Entergy 2006 Annual Report Download - page 50

ENTERGY CORPORATION AND SUBSIDIARIES 2
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Dividends and Stock Repurchases
Declarations of dividends on Entergy’s common stock are made at the
discretion of the Board. Among other things, the Board evaluates the
level of Entergy’s common stock dividends based upon Entergy’s earn-
ings, financial strength, and future investment opportunities. At its
January 2007 meeting, the Board declared a dividend of $0.54 per
share, which is the same quarterly dividend that Entergy has paid
since the fourth quarter 2004. Entergy paid $449 million in 2006 and
$454 million in 2005 in cash dividends on its common stock.
In accordance with Entergy’s stock-based compensation plan,
Entergy periodically grants stock options to its key employees, which
may be exercised to obtain shares of Entergy’s common stock.
According to the plan, these shares can be newly issued shares, treas-
ury stock, or shares purchased on the open market. Entergy’s
management has been authorized by the Board to repurchase on the
open market shares up to an amount sufficient to fund the exercise of
grants under the plans. In addition to this authority, the Board
approved a program under which Entergy was authorized to repur-
chase up to $1.5 billion of its common stock through 2006. Entergy
completed the $1.5 billion program in the fourth quarter 2006. In
2006, Entergy repurchased 6,672,000 shares of common stock under
both programs for a total purchase price of $584 million.
On January 29, 2007, the Board approved a new repurchase
program under which Entergy is authorized to repurchase up to
$1.5 billion of its common stock, which Entergy expects to complete
over the next two years.
Debtor-in-Possession Credit Agreement
On September 26, 2005, Entergy New Orleans, as borrower, and
Entergy Corporation, as lender, entered into the Debtor-in-Possession
(DIP) credit agreement, a debtor-in-possession credit facility to
provide funding to Entergy New Orleans during its business restora-
tion efforts. On December 9, 2005, the bankruptcy court issued
its final order approving the DIP Credit Agreement. The credit
facility provides for up to $200 million in loans. The facility enables
Entergy New Orleans to request funding from Entergy Corporation,
but the decision to lend money is at the sole discretion of Entergy
Corporation. As of December 31, 2006, Entergy New Orleans
had $52 million of outstanding borrowings under the DIP
credit agreement.
Borrowings under the DIP credit agreement are due in full, and the
agreement will terminate, at the earliest of (i) August 23, 2007, (ii) the
acceleration of the loans and the termination of the DIP credit agree-
ment in accordance with its terms, (iii) the date of the closing of a sale
of all or substantially all of Entergy New Orleans’ assets pursuant to
either section 363 of the United States Bankruptcy Code or a con-
firmed plan of reorganization, or (iv) the effective date of a plan of
reorganization in Entergy New Orleans’ bankruptcy case.
As security for Entergy Corporation as the lender, the terms of the
December 9, 2005 bankruptcy court order provide that all borrow-
ings by Entergy New Orleans under the DIP Credit Agreement are:
(i) entitled to superpriority administrative claim status pursuant to
section 364(c)(1) of the Bankruptcy Code; (ii) secured by a perfected
first priority lien on all property of Entergy New Orleans pursuant to
sections 364(c)(2) and 364(d) of the Bankruptcy Code, except on any
property of Entergy New Orleans subject to valid, perfected, and non-
avoidable liens of the lender on Entergy New Orleans’ $15 million
credit facility that existed as of the date Entergy New Orleans filed its
bankruptcy petition; and (iii) secured by a perfected junior lien pur-
suant to section 364(c)(3) of the Bankruptcy Code on all property of
Entergy New Orleans subject to valid, perfected, and non-avoidable
liens in favor of the lender on Entergy New Orleans’ $15 million
credit facility that existed as of the date Entergy New Orleans filed its
bankruptcy petition.
The interest rate on borrowings under the DIP credit agreement
will be the average interest rate of borrowings outstanding under
Entergy Corporation’s $2 billion revolving credit facility, which was
approximately 5.7% per annum at December 31, 2006.
SOURCES OF CAPITAL
Entergy’s sources to meet its capital requirements and to fund poten-
tial investments include:
■internally generated funds;
■cash on hand ($1.02 billion as of December 31, 2006);
■securities issuances;
■bank financing under new or existing facilities; and
■sales of assets.
Circumstances such as weather patterns, fuel and purchased power
price fluctuations, and unanticipated expenses, including unsched-
uled plant outages and storms, could affect the timing and level of
internally generated funds in the future. In the following section,
Entergy’s cash flow activity for the previous three years is discussed.
Provisions within the Articles of Incorporation or pertinent inden-
tures and various other agreements relating to the long-term debt and
preferred stock of certain of Entergy Corporation’s subsidiaries restrict
the payment of cash dividends or other distributions on their com-
mon and preferred stock. As of December 31, 2006, Entergy Arkansas
and Entergy Mississippi had restricted retained earnings unavailable
for distribution to Entergy Corporation of $396.4 million and $121.6
million, respectively. All debt and common and preferred equity
issuances by the Registrant Subsidiaries require prior regulatory
approval and their preferred equity and debt issuances are also subject
to issuance tests set forth in corporate charters, bond indentures, and
other agreements. The Registrant Subsidiaries have sufficient capacity
under these tests to meet foreseeable capital needs, except for Entergy
New Orleans. As stated in the conditions precedent to the effective-
ness of its proposed plan of reorganization described above, Entergy
New Orleans believes that it requires the receipt of CDBG funds and
insurance proceeds to meet its capital requirements resulting from the
effects of Hurricane Katrina.
After the repeal of PUHCA 1935, effective February 8, 2006, the
FERC, under the Federal Power Act, and not the SEC, has jurisdic-
tion over authorizing securities issuances by the Utility operating
companies and System Energy (except securities with maturities
longer than one year issued by (a) Entergy Arkansas, which are sub-
ject to the jurisdiction of the APSC and (b) Entergy New Orleans,
which are currently subject to the jurisdiction of the bankruptcy
court). Under PUHCA 2005 and the Federal Power Act, no approvals
are necessary for Entergy Corporation to issue securities. Under a sav-
ings provision in PUHCA 2005, each of the Utility operating
companies and System Energy may rely on the financing authority in
its existing PUHCA 1935 SEC order or orders through December 31,
2007 or until the SEC authority is superseded by FERC authoriza-
tion. The FERC has issued an order (FERC Short-Term Order)
approving the short-term borrowing limits of the Utility operating
companies (except Entergy New Orleans) and System Energy through
March 31, 2008. Entergy Gulf States and Entergy Louisiana, LLC
have obtained long-term financing authorization from the FERC.
Entergy New Orleans may rely on existing SEC PUHCA 1935 orders
for its short-term financing authority, subject to bankruptcy court
approval. In addition to borrowings from commercial banks, the
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued