Ameren Corporation 2009 Form 10-K Summary
Business context and reporting period
Ameren Corporation filed a combined Form 10-K for the fiscal year ended December 31, 2009, covering Ameren Corporation and its principal subsidiaries, including Union Electric Company, Central Illinois Public Service Company, Ameren Energy Generating Company, Central Illinois Light Company, and Illinois Power Company. Ameren operates regulated electric and natural-gas utilities in Missouri and Illinois and merchant electric-generation businesses.
The filing is an annual report rather than a standalone fourth-quarter filing. Fourth-quarter information is presented in the selected quarterly data.
Financial performance and key metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Operating revenues | $7.090 billion | $7.839 billion | Down $749 million |
| Operating income | $1.416 billion | $1.362 billion | Up $54 million |
| Net income | $624 million | $644 million | Down $20 million |
| Net income attributable to Ameren | $612 million | $605 million | Up $7 million |
| Diluted EPS | $2.78 | $2.88 | Down $0.10 |
| Cash flow from operations | $1.977 billion | $1.524 billion | Up $453 million |
| Capital expenditures | $1.704 billion | $1.896 billion | Down $192 million |
| Long-term debt, excluding current maturities | $7.113 billion | $6.554 billion | Up $559 million |
| Cash and cash equivalents | $622 million | $92 million | Up $530 million |
Ameren’s operating margin was approximately 20.0% in 2009 versus 17.4% in 2008. Net income attributable to Ameren represented approximately 8.6% of revenue. Total assets were $23.790 billion and Ameren stockholders’ equity was $7.853 billion at December 31, 2009.
Fourth-quarter 2009 operating revenue was $1.675 billion, operating income was $245 million, net income attributable to Ameren was $79 million, and diluted EPS was $0.34. Fourth-quarter 2008 amounts were $1.908 billion, $169 million, $57 million, and $0.27, respectively.
Material changes versus the prior comparable period
- Revenue declined primarily because of milder weather, lower industrial demand, the economic slowdown, lower natural-gas prices, and reduced merchant-generation activity.
- Regulated electric and gas margins benefited from higher Illinois and Missouri rates, including Missouri electric rates effective March 1, 2009, and Illinois rates effective October 1, 2008.
- Merchant Generation electric margins fell $176 million, or 15%, because of lower power prices, reduced utilization, transmission congestion, lower realized prices, and unfavorable mark-to-market activity on energy transactions.
- Ameren’s rate-regulated utility sales to industrial customers declined 11% excluding Noranda and 17% including Noranda. The Noranda smelter outage reduced 2009 electric revenue by approximately $50 million.
- Operations and maintenance expense decreased $119 million, helped by lower coal-plant maintenance, lower bad-debt expense, the absence of a Callaway nuclear refueling outage, and lower impairment charges. These benefits were partly offset by $17 million of employee-severance costs and higher labor costs.
- Interest expense increased $68 million to $508 million, reflecting additional debt and credit-facility costs.
- Ameren reduced its common dividend to $1.54 per share in 2009 from $2.54 in 2008, conserving approximately $196 million of cash. The board declared a quarterly dividend of $0.385 per share payable March 31, 2010.
- Ameren issued approximately $1.021 billion of long-term debt and $634 million of common stock in 2009, including a September offering of 21.85 million shares. Proceeds supported subsidiaries, debt repayment, capital expenditures, and working capital.
Cash flow, debt, liquidity, and capital spending
- Operating cash flow of $1.977 billion exceeded capital expenditures of $1.704 billion before dividends, although the company continued to depend on debt, equity, and credit facilities to fund its capital program and obligations.
- Available consolidated liquidity, consisting of cash and unused credit capacity, was approximately $1.9 billion at year-end, up approximately $0.6 billion from 2008.
- Committed facilities included a $1.3 billion multiyear revolving facility with $555 million available and an $800 million Illinois revolving facility with $700 million available at December 31, 2009. Availability included the effect of outstanding borrowings and letters of credit.
- Consolidated long-term debt maturities, including current maturities, totaled $7.333 billion, including $204 million due in 2010 and $585 million due in 2014. Genco had $200 million of debt due in 2010.
- Ameren estimated 2010–2014 capital expenditures of approximately $6.3 billion to $8.1 billion, including utility infrastructure, reliability projects, and environmental compliance.
- Ameren expected pension contributions of approximately $75 million to $225 million annually over the following five years, with aggregate estimated contributions of approximately $740 million.
Guidance, outlook, commentary, risks, and unusual items
- Management expected economic conditions to improve in 2010, but stated that weak demand, lower power prices, counterparty credit risk, bad debt, and potential asset impairments remained concerns.
- Noranda was expected to return to full production in the second quarter of 2010, potentially increasing UE margins by approximately $40 million in 2010 versus 2009.
- Taum Sauk was expected to return to service in the second quarter of 2010 and was projected to increase UE margins by approximately $1.8 million per month after returning to service. The rebuild cost was estimated at approximately $490 million, with insurance recovery disputes remaining unresolved.
- Merchant Generation expected approximately 35 million megawatthours of available generation annually in 2010–2012, subject to market prices and operating conditions. Management targeted hedging 80% to 90% of the following year’s expected output, 50% to 70% two years out, and 30% to 50% three years out.
- Ameren’s coal-fired generation exposure is significant: 83% of 2009 generation came from coal, and approximately 96% of coal was sourced from the Powder River Basin. Environmental rules, rail disruptions, fuel prices, and carbon regulation could materially affect costs and plant viability.
- Ameren estimated environmental capital expenditures of $1.6 billion to $1.9 billion through 2017 for UE, Genco, AERG, and EEI. The EPA’s January 2010 Notice of Violation to UE concerning New Source Review and Title V requirements could require substantial control expenditures and penalties, although the ultimate impact was not determinable.
- UE had approximately $69 million capitalized for its suspended 1,600-megawatt Callaway nuclear expansion application. Permanent abandonment or regulatory disallowance could result in a future earnings charge.
- Goodwill impairment testing found no impairment, but the Merchant Generation reporting unit had only approximately $95 million, or 3%, of estimated fair value above carrying value at October 31, 2009.
- The filing disclosed approximately $20.861 billion of consolidated contractual obligations, including debt, interest, leases, settlement obligations, fuel, capacity, and other commitments.
- The company reported no material off-balance-sheet financing arrangements other than ordinary-course operating leases and stated that it was in compliance with credit-facility and debt covenants at year-end.
Most important facts for investors to verify
- Whether pending Missouri and Illinois rate cases produced the requested recovery levels and authorized cost trackers.
- The resolution, insurance recoveries, customer-rate recovery, and remaining litigation associated with the Taum Sauk rebuild.
- The outcome and financial exposure from the EPA Notice of Violation involving UE’s coal plants and any subsequent environmental rules.
- Merchant Generation power prices, hedged volumes, realized margins, plant utilization, and Genco’s $200 million 2010 debt maturity.
- Ameren’s ability to fund the $6.3 billion to $8.1 billion 2010–2014 capital program while maintaining liquidity and credit ratings.
- The sustainability of the reduced $0.385 quarterly dividend given holding-company cash flow, subsidiary distributions, debt service, and capital requirements.
- The sensitivity of goodwill, regulatory assets, pension obligations, and derivative valuations to lower power prices, higher interest rates, weaker operating results, or adverse regulatory decisions.