Entergy 2010 Annual Report Download - page 66

Notes to Consolidated Financial Statements continued
The calculation of diluted earnings per share excluded
5,380,262 options outstanding at December 31, 2010, 4,368,614
options outstanding at December 31, 2009, and 3,326,835 options
outstanding at December 31, 2008 that could potentially dilute
basic earnings per share in the future. Those options were not
included in the calculation of diluted earnings per share because
the exercise price of those options exceeded the average market
price for the year.
See Note 7 to the financial statements for a discussion of the
equity units.
Stock-Based Compensation Plans
Entergy grants stock options to key employees of the Entergy
subsidiaries, which is described more fully in Note 12 to
the financial statements. Effective January 1, 2003, Entergy
prospectively adopted the fair value based method of accounting
for stock options. Awards under Entergy’s plans generally vest
over three years. Stock-based compensation expense included in
consolidated net income, net of related tax effects, is $9.2 million
for 2010, is $10.4 million for 2009, and is $10.7 million for 2008 for
Entergy’s stock options granted.
Accounting for the Effects of Regulation
Entergy’s Utility operating companies and System Energy are rate-
regulated enterprises whose rates meet three criteria specified in
accounting standards. The Utility operating companies and System
Energy have rates that (i) are approved by a body empowered to
set rates that bind customers (its regulator); (ii) are cost-based;
and (iii) can be charged to and collected from customers. These
criteria may also be applied to separable portions of a utility’s
business, such as the generation or transmission functions, or
to specific classes of customers. Because the Utility operating
companies and System Energy meet these criteria, each of them
capitalizes costs that would otherwise be charged to expense
if the rate actions of its regulator make it probable that those
costs will be recovered in future revenue. Such capitalized costs
are reflected as regulatory assets in the accompanying financial
statements. When an enterprise concludes that recovery of a
regulatory asset is no longer probable, the regulatory asset must
be removed from the entity’s balance sheet.
An enterprise that ceases to meet the three criteria for all or
part of its operations should report that event in its financial
statements. In general, the enterprise no longer meeting the
criteria should eliminate from its balance sheet all regulatory
assets and liabilities related to the applicable operations.
Additionally, if it is determined that a regulated enterprise is no
longer recovering all of its costs, it is possible that an impairment
may exist that could require further write-offs of plant assets.
Entergy Gulf States Louisiana does not apply regulatory
accounting standards to the Louisiana retail deregulated portion
of River Bend, the 30% interest in River Bend formerly owned by
Cajun, and its steam business. The Louisiana retail deregulated
portion of River Bend is operated under a deregulated asset plan
representing a portion (approximately 15%) of River Bend plant
costs, generation, revenues, and expenses established under a
1992 LPSC order. The plan allows Entergy Gulf States Louisiana to
sell the electricity from the deregulated assets to Louisiana retail
customers at 4.6 cents per kWh or off-system at higher prices,
with certain provisions for sharing incremental revenue above
4.6 cents per kWh between ratepayers and shareholders.
Cash and Cash Equivalents
Entergy considers all unrestricted highly liquid debt instruments
with an original or remaining maturity of three months or less at
date of purchase to be cash equivalents.
Allowance for Doubtful Accounts
The allowance for doubtful accounts reflects Entergy’s best
estimate of losses on the accounts receivable balances. The
allowance is based on accounts receivable agings, historical
experience, and other currently available evidence. Utility
operating company customer accounts receivable are written off
consistent with approved regulatory requirements.
Investments
Entergy records decommissioning trust funds on the balance
sheet at their fair value. Because of the ability of the Registrant
Subsidiaries to recover decommissioning costs in rates and in
accordance with the regulatory treatment for decommissioning
trust funds, the Registrant Subsidiaries have recorded an offsetting
amount of unrealized gains/(losses) on investment securities in
other regulatory liabilities/assets. For the nonregulated portion
of River Bend, Entergy Gulf States Louisiana has recorded an
offsetting amount of unrealized gains/(losses) in other deferred
credits. Decommissioning trust funds for Pilgrim, Indian Point
2, Vermont Yankee, and Palisades do not meet the criteria for
regulatory accounting treatment. Accordingly, unrealized gains
recorded on the assets in these trust funds are recognized in
the accumulated other comprehensive income component of
shareholders’ equity because these assets are classified as
available for sale. Unrealized losses (where cost exceeds fair
market value) on the assets in these trust funds are also recorded
in the accumulated other comprehensive income component of
shareholders’ equity unless the unrealized loss is other than
temporary and therefore recorded in earnings. Effective January
1, 2009, Entergy adopted an accounting pronouncement providing
Earnings per Share
The 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):
For the Years Ended December 31, 2010 2009 2008
Income Shares $/share Income Shares $/share Income Shares $/share
Basic earnings per average common share
Net income attributable to Entergy Corporation $ 1,250.2 186.0 $ 6.72 $ 1,231.1 192.8 $ 6.39 $ 1,220.6 190.9 $ 6.39
Average dilutive effect of:
Stock options – 1.8 (0.06) – 2.2 (0.07) – 4.1 (0.13)
Equity units – – – 3.2 0.8 (0.02) 24.7 6.0 (0.06)
Diluted earnings per average common share $1,250.2 187.8 $6.66 $1,234.3 195.8 $ 6.30 $1,245.3 201.0 $ 6.20
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