Accounting & Tax

Dynegy Hikes Impairment by $265 Million

Restatement stems from goodwill charge linked to sale of Illinois Power and deferred income taxes.
Stephen TaubSeptember 24, 2004

In a move that would add $265 million to a previously stated $242 million impairment charge, Dynegy Inc. will restate its results for 2003 and the first two quarters of 2004.

The changes stem from a goodwill impairment charge associated with the pending sale of Illinois Power Company and deferred income-tax accounts, according to the company.

The embattled Houston-based energy company gave assurances that the revision would not affect the company’s cash and liquidity positions or previously announced 2004 guidance estimates.

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Dynegy recently disclosed a $242 million goodwill impairment, taken to reflect the fair value of Illinois Power, and recorded in the fourth quarter of 2003.

Recently, as it was preparing to record the Illinois Power sale, however, the company identified a deferred-tax asset that was excluded from its fourth quarter 2003 impairment analysis.

Dynegy said the exclusion of the asset understated the net book value of the assets. As a result, the company understated the impairment that had been recorded in the fourth quarter 2003.

After consulting with its independent auditor, PricewaterhouseCoopers, the company decided to increase the after-tax impairment charge by $259 million for the fourth quarter of 2003, the company pointed out.

Other after-tax impairments of $4 million and $2 million should have been reflected in the first and second quarters of 2004, respectively, according to the company.

As a result of an ongoing evaluation of its tax accounting and reconciliation controls and processes, including an income-tax review initiative, Dynegy must also make adjustments to its deferred income tax accounts for periods before 2004.

Since the company has not completed its analysis of all deferred income-tax items, Dynegy noted, it’s currently unable to determine the amount of the adjustments and the periods affected with certainty. “However, Dynegy does anticipate, based on its ongoing review of these tax items, that these adjustments will reduce the company’s deferred tax liability reflected on the balance sheet,” according to the company.