Entergy 2003 Annual Report Download - page 60

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ENTERGY CORPORATION AND SUBSIDIARIES 2003
GOODWILL
Entergy implemented SFAS 142, “Goodwill and Other
Intangible Assets,” effective January 1, 2002. The adoption
of SFAS 142 required an initial impairment assessment
involving a comparison of the fair value of goodwill and
other intangible assets to the current carrying value.
Goodwill and other intangible assets determined to have
indefinite useful lives are not amortized, whereas goodwill
and other intangible assets determined to have definite
useful lives are amortized over their useful lives.
Goodwill and other intangible assets are subject to annual
impairment testing.
The implementation of SFAS 142 resulted in the cessation
of Entergy’s amortization of the remaining plant acquisition
adjustment recorded in conjunction with its acquisition of
Entergy Gulf States. The following table is a reconciliation
of reported earnings applicable to common stock to
earnings applicable to common stock without goodwill
amortization for the years ended December 31, 2003, 2002,
and 2001 (in thousands, except share data):
For the years ended December 31, 2003 2002 2001
Reported earnings applicable
to common stock $926,943 $599,360 $726,196
Add back: Goodwill amortization – – 16,265
Adjusted earnings applicable
to common stock without
goodwill amortization $926,943 $599,360 $742,461
Basic earnings per
average common share:
Reported earnings applicable
to common stock $4.09 $2.69 $3.29
Goodwill amortization – – 0.07
Adjusted earnings applicable
to common stock without
goodwill amortization $4.09 $2.69 $3.36
Diluted earnings per
average common share:
Reported earnings applicable
to common stock $4.01 $2.64 $3.23
Goodwill amortization – – 0.07
Adjusted earnings applicable
to common stock without
goodwill amortization $4.01 $2.64 $3.30
During 2001, Entergy acquired certain intangible assets
in connection with the formation of Entergy-Koch, LP,
an unconsolidated 50/50 limited partnership between
subsidiaries of Entergy and Koch Industries, Inc. Because
the intangible assets were assigned definite useful lives,
which correspond to the useful lives of Entergy-Koch’s
fixed assets, Entergy is amortizing them on a straight-line
basis over a period of 30 years. Entergy’s consolidated
balance sheet at December 31, 2003 includes $53 million of
unamortized intangible assets acquired in forming
Entergy-Koch.
NUCLEAR REFUELING OUTAGE COSTS
Entergy records nuclear refueling outage costs in accordance
with regulatory treatment and the matching principle. These
refueling outage expenses are incurred to prepare the units to
operate for the next operating cycle without having to be
taken off line. Except for the River Bend plant, the costs are
deferred during the outage and amortized over the period to
the next outage. In accordance with the regulatory treatment
of the River Bend plant, River Bend’s costs are accrued in
advance and included in the cost of service used to establish
retail rates. Entergy Gulf States relieves the accrued liability
when it incurs costs during the next River Bend outage.
ALLOWANCE FOR FUNDS USED
DURING CONSTRUCTION
AFUDC represents the approximate net composite interest
cost of borrowed funds and a reasonable return on the
equity funds used for construction in the U.S. Utility
segment. Although AFUDC increases both the plant balance
and earnings, it is realized in cash through depreciation
provisions included in rates.
INCOME TAXES
Entergy Corporation and its subsidiaries file a U.S. consoli-
dated federal income tax return. Income taxes are allocated
to the subsidiaries in proportion to their contribution to
consolidated taxable income. Securities and Exchange
Commission (SEC) regulations require that no Entergy
subsidiary pay more taxes than it would have paid if a
separate income tax return had been filed. In accordance
with SFAS 109, “Accounting for Income Taxes,” deferred
income taxes are recorded for all temporary differences
between the book and tax basis of assets and liabilities,
and for certain credits available for carryforward.
Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than
not that some portion of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates in the period in
which the tax or rate was enacted.
Investment tax credits are deferred and amortized based
upon the average useful life of the related property, in
accordance with ratemaking treatment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
continued