Xcel Energy 2005 Annual Report Download - page 52

Accounts Receivable and Allowance for Uncollectibles Accounts receivable are stated at the actual billed amount net of write-offs and
allowance for uncollectibles. Xcel Energy establishes an allowance for uncollectibles based on a reserve policy that reflects its expected
exposure to the credit risk of customers.
Reclassifications Certain items in the statements of operations, balance sheets and the statements of cash flows have been reclassified
from prior-period presentation to conform to the 2005 presentation. These reclassifications had no effect on net income or earnings per
share. The reclassifications were primarily related to the presentation of UE as discontinued operations following the announcement of its
sale in March 2005, as discussed later. In addition, fees collected from customers on behalf of governmental agencies were reclassified to be
presented net of the related payments made to the agencies.
2. DISCONTINUED OPERATIONS
Xcel Energy classified and accounted for certain assets as held for sale at Dec. 31, 2005 and 2004. Assets held for sale are valued on an
asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, management considered
cash flow analyses, bids and offers related to those assets and businesses. Assets held for sale are not depreciated.
Results of operations for divested businesses and the results of businesses held for sale are reported for all periods presented on a net basis
as discontinued operations. In addition, the assets and liabilities of the businesses divested and held for sale in 2005 and 2004 have been
reclassified to assets and liabilities held for sale in the accompanying Balance Sheet.
REGULATED UTILITY SEGMENT
During January 2004, Xcel Energy reached an agreement to sell its regulated electric and natural gas subsidiary, Cheyenne. Black Hills Corp.
purchased all the common stock of Cheyenne, including the assumption of outstanding debt of approximately $25 million, for approximately
$90 million, plus a working capital adjustment finalized in 2005. The sale was completed on Jan. 21, 2005, and resulted in an after-tax loss
of approximately $13 million, or 3 cents per share, which was accrued at Dec. 31, 2004.
During 2003, Xcel Energy completed the sale of two subsidiaries in its regulated natural gas utility segment: Viking and BMG. After-tax disposal
gains of $23.3 million, or 6 cents per share, were recorded for the natural gas utility segment, primarily related to the sale of Viking.
NRG SEGMENT
Change in Accounting for NRG in 2003 Prior to NRG’s bankruptcy filing in May 2003, Xcel Energy accounted for NRG as a consolidated
subsidiary. However, as a result of NRG’s bankruptcy filing, Xcel Energy no longer had the ability to control the operations of NRG. Accordingly,
effective as of the bankruptcy filing date, Xcel Energy ceased the consolidation of NRG and began accounting for its investment in NRG using
the equity method in accordance with Accounting Principles Board Opinion No. 18 – “ The Equity Method of Accounting for Investments in
Common Stock.” After changing to the equity method, Xcel Energy was limited in the amount of NRG’s losses subsequent to the bankruptcy
date that it was required to record. In accordance with these limitations under the equity method, Xcel Energy stopped recognizing equity in
the losses of NRG subsequent to the quarter ended June 30, 2003. These limitations provided for loss recognition by Xcel Energy until its
investment in NRG was written off to zero, with further loss recognition to continue if its financial commitments to NRG existed beyond
amounts already invested.
Prior to NRG entering bankruptcy, Xcel Energy recorded more losses than the limitations provided for as of June 30, 2003. Upon Xcel Energy’s
divestiture of its interest in NRG in December 2003, the NRG losses recorded in excess of Xcel Energy’s investment in and financial commitment
to NRG were reversed. This resulted in an adjustment of the total NRG losses recorded for the year 2003 to $251 million. Xcel Energy’s share
of NRG’s results for all 2003 periods is reported in a single line item, Equity in Losses of NRG, as a component of discontinued operations.
NRG’s 2003 results do reflect some effects of asset impairments, as discussed below.
NRG Asset Impairments In 2002, NRG experienced credit-rating downgrades, defaults under numerous credit agreements, increased
collateral requirements and reduced liquidity. These events resulted in impairment reviews of a number of NRG assets. NRG completed an
analysis of the recoverability of the asset-carrying values of its projects each period, factoring in the probability weighting of different courses
of action available to NRG, given its financial position and liquidity constraints at the time of each analysis. This approach was applied consistently
to asset groups with similar uncertainties and cash flow streams. As a result, NRG determined that many of its construction projects and its
operational projects became impaired during 2002 and 2003 and required being written down to fair market value. In applying those provisions,
NRG management considered cash flow analyses, bids and offers related to those projects.
NONREGULATED SUBSIDIARIES –ALL OTHER SEGMENT
Utility Engineering In March 2005, Xcel Energy agreed to sell its nonregulated subsidiary Utility Engineering Corp. (UE), to Zachry Group,
Inc. In April 2005, Zachry acquired all of the outstanding shares of UE. Xcel Energy recorded an insignificant loss in the first quarter of 2005
as a result of the transaction. In August 2005, Xcel Energy’s board of directors approved management’s plan to pursue the sale of Quixx
Corp., a former subsidiary of UE that partners in cogeneration projects, and was not included in the sale of UE to Zachry.
Seren On Sept. 27, 2004, Xcel Energy’s board of directors approved management’s plan to pursue the sale of Seren Innovations, Inc., a
wholly owned broadband subsidiary.
On May 25, 2005, Xcel Energy reached an agreement to sell Seren’s California assets to WaveDivision Holdings, LLC, which was completed
in November 2005. In July 2005, Xcel Energy reached an agreement to sell Seren’s Minnesota assets to Charter Communications, which was
completed in January 2006. An estimated after-tax impairment charge, including disposition costs, of $143 million, or 34 cents per share,
50 XCEL ENERGY 2005 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS