Entergy 2004 Annual Report Download - page 72

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Entergy Corporation and Subsidiaries 2004
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
The annual long-term debt maturities (excluding lease
obligations) for debt outstanding as of December 31, 2004, for
the next five years are as follows (in thousands):
2005 2006 2007 2008 2009
$467,298 $75,896 $199,539 $747,246 $512,584
In November 2000, Entergy’s Non-Utility Nuclear business
purchased the FitzPatrick and Indian Point 3 power plants in a
seller-financed transaction. Entergy issued notes to New York
Power Authority (NYPA) with seven annual installments of
approximately $108 million commencing one year from the date of
the closing, and eight annual installments of $20 million
commencing eight years from the date of the closing. These notes
do not have a stated interest rate, but have an implicit interest rate
of 4.8%. In accordance with the purchase agreement with NYPA,
the purchase of Indian Point 2 in 2001 resulted in Entergy’s Non-
Utility Nuclear business becoming liable to NYPA for an
additional $10 million per year for 10 years, beginning in September
2003. This liability was recorded upon the purchase of Indian Point
2 in September 2001, and is included in the note payable to NYPA
balance above. In July 2003, a payment of $102 million was made
prior to maturity on the note payable to NYPA. Under a provision
in a letter of credit supporting these notes, if certain of the
domestic utility companies or System Energy were to default on
other indebtedness, Entergy could be required to post collateral to
support the letter of credit.
Covenants in the Entergy Corporation notes require it to
maintain a consolidated debt ratio of 65% or less of its total
capitalization. If Entergy’s debt ratio exceeds this limit, or if
Entergyor certain of the domestic utilitycompanies default on
other indebtedness or arein bankruptcy or insolvency proceedings,
an acceleration of the notes’ maturity dates may occur.
The long-term securities issuances of Entergy Corporation,
Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and
System Energy also are limited to amounts authorized by the SEC.
Under its current SEC order, and without further authorization,
EntergyCorporation can incur additional indebtedness or issue
other securities unless (a) it and each of its public utility subsidiaries
maintain a common equity ratio of at least 30% and (b) the
securityto be issued (if rated) and all outstanding securities of
Entergy Corporation that are rated, are rated investment grade by
at least one nationally recognized statistical rating agency. Under
their current SEC orders, and without further authorization,
Entergy Gulf States, Entergy Louisiana, and Entergy Mississippi
cannot incur additional indebtedness or issue other securities unless
(a) the issuer and EntergyCorporation maintains a common
equity ratio of at least 30% and (b) the security to be issued (if rated)
and all outstanding securities of the issuer (other than preferred
stockof Entergy Gulf States), as well as all outstanding securities of
EntergyCorporationthat arerated, are rated investment grade.
Junior Subordinated Deferrable Interest
Debentures and Implementation of FIN 46
Entergy implemented FASB Interpretation No. 46, “Consolidation
of Variable Interest Entities” effective December 31, 2003. FIN 46
requires existing unconsolidated variable interest entities (VIEs) to
be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among their investors. VIEs, generally, are
entities that do not have sufficient equity to permit the entity to
finance its operations without additional financial support from its
equity interest holders and/or the group of equity interest holders
are collectively not able to exercise control over the entity. The
primary beneficiary is the party that absorbs a majority of the
entity’s expected losses, receives a majority of its expected residual
returns, or both as a result of holding the variable interest. A
company may have an interest in a VIE through ownership or other
contractual rights or obligations.
Entergy Louisiana Capital I, Entergy Arkansas Capital I, and
Entergy Gulf States Capital I (Trusts) were established as financing
subsidiaries of Entergy Louisiana, Entergy Arkansas, and Entergy
Gulf States, respectively, (the parent company or companies,
collectively) for the purposes of issuing common and preferred
securities. The Trusts issued Cumulative Quarterly Income
Preferred Securities (Preferred Securities) to the public and issued
common securities to their parent companies. Proceeds from such
issues were used to purchase junior subordinated deferrable interest
debentures (Debentures) fromthe parent company.The Debentures
held by each Trust are its only assets. Each Trust uses interest
payments received onthe Debentures owned by it to make cash
distributions onthe Preferred Securities and common securities.
The parent companies fully and unconditionally guaranteed
payment of distributions onthe Preferred Securities issued by
the respectiveTrusts. Prior to the application of FIN 46, each
parent company consolidated its interest in its Trust. Because each
parent company’s share of expected losses of its Trust is limited to
its investment in its Trust, the parent companies are not considered
the primary beneficiaries and therefore de-consolidated their
interest in the Trusts upon application of FIN 46 with no
significant impacts to the financial statements. The parent
companies’ investment in the Trusts and the Debentures issued by
each parent company are included in Other Property and
Investments and Long-TermDebt, respectively.
Capital Funds Agreement
Pursuant to an agreement with certain creditors, Entergy
Corporation has agreed to supply System Energy with sufficient
capital to:
•maintain System Energy’sequity capital at a minimum of 35%
of its total capitalization (excluding short-term debt);
•permit the continued commercial operation of Grand Gulf 1;
•payin fullall System Energyindebtedness for borrowed money
when due; and
•enable System Energyto make payments on specific System
Energydebt, under supplements to the agreement assigning
System Energy’s rights in the agreement as security for the
specific debt.