Entergy 2010 Annual Report Download - page 39

ENTERGY CORPORATION AND SUBSIDIARIES 2010
Management’s Financial Discussion and Analysis continued
Sources of Capital - Hurricane Gustav and Hurricane Ike”;
n an increase of $8 million in customer service costs primarily
as a result of write-offs of uncollectible customer
accounts; and
n a reimbursement of $7 million of costs in 2008 in connection
with a litigation settlement.
Depreciation and amortization expenses increased primarily
due to an increase in plant in service.
Other income increased primarily due to:
n an increase in distributions of $25 million earned by Entergy
Louisiana and $9 million earned by Entergy Gulf States
Louisiana on investments in preferred membership interests
of Entergy Holdings Company. The distributions on preferred
membership interests are eliminated in consolidation
and have no effect on Entergy’s net income because the
investment is in another Entergy subsidiary. See Note 2 to the
financial statements for a discussion of these investments in
preferred membership interests;
n carrying charges of $35 million on Hurricane Ike storm
restoration costs as authorized by Texas legislation in the
second quarter 2009;
n an increase of $15 million in allowance for equity funds
used during construction due to more construction work
in progress primarily as a result of Hurricane Gustav and
Hurricane Ike; and
n a gain of $16 million recorded on the sale of undeveloped real
estate by Entergy Louisiana Properties, LLC.
These increases in other income were partially offset by a
decrease of $14 million in taxes collected on advances for
transmission projects and a decrease of $18 million resulting
from lower interest earned on the decommissioning trust funds
and short-term investments.
Interest charges increased primarily due to an increase in long-
term debt outstanding resulting from debt issuances by certain
of the Utility operating companies in the second half of 2008 and
in 2009.
Entergy Wholesale Commodities
Other operation and maintenance expenses increased from $836
million in 2008 to $922 million in 2009 primarily due to $46 million
in outside service costs and incremental labor costs related to the
then planned spin-off of Entergy’s non-utility nuclear business.
Also contributing to the increase were higher nuclear labor and
regulatory costs.
Other income decreased primarily due to $86 million in charges
in 2009 compared to $50 million in charges in 2008 resulting from
the recognition of impairments of certain equity securities held
in Entergy Wholesale Commodities’ decommissioning trust funds
that are not considered temporary. The decrease was partially
offset by increases in interest income and realized earnings from
the decommissioning trust funds and interest income from loans
to Entergy subsidiaries.
Parent & Other
Other operation and maintenance expenses decreased for
the parent company, Entergy Corporation, primarily due to a
decrease in outside services costs of $38 million related to the
then planned spin-off of Entergy’s non-utility nuclear business.
Other income decreased primarily due to:
n an increase in the elimination for consolidation purposes of
interest income from Entergy subsidiaries; and
n increases in the elimination for consolidation purposes of
distributions earned of $25 million by Entergy Louisiana and
$9 million by Entergy Gulf States Louisiana on investments
in preferred membership interests of Entergy Holdings
Company, as discussed above.
Interest charges decreased primarily due to lower interest
rates on borrowings under Entergy Corporation’s revolving
credit facility.
INCOME TAXES
The effective income tax rate for 2009 was 33.6%. See “2010
Compared to 2009 – Income Taxes” above for an explanation of
the difference between the effective income tax rate versus the
federal statutory rate of 35% for 2009.
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 recognition of a capital loss of $202 million on the liquidation
of an Entergy Wholesale Commodities subsidiary;
n reduction of the provision for uncertain tax positions of $44.3
million resulting from settlements and agreements with taxing
authorities; and
n an adjustment to state income taxes of approximately
$18.8 million for Entergy Wholesale Commodities 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.
These factors were partially offset by:
n income taxes of $16.1 million recorded on redemption
payments received by an Entergy Wholesale Commodities
subsidiary; 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 the Entergy Arkansas write-offs
referenced above.
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.
Liquidity and Capital Resources
This section discusses Entergy’s capital structure, capital
spending plans and other uses of capital, sources of capital, and
the cash flow activity presented in the cash flow statement.
Capital Structure
Entergy’s capitalization is balanced between equity and debt,
as shown in the following table.
2010 2009
Debt to capital 57.3% 57.4%
Effect of excluding Arkansas and Texas
securitization bonds (2.0%) (1.8%)
Debt to capital, excluding securitization bonds(1) 55.3% 55.6%
Effect of subtracting cash (3.2%) (4.1%)
Net debt to net capital,
excluding securitization bonds(1) 52.1% 51.5%
(1) Calculation excludes the Arkansas and Texas securitization bonds,
which are non-recourse to Entergy Arkansas and Entergy Texas,
respectively.
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