Entergy 2011 Annual Report Download - page 66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The calculation of diluted earnings per share excluded 5,712,604
options outstanding at December 31, 2011, 5,380,262 options
outstanding at December 31, 2010, and 4,368,614 options outstanding
at December 31, 2009 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. Entergy accounts for stock options using the fair value
based method. Awards under Entergy’s plans generally vest over
three years.
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 (its regulator)
empowered to set rates that bind customers; (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 portion of River Bend that is not rate-regulated, 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. 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).
The assessment of whether an investment in an equity security has
suffered an other-than-temporary impairment is 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
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, 2011 2010 2009
Income Shares $/share Income Shares $/share Income Shares $/share
Basic earnings per average common share
Net income attributable to Entergy Corporation $ 1,346.4 177.4 $ 7.59 $ 1,250.2 186.0 $ 6.72 $ 1,231.1 192.8 $ 6.39
Average dilutive effect of:
Stock options – 1.0 (0.04) – 1.8 (0.06) – 2.2 (0.07)
Equity units – – – – – – 3.2 0.8 (0.02)
Diluted earnings per average common share $1,346.4 178.4 $ 7.55 $1,250.2 187.8 $6.66 $1,234.3 195.8 $ 6.30
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