Entergy 2005 Annual Report Download - page 97

ENTERGY CORPORATION AND SUBSIDIARIES 2005
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NOTES to CONSOLIDATED FINANCIAL STATEMENTS continuedNOTES to CONSOLIDATED FINANCIAL STATEMENTS continued
The following is a summary of combined financial information
reported by Entergy’s equity method investees (in thousands):
2005 2004 2003
Income Statement Items
Operating revenues $ 721,410 $ 270,177 $585,404
Operating income $ 9,526 $(111,535) $207,301
Net income $ 1,592 $ 739,858(1) $172,595
Balance Sheet Items
Current assets $ 415,586 $ 540,386
Non-current assets $1,498,465 $ 418,038
Current liabilities $ 544,030 $ 180,009
Non-current liabilities $ 999,346 $ 463,899
(1) Includes gains recorded by Entergy-Koch on the sales of its energy trading and
pipeline businesses.
RELATED-PARTY TRANSACTIONS AND GUARANTEES
See Note 16 to the consolidated financial statements for a discussion
of the Entergy New Orleans bankruptcy proceedings and activity
between Entergy and Entergy New Orleans.
During 2004 and 2003, Entergy procured various services from
Entergy-Koch consisting primarily of pipeline transportation serv-
ices for natural gas and risk management services for electricity and
natural gas. The total cost of such services in 2004 and 2003 was
approximately $9.5 million and $15.9 million, respectively. There
were no related party transactions between Entergy-Koch and
Entergy in 2005. Entergy Louisiana and Entergy New Orleans
entered into purchase power agreements with RS Cogen, and pur-
chased a total of $61.2 million, $43.6 million, and $26.0 million of
capacity and energy from RS Cogen in 2005, 2004, and 2003,
respectively. Entergy’s operating transactions with its other equity
method investees were not material in 2005, 2004, or 2003.
In the purchase agreements for its energy trading and the pipeline
business sales, Entergy-Koch agreed to indemnify the respective
purchasers for certain potential losses relating to any breaches of the
sellers’ representations, warranties, and obligations under each of
the purchase agreements. Entergy Corporation has guaranteed up
to 50% of Entergy-Koch’s indemnification obligations to the
purchasers. Entergy does not expect any material claims under these
indemnification obligations, but to the extent that any are asserted
and paid, the gain that Entergy expects to record in 2006 may
be reduced.
During the fourth quarter of 2004, an Entergy subsidiary pur-
chased from a commercial bank holder $16.3 million of RS Cogen
subordinated indebtedness, due October 2017, bearing interest at
LIBOR plus 4.50%. The debt was purchased at a discount of
approximately $2.4 million that was to be amortized over the
remaining life of the debt. In June 2005, 100% of the $16.0 million
balance of the subordinated indebtedness was sold to a lending insti-
tution for 100.75% of par.
NOTE 13. ACQUISITIONS AND DISPOSITIONS
ASSET ACQUISITIONS
In June 2005, Entergy Louisiana purchased the 718 MW Perryville
power plant located in northeast Louisiana for $162 million from a
subsidiary of Cleco Corporation. Entergy received the plant, mate-
rials and supplies, SO2emission allowances, and related real estate.
The LPSC approved the acquisition and the long-term cost-of-
service purchased power agreement under which Entergy Gulf
States will purchase 75 percent of the plant’s output.
ASSET DISPOSITIONS
Entergy-Koch Businesses
In the fourth quarter of 2004, Entergy-Koch sold its energy trading
and pipeline businesses to third parties. The sales came after a
review of strategic alternatives for enhancing the value of Entergy-
Koch, LP. Entergy received $862 million of cash distributions
in 2004 from Entergy-Koch after the business sales, and Entergy
ultimately expects to receive total net cash distributions exceeding
$1 billion, comprised of the after-tax cash from the distributions of
the sales proceeds and the eventual liquidation of Entergy-Koch.
Entergy currently expects the net cash distributions that it will
receive will exceed its equity investment in Entergy-Koch, and
expects to record a $60 million net-of-tax gain when it receives the
remaining cash distributions, which it expects will occur in 2006.
Other
In January 2004, Entergy sold its 50% interest in the Crete project,
which is a 320MW power plant located in Illinois, and realized an
insignificant gain on the sale.
In the fourth quarter of 2004, Entergy sold undivided interests in
the Warren Power and the Harrison County plants at a price that
approximated book value.
NOTE 14. RISK MANAGEMENT AND FAIR VALUES
MARKET AND COMMODITY RISKS
In the normal course of business, Entergy is exposed to a number of
market and commodity risks. Market risk is the potential loss
that Entergy may incur as a result of changes in the market or fair
value of a particular instrument or commodity. All financial and
commodity-related instruments, including derivatives, are subject to
market risk. Entergy is subject to a number of commodity and
market risks, including:
Type of Risk Primary Affected Segments
Power price risk U.S. Utility, Non-Utility Nuclear
Energy Commodity Services
Fuel price risk U.S. Utility, Non-Utility Nuclear
Energy Commodity Services
Foreign currency exchange rate risk U.S. Utility, Non-Utility Nuclear
Energy Commodity Services
Equity price and interest U.S. Utility, Non-Utility Nuclear
rate risk – investments