Dynegy Announces First Quarter 2009 Financial Results

Dynegy Inc. (NYSE: DYN) today announced that Adjusted EBITDA for the first quarter 2009 was $198 million, compared to $237 million for the first quarter 2008. The decrease in Adjusted EBITDA is largely related to lower realized power prices year-over-year. The company also reported a net loss attributable to Dynegy Inc. of $335 million or ($0.40) per diluted share for the first quarter 2009, compared to a net loss of $152 million or ($0.18) per diluted share for the first quarter 2008. The increased net loss in the first quarter 2009 was primarily driven by $433 million in nondeductible goodwill impairment charges, which were incurred to align the book values of assets with market values. This was partially offset by $169 million in mark-to-market gains ($105 million after tax) related to the impact of falling power prices on certain forward power sales, compared to mark-to-market losses of $284 million ($173 million after tax) in the first quarter 2008.

"During the first quarter 2009, our financial results were impacted significantly by a steep decline in power prices. However, despite the economic downturn, our overall production volumes increased almost 10 percent year-over-year, which partially offset the impact of declining power prices,” said Bruce A. Williamson, Chairman, President and Chief Executive Officer of Dynegy Inc. "This increase in volumes was due to stronger run-times from our Midwest and Northeast natural gas combined-cycle facilities, as well as our dual-fuel plant in New York, and points to the benefits of our diverse portfolio and our focus on being in position to capture market opportunities.

"Given the weak near-term pricing outlook, we have increased our contracted positions for expected generation volumes to over 95 percent for 2009,” Williamson added. "This strategy is intended to protect cash flows and add predictability to near-term earnings, while leaving us relatively open in the longer term to take advantage of expected stronger pricing. In support of this strategy is a capital structure that includes available liquidity of approximately $2.1 billion, with cash-on-hand of $829 million, and no significant near-term debt maturities.”

A comparison of the company’s first quarter results period-over-period is set forth in the table below (in millions of dollars, except per share amounts). The non-GAAP financial measures of EBITDA, Adjusted EBITDA, Adjusted Cash Flow from Operations and Adjusted Free Cash Flow are used by management to evaluate Dynegy's business on an ongoing basis. Definitions, purposes and uses of such non-GAAP measures are included in Item 2.02 to our Current Report on Form 8-K filed with the SEC on May 7, 2009, which is available on the company’s website at www.dynegy.com. Reconciliations of these measures to the most directly comparable GAAP measures are included in the accompanying schedules to this news release.

Power Generation

Dynegy’s diversified power generation business includes three business segments: the Midwest, with approximately 8,400 megawatts of generation capacity; the West, with approximately 5,500 megawatts of generation capacity; and the Northeast, with approximately 3,800 megawatts of generation capacity.

Adjusted EBITDA from the power generation segments was $229 million for the first quarter 2009, compared to $248 million for the first quarter 2008.

Management does not allocate interest expense and income taxes on a segment level and therefore uses operating income as the most directly comparable GAAP measure. The operating loss from the power generation segments was $130 million for the first quarter 2009 compared to an operating loss of $126 million for the first quarter 2008. The operating loss during the first quarter 2009 included $433 million in goodwill impairment charges allocated across the company’s three business segments. The goodwill impairment charges resulted from an impairment test that compared book values to market values. In light of the significant drop in forward power prices, further deterioration in economic conditions and a continued decline in the company’s market capitalization, we concluded that the fair value of the company had declined, resulting in a write-off of goodwill. These goodwill impairment charges were partially offset by $169 million in mark-to-market gains. During the first quarter 2008, the power generation segments had mark-to-market losses of $284 million.

The following factors influenced the quarter’s results as compared to the first quarter 2008. Please read the accompanying schedules to this news release for additional information.

• Midwest – Lower realized power prices, partially offset by increased volumes due to lower natural gas costs and higher market-implied heat rates that benefited natural gas combined-cycle facilities.
• West – Milder weather and compressed realized spark spreads led to lower volumes.
• Northeast – Lower realized power prices, partially offset by increased volumes due to weather-driven demand and higher market-implied heat rates that benefited the company’s fuel oil-fired facility and natural gas combined-cycle facilities.

Adjusted Cash Flow from Operations for generation was $258 million for the three months ended March 31, 2009, while maintenance and environmental capital expenditures were $28 million and $82 million, respectively. Adjusted Cash Flow from Operations for generation was $236 million for the three months ended March 31, 2008, while maintenance and environmental capital expenditures were $17 million and $46 million, respectively. Adjusted Free Cash Flow from the power generation business was $148 million for the three months ended March 31, 2009, as compared to $173 million for the three months ended March 31, 2008.

On a GAAP basis, Cash Flow from Operations for generation was $255 million for the three months ended March 31, 2009, and $234 million for the three months ended March 31, 2008. Net cash used in investing activities was $161 million for the three months ended March 31, 2009, and $95 million for the three months ended March 31, 2008. Net cash provided by financing activities was $25 million for the three months ended March 31, 2009, and $50 million for the three months ended March 31, 2008.

Other

Other primarily consists of general and administrative expenses, partially offset by interest income. In Other, the company reported a $31 million Adjusted loss before interest, taxes and depreciation and amortization ($37 million operating loss) during the first quarter 2009, compared to an Adjusted loss of $11 million ($24 million operating loss) during the first quarter 2008. During the first quarter 2008, Other included the release of a $9 million liability associated with an assignment of a natural gas transportation contract, as well as the release of an $8 million sales and use tax liability.

Consolidated Interest Expense and Taxes

The company’s interest expense totaled $98 million for the first quarter 2009, compared to $109 million for the first quarter 2008. The lower interest expense in 2009 was primarily due to lower interest rates. The first quarter 2009 income tax expense from continuing operations was $85 million, compared to an income tax benefit from continuing operations of $96 million for the first quarter 2008.

Liquidity

As of March 31, 2009, Dynegy’s liquidity was approximately $1.9 billion. This consisted of $722 million in cash on hand and approximately $1.2 billion in unused availability under the company’s credit facility.

As of May 1, 2009, liquidity increased to approximately $2.1 billion, which consisted of $829 million in cash on hand and approximately $1.3 billion in unused availability under the company’s credit facility. The increase in cash on hand reflects the proceeds from the completed sale of the Heard County facility on April 30.

Cash Flow

Adjusted Cash Flow from Operations totaled an inflow of $188 million for the three months ended March 31, 2009. There was a cash inflow of $258 million from the power generation business, offset by outflows of $70 million in Other resulting primarily from interest payments and general and administrative expenses, net of interest income.

For the three months ended March 31, 2009, Dynegy’s Adjusted Free Cash Flow was an inflow of $76 million. Capital expenditures included maintenance and environmental capital expenditures of $30 million and $82 million, respectively, the latter of which reflects the company’s continuing investment in environmental upgrades.

For the three months ended March 31, 2008, Dynegy’s Adjusted Free Cash Flow was an inflow of $99 million. This consisted of Adjusted Cash Flow from Operations of $165 million, offset by maintenance and environmental capital expenditures of $20 million and $46 million, respectively.

On a GAAP basis, Cash Flow from Operations for the three months ended March 31, 2009 and March 31, 2008 was $165 million and $146 million, respectively. Net cash used in investing activities for the three months ended March 31, 2009 and March 31, 2008 was $161 million and $95 million, respectively. Net cash provided by financing activities for the three months ended March 31, 2009 and March 31, 2008 was $25 million and $50 million, respectively.

2009 Guidance Estimates

Guidance ranges have been reduced from the previous ranges presented on February 26, 2009, primarily to reflect lower commodity and capacity prices, the accelerated timing of a Moss Landing plant outage from 2010 to 2009 and basis differentials, partially offset by the expansion of heat rates. The acceleration of the plant outage to 2009 also increased maintenance capital expenditures.

The estimates are:

• A range of Adjusted EBITDA of $680 million to $740 million;
• A range of Adjusted Cash Flow from Operations of $140 million to $200 million; and
• A range of Adjusted Free Cash Flow of $(360) million to $(300) million.

The guidance estimates for the most directly comparable measures on a GAAP basis include:

• A range of Net Loss of $(520) million to $(480) million;
• A range of Cash Flow from Operations of $110 million to $170 million;
• Net Cash used in Investing Activities of $(230) million; and
• Net Cash provided by Financing Activities of $25 million.

These estimates reflect quoted forward commodity price curves as of April 7, 2009. These estimates also reflect assumptions regarding, among other things, sales volumes, fuel costs and other operational activities.

Investor Conference Call/Web Cast

Dynegy will discuss its first quarter 2009 financial results during an investor conference call and web cast today, May 7, 2009, at 9 a.m. ET/8 a.m. CT. Participants may access the web cast and the related presentation materials in the "Investor Relations” section of www.dynegy.com.

About Dynegy Inc.

Through its subsidiaries, Dynegy Inc. produces and sells electric energy, capacity and ancillary services in key U.S. markets. The power generation portfolio consists of approximately 17,700 megawatts of baseload, intermediate and peaking power plants fueled by a mix of natural gas, coal and fuel oil.

Certain statements included in this news release are intended as "forward-looking statements.” These statements include assumptions, expectations, predictions, intentions or beliefs about future events, particularly the statements concerning: any statements regarding anticipated earnings or cash flows; Dynegy’s commercial strategy; and Dynegy’s estimated financial results for 2009. Historically, Dynegy’s performance has deviated, in some cases materially, from its cash flow and earnings estimates and Dynegy cautions that actual future results may vary materially from those expressed or implied in any forward-looking statements. While Dynegy would expect to update these estimates on a quarterly basis, it does not intend to update these estimates during any quarter because definitive information regarding its quarterly financial results is not available until after the books for the quarter have been closed. Accordingly, Dynegy expects to provide updates only after it has closed the books and reported the results for a particular quarter, or otherwise as may be required by applicable law.

Dynegy cautions that actual future results may vary materially from those expressed or implied in any forward-looking statements. Specifically, Dynegy cautions that: market fundamentals and trends may not be to Dynegy’s benefit or as Dynegy anticipates; Dynegy’s capital resources and available liquidity may be negatively impacted by market forces beyond its control, reducing capital available for discretionary or other purposes; Dynegy’s asset base may not perform at the level anticipated; changes in commodity prices for fuel and power may negatively impact Dynegy and impact its ability to continue to satisfy its credit agreement financial covenants; and uncertainties exist regarding environmental regulations, litigation and other legal, legislative or regulatory developments and their potential impacts on Dynegy’s businesses. More information about the risks and uncertainties relating to these forward-looking statements is found in Dynegy’s SEC filings, including its Annual Report on Form 10-K for the year ended December 31, 2008 and its Current Reports, which are available free of charge on the SEC’s web site at www.sec.gov or at www.dynegy.com. Dynegy expressly disclaims any obligation to update any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date of this release, except as otherwise required by applicable law. DYNC