Entergy 2008 Annual Report Download - page 82

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
Notes to Consolidated Financial Statements continued
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2002 – 2003 IRS Audit
The IRS completed its examination of the 2002 and 2003 tax
returns and issued an Examination Report on June 29, 2007. In
the report the IRS proposed adjustments for the U.K. Windfall Tax
foreign tax credit issue and street lighting issue mentioned above
as well as other issues related to certain storm repair deductions,
research and experimentation (R&E) deductions and credits.
Entergy disagreed with the IRS Examination Division position and
filed a formal protest on July 30, 2007. Entergy reached agreement
with the IRS Appeals Division in the fourth quarter of 2008 on all
matters, except for the U.K. Windfall Tax and street lighting issues
which will be disposed of in accordance with the decisions in the
Tax Court litigation previously discussed. The settlement of the
remaining issues had no material effect on results of operations,
financial position and cash flows for Entergy or its subsidiaries
since Entergy sustained a significant portion of the deductions and
credits at issue and the conceded deductions will have the effect of
reducing the 2003 consolidated net operating loss carryover.
2004 – 2005 IRS Audit
The IRS commenced an examination of Entergy’s 2004 and 2005
U.S. federal income tax returns in the fourth quarter 2007. As of
December 31, 2008, the IRS had proposed only one change with
which Entergy did not agree; the street lighting issue mentioned
above. The IRS is expected to issue their 2004 - 2005 Revenue
Agent’s Report in the second quarter of 2009.
In December 2008, Entergy reached settlement with the IRS
related to the following:
nThe recognition of a capital loss from the sale of stock in one
of Entergy’s Non-Nuclear Wholesale subsidiaries - Entergy
sustained $374 million of the capital loss.
nMark-to-market deductions claimed by the Non-Utility
Nuclear subsidiaries for wholesale power contracts for which
the settlement resulted in no material effect on results of
operations, financial position, and cash flows.
nMark-to-market deductions claimed for wholesale power
contracts held by its Utility operating companies and a
Non-Nuclear Wholesale subsidiary for which the settlement
resulted in no material effect on results of operations, financial
position, and cash flows.
Because Entergy has consolidated net operating losses that
carryover to 2004 and 2005, these settlements have the effect of
reducing the consolidated net operating loss carryover and no
payments to the IRS are anticipated at this time.
Entergy has deposits and overpayments of $548 million on
account with the IRS to cover its uncertain tax positions.
NOTE 4. REVOLVING CREDIT FACILITIES, LINES OF CREDIT
AND SHORT-TERM BORROWINGS
Entergy Corporation has a revolving credit facility that expires in
August 2012 and has a borrowing capacity of $3.5 billion. Entergy
Corporation also has the ability to issue letters of credit against
the total borrowing capacity of the credit facility. The facility
fee is currently 0.09% of the commitment amount. Facility fees
and interest rates on loans under the credit facility can fluctuate
depending on the senior unsecured debt ratings of Entergy
Corporation. The weighted average interest rate as of December
31, 2008 was 2.171% on the drawn portion of the facility. Following
is a summary of the borrowings outstanding and capacity available
under the facility as of December 31, 2008 (in millions):
Capacity Borrowings Letters of Credit Capacity Available
$3,500 $3,237 $68 $195
Entergy Corporation’s facility requires it to maintain a
consolidated debt ratio of 65% or less of its total capitalization.
Entergy is in compliance with this covenant. If Entergy fails to meet
this ratio, or if Entergy or one of the Utility operating companies
(except Entergy New Orleans) defaults on other indebtedness or
is in bankruptcy or insolvency proceedings, an acceleration of the
facility maturity date may occur.
Entergy Arkansas, Entergy Gulf States Louisiana, Entergy
Louisiana, Entergy Mississippi, and Entergy Texas each had credit
facilities available as of December 31, 2008 as follows (in millions):
Amount
Expiration Amount of Interest Drawn as of
Company Date Facility Rate(a) Dec. 31, 2008
Entergy Arkansas April 2009 $100(b) 2.75% –
Entergy Gulf
States Louisiana August 2012 $100(c) 0.84563% –
Entergy Louisiana August 2012 $200(d) 0.84563% –
Entergy
Mississippi May 2009 $ 30(e) 1.71125% –
Entergy
Mississippi May 2009 $ 20(e) 1.71125% –
Entergy Texas August 2012 $100(f) 2.285% $100
(a) The interest rate is the weighted average interest rate as of December 31, 2008
applied or that would be applied to the outstanding borrowings under the facility.
(b) The credit facility requires Entergy Arkansas to maintain a debt ratio of
65% or less of its total capitalization.
(c) The credit facility allows Entergy Gulf States Louisiana to issue letters of
credit against the borrowing capacity of the facility. As of December 31,
2008, no letters of credit were outstanding. The credit facility requires
Entergy Gulf States Louisiana to maintain a consolidated debt ratio of
65% or less of its total capitalization. Pursuant to the terms of the credit
agreement, the amount of debt assumed by Entergy Texas ($770 million as
of December 31, 2008 and $1.079 billion as of December 31, 2007)
is excluded from debt and capitalization in calculating the debt ratio.
(d) The credit facility allows Entergy Louisiana to issue letters of credit
against the borrowing capacity of the facility. As of December 31, 2008,
no letters of credit were outstanding. The credit facility requires Entergy
Louisiana to maintain a consolidated debt ratio of 65% or less of its
total capitalization.
(e) Borrowings under the Entergy Mississippi credit facilities may be secured by
a security interest in its accounts receivable.
(f) The credit facility allows Entergy Texas to issue letters of credit against the
borrowing capacity of the facility. As of December 31, 2008, no letters of credit
were outstanding. The credit facility requires Entergy Texas to maintain a con-
solidated debt ratio of 65% or less of its total capitalization. Pursuant to the
terms of the credit agreement, the transition bonds issued by Entergy Gulf States
Reconstruction Funding I, LLC, a subsidiary of Entergy Texas, are excluded
from debt and capitalization in calculating the debt ratio.
The facility fees on the credit facilities range from 0.09% to 0.15%
of the commitment amount.
The short-term borrowings of the Registrant Subsidiaries and certain
other Entergy subsidiaries are limited to amounts authorized by the
FERC. The current FERC-authorized limits are effective through March
31, 2010 (except the Entergy Gulf States Louisiana and Entergy Texas
limits, which are effective through November 8, 2009). In addition to
borrowings from commercial banks, these companies are authorized
under a FERC order to borrow from the Entergy System money pool.
The money pool is an inter-company borrowing arrangement designed
to reduce Entergy’s subsidiaries’ dependence on external short-term
borrowings. Borrowings from the money pool and external short-term
borrowings combined may not exceed the FERC-authorized limits. As
of December 31, 2008, Entergy’s subsidiaries’ aggregate money pool
and external short-term borrowings authorized limit was $2.1 billion,
the aggregate outstanding borrowing from the money pool was
$436.2 million, and Entergy’s subsidiaries’ had no outstanding short-
term borrowings from external sources (borrowings by Entergy Texas
under its credit facility are classified as long-term debt).