Entergy 2004 Annual Report Download - page 58

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Entergy Corporation and Subsidiaries 2004
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)
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 the majority of its subsidiaries file a
United States consolidated 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
returnhad been filed. In accordance with Statement of Financial
Accounting Standards (SFAS) 109, “Accounting for Income Taxes,”
deferred income taxes are recorded for all temporary
differences between the bookand 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.
Earnings per Share
The following table presents Entergy’s basic and diluted earnings
per share (EPS) calculation included on the consolidated income
statement (in millions, except per share data):
For the years ended December 31, 2004 2003 2002
$/share $/share $/share
Income before cumulative
effect of accounting change $909.5 $ 789.9 $ 599.4
Average number of common
shares outstanding - basic 226.9 $ 4.01 226.8 $ 3.48 223.0 $2.69
Average dilutive effect of:
Stock Options (1) 4.3 (0.075) 4.1 (0.062) 3.9 (0.046)
Equity Awards – – 0.2 (0.004) 0.4 (0.005)
Average number of common
shares outstanding - diluted 231.2 $ 3.93 231.1 $3.42 227.3 $2.64
Earnings applicable to
commonstock $909.5 $926.9 $599.4
Average number of common
shares outstanding - basic 226.9 $4.01 226.8 $4.09 223.0 $2.69
Average dilutive effect of:
Stock Options (1) 4.3 (0.075) 4.1 (0.073) 3.9 (0.046)
Equity Awards – – 0.2 (0.004) 0.4 (0.005)
Average number of common
shares outstanding - diluted 231.2 $3.93 231.1 $4.01 227.3 $2.64
(1) Options to purchase approximately 3,319 common stock shares in 2004,
15,231 common stock shares in 2003, and 109,897 common stock shares in
2002 at various prices were outstanding at the end of those years that were
not included in the computation of diluted earnings per share because the
exercise prices were greater than the common share average market price at
the end of each of the years presented.
Stock-based Compensation Plans
Entergygrants stock options to key employees of the Entergy
subsidiaries, which is described more fully in Note 7 to the
consolidated financial statements. Prior to 2003, Entergy applied
the recognition and measurement principles of APB Opinion 25,
“Accounting for Stock Issued to Employees,” and related
Interpretations in accounting for those plans. No stock-based
employee compensation expense is reflected in 2002 net income as
all options granted under the plans have an exercise price equal to
the market value of the underlying common stock on the date of
grant. Effective January 1, 2003, Entergy prospectively adopted the
fair value based method of accounting for stock options prescribed
by SFAS 123, “Accounting for Stock-Based Compensation.”
Awards under Entergy’s plans vest over three years. Therefore,
the cost related to stock-based employee compensation included in
NOTES to CONSOLIDATED FINANCIAL STATEMENTS continued