Entergy 2008 Annual Report Download - page 35

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ENTERGY CORPORATION AND SUBSIDIARIES 2008
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Management’s Financial Discussion and Analysis continued
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period. Other operation and maintenance expenses associated
with the Palisades plant, which was acquired in April 2007, were
$34 million higher in 2008 compared to 2007. The increase was
partially offset by a decrease of $29 million related to expenses
recorded in 2007 in connection with the nuclear operations fleet
alignment, as discussed above.
Depreciation and amortization expenses increased from
$99 million in 2007 to $126 million in 2008 as a result of the acquisition
of Palisades in April 2007, which contributed $12 million to the
increase, as well as other increases in plant in service.
Other income decreased primarily due to $50 million in charges
to interest income in 2008 resulting from the recognition of
impairments of certain securities held in Non-Utility Nuclear’s
decommissioning trust funds that are not considered temporary.
Other expenses increased due to increases of $23 million
in nuclear refueling outage expenses and $15 million in
decommissioning expenses that primarily resulted from the
acquisition of Palisades in April 2007.
Parent & Other
Other operation and maintenance expenses increased for the
parent company, Entergy Corporation, primarily due to outside
services costs of $69 million related to the planned spin-off of the
Non-Utility Nuclear business.
Interest charges decreased primarily due to lower interest
rates on borrowings under Entergy Corporation’s revolving
credit facility.
Other income decreased primarily due to the elimination for
consolidation purposes of dividends earned of $29.5 million by
Entergy Louisiana and $10.3 million by Entergy Gulf States
Louisiana on investments in preferred membership interests of
Entergy Holdings Company, as discussed above.
Income Taxes
The effective income tax rate for 2008 was 32.7%. The reduction
in the effective income tax rate versus the federal statutory rate of
35% in 2008 is primarily due to:
na capital loss recognized for income tax purposes on the
liquidation of Entergy Power Generation, LLC in the third
quarter 2008, which resulted in an income tax benefit of
approximately $79.5 million. Entergy Power Generation, LLC
was a holding company in Entergy’s non-nuclear wholesale
assets business;
nrecognition of tax benefits of $44.3 million associated with the
loss on sale of stock of Entergy Asset Management, Inc., a non-
nuclear wholesale subsidiary, as a result of a settlement with the
IRS; and
nan adjustment to state income taxes for Non-Utility Nuclear to
reflect the effect of a change in the methodology of computing
Massachusetts state income taxes resulting from legislation
passed in the third quarter 2008, which resulted in an income
tax benefit of approximately $18.8 million.
These factors were partially offset by:
nincome taxes recorded by Entergy Power Generation, LLC,
prior to its liquidation, resulting from the redemption
payments it received in connection with its investment in
Entergy Nuclear Power Marketing, LLC during the third
quarter 2008, which resulted in an income tax expense of
approximately $16.1 million; and
nbook and tax differences for utility plant items and state
income taxes at the Utility operating companies, including the
flow-through treatment of Arkansas write-offs discussed above.
The effective income tax rate for 2007 was 30.7%. The reduction
in the effective income tax rate versus the federal statutory rate of
35% in 2007 is primarily due to:
na reduction in income tax expense due to a step-up in the tax
basis on the Indian Point 2 non-qualified decommissioning
trust fund resulting from restructuring of the trusts, which
reduced deferred taxes on the trust fund and reduced current
tax expense;
nthe resolution of tax audit issues involving the 2002-2003
audit cycle;
nan adjustment to state income taxes for Non-Utility Nuclear to
reflect the effect of a change in the methodology of computing
New York state income taxes as required by that state’s taxing
authority;
nbook and tax differences related to the allowance for equity
funds used during construction; and
nthe amortization of investment tax credits.
These factors were partially offset by book and tax differences for
utility plant items and state income taxes at the Utility operating
companies.
See Note 3 to the financial statements for a reconciliation of the
federal statutory rate of 35.0% to the effective income tax rates,
and for additional discussion regarding income taxes.
2007 CO M P A R E D T O 2006
Following are income statement variances for Utility, Non-
Utility Nuclear, Parent & Other business segments, and Entergy
comparing 2007 to 2006 showing how much the line item increased
or (decreased) in comparison to the prior period (in thousands):
Non-Utility Parent &
Utility Nuclear Other Entergy
2006 Consolidated
Net Income $691,160 $309,496 $131,946 $1,132,602
Net revenue (operating
revenue less fuel expense,
purchased power, and
other regulatory
charges/credits) 346,753 451,374 (62,994) 735,133
Other operation and
maintenance expenses 207,468 122,511 (15,689) 314,290
Taxes other than
income taxes 42,553 16,265 1,679 60,497
Depreciation and
amortization 46,307 27,510 2,103 75,920
Other income 8,732 (12,193) (90,071) (93,532)
Interest charges 15,405 (12,686) 81,633 84,352
Other (including
discontinued operations) (3,285) (30,129) 492 (32,922)
Income taxes 48,920 25,748 (3,295) 71,373
2007 Consolidated
Net Income (Loss) $682,707 $539,200 $ (87,058) $1,134,849
Refer to “Selected Financial Data - Five-Year Comparison
Of Entergy Corporation And Subsidiaries” which accompanies
Entergy Corporation’s financial statements in this report for further
information with respect to operating statistics.
Earnings were negatively affected in the fourth quarter 2007
by expenses of $52 million ($32 million net-of-tax) recorded in
connection with a nuclear operations fleet alignment. This process
was undertaken with the goals of eliminating redundancies, capturing
economies of scale, and clearly establishing organizational governance.
Most of the expenses related to the voluntary severance program
offered to employees. Approximately 200 employees from the Non-
Utility Nuclear business and 150 employees in the Utility business
accepted the voluntary severance program offers.