Entergy 2010 Annual Report Download - page 110

During the years ended December 31, 2010, 2009, and 2008,
proceeds from the dispositions of securities amounted to $2,606
million, $2,571 million, and $1,652 million, respectively. During
the years ended December 31, 2010, 2009, and 2008, gross gains
of $69 million, $80 million, and $26 million, respectively, and gross
losses of $9 million, $30 million, and $20 million, respectively, were
reclassified out of other comprehensive income into earnings.
Other Than Temporary Impairments and
Unrealized Gains and Losses
Entergy evaluates unrealized losses at the end of each period
to determine whether an other-than-temporary impairment has
occurred. Effective January 1, 2009, Entergy adopted an accounting
pronouncement providing guidance regarding recognition and
presentation of other-than-temporary impairments related to
investments in debt securities. The assessment of whether an
investment in a debt security has suffered an other-than-temporary
impairment is based on whether Entergy has the intent to sell
or more likely than not will be required to sell the debt security
before recovery of its amortized costs. Further, if Entergy does
not expect to recover the entire amortized cost basis of the debt
security, an other-than-temporary impairment is considered to
have occurred and it is measured by the present value of cash
flows expected to be collected less the amortized cost basis
(credit loss). For debt securities held as of January 1, 2009 for
which an other-than-temporary impairment had previously been
recognized but for which assessment under the new guidance
indicates this impairment is temporary, Entergy recorded an
adjustment to its opening balance of retained earnings of $11.3
million ($6.4 million net-of-tax). Entergy did not have any material
other-than-temporary impairments relating to credit losses on
debt securities for the years ended December 31, 2010 and 2009.
The assessment of whether an investment in an equity security
has suffered an other-than-temporary impairment continues to
be based on a number of factors including, first, whether Entergy
has the ability and intent to hold the investment to recover its
value, the duration and severity of any losses, and, then, whether
it is expected that the investment will recover its value within a
reasonable period of time. Entergy’s trusts are managed by third
parties who operate in accordance with agreements that define
investment guidelines and place restrictions on the purchases
and sales of investments. Entergy Wholesale Commodities
recorded charges to other income of $1 million in 2010, $86 million
in 2009, and $50 million in 2008, resulting from the recognition of
the other-than-temporary impairment of certain equity securities
held in its decommissioning trust funds.
Note 18. Variable Interest Entities
Under applicable authoritative accounting guidance, a variable
interest entity (VIE) is an entity that conducts a business or holds
property that possesses any of the following characteristics:
an insufficient amount of equity at risk to finance its activities,
equity owners who do not have the power to direct the
significant activities of the entity (or have voting rights that are
disproportionate to their ownership interest), or where equity
holders do not receive expected losses or returns. An entity may
have an interest in a VIE through ownership or other contractual
rights or obligations, and is required to consolidate a VIE if it is
the VIE’s primary beneficiary.
The FASB issued authoritative accounting guidance that
became effective in the first quarter 2010 that revised the manner
in which entities evaluate whether consolidation is required
for VIEs. Under the revised guidance, the primary beneficiary
of a VIE is the entity that has the power to direct the activities
of the VIE that most significantly affect the VIE’s economic
performance, and has the obligation to absorb losses or has the
right to residual returns that would potentially be significant to
the entity. In conjunction with the adoption of the new guidance,
Entergy updated reviews of its contracts and arrangements to
determine whether Entergy is the primary beneficiary of a VIE
based on the revisions to the previous consolidation model and
other provisions of this standard. Based on this review Entergy
determined that Entergy Arkansas, Entergy Gulf States Louisiana,
Entergy Louisiana, and System Energy should consolidate
the respective companies from which they lease nuclear fuel,
usually in a sale and leaseback transaction. This determination is
because Entergy directs the nuclear fuel companies with respect
to nuclear fuel purchases, assists the nuclear fuel companies
in obtaining financing, and, if financing cannot be arranged, the
lessee (Entergy Arkansas, Entergy Gulf States Louisiana, Entergy
Louisiana, or System Energy) is responsible to repurchase
nuclear fuel to allow the nuclear fuel company (the VIE) to meet
its obligations. Under the previous guidance, the determination
of the primary beneficiary of a VIE was based on ownership
interests and the risks and rewards in the entity attributable to
the variable interest holders. Therefore, the Entergy companies
did not previously consolidate the nuclear fuel companies.
Because Entergy has historically accounted for the leases with
the nuclear fuel companies as capital lease obligations, the effect
of consolidating the nuclear fuel companies did not materially
affect Entergy’s financial statements. During the term of the
arrangements, none of the Entergy operating companies have been
required to provide financial support apart from their scheduled
lease payments. See Note 4 to the financial statements for details
of the nuclear fuel companies’ credit facility and commercial
paper borrowings and long-term debt that are reported by
Entergy, Entergy Arkansas, Entergy Gulf States Louisiana, Entergy
Louisiana, and System Energy. These amounts also represent
Entergy’s and the respective Registrant Subsidiary’s maximum
exposure to losses associated with their respective interests in
the nuclear fuel companies.
Entergy Texas determined that Entergy Gulf States
Reconstruction Funding I, LLC, and Entergy Texas Restoration
Funding, LLC, companies wholly-owned and consolidated by
Entergy Texas, are variable interest entities and that Entergy
Texas is the primary beneficiary. In June 2007, Entergy Gulf States
Reconstruction Funding issued senior secured transition bonds
(securitization bonds) to finance Entergy Texas’s Hurricane
Rita reconstruction costs. In November 2009, Entergy Texas
Notes to Consolidated Financial Statements continued
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