Entergy 2007 Annual Report Download - page 64

62
Entergy Corporation and Subsidiaries 2007
Notes to Consolidated Financial Statements continued
NU C L E A R RE F U E L I N G OU TA G E CO S T S
Nuclear refueling outage costs are deferred during the outage and
amortized over the estimated period to the next outage because these
refueling outage expenses are incurred to prepare the units to operate
for the next operating cycle without having to be taken o line. Prior
to 2006, River Bend’s costs were accrued in advance of the outage and
included in the cost of service used to establish retail rates. Entergy
Gulf States Louisiana relieved the accrued liability when it incurred
costs during the next River Bend outage. In 2006, Entergy Gulf States
Louisiana adopted FSP No. AUG AIR-1, “Accounting for Planned
Major Maintenance Activities,” for its River Bend nuclear refueling
outage costs and now accounts for these costs in the same manner as
Entergy’s other subsidiaries. Adoption of FSP No. AUG AIR-1 resulted
in an immaterial retrospective adjustment to Entergy’s and Entergy
Gulf States Louisiana’s retained earnings balance.
AL L O W A N C E F O R FU N D S US E D DURING CO N S T R U C T I O N
(AFUDC)
AFUDC represents the approximate net composite interest cost of
borrowed funds and a reasonable return on the equity funds used for
construction by the Utility operating companies and System Energy.
AFUDC increases both the plant balance and earnings, and is realized
in cash through depreciation provisions included in rates.
IN C O M E T A X E S
Entergy Corporation and the majority of its subsidiaries le a United
States consolidated federal income tax return. Entergy Louisiana,
formed December 31, 2005, is not a member of the consolidated
group and les a separate federal income tax return. Income taxes
are allocated to the subsidiaries in proportion to their contribution
to consolidated taxable income. In accordance with SFAS 109,
“Accounting for Income Taxes,” deferred income taxes are recorded
for all temporary dierences 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 eects 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.
EA R N I N G S PER SH A R E
e following table presents Entergy’s basic and diluted earnings per
share calculation included on the consolidated statements of income
(in millions, except per share data):
Stock options to purchase approximately 1,727,579 common stock
shares in 2005 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 of those options were greater
than the common share average market price at the end of each of the
years presented. All options to purchase common stock shares in 2007
and 2006 were included in the computation of diluted earnings per
share because the common share average market price at the end of
2007 and 2006 was greater than the exercise prices of all of the options
outstanding.
Entergy has 10,000,000 equity units outstanding as of December 31,
2007 that obligate the holders to purchase a certain number of shares
of Entergy common stock for a stated price no later than February
17, 2009. Each contract executed prior to February 17, 2009 would
be equal to 0.5727 common stock shares. e equity units were not
included in the calculation at December 31, 2006 and 2005 because
Entergy’s average stock price for the year was less than the threshold
appreciation price of the equity units.
ST O C K -BA S E D CO M P E N S AT I O N PL A N S
Entergy grants stock options to key employees of the Entergy
subsidiaries, which is described more fully in Note 12 to the nancial
statements. Eective 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. Stock-based compensation
expense included in consolidated net income, net of related tax eects,
for 2007 is $8.9 million, for 2006 is $6.8 million, and for 2005 is $7.8
million for Entergy’s stock options granted.
For the Years Ended
December 31, 2007 2006 2005
$/share $/share $/share
Income from continuing
operations $1,134.8 $1,133.1 $943.1
Average numbers of
common shares
outstanding – basic 196.6 $5.77 207.5 $5.46 210.1 $4.49
Average dilutive eect of:
Stock options 5.0 (0.142) 3.8 (0.098) 4.0 (0.085)
Equity units 1.1 (0.033) – – – –
Deferred units 0.1 (0.003) 0.2 (0.005) 0.3 (0.006)
Average number of common
shares outstanding – diluted 202.8 $5.60 211.5 $5.36 214.4 $4.40
Consolidated net income $1,134.8 $1,132.6 $898.3
Average number of common
shares outstanding – basic 196.6 $5.77 207.5 $5.46 210.1 $4.27
Average diluted eect of:
Stock options 5.0 (0.142) 3.8 (0.098) 4.0 (0.081)
Equity units 1.1 (0.033) – – – –
Deferred units 0.1 (0.003) 0.2 (0.005) 0.3 (0.005)
Average number of common
shares outstanding – diluted 202.8 $5.60 211.5 $5.36 214.4 $4.19