Entergy 2012 Annual Report Download - page 60

Entergy Corporation and Subsidiaries 2012
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
The calculation of diluted earnings per share excluded 7,164,319
options outstanding at December 31, 2012, 5,712,604 options out-
standing at December 31, 2011, and 5,380,262 options outstanding
at December 31, 2010 that could potentially dilute basic earnings per
share in the future. Those options were not included in the calcula-
tion of diluted earnings per share because the exercise price of those
options exceeded the average market price for the year.
Stock-Based Compensation Plans
Entergy grants stock options, restricted stock, performance units,
and restricted liability awards to key employees of the Entergy sub-
sidiaries under its Equity Ownership Plans, which are shareholder-
approved stock-based compensation plans. These plans are described
more fully in Note 12 to the financial statements. The cost of the
stock-based compensation is charged to income over the vesting
period. 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-reg-
ulated enterprises whose rates meet three criteria specified in account-
ing 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 gen-
eration or transmission functions, or to specific classes of custom-
ers. 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 regula-
tory 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, where specific recovery is not provided for in tariff rates.
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 esti-
mate 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 regula-
tory 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 rec-
ognized in the accumulated other comprehensive income component
of 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 com-
prehensive income component of 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
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. See Note 17 to the financial
statements for details on the decommissioning trust funds.
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, 2012 2011 2010
$/share $/share $/share
Net income attributable to Entergy Corporation $846.7 – $1.346.4 – $1,250.2 –
Basic earnings per average common share 177.3 $ 4.77 177.4 $ 7.59 186.0 $6.72
Average dilutive effect of:
Stock options 0.3 (0.01) 1.0 (0.04) 1.8 (0.06)
Other equity plans 0.1 – – – – –
Diluted earnings per average common shares 177.7 $ 4.76 178.4 $ 7.55 187.8 $6.66
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