Entergy 2004 Annual Report Download - page 28

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Entergy Corporation and Subsidiaries 2004
Decommissioning expense increased from $30.5 million in 2002
to $92.5 million in 2003 primarily due to the implementation of
SFAS 143, “Accounting for Asset Retirement Obligations.” The
increase in decommissioning expense was offset by increases in
other regulatory credits and interest and dividend income and had
an insignificant effect on net income.
Depreciation and amortization expenses increased from $769.8
million in 2002 to $797.6 million in 2003 primarily due to an
increase in plant in service. The increase was also due to
the implementation of SFAS 143. The increase in depreciation and
amortization expense due to SFAS 143 implementation was offset
by increases in other regulatory credits and interest and dividend
income and has an insignificant effect on net income.
Other income (deductions) changed from $47.6 million in
2002 to ($36.0 million) in 2003 primarily due to a decrease
in “miscellaneous - net” as a result of a $107.7 million accrual in
the second quarter of 2003 for the loss that would be associated
with a final, non-appealable decision disallowing abeyed
River Bend plant costs. See Note 2 to the consolidated financial
statements for more details regarding the River Bend abeyed plant
costs. The decrease was partially offset by an increase in interest and
dividend income as a result of the implementationof SFAS 143.
Interest on long-term debt decreased from $462.0 million in
2002 to $433.5 millionin 2003 primarily due to the redemption and
refinancing of long-term debt.
Non-Utility Nuclear
Following are key performance measures for Non-Utility Nuclear:
2004 2003 2002
Net MW in operation at December 31 4,058 4,001 3,955
Average realized price per MWh $41.26 $39.38 $40.07
Generation in GWh for the year 32,524 32,379 29,953
Capacityfactor for the year 92% 92% 93%
Results of Operations
2004 Compared to 2003
The decrease in earnings for Non-Utility Nuclear from
$300.8 million to $245.0 million was primarily due to
the $154.5 million net-of-tax cumulative effect of a change in
accounting principle that increased earnings in the first quarter
of 2003 upon implementation of SFAS 143. See “Critical
Accounting Estimates - SFAS 143” below for discussion of the
implementation of SFAS 143. Earnings before the cumulative effect
of accounting change increased by $98.7 million primarily due to
the following:
•lower operation and maintenance expenses, which decreased
from $681.8 million in 2003 to $595.7 million in 2004,
primarily resulting from charges recorded in 2003 in connection
with the voluntaryseverance program;
•higher revenues, which increased from $1.275 billion in 2003 to
$1.342 billion in 2004, primarily resulting from higher contract
pricing. The additionof a support services contract for the
Cooper Nuclear Station and increased generation in 2004 due
to power uprates completed in 2003 and fewer planned and
unplanned outages in 2004 also contributed to the higher
revenues; and
•miscellaneous income resulting from a reduction in the
decommissioning liability for a plant, as discussed in Note 8
to the consolidated financial statements.
Partially offsetting this increase were the following:
•higher income taxes, which increased from $88.6 million in
2003 to $142.6 million in 2004; and
•higher depreciation expense, which increased from $34.3
million in 2003 to $48.9 million in 2004, due to additions to
plant in service.
2003 Compared to 2002
The increase in earnings for Non-Utility Nuclear from $200.5
million to $300.8 million was primarily due to the $154.5 million
net-of-tax cumulative effect of a change in accounting principle
recognized in the first quarter of 2003 uponimplementationof
SFAS 143. See “Critical Accounting Estimates - SFAS 143” below
for discussion of the implementation of SFAS 143. Income before
the cumulativeeffect of accounting change decreased by $54.2
million. The decrease was primarily due to $83.0 million
($50.6 million net-of-tax) of charges recorded in connection with
the voluntaryseverance program. Except for the effect of the
voluntary severance program, operation and maintenance expenses
in 2003 per MWhof generationwerein line with 2002 operation
and maintenance expenses.
Energy Commodity Services
Sales of Entergy-KochBusinesses
In the fourth quarter of 2004, Entergy-Koch sold its energy trading
and pipeline businesses to third parties. The sales came after a
review of strategic alternatives for enhancing the value of Entergy-
Koch, LP. Entergy received $862 million of cash distributions in
2004 from Entergy-Koch after the business sales, and Entergy
ultimatelyexpects to receivetotal net cash distributions exceeding
$1 billion, comprised of the after-tax cash from the distributions of
the sales proceeds and the eventual liquidation of Entergy-Koch.
Entergycurrentlyexpects that it will receivethe remaining cash
distributions in 2006, and expects that the net cash distributions
will exceed its equity investment in Entergy-Koch. Entergy expects
to record a $60 million net-of-tax gain when the remainder of the
proceeds are received in 2006.
In the purchase agreements for the energy trading and the
pipeline business sales, Entergy-Kochhas agreed to indemnify the
respective purchasers for certain potential losses relating to any
breaches of the sellers’ representations, warranties, and obligations
MANAGEMENT’S FINANCIAL DISCUSSION and ANALYSIS continued
“In the fourth quarter of 2004, Entergy-Koch sold its
energy trading and pipeline businesses to third parties.
The sales came after a review of strategic alternatives
for enhancing the value of Entergy-Koch, LP.”