for the quarterly period ended March 31, 2016. Any or all of Dynegys forward-looking statements may turn out to be wrong. They can be affected
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