Ameren Corporation 2011 Q2 SEC Filing Summary
Business context and reporting period
Combined unaudited Form 10-Q for Ameren Corporation, Union Electric Company (Ameren Missouri), Ameren Illinois Company, and Ameren Energy Generating Company, covering the quarter and six months ended June 30, 2011. Ameren operates regulated electric and natural-gas businesses in Missouri and Illinois and merchant generation operations, primarily in Illinois. The filing reflects the October 1, 2010 Ameren Illinois merger and transfer of AERG; AERG results remain continuing operations for Ameren but are presented as discontinued operations for Ameren Illinois in prior periods.
Key financial metrics
| Ameren consolidated | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Operating revenues | $1,781 million | $1,725 million | $3,685 million | $3,665 million |
| Operating income | $316 million | $331 million | $543 million | $629 million |
| Net income attributable to Ameren | $138 million | $152 million | $209 million | $254 million |
| Basic and diluted EPS | $0.57 | $0.64 | $0.87 | $1.07 |
| Operating margin | 17.7% | 19.2% | 14.7% | 17.2% |
| Dividends per share | $0.385 | $0.385 | $0.77 | $0.77 |
Revenue increased modestly, but profitability declined. Six-month electric revenue was $3,084 million versus $3,007 million, while gas revenue fell to $601 million from $658 million. Fuel expense rose to $750 million from $579 million for the six-month period, partly offset by lower purchased-power and gas-resale costs. Interest expense declined to $223 million from $247 million. The effective tax rate was 37% for the six-month period versus 38% in 2010.
Reported six-month net income attributable to Ameren was $209 million, down 18%; EPS fell 19% to $0.87. Q2 net income attributable to Ameren was down 9%, while revenue rose 3%. Management reported that consolidated electric margin decreased $19 million year to date, despite an $8 million increase in the quarter.
Cash flow, balance sheet, debt, and liquidity
- Six-month operating cash flow was $903 million, up from $771 million. Investing cash use was $498 million, compared with $560 million, including $507 million of capital expenditures and $33 million of nuclear-fuel expenditures. Financing cash use increased to $572 million from $327 million.
- Cash and cash equivalents declined to $378 million at June 30, 2011, from $545 million at December 31, 2010. Total assets were $23.4 billion and total equity was $7.9 billion.
- Ameren had $6.9 billion of long-term debt and capital lease obligations, $337 million of short-term debt, $200 million of credit-facility borrowings, and $317 million of commercial paper outstanding. Ameren Illinois repaid $150 million of senior secured notes at maturity in June.
- Committed credit facilities totaled $2.1 billion, with approximately $1.6 billion available after commercial paper and letters of credit. Management stated that the companies were in compliance with applicable covenants and that liquidity was adequate.
- Ameren’s consolidated indebtedness-to-capitalization ratio under credit agreements was 49%, below the 65% covenant limit. The company paid $186 million of common dividends during the first six months.
Material changes versus the prior comparable period
- Results were pressured by lower power prices, higher merchant-generation fuel and transportation costs, lower generation volumes, weaker weather-adjusted utility sales, major storm costs, higher property taxes, and an $18 million pretax Ameren Missouri FAC prudence-review charge.
- Favorable factors included the absence of the 2010 Callaway nuclear refueling outage, higher Missouri and Illinois rates, lower interest expense, favorable mark-to-market activity, and the absence of the 2010 federal healthcare-related deferred-tax charge.
- Ameren Missouri’s six-month net income attributable to Ameren fell to $111 million from $140 million; Ameren Illinois fell to $70 million from $81 million; Merchant Generation fell to $35 million from $42 million. Q2 Merchant Generation income improved to $15 million from a $2 million loss, largely reflecting favorable mark-to-market activity and a customer contract settlement.
- Genco sold its remaining interest in the Columbia CT facility in June for $45 million and recorded an $8 million pretax gain. Genco’s six-month operating cash flow declined to $88 million from $147 million.
- Genco corrected a prior cash-flow classification error in the current filing; management stated that the correction did not affect Ameren’s previously reported consolidated cash flows.
Guidance, outlook, risks, contingencies, and unusual items
- On July 13, 2011, the MoPSC approved an approximately $173 million annual Ameren Missouri electric revenue increase, effective July 31. The order also disallowed certain Taum Sauk rebuild costs; Ameren and Ameren Missouri expected to record separate $89 million pretax charges in Q3 2011. Ameren Missouri appealed.
- Ameren Illinois requested annual increases of $40 million for electric delivery and $50 million for natural-gas delivery. ICC staff recommended a $10 million electric decrease and a $16 million gas increase; a decision was required by January 2012.
- Management reduced estimated 2011–2015 capital expenditures by approximately $500 million for Ameren Missouri and $250 million for Genco, while increasing Ameren Illinois estimates by approximately $210 million. Consolidated 2011–2015 capital expenditures were estimated at $6.36 billion to $7.20 billion.
- Environmental compliance remains a major risk. Estimated environmental capital expenditures totaled $1.99 billion to $2.405 billion through 2020. CSAPR, proposed MACT requirements, coal-ash rules, greenhouse-gas regulation, and Clean Water Act requirements could increase costs, impair assets, or lead to plant closures.
- Management expected a roughly 35-day Callaway refueling and maintenance outage in fall 2011. Nuclear regulatory developments following Japan’s earthquake could increase future operating and capital costs.
- Taum Sauk insurance recoveries and litigation remained unresolved. Ameren Missouri had recorded a $172 million insurance receivable and had received $104 million. The ultimate impact remained uncertain.
- Major additional risks include rate-case appeals and possible refunds, FAC proceedings, EPA Clean Air Act litigation, asbestos and environmental remediation, commodity-price volatility, counterparty and collateral requirements, labor negotiations, pension funding, and access to capital markets.
Most important facts for investors to verify
- Whether the $89 million Taum Sauk disallowance charges were recorded in Q3 2011 and the outcome of Ameren Missouri’s appeal.
- Final ICC decisions on Ameren Illinois electric and natural-gas rate cases and the effect on allowed returns and regulatory lag.
- Progress and ultimate compliance costs under CSAPR, MACT, coal-ash, greenhouse-gas, and Clean Water Act rules, including potential plant impairments or closures.
- Actual 2011 operating results after the Callaway outage, storm restoration spending, weather normalization, and merchant-generation power and fuel prices.
- Changes in liquidity, commercial-paper balances, credit ratings, collateral requirements, and compliance with debt covenants.
- Resolution of Taum Sauk insurance litigation, FAC refund exposure, MoPSC rate-order appeals, EPA litigation, asbestos claims, and environmental remediation obligations.