10-Q 1 a16702.txt _____________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2002 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address of Principal Executive Identification No. Offices and Telephone Number 1-11299 ENTERGY CORPORATION 72-1229752 (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 576-4000 1-10764 ENTERGY ARKANSAS, INC. 71-0005900 (an Arkansas corporation) 425 West Capitol Avenue, 40th Floor Little Rock, Arkansas 72201 Telephone (501) 377-4000 1-27031 ENTERGY GULF STATES, INC. 74-0662730 (a Texas corporation) 350 Pine Street Beaumont, Texas 77701 Telephone (409) 838-6631 1-8474 ENTERGY LOUISIANA, INC. 72-0245590 (a Louisiana corporation) 4809 Jefferson Highway Jefferson, Louisiana 70121 Telephone (504) 840-2734 0-320 ENTERGY MISSISSIPPI, INC. 64-0205830 (a Mississippi corporation) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 0-5807 ENTERGY NEW ORLEANS, INC. 72-0273040 (a Louisiana corporation) 1600 Perdido Street, Building 505 New Orleans, Louisiana 70112 Telephone (504) 670-3674 1-9067 SYSTEM ENERGY RESOURCES, INC. 72-0752777 (an Arkansas corporation) Echelon One 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000 _____________________________________________________________________ Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Common Stock Outstanding Outstanding at July 31, 2002 Entergy Corporation ($0.01 par value) 224,028,796 Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 2001, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed by the individual registrants with the SEC, and should be read in conjunction therewith. Forward-Looking Information The following constitutes a "Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that forward-looking statements contained herein with respect to the revenues, earnings, performance, strategies, prospects and other aspects of the business of Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. and their affiliated companies may involve risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, risks and uncertainties relating to: the effects of weather, the performance of generating units and transmission systems, the possession of nuclear materials, fuel and purchased power prices and availability, the effects of regulatory decisions and changes in law, litigation, capital spending requirements and the availability of capital, the onset of competition, the ability to recover net regulatory assets and other potential stranded costs, the effects of the California electricity market on the utility industry nationally, advances in technology, changes in accounting standards, corporate restructuring and changes in capital structure, the success of new business ventures, changes in the markets for electricity and other energy-related commodities, including the use of financial and derivative instruments and volatility of changes in market prices, changes in the number of participants and the risk profile of such participants in the energy marketing and trading business, changes in interest rates and in financial and foreign currency markets generally, the economic climate and growth in Entergy's service territories, changes in corporate strategies, and other factors. ENTERGY CORPORATION AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 2002 Page Number Definitions 1 Management's Financial Discussion and Analysis - Significant Factors and Known Trends 4 Management's Financial Discussion and Analysis - Liquidity and Capital Resources 9 Results of Operations and Financial Statements: Entergy Corporation and Subsidiaries: Results of Operations 14 Consolidated Statements of Income 21 Consolidated Statements of Cash Flows 22 Consolidated Balance Sheets 24 Consolidated Statements of Retained Earnings, Comprehensive Income, and Paid-In Capital 26 Selected Operating Results 27 Entergy Arkansas, Inc.: Results of Operations 28 Income Statements 32 Statements of Cash Flows 33 Balance Sheets 34 Selected Operating Results 36 Entergy Gulf States, Inc.: Results of Operations 37 Income Statements 40 Statements of Cash Flows 41 Balance Sheets 42 Selected Operating Results 44 Entergy Louisiana, Inc.: Results of Operations 45 Income Statements 48 Statements of Cash Flows 49 Balance Sheets 50 Selected Operating Results 52 Entergy Mississippi, Inc.: Results of Operations 53 Income Statements 56 Statements of Cash Flows 57 Balance Sheets 58 Selected Operating Results 60 Entergy New Orleans, Inc.: Results of Operations 61 Statements of Operations 64 Statements of Cash Flows 65 Balance Sheets 66 Selected Operating Results 68 System Energy Resources, Inc.: Results of Operations 69 Income Statements 71 Statements of Cash Flows 73 Balance Sheets 74 Notes to Financial Statements for Entergy Corporation and Subsidiaries 76 Part II: Item 1. Legal Proceedings 89 Item 4. Submission of Matters to a Vote of Security Holders 89 Item 5. Other Information 91 Item 6. Exhibits and Reports on Form 8-K 93 Signature 96 DEFINITIONS Certain abbreviations or acronyms used in the text are defined below: Abbreviation or Acronym Term ADEQ Arkansas Department of Environmental Quality AFUDC Allowance for Funds Used During Construction ALJ Administrative Law Judge ANO 1 and 2 Units 1 and 2 of Arkansas Nuclear One Steam Electric Generating Station (nuclear) APSC Arkansas Public Service Commission BCF/D One billion cubic feet of natural gas per day Board Board of Directors of Entergy Corporation Cajun Cajun Electric Power Cooperative, Inc. capacity factor The percentage of the period that the plant generates power calculated by dividing the output by the capacity and normalizing the time period CitiPower CitiPower Pty., an electric distribution company serving Melbourne, Australia and surrounding suburbs, which was sold by Entergy effective December 31, 1998 Council Council of the City of New Orleans, Louisiana Damhead Creek 800 MW (gas) combined cycle electric generating facility that entered commercial operations in the first quarter of 2001, located in the United Kingdom, and wholly- owned by an indirect subsidiary of EPDC DOE United States Department of Energy domestic utility companies Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively electricity marketed Total physical GWH volumes marketed in the U.S. during the period electricity volatility Measure of price fluctuation over time using standard deviation of daily price differences for into-Entergy and into- Cinergy power prices for the upcoming month EPA United States Environmental Protection Agency EPDC Entergy Power Development Corporation, a wholly-owned subsidiary of Entergy Corporation EWO Entergy Wholesale Operations, which consists primarily of Entergy's power development business Entergy Entergy Corporation and its direct and indirect subsidiaries Entergy Arkansas Entergy Arkansas, Inc. Entergy Gulf States Entergy Gulf States, Inc., including its wholly owned subsidiaries - Varibus Corporation, GSG&T, Inc., Prudential Oil & Gas, Inc., and Southern Gulf Railway Company Entergy-Koch Entergy-Koch, L.P., a joint venture equally owned by Entergy and Koch Industries, Inc. Entergy London Entergy London Investments plc, formerly Entergy Power UK plc (including its wholly owned subsidiary, London Electricity plc), which was sold by Entergy effective December 4, 1998 Entergy Louisiana Entergy Louisiana, Inc. Entergy Mississippi Entergy Mississippi, Inc. Entergy New Orleans Entergy New Orleans, Inc. Entergy Power Entergy Power, Inc. FERC Federal Energy Regulatory Commission Fitzpatrick James A. Fitzpatrick nuclear power plant, 825 MW facility located near Oswego, New York, purchased in November 2000 from NYPA by Entergy's domestic non-utility nuclear business Abbreviation or Acronym Term Form 10-K The combined Annual Report on Form 10-K for the year ended December 31, 2001 of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy gain/loss days Ratio of the number of days when Entergy- Koch recognized a net gain from commodity trading activities to the number of days when Entergy-Koch recognized a net loss from commodity trading activities gas marketed Total volume of physical gas purchased plus volume of physical gas sold by Entergy-Koch in the U.S. denominated in billions of cubic feet per day gas volatility Measure of price fluctuation over time using standard deviation of daily price differences for Henry Hub natural gas prices for the upcoming month Grand Gulf 1 Unit No. 1 of the Grand Gulf Nuclear Generation Plant GGART Grand Gulf Accelerated Recovery Tariff GWH Gigawatt hour(s), which equals one million kilowatt-hours Indian Point 2 Indian Point Energy Center Unit 2 - nuclear power plant, 970 MW facility located in Westchester County, New York, purchased in September 2001 from Consolidated Edison by Entergy's domestic non-utility nuclear business Indian Point 3 Indian Point Energy Center Unit 3 - nuclear power plant, 980 MW facility located in Westchester County, New York, purchased in November 2000 from NYPA by Entergy's domestic non-utility nuclear business KWH kilowatt-hour(s) LDEQ Louisiana Department of Environmental Quality LPSC Louisiana Public Service Commission miles of pipeline Total miles of transmission and gathering pipeline MMBTU One million British Thermal Units MPSC Mississippi Public Service Commission MW Megawatt(s), which equals one thousand kilowatt(s) Net MW in operation Installed capacity owned or operated Net revenue Operating revenue net of fuel, fuel-related, and purchased power expenses; other regulatory credits; and amortization of rate deferrals NRC Nuclear Regulatory Commission NYPA New York Power Authority production cost Cost in $/MMBTU associated with delivering gas, excluding the cost of the gas PUCT Public Utility Commission of Texas PUHCA Public Utility Holding Company Act of 1935, as amended RTO Regional transmission organization River Bend River Bend Steam Electric Generating Station (nuclear) SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board spark spread The dollar difference between electricity prices per unit and natural gas prices after assuming a conversion ratio for the number of natural gas units necessary to generate one unit of electricity storage capacity Working gas storage capacity System Agreement Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources System Energy System Energy Resources, Inc. System Fuels System Fuels, Inc. Abbreviation or Acronym Term throughput Gas in BCF/D transported by the pipeline during the period Unit Power Sales Agreement Agreement, dated as of June 10, 1982, as amended and approved by FERC, among Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf 1 Vermont Yankee Vermont Yankee nuclear power plant, 510 MW facility located in Vernon, Vermont, purchased in July 2002 from Vermont Yankee Nuclear Power Corporation by Entergy's domestic non-utility nuclear business Waterford 3 Unit No. 3 (nuclear) of the Waterford Plant ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K for discussions of Entergy's three business segments; its critical accounting policies; the status of the transition to retail competition in the domestic utility segment and the continued application of SFAS 71 to that business; state, local, and federal regulatory proceedings that could affect the domestic utility segment; the market risks that each of Entergy's business segments are exposed to; and other significant issues affecting Entergy. Set forth below are updates to the significant factors and known trends discussed in the Form 10-K. Entergy Wholesale Operations In the first six months of 2002, Entergy recorded charges of $419.5 million to operating expenses ($271.5 million net of tax), including $18.1 million ($10.6 million net of tax) in the second quarter, in the energy commodity services segment to reflect the effect of Entergy's decision to discontinue additional EWO greenfield power plant development and to reflect asset impairments resulting from the deteriorating economics of wholesale power markets in the United States and the United Kingdom. The charges consist of the following: o as discussed in "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" in the Form 10-K, EWO's power development business obtained contracts in October 1999 to acquire 36 turbines from General Electric. Entergy's rights and obligations under the contracts for 22 of the turbines were sold to an independent special-purpose entity in May 2001. $180.2 million of the charges is a provision for the net costs resulting from cancellation or sale of the turbines subject to purchase commitments with the special-purpose entity; o $167.5 million of the charges results from the write-off of EPDC's equity investment in the Damhead Creek project and the impairment of the values of its Warren Power power plant and its Crete and RS Cogen projects. This portion of the charges reflects Entergy's estimate of the effects of reduced spark spreads in the United States and the United Kingdom; o $39.1 million of the charges relates to the restructuring of EWO, which is comprised of $22.5 million of impairments of EWO administrative fixed assets, $10.7 million of estimated sublease losses, and $5.9 million of employee-related costs. Management expects the restructuring of EWO to be substantially complete by the end of 2002; and o $32.7 million of the charges results from the write-off of capitalized project development costs for projects that will not be completed. Entergy does not expect further adjustments to these charges in the future, other than those that could result from changes in asset values due to dispositions or changes in market conditions, and potential benefits from the sale of three turbines currently under option to a third party. Also, in the first quarter of 2002, EWO sold its interests in projects in Argentina, Chile, and Peru for net proceeds of $135.5 million. The proceeds include notes receivable totaling $86 million, on which EWO received $46 million of payments in the second quarter. The remaining balance is due in the third quarter 2003. After impairment provisions recorded for these interests in 2001, the net loss realized on the sale is insignificant. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS After the decision to discontinue additional greenfield development and the sale of the Latin American investments, EWO continues to operate or construct the following power plants:
Investment Capacity (MW) Percent Ownership Status United Kingdom - Damhead Creek 800 100% operational (see Note*) U.S. (AR)- Ritchie Unit 2 544 100% operational U.S. (AR)- Independence Unit 2 842 14% operational U.S. (MS)- Warren Power 300 100% operational U.S. (IA)- Top of Iowa Wind Farm 80 99% operational U.S. (IL)- Crete 320 50% operational U.S. (LA)- RS Cogen 425 50% under construction U.S. (TX)- Harrison County 550 70% under construction
Note*- As discussed above, EPDC has written off its equity investment in Damhead Creek. The credit facility financing Damhead Creek is non- recourse to Entergy, and there is no requirement for Entergy or EPDC to make additional capital contributions or provide credit support to Damhead Creek. Therefore, consistent with Entergy's decisions concerning EWO's business and because Entergy no longer has equity at risk in the Damhead Creek investment, Entergy earnings are no longer affected by Damhead Creek since the end of March 2002. However, Damhead Creek revenues and expenses continue to be included in the accompanying results of operations. Accordingly, commodity price risk disclosures in this section have been revised to eliminate Damhead Creek amounts on a forward-looking basis. Domestic Utility Transition to Competition Texas As discussed in the Form 10-K, a PUCT-approved settlement delayed the implementation of retail open access in Entergy Gulf States' Texas service territory until at least September 15, 2002. Management now estimates that the SeTrans RTO will not be operational prior to January 2004. Therefore, retail open access in Entergy Gulf States' Texas service territory within the context of a functional FERC-approved RTO is not likely to begin before January 2004. Given the delay in retail open access in its Texas service territory, Entergy Gulf States cannot predict what, if any, additional changes to previously approved plans may be required by the PUCT or the LPSC. State and Local Rate Regulation Entergy New Orleans In May 2002, Entergy New Orleans filed a cost of service study and revenue requirement filing with the Council. Using 2001 as the test year, the filing indicated that a revenue deficiency exists and that a $28.9 million electric rate increase and a $15.3 million gas rate increase are appropriate. The Council has not established a procedural schedule. As discussed in the Form 10-K, and as shown in Item 5 of this Form 10-Q, Entergy New Orleans' earnings for the year ended December 31, 2001 and for the twelve months ended June 30, 2002 were not adequate to cover its fixed charges. Under its mortgage covenants, Entergy New Orleans does not currently have the capacity to issue new debt. Since the settlement of Entergy New Orleans' last rate proceeding, which was approved by the Council in 1998, its fixed charge coverage has declined and its debt ratio has increased. While ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Entergy New Orleans has made investments and incurred expenses necessary to improve customer service since the last rate proceeding, its base revenues have not increased. Absent constructive rate-making in the pending proceeding, it is likely that the cost of and access to the capital necessary to finance Entergy New Orleans' current level of service will be adversely affected. Entergy Arkansas In May 2002, the APSC approved the March 2002 settlement agreement submitted by Entergy Arkansas, the APSC Staff, and the Arkansas attorney general. The APSC also approved in June 2002 a contribution by Entergy Arkansas of $5.9 million to the transition cost account (TCA) as a result of the 2001 earnings evaluation report filing. The settlement agreement allowed Entergy Arkansas to offset ice storm recovery costs with the balance in the TCA on a rate class basis. Entergy Arkansas recorded a regulatory asset of $15.8 million due to ice storm costs exceeding the available TCA funds. Entergy Gulf States In May 2001, Entergy Gulf States filed its eighth required post- merger earnings review with the LPSC. This filing is subject to review by the LPSC and may result in a change in rates. In April 2002, the LPSC staff filed testimony recommending a $16.5 million rate refund and a $40.1 million prospective rate reduction. The prospective reduction includes a recommended reduction in the rate of return on common equity (ROE) that would not take effect until the later of June 2003 or the date of the LPSC's order. Hearings were held in April 2002 and will continue in August 2002. In May 2002, Entergy Gulf States filed its ninth and last required post-merger earnings analysis with the LPSC. The filing was based on the 2001 test year and resulted in a rate decrease of $11.5 million, which was implemented effective June 2002. This filing is subject to review by the LPSC and may result in additional or different changes in rates than those sought in the filing. No procedural schedule has been adopted. Negotiations with the LPSC staff for a statewide formula rate plan in Louisiana are ongoing. Entergy Louisiana In July 2002, the LPSC approved a settlement between Entergy Louisiana and the LPSC Staff that resolves all remaining issues in the 2000 and 2001 formula rate plan proceedings. Entergy Louisiana agreed to a $5 million annual rate reduction effective August 2001. The prospective rate reduction will be implemented beginning in August 2002 and the refund for the retroactive period will occur in September 2002. As part of the settlement, Entergy Louisiana's rates, including its previously authorized ROE of 10.5%, will remain in effect until changed pursuant to a new formula rate plan or a revenue requirement analysis to be filed by June 30, 2003. Negotiations with the LPSC staff for a statewide formula rate plan in Louisiana are ongoing. Market Risks Disclosure Following are sections from the "Market Risks Disclosure" in the Form 10-K that have significant updates as of June 30, 2002. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Commodity Price Risk Power Generation As discussed in the Form 10-K, energy commodity services enters into forward power sale agreements to hedge its exposure to market price fluctuations. The following represents the percentage of planned electricity output sold forward under physical or financial contracts for energy commodity services' generation facilities updated as of June 30, 2002: 2002 2003 % sold % sold Planned GWH forward Planned GWH forward 1,237 46% 2,966 20% Marketing and Trading As discussed in the Form 10-K, Entergy-Koch Trading (EKT) and Entergy use value-at-risk (VAR) models as one measure of a potential loss in fair value for EKT's natural gas and power trading portfolio and energy commodity services' mark-to-market portfolio. EKT's daily VAR for its trading portfolio at June 30, 2002 and March 31, 2002 was $13.6 million and $9.5 million, respectively, with a daily average of $10.0 million for the second quarter of 2002 and $7.7 million for the first quarter of 2002. Energy commodity services' consolidated subsidiaries' VAR for mark-to-market derivative instruments was approximately $0.8 million and $4.5 million as of June 30, 2002 and March 31, 2002, respectively. Mark-to-market Accounting As discussed in the Form 10-K, Entergy and Entergy-Koch mark-to- market commodity instruments held by them for trading and risk management purposes that are considered derivatives under SFAS 133 or energy trading contracts under EITF 98-10. Following are the net mark-to-market assets (liabilities) and the period within which the assets (liabilities) would be realized in cash if they are held to maturity and market prices do not change:
Net mark-to- market asset (liability) at June 30, 2002 Cumulative cash realization period 2002 2003 2004-2005 Entergy consolidated subsidiaries ($8) million 84% 35% 100% Entergy-Koch $118 million 31% 73% 100%
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Foreign Currency Exchange Rate Risk As discussed in the Form 10-K, Entergy Gulf States, System Fuels, and Entergy's domestic non-utility nuclear business enter into foreign currency forward contracts to hedge the Euro-denominated payments due under certain purchase contracts. As of June 30, 2002, the total notional amount of the foreign currency forward contracts is 268.9 million Euro and the forward currency rates range from .8624 to .9904 (the weighted average of the rates is .8784). The maturities of these forward contracts depend on the purchase contract payment dates and range in time from July 2002 to May 2005. The mark- to-market valuation of the forward contracts at June 30, 2002 was a net asset of $27.5 million. The counterparty banks obligated on 252.4 million Euro of the notional amount of these agreements are rated by Standard and Poor's Rating Services at AA on their senior debt obligations as of June 30, 2002. The counterparty bank obligated on 16.5 million Euro of the notional amount of these agreements, which are Entergy Gulf States contracts, are rated by Standard and Poor's Rating Services at A+ on their senior debt obligations as of June 30, 2002. For the Entergy Gulf States contracts, the total notional amount of the foreign currency forward contracts are 33.7 million Euro and the forward currency rates range from .8742 to .9831 (the weighted average of the rates is .8772). The maturities of the Entergy Gulf States forward contracts depend on the purchase contract payment dates and range in time from January 2003 to July 2004. The mark-to- market valuation of the forward contracts at June 30, 2002 was a net asset of $3.5 million. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Cash Flow Operations Net cash flow provided by (used in) operating activities for Entergy, the domestic utility companies, and System Energy for the six months ended June 30, 2002 and 2001 was as follows: Company 2002 2001 (In Millions) Entergy $803.0 $600.7 Entergy Arkansas $133.8 $160.5 Entergy Gulf States $242.8 $184.9 Entergy Louisiana $190.6 $195.2 Entergy Mississippi $59.2 ($8.4) Entergy New Orleans ($15.0) ($1.8) System Energy $121.6 $95.5 Entergy's consolidated net cash flow provided by operating activities increased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to: o an $85 million increase in operating cash flow provided by domestic utility primarily resulting from an increase in fuel-related accounts payable in 2002 due to larger payments on these payables in 2001; and o an $89 million increase in operating cash flow provided by domestic non-utility nuclear, primarily due to nuclear refueling outages at Pilgrim and Indian Point 3 in 2001 combined with increased net income in 2002 primarily resulting from the operation of Indian Point 2. See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" in the Form 10-K for discussion of a change in a method of accounting for tax purposes made by Entergy Louisiana in 2001. The new tax accounting method is now expected to provide a cumulative cash flow benefit of approximately $700 million - $800 million through 2004, which is expected to reverse in the years 2005 through 2031. The timing of the reversal of this benefit depends on several variables, including the price of power. Approximately half of the consolidated cash flow benefit for Entergy Corporation occurred in 2001 and the remainder will occur in 2002. In accordance with Entergy's intercompany tax allocation agreement, most of the cash flow benefit for Entergy Louisiana will occur in 2002. While Entergy believes it is entitled to make this change in its method of accounting for tax purposes, Entergy recognizes that it is a case of first impression and may be subject to an Internal Revenue Service audit. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Money pool activity also affected the operating cash flows of the domestic utility companies and System Energy. The money pool is an inter-company funding arrangement designed to reduce the domestic utility companies' and System Energy's dependence on external short- term borrowings. The money pool provides a means by which, on a daily basis, the excess funds of Entergy Corporation, the domestic utility companies, and System Energy may be used by the domestic utility companies or System Energy to fulfill short-term cash requirements. The following table shows the domestic utility companies and System Energy's receivables from and (payables) to the money pool as of the indicated date. An increase in a company's (payable) to the money pool increases the operating cash flow of that company. An increase in a company's receivable from the money pool decreases the operating cash flow of that company. June 30, December 31, June 30, December 31, Company 2002 2001 2001 2000 (In Millions) Entergy Arkansas $25.1 $23.8 ($165.4) ($30.7) Entergy Gulf States ($7.9) $27.7 ($26.6) $23.4 Entergy Louisiana ($84.5) $3.8 $72.0 $22.9 Entergy Mississippi ($3.8) $11.5 ($34.1) ($33.3) Entergy New Orleans ($5.3) $9.2 ($16.9) ($5.7) System Energy $62.8 $13.9 $256.7 $155.3 See "MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES - Capital Resources - Sources of Capital" in the Form 10-K for a discussion of the limitations on these borrowings. Investing Activities Net cash used in investing activities decreased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to: o cash contributions of approximately $414 million made in 2001 in the formation of Entergy-Koch; o cash of $272 million invested in 2001 to provide collateral for the NYPA line of credit in conjunction with the acquisition of the FitzPatrick and Indian Point 3 nuclear power plants; and o the maturity in 2002 of $150 million of other temporary investments. Partially offsetting the decrease in net cash used in investing activities was an increase of $153 million in construction expenditures for the six months ended June 30, 2002 compared to the same period in 2001 primarily related to turbine purchases for EWO's Harrison County project, as discussed below. Financing Activities Net cash used in financing activities increased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to: o net retirements of long-term debt by the domestic utility segment of $403 million in 2002, compared to net issuances of long- term debt of $48 million in 2001; and o the retirement of $268 million of long-term debt by EWO in April 2002 related to the purchase of the rights to the turbines discussed below. Partially offsetting the increase in net cash used in financing activities was an increase in the amount of draws made on short-term credit facilities by Entergy Corporation in 2002. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Capital Resources See MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES - Capital Resources" in the Form 10-K for a discussion of Entergy's uses and sources of capital. The following are updates to the Form 10-K. Uses of Capital Capital Expenditures See "ANO Matters" in Part I of the Form 10-K for discussion of the ANO 1 steam generators and reactor vessel closure head. On July 25, 2002, the Board authorized Entergy Arkansas and Entergy Operations to replace the ANO 1 steam generators and reactor vessel closure head. Entergy management estimates the cost of the fabrication and replacement to be approximately $235 million, of which approximately $135 million will be incurred through 2004. Management expects a contractor for the installation of the replacement steam generators and reactor vessel closure head to be selected by December 2002. Management expects that the replacement will occur during a planned refueling outage in 2005. Entergy's current capital investment plan through 2004 includes $2.9 billion in spending by the domestic utility for maintenance capital; $0.4 billion in spending by energy commodity services comprised of $0.1 billion for after-tax turbine contract cancellation costs and $0.3 billion for previous investment commitments; and $0.7 billion in spending by the domestic non-utility nuclear business comprised of $0.5 billion for maintenance capital and $0.2 billion for the purchase of Vermont Yankee (discussed below). These amounts reflect the approval by the Board of the ANO 1 steam generator replacement project and the decision announced during 2002 to end new greenfield development by EWO. In addition to these amounts, Entergy estimates that an additional $2.8 billion will be available for other investments which have not yet been identified. This amount is based upon Entergy's current estimate of operating cash flows and dividends over the period from 2002 through 2004, and includes approximately $1.4 billion of additional debt which Entergy believes it can issue and still maintain its targeted 50% net debt to net capital ratio. Entergy Wholesale Operations As discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" in the Form 10-K, EWO's power development business obtained contracts in October 1999 to acquire 36 turbines from General Electric Company. The rights and obligations under the contracts for 22 of the turbines were sold to an independent special-purpose entity in May 2001. In conjunction with Entergy's obligations related to this sale, Entergy retained certain rights to reacquire turbines or to cancel the construction of the turbines. In April 2002, Entergy paid a total of $351 million to reacquire the rights to the turbines. $83 million of the payments were for the turbines to be placed in the Harrison County project, which is in construction and scheduled to be completed in 2003. Entergy subsequently received a reimbursement from General Electric of $28 million of prior payments. With the reacquisition of the rights to the turbines, EWO's obligations to the special-purpose entity and Entergy Corporation's guarantee of up to $309 million in support of those obligations were terminated. EWO placed 17 of the original 36 turbines at sites that are either operating, under construction, or sold. Of the remaining 19 turbines, four were sold to a third party, three were optioned to another third party, and 12 were cancelled. As discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS," Entergy recorded a $180.2 million provision in the first six months of 2002 for the net costs resulting from cancellation or sale of the turbines that were subject to purchase commitments with the special-purpose entity. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Share Repurchases In accordance with its stock option plans, Entergy periodically grants stock options to its employees, which may be exercised to obtain shares of Entergy common stock. In order to reduce the increase in outstanding common shares caused by option exercises, Entergy plans to purchase up to 10 million shares of its common stock through mid-2004 on a discretionary basis through open market purchases or privately negotiated transactions. As of July 31, 2002, Entergy has repurchased 663,100 shares of common stock pursuant to this plan for a total purchase price of $27.8 million. Vermont Yankee In July 2002, Entergy's domestic non-utility nuclear business purchased the 510 MW Vermont Yankee nuclear power plant located in Vernon, Vermont, from Vermont Yankee Nuclear Power Corporation for $180 million. Entergy received the plant, nuclear fuel, inventories, and related real estate. The liability to decommission the plant, as well as related decommissioning trust funds of approximately $310 million, were also transferred to Entergy. The acquisition included a 10-year power purchase agreement (PPA) under which the former owners will buy the power produced by the plant. Damhead Creek Credit Facility As discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" in the Form 10-K, EWO increased its borrowings under the Damhead Creek credit facility in 2000 by approximately $164 million to finance construction of the plant. Damhead Creek commenced commercial operation in 2001. The Damhead Creek credit facility requires that the annual debt service coverage ratio be at least 1.05 to 1 for the previous 12 months at semi-annual dates commencing with June 30, 2002. Given the low electricity prices currently affecting the UK market, Damhead Creek would not have met the annual debt service coverage ratio test in respect of the 12 months ended June 30, 2002, but the lenders amended the facility so that the coverage ratio calculations would not commence until December 31, 2002. Damhead Creek is currently in negotiations with the lenders to develop and implement a debt restructuring for the project prior to December 2002. If a debt restructuring agreement cannot be reached, however, Damhead Creek will likely not meet the debt service coverage ratio provisions of the credit facility on December 31, 2002. In the event the annual debt service coverage ratio is deficient at December 31, 2002, Damhead Creek will seek a waiver of the default from the lenders. There is no requirement for Entergy or EPDC to make capital contributions or provide credit support to Damhead Creek following the occurrence of an event of default. Sources of Capital Entergy Corporation renewed its 364-day credit facility on May 16, 2002 and increased the available capacity from $1.325 billion to $1.425 billion. On July 15, 2002, the available capacity was increased to $1.450 billion. Entergy Arkansas and Entergy Mississippi each renewed their respective 364-day credit facilities on May 31, 2002. Amounts drawn on short-term credit facilities are as follows: Expiration Amount of Amount Drawn as of Company Date Facility June 30, 2002 Entergy Corporation May 2003 $1.450 billion $645 million Entergy Arkansas May 2003 $63 million - Entergy Louisiana January 2003 $15 million $15 million Entergy Mississippi May 2003 $25 million $25 million ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Entergy Corporation has used borrowings from its credit facility for general corporate purposes and to make additional investments in competitive businesses. The domestic utility companies and System Energy have approximately $990 million of currently maturing long-term debt that matures primarily in the first half of 2003. It is expected that the majority of these amounts will be refinanced prior to or at maturity. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Entergy's consolidated earnings applicable to common stock were $241.7 million and $162.7 million for the three and six months ended June 30, 2002, respectively, compared to $238.9 million and $393.1 million for the three and six months ended June 30, 2001, respectively. The changes in earnings (loss) applicable to common stock by operating segments for the three and six months ended June 30, 2002 compared to the three and six months ended June 30, 2001 were as follows: Three Months Ended Six Months Ended Operating Segments Increase/(Decrease) Increase/(Decrease) (In Thousands) Domestic Utility $26,372 $14,954 Domestic Non-Utility Nuclear 20,430 29,112 Energy Commodity Services (31,867) (265,338) Other, including parent company (12,188) (9,060) ------- --------- Total $2,747 ($230,332) ======= ========= Entergy's income before taxes is discussed below according to the operating segments listed above. See Note 6 to the financial statements for further discussion of Entergy's operating segments and their financial results for the three and six months ended June 30, 2002 and 2001. Refer to "SELECTED OPERATING RESULTS OF ENTERGY CORPORATION AND SUBSIDIARIES, ENTERGY ARKANSAS, INC., ENTERGY GULF STATES, INC., ENTERGY LOUISIANA, INC., ENTERGY MISSISSIPPI, INC., AND ENTERGY NEW ORLEANS, INC." which follow each company's financial statements in this report for further information with respect to operating statistics. Domestic Utility The increase in earnings for domestic utility for the three months ended June 30, 2002 compared with the same period in 2001 was primarily due to more favorable sales volume and weather, increased unbilled revenues, and decreased interest expense. The increase in earnings was partially offset by increased other operation and maintenance expenses. The increase in earnings for domestic utility for the six months ended June 30, 2002 compared with the same period in 2001 was primarily due to increased unbilled revenues and decreased interest expense. The increase in earnings was partially offset by increased other operation and maintenance expenses and decreased other income. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues The changes in electric operating revenues for domestic utility for the three and six months ended June 30, 2002 compared to the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences ($12.7) ($8.0) Rate riders (11.4) (26.5) Fuel cost recovery (348.0) (814.7) Sales volume/weather 23.2 1.5 Unbilled revenue 46.2 103.9 Other revenue 8.1 30.4 Sales for resale (9.5) (62.2) ------- ------- Total ($304.1) ($775.6) ======= ======= Fuel cost recovery The domestic utility companies are allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy's financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 as a result of decreased recovery, through various fuel recovery mechanisms, of lower fuel and purchased power expenses primarily due to decreases in the market price of natural gas and purchased power. Also contributing to the decreases were a decrease in the fixed fuel factor in March 2002 and the termination of a fuel recovery surcharge in February 2002 in the Texas jurisdiction of Entergy Gulf States. Corresponding to the decreases in fuel cost recovery revenues, fuel and purchased power expenses related to electric sales decreased by $344.7 million and $821.5 million for the three and six months ended June 30, 2002, respectively, primarily due to decreases in the market price of natural gas and purchased power in 2002. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Sales volume/weather Higher electric sales volume increased revenues for the three months ended June 30, 2002 due to increased usage of 483 GWH in the residential and commercial sectors, after adjusting for the weather effect. Partially offsetting this increase was a decrease in usage of 416 GWH in the industrial sector primarily from contractual modifications that reclassified the sales associated with certain Entergy Gulf States customers from retail to wholesale. The effect of favorable weather in the second quarter of 2002 compared to the second quarter of 2001 increased electric sales volume by 190 GWH in the residential and commercial sectors. The number of customers in the domestic utility companies' service territories increased only slightly during these periods. Unbilled revenue As discussed in Note 1 to the financial statements in the Form 10-K, unbilled revenues are estimated monthly and are reversed the following month. Unbilled revenue for the three months ended June 30, 2002 and 2001 includes the reversal of the estimates for March 2002 and March 2001, respectively. The increase for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 is due to the effect on the June 2001 unbilled calculation of higher unbilled revenue in March 2001 caused by higher fuel rates. Unbilled revenue for the six months ended June 30, 2002 and 2001 includes the reversal of the estimates for December 2001 and December 2000, respectively. The increase for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 is due to the effect on the June 2001 unbilled calculation of higher unbilled revenue in December 2000 caused by higher fuel rates and volume/weather. Sales for resale Sales for resale decreased for the six months ended June 30, 2002 primarily due to a decrease in the average price of energy sold to wholesale customers coupled with a decrease in sales volume to municipal and co-operative customers. The decrease is partially offset by the contractual modifications that resulted in the reclassified Entergy Gulf States sales noted above in sales volume/weather. Gas operating revenues Natural gas revenues decreased $69.6 million for the six months ended June 30, 2002 primarily due to a decrease in the market price of natural gas. Other effects on results of operations Results for the three and six months ended June 30, 2002 for domestic utility were also affected by the following: o increases in other operation and maintenance expenses of $203.7 million for the three months ended and $239.4 million for the six months ended primarily due to increased expenses at Entergy Arkansas. Entergy Arkansas had increased expenses of $157.1 million for the three months ended and $159.9 million for the six months ended due to the March 2002 Settlement Agreement and 2001 earnings review that became final in the second quarter of 2002, allowing Entergy Arkansas to recover a large majority of 2000 and 2001 ice storm repair expenses through previously-collected TCA amounts. Entergy Arkansas also had increased expenses of $24.5 million due to the reversal in 2001 of ice storm costs previously charged to expense in December 2000. These increases are partially offset by the increased other regulatory credits discussed below; ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS o increases in other regulatory credits of $183.7 million for the three months ended and $181.8 million for the six months ended primarily due to the March 2002 Settlement Agreement allowing Entergy Arkansas to recover a large majority of 2000 and 2001 ice storm repair expenses through the previously-collected TCA amounts; o decreases in interest expense of $21.9 million for the three months ended and $43.2 million for the six months ended, which are explained below; o increases in depreciation and amortization expense of $18.7 million for the three months ended and $18.2 million for the six months ended, which are primarily due to revisions made to the useful lives of certain intangible plant assets to more appropriately reflect their actual lives which lowered expense in 2001 in accordance with regulatory treatment; and o a decrease in interest income of $24.0 million for the six months ended primarily due to lower interest earned on declining deferred fuel balances. The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. The decreases in interest expense for the three and six months ended June 30, 2002 are primarily due to the following: o decreases of $16.7 million for the three months ended and $29.4 million for the six months ended in interest on long-term debt primarily due to the retirement of long-term debt in late 2001 and early 2002; and o decreases of $5.2 million for the three months ended and $13.8 million for the six months ended in other interest expense primarily due to interest recorded on System Energy's reserve for rate refund in 2001. The refund was made in December 2001. Domestic Non-Utility Nuclear The increases in earnings for the three and six months ended June 30, 2002 compared to the same periods in 2001 for domestic non- utility nuclear were primarily due to the operation of Indian Point 2, which was purchased in September 2001, combined with improved operational performance by the nuclear fleet. Following are key performance measures for domestic non-utility nuclear during the three and six months ended June 30, 2002 and 2001: Three Months Ended Six Months Ended 2002 2001 2002 2001 Net MW in operation at June 30 3,445 2,475 3,445 2,475 Generation in GWH for the period 7,449 4,208 14,958 9,467 Capacity factor for the period 98.5% 77.8% 99.4% 88.0% ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following fluctuations in the results of operations for domestic non-utility nuclear for the three months ended June 30, 2002 were primarily caused by the acquisition of Indian Point 2 and the increase in capacity factors shown above: o operating revenues increased $147.0 million to $297.1 million; o fuel expenses increased $13.5 million to $27.2 million; o nuclear refueling outage expenses increased $4.8 million to $9.9 million; o other operation and maintenance expenses increased $79.8 million to $143.4 million; o taxes other than income taxes increased $3.0 million to $6.7 million; and o depreciation and amortization expenses increased $6.3 million to $8.9 million. The following fluctuations in the results of operations for domestic non-utility nuclear for the six months ended June 30, 2002 were primarily caused by the acquisition of Indian Point 2 and the increase in capacity factors shown above: o operating revenues increased $246.6 million to $576.0 million; o fuel expenses increased $23.5 million to $53.6 million; o nuclear refueling outage expenses increased $14.4 million to $19.5 million; o other operation and maintenance expenses increased $130.2 million to $284.1 million; o taxes other than income taxes increased $8.9 million to $23.1 million; and o depreciation and amortization expenses increased $11.9 million to $17.0 million. Energy Commodity Services The decreases in earnings for energy commodity services for the three and six months ended June 30, 2002 were primarily due to the charges, discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS - Entergy Wholesale Operations," to reflect the impairment of certain assets, including impairments related to EWO's turbine acquisition plans, and to reflect the change in EWO's development plans. $401.4 million ($260.9 million net of tax) was recorded in the first quarter of 2002, and an additional $18.1 million ($10.6 million net of tax) was recorded in the second quarter of 2002. The second quarter amount includes an offsetting net of tax benefit of $18.5 million related to the sale of four turbines to a third party. The pre-tax charges are reflected in operation and maintenance expenses in the Consolidated Statement of Operations. Revenues decreased for energy commodity services by $235.0 million and $587.1 million for the three and six months ended June 30, 2002, respectively, primarily due to decreases of $159.8 million and $367.9 million for the three and six months ended June 30, 2002, respectively, resulting from the sale of EWO's interest in Highland Energy in the fourth quarter of 2001 combined with decreases of $60.0 million and $136.3 million for the three and six months ended June 30, 2002, respectively, resulting from the sale of EWO's interest in the Saltend plant in August 2001. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Also contributing to the decreases in revenues for energy commodity services was the contribution of substantially all of Entergy's power marketing and trading business to Entergy-Koch in February 2001. Earnings from Entergy-Koch are reported as equity in earnings of unconsolidated equity affiliates in the financial statements. As a result, for the six months ended June 30, 2002, revenues from this activity were lower by $134.9 million compared to the same period in 2001 and purchased power expenses were lower by $130.6 million. The net income effect of the lower revenue for the six months ended June 30, 2002 was offset by the equity in earnings from Entergy's interest in Entergy-Koch. The equity in earnings from Entergy's interest in Entergy-Koch was $55.1 million lower for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 primarily due to lower earnings from the trading business. Entergy-Koch Trading had lower trading earnings due to lower volatility in the power market and lower profitability on gas trading in the second quarter of 2002 compared to the second quarter of 2001. Following are key performance measures for Entergy-Koch's operations for the quarter and year-to-date period ended June 30, 2002 and 2001: Second Quarter Year-To-Date 2002 2001 2002 2001 Entergy-Koch Trading Gas volatility 53% 52% 67% 71% Electricity volatility 44% 78% 45% 76% Gas marketed (BCF/D) 4.8 6.8 5.1 7.0 Electricity marketed (GWH) 26,877 26,386 66,705 57,395 Gain/loss days 1.7 4.3 1.9 2.9 Gulf South Pipeline Throughput (BCF/D) 2.31 2.26 2.50 2.36 Production cost ($/MMBTU) $0.096 $0.095 $0.084 $0.093 As discussed in the Form 10-K, the partnership agreement allocates profits on a disproportionate basis. Substantially all of Entergy- Koch's profits were allocated to Entergy for the three and six months ended June 30, 2002. Also partially offsetting the decrease in earnings for energy commodity services for the six months ended June 30, 2002 was a net increase in earnings of $7.3 million ($5.0 million net of tax) related to the mark-to-market of the Damhead Creek power and gas contracts in the first quarter of 2002. Other, including parent company Earnings for Other, including the parent company, decreased for the three months ended June 30, 2002 primarily due to lower interest income in 2002 resulting from lower yields on invested cash. The reclassification to the energy commodity services segment for internal reporting purposes of $12.5 million of the 2001 write-down of investments in Latin American projects also contributed to the decrease. The decrease was partially offset by an increase in earnings related to the cessation of amortization of goodwill in January 2002 upon implementation of SFAS 142. Earnings for Other, including the parent company, decreased for the six months ended June 30, 2002 primarily due to lower interest income in 2002 resulting from lower yields on invested cash, partially offset by an increase in earnings related to the cessation of amortization of goodwill in January 2002 upon implementation of SFAS 142. Refer to Note 7 to the financial statements herein for further discussion of the implementation of SFAS 142. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 37.5% and 40.3%, respectively. The decrease in the second quarter results primarily from the realization of tax benefits in 2002 related to the impairment provisions recorded in 2001 on EWO's Latin American assets. The effective income tax rates for the six months ended June 30, 2002 and 2001 were 41.3% and 40.3%, respectively.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands, Except Share Data) OPERATING REVENUES Domestic electric $1,686,758 $1,990,838 $3,087,767 $3,863,383 Natural gas 24,982 30,548 71,360 140,931 Competitive businesses 384,841 484,889 798,288 1,154,392 ---------- ---------- ---------- ---------- TOTAL 2,096,581 2,506,275 3,957,415 5,158,706 ---------- ---------- ---------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 471,413 1,025,619 940,274 2,151,481 Purchased power 233,518 245,895 403,004 609,774 Nuclear refueling outage expenses 24,687 23,077 49,874 40,283 Provision for turbine commitments, asset impairments and restructuring charges 18,169 - 419,542 - Other operation and maintenance 727,017 436,110 1,251,369 906,569 Decommissioning 8,198 8,903 16,391 17,804 Taxes other than income taxes 82,194 89,662 184,565 192,125 Depreciation and amortization 205,876 183,372 410,999 386,448 Other regulatory charges (credits) - net (170,645) 13,088 (169,082) 12,699 ---------- ---------- ---------- ---------- TOTAL 1,600,427 2,025,726 3,506,936 4,317,183 ---------- ---------- ---------- ---------- OPERATING INCOME 496,154 480,549 450,479 841,523 ---------- ---------- ---------- ---------- OTHER INCOME Allowance for equity funds used during construction 8,323 6,644 15,004 11,587 Gain on sale of assets - net 1,009 760 1,674 1,344 Interest and dividend income 27,710 33,595 51,237 81,071 Equity in earnings of unconsolidated equity affiliates 17,740 70,780 92,804 95,543 Miscellaneous - net (109) 432 (11,182) 8,649 ---------- ---------- ---------- ---------- TOTAL 54,673 112,211 149,537 198,194 ---------- ---------- ---------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 121,393 130,732 244,919 259,703 Other interest - net 34,897 51,386 60,371 99,300 Distributions on preferred securities of subsidiary 4,709 4,709 9,419 9,419 Allowance for borrowed funds used during construction (6,291) (5,492) (11,930) (9,431) ---------- ---------- ---------- ---------- TOTAL 154,708 181,335 302,779 358,991 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 396,119 411,425 297,237 680,726 Income taxes 148,534 165,842 122,636 274,272 ---------- ---------- ---------- ---------- CONSOLIDATED NET INCOME 247,585 245,583 174,601 406,454 Preferred dividend requirements and other 5,932 6,677 11,872 13,393 ---------- ---------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $241,653 $238,906 $162,729 $393,061 ========== ========== ========== ========== Earnings per average common share: Basic $1.08 $1.08 $0.73 $1.78 Diluted $1.06 $1.06 $0.72 $1.75 Dividends declared per common share $0.33 $0.32 $0.66 $0.63 Average number of common shares outstanding: Basic 224,330,654 221,113,598 223,143,647 220,518,674 Diluted 228,847,752 225,706,421 227,588,889 224,749,374 See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Consolidated net income $174,601 $406,454 Noncash items included in net income: Reserve for regulatory adjustments 12,684 50,533 Other regulatory charges (credits) - net (169,082) 12,699 Depreciation, amortization, and decommissioning 427,390 404,252 Deferred income taxes and investment tax credits (171,328) (6,673) Allowance for equity funds used during construction (15,004) (11,587) Gain on sale of assets - net (1,674) (1,344) Equity in earnings of unconsolidated equity affiliates (92,804) (95,543) Provision for turbine commitments, asset impairments and restructuring charges 419,542 - Changes in working capital: Receivables (139,808) 55,382 Fuel inventory (7,332) (19,701) Accounts payable (9,974) (433,769) Taxes accrued 255,629 230,308 Interest accrued (31,416) (2,697) Deferred fuel 549 217,152 Other working capital accounts (43,475) (115,947) Provision for estimated losses and reserves (8,576) (10,890) Changes in other regulatory assets 186,824 (139,361) Other 16,237 61,431 -------- ---------- Net cash flow provided by operating activities 802,983 600,699 -------- ---------- INVESTING ACTIVITIES Construction/capital expenditures (736,670) (583,782) Allowance for equity funds used during construction 15,004 11,587 Nuclear fuel purchases (161,090) (97,126) Proceeds from sale/leaseback of nuclear fuel 132,472 60,632 Proceeds from sale of businesses 147,115 14,000 Investment in other non-regulated/non-utility properties (19,057) 17,515 Decrease (increase) in other investments 39,460 (621,801) Proceeds from other temporary investments 150,000 - Decommissioning trust contributions and realized change in trust assets (27,894) (38,842) Other regulatory investments (29,755) (56,722) Other (2,690) 52,580 -------- ---------- Net cash flow used in investing activities (493,105) (1,241,959) -------- ---------- See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) FINANCING ACTIVITIES Proceeds from the issuance of: Long-term debt 299,431 90,382 Common stock 112,705 59,304 Retirement of long-term debt (910,908) (126,156) Repurchase of common stock - (7,813) Redemption of preferred stock (1,403) (4,574) Changes in short-term borrowings - net 334,333 95,000 Dividends paid: Common stock (147,329) (134,760) Preferred stock (11,872) (11,214) -------- --------- Net cash flow used in financing activities (325,043) (39,831) -------- --------- Effect of exchange rates on cash and cash equivalents (5,748) (2,638) -------- --------- Net decrease in cash and cash equivalents (20,913) (683,729) Cash and cash equivalents at beginning of period 751,573 1,382,424 -------- --------- Cash and cash equivalents at end of period $730,660 $698,695 ======== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $333,750 $351,033 Income taxes $33,877 $6,038 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($28,584) ($8,862) Net assets contributed to Entergy-Koch - $80,145 Long-term debt refunded with proceeds from long-term debt issued in prior period ($47,000) - See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $144,446 $129,866 Temporary cash investments - at cost, which approximates market 585,875 618,327 Special deposits 339 3,380 ----------- ----------- Total cash and cash equivalents 730,660 751,573 ----------- ----------- Other temporary investments - 150,000 Notes receivable 3,244 2,137 Accounts receivable: Customer 343,479 294,799 Allowance for doubtful accounts (19,709) (19,255) Other 272,012 286,671 Accrued unbilled revenues 403,842 268,680 ----------- ----------- Total receivables 999,624 830,895 ----------- ----------- Deferred fuel costs 201,651 172,444 Accumulated deferred income taxes - 6,488 Fuel inventory - at average cost 104,829 97,497 Materials and supplies - at average cost 468,538 460,644 Deferred nuclear refueling outage costs 69,750 79,755 Prepayments and other 120,481 129,251 ----------- ----------- TOTAL 2,698,777 2,680,684 ----------- ----------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 706,700 766,103 Decommissioning trust funds 1,761,487 1,775,950 Non-utility property - at cost (less accumulated depreciation) 293,869 295,616 Other 424,245 495,542 ----------- ----------- TOTAL 3,186,301 3,333,211 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT Electric 26,608,136 26,359,376 Property under capital lease 749,011 753,310 Natural gas 208,201 201,841 Construction work in progress 1,238,512 882,829 Nuclear fuel under capital lease 273,850 265,464 Nuclear fuel 247,760 232,387 ----------- ----------- TOTAL PROPERTY, PLANT AND EQUIPMENT 29,325,470 28,695,207 Less - accumulated depreciation and amortization 12,122,894 11,805,578 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT - NET 17,202,576 16,889,629 ----------- ----------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 927,990 946,126 Unamortized loss on reacquired debt 160,822 166,546 Other regulatory assets 538,750 707,439 Long-term receivables 26,437 28,083 Goodwill 377,472 377,472 Other 882,209 781,121 ----------- ----------- TOTAL 2,913,680 3,006,787 ----------- ----------- TOTAL ASSETS $26,001,334 $25,910,311 =========== =========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $1,092,562 $682,771 Notes payable 685,351 351,018 Accounts payable 584,762 592,529 Customer deposits 199,571 188,230 Taxes accrued 739,538 550,133 Accumulated deferred income taxes 11,294 - Nuclear refueling outage costs 8,150 2,080 Interest accrued 161,004 192,420 Obligations under capital leases 150,016 149,352 Other 265,379 345,387 ----------- ----------- TOTAL 3,897,627 3,053,920 ----------- ----------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 3,387,719 3,574,664 Accumulated deferred investment tax credits 459,499 471,090 Taxes accrued 450,000 400,000 Obligations under capital leases 183,452 181,085 Other regulatory liabilities 179,921 135,878 Decommissioning 1,217,677 1,194,333 Transition to competition 79,098 231,512 Regulatory reserves 50,275 37,591 Accumulated provisions 410,548 425,399 Other 896,821 852,269 ----------- ----------- TOTAL 7,315,010 7,503,821 ----------- ----------- Long-term debt 6,558,538 7,321,028 Preferred stock with sinking fund 24,781 26,185 Preferred stock without sinking fund 334,337 334,337 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated deferrable debentures 215,000 215,000 SHAREHOLDERS' EQUITY Common stock, $.01 par value, authorized 500,000,000 shares; issued 248,174,087 shares in 2002 and in 2001 2,482 2,482 Paid-in capital 4,666,754 4,662,704 Retained earnings 3,653,841 3,638,448 Accumulated other comprehensive loss (17,241) (88,794) Less - treasury stock, at cost (23,500,208 shares in 2002 and 27,441,384 shares in 2001) 649,795 758,820 ----------- ----------- TOTAL 7,656,041 7,456,020 ----------- ----------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $26,001,334 $25,910,311 =========== =========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, COMPREHENSIVE INCOME, AND PAID-IN CAPITAL For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended 2002 2001 (In Thousands) RETAINED EARNINGS Retained Earnings - Beginning of period $3,486,122 $3,275,548 Add - Earnings applicable to common stock 241,653 $241,653 238,906 $238,906 Deduct: Dividends declared on common stock 74,093 69,679 Capital stock and other expenses (159) (366) ---------- ---------- Total 73,934 69,313 ---------- ---------- Retained Earnings - End of period $3,653,841 $3,445,141 ========== ========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Net of Taxes): Balance at beginning of period: Accumulated derivative instrument fair value changes ($17,631) ($42,513) Other accumulated comprehensive (loss) items (10,048) (75,455) ---------- ---------- Total (27,679) (117,968) ---------- ---------- Net derivative instrument fair value changes arising during the period 14,003 14,003 20,645 20,645 Foreign currency translation adjustments 2,101 (64,233) (1,608) (1,608) Net unrealized investment (losses) (5,666) (5,666) (1,502) (1,502) ---------- -------- ---------- -------- Balance at end of period: Accumulated derivative instrument fair value changes (3,628) (21,868) Other accumulated comprehensive (loss) items (13,613) (78,565) ---------- ---------- Total ($17,241) ($100,433) ========== -------- ========== -------- Comprehensive Income $185,757 $256,441 ======== ======== PAID-IN CAPITAL Paid-in Capital - Beginning of period $4,663,931 $4,663,923 Add: Common stock issuances related to stock plans 2,823 (2,589) ---------- ---------- Paid-in Capital - End of period $4,666,754 $4,661,334 ========== ========== Six Months Ended 2002 2001 (In Thousands) RETAINED EARNINGS Retained Earnings - Beginning of period $3,638,448 $3,190,639 Add - Earnings applicable to common stock 162,729 $162,729 393,061 $393,061 Deduct: Dividends declared on common stock 147,355 138,925 Capital stock and other expenses (19) (366) ---------- ---------- Total 147,336 138,559 ---------- ---------- Retained Earnings - End of period $3,653,841 $3,445,141 ========== ========== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Net of Taxes): Balance at beginning of period: Accumulated derivative instrument fair value changes ($17,973) - Other accumulated comprehensive (loss) items (70,821) ($75,033) ---------- ---------- Total (88,794) (75,033) ---------- ---------- Cumulative effect to January 1, 2001 of accounting change regarding fair value of derivative instruments - - (18,021) - Net derivative instrument fair value changes arising during the period 14,345 14,345 (3,847) (3,847) Foreign currency translation adjustments 68,057 1,723 (3,635) (3,635) Net unrealized investment gains (losses) (10,849) (10,849) 103 103 ---------- -------- ---------- -------- Balance at end of period: Accumulated derivative instrument fair value changes (3,628) (21,868) Other accumulated comprehensive (loss) items (13,613) (78,565) ---------- ---------- Total ($17,241) ($100,433) ========== -------- ========== -------- Comprehensive Income $167,948 $385,682 ======== ======== PAID-IN CAPITAL Paid-in Capital - Beginning of period $4,662,704 $4,660,483 Add: Common stock issuances related to stock plans 4,050 851 ---------- ---------- Paid-in Capital - End of period $4,666,754 $4,661,334 ========== ========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 549.6 $ 617.2 ($67.6) (11) Commercial 405.6 481.4 (75.8) (16) Industrial 465.7 652.9 (187.2) (29) Governmental 43.1 53.7 (10.6) (20) --------- --------- ------- Total retail 1,464.0 1,805.2 (341.2) (19) Sales for resale 84.9 94.4 (9.5) (10) Other 137.8 91.2 46.6 51 --------- --------- ------- Total $ 1,686.7 $ 1,990.8 ($304.1) (15) ========= ========= ======= Billed Electric Energy Sales (GWH): Residential 7,202 6,733 469 7 Commercial 6,112 5,908 204 3 Industrial 10,294 10,710 (416) (4) Governmental 654 630 24 4 --------- --------- ------- Total retail 24,262 23,981 281 1 Sales for resale 2,444 2,182 262 12 --------- --------- ------- Total 26,706 26,163 543 2 ========= ========= ======= Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 1,051.2 $ 1,252.2 ($201.0) (16) Commercial 762.5 932.9 (170.4) (18) Industrial 861.8 1,306.5 (444.7) (34) Governmental 81.7 107.2 (25.5) (24) --------- --------- ------- Total retail 2,757.2 3,598.8 (841.6) (23) Sales for resale 154.6 216.8 (62.2) (29) Other 176.0 47.8 128.2 268 --------- --------- ------- Total $ 3,087.8 $ 3,863.4 ($775.6) (20) ========= ========= ======= Billed Electric Energy Sales (GWH): Residential 14,476 14,269 207 1 Commercial 11,710 11,482 228 2 Industrial 19,884 21,022 (1,138) (5) Governmental 1,271 1,245 26 2 --------- --------- ------- Total retail 47,341 48,018 (677) (1) Sales for resale 4,658 4,631 27 1 --------- --------- ------- Total 51,999 52,649 (650) (1) ========= ========= ======= ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 primarily due to decreased unbilled revenue, increased other operation and maintenance expenses, increased depreciation and amortization expenses, decreased other income, and the effect of the March 2002 Settlement Agreement and the 2001 earnings review that were approved by the APSC in the second quarter of 2002. The settlement agreement allowed Entergy Arkansas to recover 2000 and 2001 ice storm repair expenses through previously-collected TCA amounts. The effect of this settlement agreement increased other operation and maintenance expenses, other regulatory credits, and provisions for rate refunds. The net impact of the settlement agreement and the 2001 earnings review is an $8.5 million decrease in net income. The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. Net income decreased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to decreased sales for resale, increased other operation and maintenance expenses, increased depreciation and amortization expenses, decreased other income, and the effect of the March 2002 Settlement Agreement discussed above. The overall decrease was partially offset by increased unbilled revenue. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences ($0.7) $4.7 Rate riders (6.6) (15.0) Fuel cost recovery (29.4) (13.3) Sales volume/weather (0.4) (8.6) Unbilled revenue (5.1) 6.5 Provisions for rate refunds (18.1) (18.1) Other revenue 0.6 1.0 Sales for resale (25.5) (58.4) ------ ------- Total ($85.2) ($101.2) ====== ======= Base rate differences Base rate differences increased revenues for the six months ended June 30, 2002 primarily due to the effect of block rates on residential customers and higher effective prices for commercial and industrial customers due to decreased KWH usage. ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Rate riders Rate rider revenues have no material effect on net income because specific incurred expenses offset them. Rate rider revenues decreased for the three and six months ended June 30, 2002 primarily due to a decrease in the Grand Gulf rate rider effective January 2002 compared to the rate rider in effect during the three and six months ended June 30, 2001. The Grand Gulf rate rider allows Entergy Arkansas to recover 78% of its share of operating costs for Grand Gulf 1. Fuel cost recovery Entergy Arkansas is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Arkansas' financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 primarily due to a decrease in the energy cost recovery rider that became effective in April 2002. The rider utilizes prior year energy costs and projected energy sales for the twelve-month period commencing on April 1 of each year to develop an energy cost rate, which is redetermined annually and includes a true- up adjustment reflecting the over-recovery or under-recovery, including carrying charges, of the energy cost for the prior calendar year. The rider is discussed further in Note 2 to the financial statements in the Form 10-K. Sales volume/weather Electric sales volume decreased revenues for the six months ended June 30, 2002 primarily due to decreased usage of 115 GWH in the industrial sector. The effect of less favorable weather in the first half of 2002 compared with the first half of 2001 decreased electric sales volume by 123 GWH in the residential and commercial sectors. The decreased usage resulted in higher effective rates in each sector, which are reflected in base rate differences. Unbilled revenue As discussed in Note 1 to the financial statements in the Form 10-K, unbilled revenues are estimated monthly and are reversed the following month. Unbilled revenue for the three months ended June 30, 2002 and 2001 includes the reversal of the estimates for March 2002 and March 2001, respectively. The decrease for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 is due to the effect on the June 2001 calculation of higher unbilled revenue in March 2001 caused by increased volume. Unbilled revenue for the six months ended June 30, 2002 and 2001 includes the reversal of the estimates for December 2001 and December 2000, respectively. The increase in unbilled revenue for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 is due to the effect on the June 2002 unbilled calculation of higher unbilled revenue in June 2002 caused by increased volume. ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Provisions for rate refunds Revenues decreased for the three and six months ended June 30, 2002 due to the provisions for rate refunds to large general service customers pursuant to the March 2002 Settlement Agreement. The refunds are scheduled to be distributed beginning in August 2002. The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. Sales for resale Sales for resale decreased for the three and six months ended June 30, 2002 due to a decrease in the average price of energy sold to wholesale customers coupled with a decrease in sales volume to municipalities and co-operatives. Expenses Fuel and purchased power Fuel and purchased power expenses decreased for the three months ended June 30, 2002 primarily due to: o decreased market prices of natural gas and purchased power; and o decreased coal generation due to planned and unplanned maintenance outages. Fuel and purchased power expenses decreased for the six months ended June 30, 2002 primarily due to decreased market prices of natural gas and purchased power. Other operation and maintenance Other operation and maintenance expenses increased for the three months ended June 30, 2002 primarily due to: o increased expenses consisting of $157.1 million due primarily to the March 2002 Settlement Agreement and 2001 earnings review allowing Entergy Arkansas to recover a large majority of 2000 and 2001 ice storm repair expenses through the previously-collected TCA amounts and $24.5 million due to the reversal in 2001 of ice storm costs previously charged to expense in December 2000; o increased salaries and office expense of $2.7 million; and o increased nuclear plant expense of $1.6 million due to additional security costs. Other operation and maintenance expenses increased for the six months ended June 30, 2002 primarily due to: o increased expenses consisting of $159.9 million due primarily to the March 2002 Settlement Agreement and 2001 earnings review allowing Entergy Arkansas to recover a large majority of 2000 and 2001 ice storm repair expenses through the previously-collected TCA amounts and $24.5 million due to the reversal in 2001 of ice storm costs previously charged to expense in December 2000; o lower nuclear insurance refunds of $3.1 million; and o increased vegetation management spending of $2.1 million. ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. Depreciation, amortization, and decommissioning Depreciation and amortization increased for the three and six months ended June 30, 2002 primarily due to revisions made to the useful lives of certain intangible plant assets to more appropriately reflect their actual lives which lowered expense in 2001 in accordance with regulatory treatment. Other regulatory charges (credits) - net Other regulatory credits increased for the three and six months ended June 30, 2002 primarily due to the March 2002 Settlement Agreement allowing Entergy Arkansas to recover 2000 and 2001 ice storm repair expenses through the previously-collected TCA amounts. The increase in other regulatory credits is offset by an increase other operation and maintenance expenses discussed above. The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. Other Other income (deductions) Other income decreased for the three and six months ended June 30, 2002 primarily due to: o a decrease in interest income recorded on the deferred fuel balance resulting from increased recovery; and o reversal of the first quarter 2002 recording of 2000 ice storm expenses in other operation and maintenance of $2.7 million, as originally recommended by the APSC staff, in accordance with the March 2002 Settlement Agreement. The March 2002 Settlement Agreement is discussed further in Note 2 to the financial statements. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 53.4% and 40.8%, respectively. The effective income tax rates for the six months ended June 30, 2002 and 2001 were 42.1% and 41.3%, respectively. The increase in the effective tax rate for the three months ended June 30, 2002 was primarily due to the effect of increased flow-through and permanent book and tax timing differences related to the March 2002 Settlement Agreement in addition to increased depreciation book and tax timing differences.
ENTERGY ARKANSAS, INC. INCOME STATEMENTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $367,926 $453,108 $745,749 $846,907 -------- -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 69,210 107,414 173,463 178,162 Purchased power 88,281 120,412 159,955 244,510 Nuclear refueling outage expenses 6,197 7,716 13,058 14,537 Other operation and maintenance 254,080 65,279 336,115 136,824 Taxes other than income taxes 9,385 8,664 20,573 17,428 Depreciation, amortization, and decommissioning 46,696 39,388 93,182 86,020 Other regulatory charges (credits) - net (175,317) 117 (175,722) (6,339) -------- -------- -------- -------- TOTAL 298,532 348,990 620,624 671,142 -------- -------- -------- -------- OPERATING INCOME 69,394 104,118 125,125 175,765 -------- -------- -------- -------- OTHER INCOME (DEDUCTIONS) Allowance for equity funds used during construction 1,962 1,548 3,300 2,639 Interest and dividend income 587 1,790 1,565 6,711 Miscellaneous - net (3,538) (814) (4,528) (1,928) -------- -------- -------- -------- TOTAL (989) 2,524 337 7,422 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 18,916 21,868 41,385 44,304 Other interest - net 8,116 5,115 11,047 8,505 Distributions on preferred securities of subsidiary 1,275 1,275 2,550 2,550 Allowance for borrowed funds used during construction (1,237) (1,004) (2,184) (1,715) -------- -------- -------- -------- TOTAL 27,070 27,254 52,798 53,644 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 41,335 79,388 72,664 129,543 Income taxes 22,088 32,350 30,579 53,527 -------- -------- -------- -------- NET INCOME 19,247 47,038 42,085 76,016 Preferred dividend requirements and other 1,944 1,944 3,888 3,888 -------- -------- -------- -------- EARNINGS APPLICABLE TO COMMON STOCK $17,303 $45,094 $38,197 $72,128 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income $42,085 $76,016 Noncash items included in net income: Other regulatory credits - net (175,722) (6,339) Depreciation, amortization, and decommissioning 93,182 86,020 Deferred income taxes and investment tax credits (34,997) 9,611 Allowance for equity funds used during construction (3,300) (2,639) Changes in working capital: Receivables 1,059 11,851 Fuel inventory (11,267) 6,417 Accounts payable (24,542) (45,335) Taxes accrued 53,092 41,001 Interest accrued (5,708) (503) Deferred fuel costs 65,783 38,828 Other working capital accounts 15,105 (310) Provision for estimated losses and reserves (5,756) (4,009) Changes in other regulatory assets 152,331 (108,297) Changes in other deferred credits (22,204) 29,225 Other (5,379) 28,913 -------- -------- Net cash flow provided by operating activities 133,762 160,450 -------- -------- INVESTING ACTIVITIES Construction expenditures (131,681) (117,970) Allowance for equity funds used during construction 3,300 2,639 Nuclear fuel purchases (60,075) (19,103) Proceeds from sale/leaseback of nuclear fuel 60,075 19,103 Decommissioning trust contributions and realized change in trust assets (5,434) (4,379) Changes in other temporary investments - net 38,397 - Other regulatory investments - (16,796) -------- -------- Net cash flow used in investing activities (95,418) (136,506) -------- -------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 94,557 - Retirement of long-term debt (170,000) - Changes in short-term borrowings (667) - Dividends paid: Common stock (14,100) (11,500) Preferred stock (3,888) (1,944) -------- -------- Net cash flow used in financing activities (94,098) (13,444) -------- -------- Net increase (decrease) in cash and cash equivalents (55,754) 10,500 Cash and cash equivalents at beginning of period 103,466 7,838 -------- -------- Cash and cash equivalents at end of period $47,712 $18,338 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid/(received) during the period for: Interest - net of amount capitalized $58,161 $53,353 Income taxes $9,356 ($3) Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($12,481) ($3,877) Long-term debt refunded with proceeds from long-term debt issued in prior period ($47,000) - See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $10,540 $18,331 Temporary cash investments - at cost, which approximates market 37,172 85,135 ---------- ---------- Total cash and cash equivalents 47,712 103,466 ---------- ---------- Other temporary investments - 38,397 Accounts receivable: Customer 77,846 80,719 Allowance for doubtful accounts (1,667) (1,667) Associated companies 52,305 65,102 Other 17,160 20,889 Accrued unbilled revenues 80,647 62,307 ---------- ---------- Total accounts receivable 226,291 227,350 ---------- ---------- Deferred fuel costs - 17,246 Accumulated deferred income taxes 36,961 22,698 Fuel inventory - at average cost 15,639 4,372 Materials and supplies - at average cost 78,717 75,499 Deferred nuclear refueling outage costs 16,928 14,508 Prepayments and other 6,918 53,386 ---------- ---------- TOTAL 429,166 556,922 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 11,217 11,217 Decommissioning trust funds 344,067 351,114 Non-utility property - at cost (less accumulated depreciation) 1,462 1,465 Other 2,976 2,976 ---------- ---------- TOTAL 359,722 366,772 ---------- ---------- UTILITY PLANT Electric 5,462,186 5,399,294 Property under capital lease 34,370 35,604 Construction work in progress 196,974 157,994 Nuclear fuel under capital lease 102,940 65,556 Nuclear fuel 10,481 8,156 ---------- ---------- TOTAL UTILITY PLANT 5,806,951 5,666,604 Less - accumulated depreciation and amortization 2,668,964 2,615,013 ---------- ---------- UTILITY PLANT - NET 3,137,987 3,051,591 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 178,010 164,146 Unamortized loss on reacquired debt 40,736 40,817 Other regulatory assets 94,340 260,535 Other 18,918 10,797 ---------- ---------- TOTAL 332,004 476,295 ---------- ---------- TOTAL ASSETS $4,258,879 $4,451,580 ========== ========== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $100,000 $85,000 Notes payable - 667 Accounts payable: Associated companies 29,903 32,868 Other 65,459 87,036 Customer deposits 38,197 32,589 Taxes accrued 157,373 104,281 Interest accrued 24,836 30,544 Deferred fuel costs 48,537 - Obligations under capital leases 52,191 51,973 System Energy refund 6,650 53,732 Other 34,245 17,221 ---------- ---------- TOTAL 557,391 495,911 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 808,165 809,742 Accumulated deferred investment tax credits 80,735 83,239 Obligations under capital leases 85,119 49,187 Transition to competition - 152,414 Accumulated provisions 35,659 41,415 Other 85,220 107,424 ---------- ---------- TOTAL 1,094,898 1,243,421 ---------- ---------- Long-term debt 1,178,359 1,308,075 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 60,000 60,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 116,350 116,350 Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares in 2002 and 2001 470 470 Paid-in capital 591,127 591,127 Retained earnings 660,284 636,226 ---------- ---------- TOTAL 1,368,231 1,344,173 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,258,879 $4,451,580 ========== ========== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 112.4 $ 124.3 ($11.9) (10) Commercial 71.2 81.0 (9.8) (12) Industrial 76.8 91.8 (15.0) (16) Governmental 3.8 4.2 (0.4) (10) ------- ------- ------ Total retail 264.2 301.3 (37.1) (12) Sales for resale Associated companies 51.4 70.1 (18.7) (27) Non-associated companies 41.0 47.8 (6.8) (14) Other 11.3 33.9 (22.6) (67) ------- ------- ------ Total $ 367.9 $ 453.1 ($85.2) (19) ======= ======= ====== Billed Electric Energy Sales (GWH): Residential 1,402 1,383 19 1 Commercial 1,219 1,213 6 - Industrial 1,626 1,687 (61) (4) Governmental 62 60 2 3 ------- ------- ------ Total retail 4,309 4,343 (34) (1) Sales for resale Associated companies 1,804 1,953 (149) (8) Non-associated companies 1,189 1,296 (107) (8) ------- ------- ------ Total 7,302 7,592 (290) (4) ======= ======= ====== Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 249.6 $ 264.3 ($14.7) (6) Commercial 143.3 149.5 (6.2) (4) Industrial 158.5 170.0 (11.5) (7) Governmental 7.8 7.7 0.1 1 ------- ------- ------- Total retail 559.2 591.5 (32.3) (5) Sales for resale Associated companies 93.1 119.7 (26.6) (22) Non-associated companies 75.8 107.6 (31.8) (30) Other 17.6 28.1 (10.5) (37) ------- ------- ------- Total $ 745.7 $ 846.9 ($101.2) (12) ======= ======= ======= Billed Electric Energy Sales (GWH): Residential 3,123 3,237 (114) (4) Commercial 2,350 2,363 (13) (1) Industrial 3,232 3,347 (115) (3) Governmental 124 117 7 6 ------- ------- ------- Total retail 8,829 9,064 (235) (3) Sales for resale Associated companies 3,886 3,080 806 26 Non-associated companies 2,236 2,627 (391) (15) ------- ------- ------- Total 14,951 14,771 180 1 ======= ======= ======= ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 primarily due to increased unbilled revenue, increased other regulatory credits, and decreased interest expense, partially offset by decreased sales for resale, increased depreciation and amortization expenses, and decreased interest income. Net income decreased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to decreased sales for resale, increased depreciation and amortization expenses, and decreased interest income, partially offset by increased unbilled revenue, increased other regulatory credits, and decreased interest expense. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences ($1.9) ($2.3) Fuel cost recovery (171.1) (379.0) Sales volume/weather 3.3 (7.6) Unbilled revenue 18.9 16.9 Other revenue 2.4 3.2 Sales for resale (13.7) (44.9) ------- ------- Total ($162.1) ($413.7) ======= ======= Fuel cost recovery Entergy Gulf States is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Gulf States' financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 in both operational jurisdictions of Entergy Gulf States. In the Louisiana jurisdiction, fuel recovery revenues decreased $109.4 million and $264.1 million for the three and six months ended June 30, 2002, respectively, due to the lower prices of fuel and purchased power in 2002 compared with 2001 and the impact of the current period recovery through the fuel adjustment clause of lower fuel and purchased power costs from prior months. In the Louisiana jurisdiction, these fuel costs are recovered on a two- month lag. In the Texas jurisdiction, fuel cost recovery revenues decreased $61.7 million and $114.9 million for the three and six months ended June 30, 2002, respectively, due to a decrease in the fixed fuel factor in March 2002 and the completion of a fuel recovery surcharge in February 2002. ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Sales volume/weather Lower electric sales volume reduced revenues for the six months ended June 30, 2002 primarily due to decreased usage in the industrial sector as a result of contractual modifications that reclassified the sales associated with certain customers from retail to wholesale. Under the terms of the former contract with these customers, Entergy Gulf States was also required to purchase the electricity produced by the customers' generating units. As a result of the cessation of the purchased power obligation, the reclassification of these sales will not have a negative impact on Entergy Gulf States' earnings. Unbilled revenue As discussed in Note 1 to the financial statements in the Form 10-K, unbilled revenues are estimated monthly and are reversed the following month. Unbilled revenue for the three months ended June 30, 2002 and 2001 includes the reversal of the estimates for March 2002 and March 2001, respectively. The increase for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 is due to the effect on the June 2001 calculation of higher unbilled revenue in March 2001 caused by higher fuel rates. Unbilled revenue for the six months ended June 30, 2002 and 2001 includes the reversal of the estimates for December 2001 and December 2000, respectively. The increase in unbilled revenue for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 is due to the effect on the June 2001 unbilled calculation of higher unbilled revenue in December 2000 caused by volume/weather. Sales for resale Sales for resale decreased for the three and six months ended June 30, 2002 primarily due to a decrease in the average price of resale electricity as a result of lower market prices of natural gas used in generation. The decrease is partially offset by the contractual modifications that resulted in the reclassified sales noted above in sales volume/weather. Gas operating revenues Gas operating revenues decreased for the six months ended June 30, 2002 primarily due to the decreased market price of natural gas. Expenses Fuel and purchased power Fuel and purchased power expenses decreased for the three and six months ended June 30, 2002 primarily due to decreases in the market prices of natural gas and purchased power. Other operation and maintenance Other operation and maintenance expenses increased for the six months ended June 30, 2002 due to increases in: o injuries and damages expense of $3.0 million; o plant maintenance expenses at certain fossil plants of $2.8 million; o pension and benefits expense of $2.5 million; and o nuclear operation and maintenance expenses of $2.4 million. ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The increase in other operation and maintenance expenses was partially offset by decreases in: o regulatory expenses of $4.2 million primarily due to the payment in 2001 of the Texas System Benefit Fund assessment; o transmission expenses of $2.2 million; and o uncollectible receivable write-offs of $1.3 million. Taxes other than income taxes Taxes other than income taxes increased for the three and six months ended June 30, 2002 primarily due to lower sales and use tax audit assessments in 2001. Depreciation and amortization Depreciation and amortization increased for the three and six months ended June 30, 2002 primarily due to revisions made to the useful lives of certain intangible plant assets to more appropriately reflect their actual lives which lowered expense in 2001 in accordance with regulatory treatment. Other regulatory charges (credits) - net Other regulatory credits increased for the three and six months ended June 30, 2002 primarily due to the recognition in income of the Louisiana portion of the unamortized deferred gain on the 1988 sale of Nelson Units 1 and 2. The deferred gain was recognized because the LPSC no longer requires that the gain reduce Entergy Gulf States' cost of service. Other Other income Other income decreased for the three and six months ended June 30, 2002 primarily due to decreased interest income recorded on the deferred fuel balance due to partial recovery of the balance. Interest and other charges Interest on long-term debt decreased for the three and six months ended June 30, 2002 primarily due to lower interest expense on variable-rate First Mortgage Bonds and the retirement of $148 million of First Mortgage Bonds in January 2002. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 38.7% and 35.0%, respectively. The effective income tax rates for the six months ended June 30, 2002 and 2001 were 38.6% and 36.1%, respectively.
ENTERGY GULF STATES, INC. INCOME STATEMENTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $559,538 $721,597 $1,006,789 $1,420,473 Natural gas 8,025 9,296 24,678 44,896 -------- -------- ---------- ---------- TOTAL 567,563 730,893 1,031,467 1,465,369 -------- -------- ---------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 145,046 306,998 284,900 600,165 Purchased power 108,349 125,903 174,178 267,855 Nuclear refueling outage expenses 3,023 3,021 6,079 6,111 Other operation and maintenance 107,377 108,159 204,952 201,413 Decommissioning 1,579 1,561 3,152 3,123 Taxes other than income taxes 30,674 27,563 61,312 58,559 Depreciation and amortization 50,400 45,190 100,693 94,951 Other regulatory charges (credits) - net (12,626) 936 (12,026) (4,553) -------- -------- ---------- ---------- TOTAL 433,822 619,331 823,240 1,227,624 -------- -------- ---------- ---------- OPERATING INCOME 133,741 111,562 208,227 237,745 -------- -------- ---------- ---------- OTHER INCOME Allowance for equity funds used during construction 2,757 2,342 4,983 4,167 Gain on sale of assets 1,009 603 1,673 1,188 Interest and dividend income 2,610 6,293 4,931 14,226 Miscellaneous - net (351) (1,162) (1,448) (2,574) -------- -------- ---------- ---------- TOTAL 6,025 8,076 10,139 17,007 -------- -------- ---------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 32,649 39,359 64,497 78,152 Other interest - net 1,146 1,858 2,743 4,195 Distributions on preferred securities of subsidiary 1,859 1,860 3,719 3,719 Allowance for borrowed funds used during construction (2,354) (2,441) (4,614) (4,155) -------- -------- ---------- ---------- TOTAL 33,300 40,636 66,345 81,911 -------- -------- ---------- ---------- INCOME BEFORE INCOME TAXES 106,466 79,002 152,021 172,841 Income taxes 41,230 27,620 58,747 62,413 -------- -------- ---------- ---------- NET INCOME 65,236 51,382 93,274 110,428 Preferred dividend requirements and other 1,226 1,271 2,460 2,581 -------- -------- ---------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $64,010 $50,111 $90,814 $107,847 ======== ======== ========== ========== See Notes to Financial Statements.
ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income $93,274 $110,428 Noncash items included in net income: Reserve for regulatory adjustments 5,070 1,932 Other regulatory credits - net (12,026) (4,553) Depreciation, amortization, and decommissioning 103,845 98,074 Deferred income taxes and investment tax credits (15,641) 10,793 Allowance for equity funds used during construction (4,983) (4,167) Gain on sale of assets (1,673) (1,188) Changes in working capital: Receivables (12,275) (4,676) Fuel inventory (2,893) (21,056) Accounts payable (1,512) (117,594) Taxes accrued 61,696 55,386 Interest accrued (7,221) 1,544 Deferred fuel costs 8,060 66,419 Other working capital accounts 11,213 7,536 Provision for estimated losses and reserves (1,238) (3,164) Changes in other regulatory assets 7,499 (14,365) Other 11,617 3,539 -------- -------- Net cash flow provided by operating activities 242,812 184,888 -------- -------- INVESTING ACTIVITIES Construction expenditures (161,118) (145,421) Allowance for equity funds used during construction 4,983 4,167 Nuclear fuel purchases (21,733) (3,929) Proceeds from sale/leaseback of nuclear fuel 21,923 3,937 Decommissioning trust contributions and realized change in trust assets (5,464) (5,912) Changes in other temporary investments - net 44,643 - Other regulatory investments (29,755) (39,926) -------- -------- Net cash flow used in investing activities (146,521) (187,084) -------- -------- FINANCING ACTIVITIES Retirement of long-term debt (148,000) - Redemption of preferred stock (1,404) (4,574) Dividends paid: Common stock (31,400) (34,000) Preferred stock (2,460) (2,588) -------- -------- Net cash flow used in financing activities (183,264) (41,162) -------- -------- Net decrease in cash and cash equivalents (86,973) (43,358) Cash and cash equivalents at beginning of period 123,728 68,279 -------- -------- Cash and cash equivalents at end of period $36,755 $24,921 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $75,495 $81,891 Income taxes $17,700 $920 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($6,413) ($2,138) See Notes to Financial Statements.
ENTERGY GULF STATES, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $30,895 $19,503 Temporary cash investments - at cost, which approximates market 5,860 104,225 ---------- ---------- Total cash and cash equivalents 36,755 123,728 ---------- ---------- Other temporary investments - 44,643 Accounts receivable: Customer 101,579 81,136 Allowance for doubtful accounts (2,131) (2,131) Associated companies 4,630 34,032 Other 36,111 53,249 Accrued unbilled revenues 123,116 84,744 ---------- ---------- Total accounts receivable 263,305 251,030 ---------- ---------- Deferred fuel costs 148,425 126,730 Fuel inventory - at average cost 56,904 54,011 Materials and supplies - at average cost 94,553 95,674 Prepayments and other 20,496 22,373 ---------- ---------- TOTAL 620,438 718,189 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Decommissioning trust funds 244,433 245,382 Non-utility property - at cost (less accumulated depreciation) 193,080 194,830 Other 17,315 15,970 ---------- ---------- TOTAL 454,828 456,182 ---------- ---------- UTILITY PLANT Electric 7,758,403 7,694,226 Property under capital lease 25,039 28,087 Natural gas 61,171 59,100 Construction work in progress 286,037 221,730 Nuclear fuel under capital lease 54,647 67,688 ---------- ---------- TOTAL UTILITY PLANT 8,185,297 8,070,831 Less - accumulated depreciation and amortization 3,819,300 3,750,770 ---------- ---------- UTILITY PLANT - NET 4,365,997 4,320,061 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 424,420 426,623 Unamortized loss on reacquired debt 32,706 34,321 Other regulatory assets 196,033 201,329 Long-term receivables 24,935 26,576 Other 20,183 26,460 ---------- ---------- TOTAL 698,277 715,309 ---------- ---------- TOTAL ASSETS $6,139,540 $6,209,741 ========== ========== See Notes to Financial Statements.
ENTERGY GULF STATES, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $339,000 $147,921 Accounts payable: Associated companies 49,378 38,728 Other 122,861 135,023 Customer deposits 46,549 45,876 Taxes accrued 152,300 90,604 Accumulated deferred income taxes 23,819 21,412 Nuclear refueling outage costs 8,150 2,080 Interest accrued 36,193 43,414 Obligations under capital leases 37,113 36,668 Other 22,465 20,995 ---------- ---------- TOTAL 837,828 582,721 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 1,216,031 1,227,084 Accumulated deferred investment tax credits 160,084 163,766 Obligations under capital leases 42,572 60,163 Decommissioning 146,510 144,926 Transition to competition 79,098 79,098 Regulatory reserves 38,661 33,591 Accumulated provisions 62,573 63,811 Other 74,174 93,719 ---------- ---------- TOTAL 1,819,703 1,866,158 ---------- ---------- Long-term debt 1,620,014 1,958,897 Preferred stock with sinking fund 24,781 26,185 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 85,000 85,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 47,327 47,327 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares in 2002 and 2001 114,055 114,055 Paid-in capital 1,157,459 1,157,459 Retained earnings 431,295 371,939 Accumulated other comprehensive income 2,078 - ---------- ---------- TOTAL 1,752,214 1,690,780 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,139,540 $6,209,741 ========== ========== See Notes to Financial Statements.
ENTERGY GULF STATES, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 164.0 $ 194.4 ($30.4) (16) Commercial 123.3 156.7 (33.4) (21) Industrial 182.1 285.3 (103.2) (36) Governmental 8.3 10.2 (1.9) (19) --------- --------- ------ Total retail 477.7 646.6 (168.9) (26) Sales for resale Associated companies 1.0 16.9 (15.9) (94) Non-associated companies 35.7 33.5 2.2 7 Other 45.1 24.6 20.5 83 --------- --------- ------ Total $ 559.5 $ 721.6 ($162.1) (22) ========= ========= ====== Billed Electric Energy Sales (GWH): Residential 2,190 2,017 173 9 Commercial 1,942 1,836 106 6 Industrial 4,075 4,584 (509) (11) Governmental 118 110 8 7 --------- --------- ------ Total retail 8,325 8,547 (222) (3) Sales for resale Associated companies 25 341 (316) (93) Non-associated companies 1,155 736 419 57 --------- --------- ------ Total 9,505 9,624 (119) (1) ========= ========= ====== Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 308.8 $ 382.8 ($74.0) (19) Commercial 232.2 302.0 (69.8) (23) Industrial 326.1 565.9 (239.8) (42) Governmental 16.1 20.3 (4.2) (21) --------- --------- ------ Total retail 883.2 1,271.0 (387.8) (31) Sales for resale Associated companies 5.5 29.3 (23.8) (81) Non-associated companies 63.5 84.6 (21.1) (25) Other 54.6 35.6 19.0 53 --------- --------- ------ Total $ 1,006.8 $ 1,420.5 ($413.7) (29) ========= ========= ====== Billed Electric Energy Sales (GWH): Residential 4,292 4,143 149 4 Commercial 3,718 3,581 137 4 Industrial 7,719 8,836 (1,117) (13) Governmental 229 221 8 4 --------- --------- ------ Total retail 15,958 16,781 (823) (5) Sales for resale Associated companies 129 448 (319) (71) Non-associated companies 2,213 1,695 518 31 --------- --------- ------ Total 18,300 18,924 (624) (3) ========= ========= ====== ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 primarily due to an increase in unbilled revenue, more favorable volume on billed sales, an increase in interest income, and decreases in taxes other than income taxes and interest charges. The increases were partially offset by increases in other operation and maintenance expenses and depreciation and amortization expenses. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences ($10.4) ($10.4) Fuel cost recovery (99.6) (322.9) Sales volume/weather 16.1 15.7 Unbilled revenue 33.1 78.2 Other revenue 1.0 3.9 Sales for resale (4.6) (7.8) ------ ------- Total ($64.4) ($243.3) ====== ======= Base rate differences Base rate differences decreased for the three and six months ended June 30, 2002 primarily due to an increase in accruals for potential rate refunds, decreased rates for special-use industrial customers as a result of increased KWH usage, and additional formula rate plan reductions which became effective in October 2001. Fuel cost recovery Entergy Louisiana is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates that are recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Louisiana's financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 due to recovery of lower fuel and purchased power expenses through the fuel adjustment clause, primarily due to decreases in the market price of natural gas and purchased power. ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Sales volume/weather Higher electric sales volume increased revenues for the three months ended June 30, 2002 due to increased usage of 192 GWH in the residential and commercial sectors, after adjusting for the weather effect, and 209 GWH in the industrial sector. The increased usage resulted in lower effective rates for the industrial sector, which is reflected in base rate differences. The effect of favorable weather in the second quarter of 2002 compared to the second quarter of 2001 increased electric sales volume by 50 GWH in the residential and commercial sectors. Higher electric sales volume increased revenues for the six months ended June 30, 2002 due to increased usage of 236 GWH in the residential and commercial sectors, after adjusting for the weather effect, and 213 GWH in the industrial sector. The increased usage resulted in lower effective rates for the industrial sector, which is reflected in base rate differences. Unbilled revenue As discussed in Note 1 to the financial statements in the Form 10-K, unbilled revenues are estimated monthly and are reversed the following month. Unbilled revenue for the three months ended June 30, 2002 and 2001 includes the reversal of the estimates for March 2002 and March 2001, respectively. The increase for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 is due to the effect on the June 2001 calculation of higher unbilled revenue in March 2001 caused by higher fuel rates. Unbilled revenue for the six months ended June 30, 2002 and 2001 includes the reversal of the estimates for December 2001 and December 2000, respectively. The increase in unbilled revenue for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 is due to the effect on the June 2001 unbilled calculation of higher unbilled revenue in December 2000 caused by higher fuel rates and volume/weather. Sales for resale Sales for resale decreased for the three and six months ended June 30, 2002 primarily due to a decrease in volume to adjoining utility systems and affiliated customers. Expenses Fuel and purchased power Fuel and purchased power expenses decreased for the three and six months ended June 30, 2002 primarily due to a 29% and 44% decrease, respectively, in the market price of natural gas. The decreases were also due to decreases in the average market price of purchased power. Other operation and maintenance Other operation and maintenance expenses increased for the three months ended June 30, 2002 primarily due to: o an increase in employee pension and benefits expense of $1.5 million; o an increase in maintenance expense at certain fossil plants of $4.2 million; and o an increase in transmission expenses of $1.4 million. ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other operation and maintenance expenses increased for the six months ended June 30, 2002 primarily due to: o lower nuclear insurance refunds of $1.3 million; o an increase in incentive compensation expense of $3.5 million; o an increase in maintenance expense at certain fossil plants of $4.1 million; o an increase in employee pension and benefits expense of $2.6 million; and o an increase in transmission expenses of $1.7 million. Taxes other than income taxes Taxes other than income taxes decreased for the three and six months ended June 30, 2002 primarily due to franchise tax adjustments. As a result of a favorable court decision, Entergy Louisiana expects to receive a refund for certain franchise taxes previously expensed and paid under protest. Depreciation and amortization Depreciation and amortization increased for the three and six months ended June 30, 2002 primarily due to revisions made to the useful lives of certain intangible plant assets to more appropriately reflect their actual lives which lowered expense in 2001 in accordance with regulatory treatment. Other regulatory charges - net Other regulatory charges increased for the three and six months ended June 30, 2002 primarily due to the amortization of capacity charges associated with power purchases in the summer of 2000. The amortization of these charges will occur through July 2002. Refer to Note 2 to the financial statements for further discussion of deferred capacity charges. Other Other income Interest income increased for the three and six months ended June 30, 2002 primarily due to the interest related to franchise tax adjustments discussed above. Interest and other charges Interest on long-term debt decreased for the three and six months ended June 30, 2002 due to the refinancing and net redemption of First Mortgage Bonds in the amounts of $18.7 million in 2001 and $63.0 million in the first quarter of 2002. Other interest decreased for the three and six months ended June 30, 2002 primarily due to interest accrued in 2001 on reserves provided for fuel-related refunds that were made in the summer of 2001 and adjustments to interest expense previously recorded on franchise tax accruals. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 37.0% and 40.3%, respectively. The effective income tax rates for the six months ended June 30, 2002 and 2001 were 38.3% and 41.8%, respectively. The decreases in the effective income tax rates were primarily due to higher pre-tax income reducing the effect of book and tax timing differences.
ENTERGY LOUISIANA, INC. INCOME STATEMENTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $483,389 $547,784 $853,352 $1,096,698 -------- -------- -------- ---------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 85,709 190,046 148,690 424,469 Purchased power 121,899 132,485 201,662 267,990 Nuclear refueling outage expenses 2,961 3,262 6,012 6,524 Other operation and maintenance 81,193 71,269 159,659 141,083 Decommissioning 2,606 2,606 5,211 5,212 Taxes other than income taxes 5,546 18,165 23,979 36,717 Depreciation and amortization 45,679 40,498 91,141 85,444 Other regulatory charges - net 3,315 540 6,630 1,080 -------- -------- -------- ---------- TOTAL 348,908 458,871 642,984 968,519 -------- -------- -------- ---------- OPERATING INCOME 134,481 88,913 210,368 128,179 -------- -------- -------- ---------- OTHER INCOME Allowance for equity funds used during construction 1,364 1,226 2,432 2,161 Gain on sale of assets - 152 - 152 Interest and dividend income 6,583 1,465 6,819 4,134 Miscellaneous - net (741) (721) (1,620) (1,454) -------- -------- -------- ---------- TOTAL 7,206 2,122 7,631 4,993 -------- -------- -------- ---------- INTEREST AND OTHER CHARGES Interest on long-term debt 21,815 24,734 45,255 49,190 Other interest - net (1,161) 3,570 679 7,087 Distributions on preferred securities of subsidiary 1,575 1,575 3,150 3,150 Allowance for borrowed funds used during construction (1,006) (922) (1,867) (1,632) -------- -------- -------- ---------- TOTAL 21,223 28,957 47,217 57,795 -------- -------- -------- ---------- INCOME BEFORE INCOME TAXES 120,464 62,078 170,782 75,377 Income taxes 44,619 25,044 65,442 31,483 -------- -------- -------- ---------- NET INCOME 75,845 37,034 105,340 43,894 Preferred dividend requirements and other 1,678 2,378 3,357 4,757 -------- -------- -------- ---------- EARNINGS APPLICABLE TO COMMON STOCK $74,167 $34,656 $101,983 $39,137 ======== ======== ======== ========== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income $105,340 $43,894 Noncash items included in net income: Reserve for regulatory adjustments - (3,698) Other regulatory charges - net 6,630 1,080 Depreciation, amortization, and decommissioning 96,352 90,656 Deferred income taxes and investment tax credits 27,874 (55,432) Allowance for equity funds used during construction (2,432) (2,161) Gain on sale of assets - (152) Changes in working capital: Receivables (57,646) (15,569) Accounts payable 55,199 (66,985) Taxes accrued 58,644 103,346 Interest accrued (12,986) (7,192) Deferred fuel costs (77,570) 121,877 Other working capital accounts (17,889) (24,616) Provision for estimated losses and reserves 1,845 2,133 Changes in other regulatory assets 17,967 (3,779) Other (10,689) 11,750 -------- -------- Net cash flow provided by operating activities 190,639 195,152 -------- -------- INVESTING ACTIVITIES Construction expenditures (97,001) (99,550) Allowance for equity funds used during construction 2,432 2,161 Nuclear fuel purchases (50,473) - Proceeds from sale/leaseback of nuclear fuel 50,473 - Decommissioning trust contributions and realized change in trust assets (8,824) (9,043) Changes in other temporary investments - net 6,152 - -------- -------- Net cash flow used in investing activities (97,241) (106,432) -------- -------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt 144,874 - Retirement of long-term debt (228,968) (35,088) Changes in short-term borrowings 15,000 - Dividends paid: Common stock (48,600) (13,300) Preferred stock (3,357) (4,757) -------- -------- Net cash flow used in financing activities (121,051) (53,145) -------- -------- Net increase (decrease) in cash and cash equivalents (27,653) 35,575 Cash and cash equivalents at beginning of period 42,408 43,959 -------- -------- Cash and cash equivalents at end of period $14,755 $79,534 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid/(received) during the period for: Interest - net of amount capitalized $58,943 $63,521 Income taxes ($9,983) $550 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($3,975) ($1,430) See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $14,755 $28,768 Temporary cash investments - at cost, which approximates market - 13,640 ---------- ---------- Total cash and cash equivalents 14,755 42,408 ---------- ---------- Other temporary investments - 6,152 Notes receivable 8 8 Accounts receivable: Customer 77,803 48,640 Allowance for doubtful accounts (1,771) (1,771) Associated companies 12,376 9,090 Other 11,262 47,965 Accrued unbilled revenues 133,100 71,200 ---------- ---------- Total accounts receivable 232,770 175,124 ---------- ---------- Deferred fuel costs 10,077 - Accumulated deferred income taxes 5,387 42,566 Materials and supplies - at average cost 73,289 77,523 Deferred nuclear refueling outage costs 14,441 4,096 Prepayments and other 26,763 9,000 ---------- ---------- TOTAL 377,490 356,877 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 14,230 14,230 Decommissioning trust funds 124,512 119,663 Non-utility property - at cost (less accumulated depreciation) 21,580 21,671 ---------- ---------- TOTAL 160,322 155,564 ---------- ---------- UTILITY PLANT Electric 5,499,463 5,456,093 Property under capital lease 239,395 239,395 Construction work in progress 147,067 110,792 Nuclear fuel under capital lease 67,917 70,316 ---------- ---------- TOTAL UTILITY PLANT 5,953,842 5,876,596 Less - accumulated depreciation and amortization 2,611,859 2,538,964 ---------- ---------- UTILITY PLANT - NET 3,341,983 3,337,632 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 172,847 179,368 Unamortized loss on reacquired debt 26,800 28,341 Other regulatory assets 62,308 73,754 Long-term receivables 1,503 1,515 Other 16,882 16,650 ---------- ---------- TOTAL 280,340 299,628 ---------- ---------- TOTAL ASSETS $4,160,135 $4,149,701 ========== ========== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $254,865 $185,627 Notes payable 15,000 - Accounts payable: Associated companies 116,337 73,208 Other 105,530 93,460 Customer deposits 62,763 61,359 Taxes accrued 79,054 20,410 Interest accrued 21,538 34,524 Deferred fuel costs - 67,493 Obligations under capital leases 34,171 34,171 Other 20,275 14,119 ---------- ---------- TOTAL 709,533 584,371 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 766,318 776,610 Accumulated deferred investment tax credits 109,241 111,942 Obligations under capital leases 33,745 36,144 Accumulated provisions 70,367 68,522 Other 76,347 82,780 ---------- ---------- TOTAL 1,056,018 1,075,998 ---------- ---------- Long-term debt 943,247 1,091,329 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 70,000 70,000 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 100,500 100,500 Common stock, no par value, authorized 250,000,000 shares; issued and outstanding 165,173,180 shares in 2002 and 2001 1,088,900 1,088,900 Capital stock expense and other (1,718) (1,718) Retained earnings 193,655 140,321 ---------- ---------- TOTAL 1,381,337 1,328,003 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,160,135 $4,149,701 ========== ========== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 150.6 $ 163.5 ($12.9) (8) Commercial 100.5 114.9 (14.4) (13) Industrial 160.1 218.2 (58.1) (27) Governmental 8.8 10.5 (1.7) (16) ------- --------- ------ Total retail 420.0 507.1 (87.1) (17) Sales for resale Associated companies 5.8 7.3 (1.5) (21) Non-associated companies 3.4 6.5 (3.1) (48) Other 54.2 26.9 27.3 101 ------- --------- ------ Total $ 483.4 $ 547.8 ($64.4) (12) ======= ========= ====== Billed Electric Energy Sales (GWH): Residential 2,020 1,839 181 10 Commercial 1,352 1,291 61 5 Industrial 3,792 3,583 209 6 Governmental 122 120 2 2 ------- --------- ------ Total retail 7,286 6,833 453 7 Sales for resale Associated companies 68 108 (40) (37) Non-associated companies 40 79 (39) (49) ------- --------- ------ Total 7,394 7,020 374 5 ======= ========= ====== Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 270.0 $ 348.3 ($78.3) (22) Commercial 181.5 236.0 (54.5) (23) Industrial 289.6 463.4 (173.8) (38) Governmental 16.8 22.8 (6.0) (26) ------- --------- ------ Total retail 757.9 1,070.5 (312.6) (29) Sales for resale Associated companies 9.1 11.4 (2.3) (20) Non-associated companies 6.8 12.3 (5.5) (45) Other 79.6 2.5 77.1 3,084 ------- --------- ------ Total $ 853.4 $ 1,096.7 ($243.3) (22) ======= ========= ====== Billed Electric Energy Sales (GWH): Residential 3,942 3,783 159 4 Commercial 2,574 2,508 66 3 Industrial 7,370 7,157 213 3 Governmental 250 248 2 1 ------- --------- ------ Total retail 14,136 13,696 440 3 Sales for resale Associated companies 153 161 (8) (5) Non-associated companies 93 174 (81) (47) ------- --------- ------ Total 14,382 14,031 351 3 ======= ========= ====== ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 primarily due to decreased interest income and increased depreciation and amortization expenses, partially offset by increased other revenue. Net income decreased for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 primarily due to decreased interest income, increased depreciation and amortization expenses, and increased other operation and maintenance expenses. The decrease was partially offset by increased other revenue, increased unbilled revenue, and decreased interest expense. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences $0.8 $3.6 Grand Gulf rate rider (4.8) (11.5) Fuel cost recovery (14.4) (24.0) Sales volume/weather 1.5 (1.7) Unbilled revenue 1.1 3.4 Other revenue 3.4 5.8 Sales for resale - (52.5) ------ ------ Total ($12.4) ($76.9) ====== ====== Grand Gulf rate rider Rate rider revenues have no material effect on net income because specific incurred expenses offset them. Grand Gulf rate rider revenue decreased for the three and six months ended June 30, 2002 as a result of a lower rate which became effective in October 2001. Fuel cost recovery Entergy Mississippi is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates, recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy Mississippi's financial statements such that these costs generally have no net effect on earnings. ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 primarily due to lower fuel and purchased power expenses as a result of decreases in the market prices of natural gas and purchased power. Unbilled revenue As discussed in Note 1 to the financial statements in the Form 10-K, unbilled revenues are estimated monthly and reversed the following month. Unbilled revenue for the six months ended June 30, 2002 and 2001 includes the reversal of the estimates for December 2001 and December 2000, respectively. The increase in unbilled revenue for the six months ended June 30, 2002 compared to the six months ended June 30, 2001 is due to the effect on the June 2001 unbilled calculation of higher unbilled revenue in December 2000 caused by volume/weather. Other revenue Other revenue increased for the three and six months ended June 30, 2002 primarily due to increased forfeiture revenue as a result of Entergy Mississippi charging late fees to its customers beginning in October 2001. Sales for resale Sales for resale decreased for the six months ended June 30, 2002 primarily due to a decrease in sales volume to affiliated customers, coupled with a decrease in the average price of energy. Expenses Fuel and purchased power Fuel and purchased power expenses decreased for the three and six months ended June 30, 2002 primarily due to the displacement of oil generation by lower priced gas generation and the decrease in the market price of purchased power. Oil generation was used in the first and second quarters of 2001 due to significant increases in the market price of natural gas. The decrease was partially offset by an over-recovery of fuel costs, including the effect of increased recoveries approved by the MPSC in 2001 to recover previous under- recoveries. Other operation and maintenance Other operation and maintenance expenses increased for the six months ended June 30, 2002 primarily due to: o an increase of $5.6 million in plant maintenance expense due to an unscheduled outage at a fossil plant in 2002; o an increase in injuries and damages expense of $1.3 million; and o an insurance reimbursement of $1.4 million received in 2001 in connection with a turbine generator failure. ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Depreciation and amortization Depreciation and amortization increased for the three and six months ended June 30, 2002 primarily due to revisions made to the useful lives of certain intangible plant assets to more appropriately reflect their actual lives which lowered expense in 2001 in accordance with regulatory treatment. Other regulatory credits - net Other regulatory credits decreased for the three months ended June 30, 2002 primarily due to the settlement of the System Energy rate proceeding in 2001 which ceased the deferral of costs associated with purchases from System Energy. See Note 2 to the financial statements in the Form 10-K for further discussion of the System Energy rate proceeding and FERC order. Other Other income Interest income decreased for the three and six months ended June 30, 2002 primarily due to interest recorded in 2001 on the deferred System Energy costs that Entergy Mississippi was not recovering through rates. The deferral of these costs ceased in the third quarter of 2001 as a result of a final FERC order. Interest and other charges Interest and other charges decreased for the six months ended June 30, 2002 primarily due to: o lower interest expense on decreased intercompany money pool borrowings; o lower interest expense on a $25 million credit facility obtained in February 2001, which was drawn on for most of the first half of 2001 compared with only being drawn in June during 2002; o lower interest expense on variable-rate First Mortgage Bonds; and o an increase in the allowance for borrowed funds used for construction because of a higher construction work in progress balance during 2002. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 36.7% and 33.4%, respectively. The effective income tax rates for the six months ended June 30, 2002 were 35.5% and 33.9%, respectively. The increase in the effective tax rate for the three months ended June 30, 2002 was primarily due to increased book and tax depreciation timing differences.
ENTERGY MISSISSIPPI, INC. INCOME STATEMENTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $261,743 $274,148 $453,433 $530,306 -------- -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 93,129 95,493 143,698 205,552 Purchased power 74,146 94,374 149,482 177,838 Other operation and maintenance 40,763 39,473 81,663 72,721 Taxes other than income taxes 11,774 11,792 23,507 23,065 Depreciation and amortization 13,745 10,941 27,251 24,215 Other regulatory credits - net (1,067) (9,572) (18,349) (19,256) -------- -------- -------- -------- TOTAL 232,490 242,501 407,252 484,135 -------- -------- -------- -------- OPERATING INCOME 29,253 31,647 46,181 46,171 -------- -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 1,076 592 2,146 1,015 Interest and dividend income 1,185 4,559 2,227 9,252 Miscellaneous - net (371) (558) (1,105) (1,106) -------- -------- -------- -------- TOTAL 1,890 4,593 3,268 9,161 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 11,250 12,159 21,212 23,303 Other interest - net 735 1,079 1,356 2,312 Allowance for borrowed funds used during construction (975) (516) (1,920) (863) -------- -------- -------- -------- TOTAL 11,010 12,722 20,648 24,752 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 20,133 23,518 28,801 30,580 Income taxes 7,381 7,845 10,220 10,373 -------- -------- -------- -------- NET INCOME 12,752 15,673 18,581 20,207 Preferred dividend requirements and other 842 842 1,685 1,685 -------- -------- -------- -------- EARNINGS APPLICABLE TO COMMON STOCK $11,910 $14,831 $16,896 $18,522 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income $18,581 $20,207 Noncash items included in net income: Other regulatory credits - net (18,349) (19,256) Depreciation and amortization 27,251 24,215 Deferred income taxes and investment tax credits (7,826) 11,402 Allowance for equity funds used during construction (2,146) (1,015) Changes in working capital: Receivables (2,620) 699 Fuel inventory (758) (6,951) Accounts payable 7,488 (5,983) Taxes accrued 2,793 (15,104) Interest accrued (102) 2,884 Deferred fuel costs 22,792 (21,692) Other working capital accounts 122 (4,495) Provision for estimated losses and reserves (1,153) (4,733) Changes in other regulatory assets (10,604) (23,075) Other 23,735 34,461 -------- -------- Net cash flow provided by (used in) operating activities 59,204 (8,436) -------- -------- INVESTING ACTIVITIES Construction expenditures (77,812) (60,961) Allowance for equity funds used during construction 2,146 1,015 Changes in other temporary investments - net 18,566 - -------- -------- Net cash flow used in investing activities (57,100) (59,946) -------- -------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt - 69,624 Retirement of long-term debt (65,000) - Changes in short-term borrowings 25,000 10,000 Dividends paid: Common stock (4,500) (5,500) Preferred stock (1,685) (1,685) -------- -------- Net cash flow provided by (used in) financing activities (46,185) 72,439 -------- -------- Net increase (decrease) in cash and cash equivalents (44,081) 4,057 Cash and cash equivalents at beginning of period 54,048 5,113 -------- -------- Cash and cash equivalents at end of period $9,967 $9,170 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $21,272 $21,406 See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $9,967 $12,883 Temporary cash investments - at cost, which approximates market - 41,165 ---------- ---------- Total cash and cash equivalents 9,967 54,048 ---------- ---------- Other temporary investments - 18,566 Accounts receivable: Customer 52,493 50,370 Allowance for doubtful accounts (1,044) (1,044) Associated companies 6,186 14,201 Other 3,704 2,892 Accrued unbilled revenues 38,000 30,300 ---------- ---------- Total accounts receivable 99,339 96,719 ---------- ---------- Deferred fuel costs 83,366 106,158 Fuel inventory - at average cost 5,582 4,824 Materials and supplies - at average cost 17,601 16,896 Prepayments and other 2,408 8,521 ---------- ---------- TOTAL 218,263 305,732 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 5,531 5,531 Non-utility property - at cost (less accumulated depreciation) 6,658 6,723 ---------- ---------- TOTAL 12,189 12,254 ---------- ---------- UTILITY PLANT Electric 1,985,589 1,939,182 Property under capital lease 193 211 Construction work in progress 132,329 110,450 ---------- ---------- TOTAL UTILITY PLANT 2,118,111 2,049,843 Less - accumulated depreciation and amortization 759,376 741,892 ---------- ---------- UTILITY PLANT - NET 1,358,735 1,307,951 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 23,444 22,387 Unamortized loss on reacquired debt 13,333 13,925 Other regulatory assets 23,050 13,503 Other 6,311 7,274 ---------- ---------- TOTAL 66,138 57,089 ---------- ---------- TOTAL ASSETS $1,655,325 $1,683,026 ========== ========== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $190,000 $65,000 Notes payable 25,000 - Accounts payable: Associated companies 41,831 45,554 Other 38,594 27,383 Customer deposits 32,727 29,421 Taxes accrued 34,277 31,484 Accumulated deferred income taxes 8,357 19,277 Interest accrued 17,565 17,667 Obligations under capital leases 37 36 System Energy refund 4,669 14,836 Other 3,539 1,964 ---------- ---------- TOTAL 396,596 252,622 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 272,825 266,498 Accumulated deferred investment tax credits 17,203 17,908 Obligations under capital leases 156 175 Accumulated provisions 6,474 7,627 Other 38,983 37,678 ---------- ---------- TOTAL 335,641 329,886 ---------- ---------- Long-term debt 399,936 589,762 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 50,381 50,381 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares in 2002 and 2001 199,326 199,326 Capital stock expense and other (59) (59) Retained earnings 273,504 261,108 ---------- ---------- TOTAL 523,152 510,756 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,655,325 $1,683,026 ========== ========== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 85.6 $ 89.1 ($3.5) (4) Commercial 76.1 80.9 (4.8) (6) Industrial 41.4 49.2 (7.8) (16) Governmental 7.3 8.0 (0.7) (9) ------- ------- ------ Total retail 210.4 227.2 (16.8) (7) Sales for resale Associated companies 27.0 26.0 1.0 4 Non-associated companies 4.1 5.1 (1.0) (20) Other 20.2 15.8 4.4 28 ------- ------- ------ Total $ 261.7 $ 274.1 ($12.4) (5) ======= ======= ====== Billed Electric Energy Sales (GWH): Residential 1,086 1,037 49 5 Commercial 1,046 1,024 22 2 Industrial 705 751 (46) (6) Governmental 92 93 (1) (1) ------ ------ ----- Total retail 2,929 2,905 24 1 Sales for resale Associated companies 563 459 104 23 Non-associated companies 50 57 (7) (12) ------ ------ ----- Total 3,542 3,421 121 4 ====== ====== ===== Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 158.6 $ 170.0 ($11.4) (7) Commercial 140.2 148.5 (8.3) (6) Industrial 77.6 90.5 (12.9) (14) Governmental 13.6 14.6 (1.0) (7) ------- ------- ------ Total retail 390.0 423.6 (33.6) (8) Sales for resale Associated companies 32.3 82.7 (50.4) (61) Non-associated companies 7.5 9.6 (2.1) (22) Other 23.6 14.4 9.2 64 ------- ------- ------ Total $ 453.4 $ 530.3 ($76.9) (15) ======= ======= ====== Billed Electric Energy Sales (GWH): Residential 2,212 2,252 (40) (2) Commercial 2,010 1,999 11 1 Industrial 1,377 1,485 (108) (7) Governmental 179 183 (4) (2) ------ ------ ----- Total retail 5,778 5,919 (141) (2) Sales for resale Associated companies 608 1,332 (724) (54) Non-associated companies 97 107 (10) (9) ------ ------ ----- Total 6,483 7,358 (875) (12) ====== ====== ===== ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Loss Entergy New Orleans experienced a net loss for the six months ended June 30, 2002 primarily due to accruals for potential rate actions and refunds and increased interest charges, partially offset by decreased taxes other than income taxes. Revenues and Sales Electric operating revenues The changes in electric operating revenues for the three and six months ended June 30, 2002 compared with the three and six months ended June 30, 2001 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Base rate differences ($0.5) ($3.6) Fuel cost recovery (33.5) (75.5) Sales volume/weather 2.7 3.7 Unbilled revenue (1.8) (1.1) Other revenue (0.2) (6.0) Sales for resale (1.3) (8.1) ------ ------ Total ($34.6) ($90.6) ====== ====== Fuel cost recovery Entergy New Orleans is allowed to recover certain fuel and purchased power costs through fuel mechanisms included in electric rates, recorded as fuel cost recovery revenues. The difference between revenues collected and current fuel and purchased power costs is recorded as deferred fuel costs on Entergy New Orleans' financial statements such that these costs generally have no net effect on earnings. Fuel cost recovery revenues decreased for the three and six months ended June 30, 2002 primarily due to recovery, through the fuel adjustment clause, of lower fuel and purchased power expenses. The decrease in fuel and purchased power expenses was a result of decreased market prices of natural gas and purchased power. Other revenue Other revenue decreased for the six months ended June 30, 2002 primarily due to accruals for potential rate actions and refunds. Sales for resale Sales for resale decreased for the six months ended June 30, 2002 primarily due to a decrease in the average price of resale energy coupled with decreased sales volume to affiliated customers. ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Gas operating revenues Gas operating revenues decreased for the three and six months ended June 30, 2002 primarily due to the decreased market price of natural gas coupled with decreased sales volume. Expenses Fuel and purchased power Fuel and purchased power expenses decreased for the three and six months ended June 30, 2002 primarily due to the decreased market prices of natural gas and purchased power. Other operation and maintenance Other operation and maintenance expenses increased for the three months ended June 30, 2002 primarily due to an increase in rate proceedings costs of $1.1 million. Other operation and maintenance expenses increased for the six months ended June 30, 2002 primarily due to: o an increase in rate proceedings costs of $1.3 million; and o an increase in injuries and damages expense of $1.0 million. Taxes other than income taxes Taxes other than income taxes decreased for the three and six months ended June 30, 2002 primarily due to a decrease in local franchise taxes as a result of lower retail revenue. Other regulatory charges - net Other regulatory charges increased for the six months ended June 30, 2002 primarily due to a greater over-recovery of Grand Gulf costs compared to 2001. The increase was partially offset by the completion of the Grand Gulf 1 Rate Deferral Plan in September 2001. Other Other income Other income decreased for the six months ended June 30, 2002 primarily due to interest recorded in the first half of 2001 on deferred System Energy costs that Entergy New Orleans was not recovering through rates. The deferral of these costs ceased in the third quarter of 2001 as a result of a final FERC order. See Note 2 to the financial statements in the Form 10-K for further discussion of the System Energy rate proceeding and FERC order. ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Interest and other charges Other interest increased for the three and six months ended June 30, 2002 primarily due to interest recorded for potential rate actions and refunds. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 44.7% and 40.9%, respectively. There was no meaningful effective income tax rate for the six months ended June 30, 2002 as a result of the net loss generated, while book and tax timing differences caused income tax expense for the period. The effective income tax rate for the six months ended June 30, 2001 was 43.3%. The increase for the three months ended June 30, 2002 in the effective tax rate was primarily due to increased book and tax depreciation timing differences.
ENTERGY NEW ORLEANS, INC. STATEMENTS OF OPERATIONS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $104,465 $139,057 $177,688 $268,289 Natural gas 16,957 21,252 46,681 96,035 -------- -------- -------- -------- TOTAL 121,422 160,309 224,369 364,324 -------- -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 21,811 51,860 50,468 160,687 Purchased power 45,313 58,859 80,822 107,326 Other operation and maintenance 23,200 21,615 45,112 42,576 Taxes other than income taxes 9,134 11,308 18,426 24,994 Depreciation and amortization 6,891 6,181 13,734 12,507 Other regulatory charges - net 1,922 1,113 4,331 2,643 -------- -------- -------- -------- TOTAL 108,271 150,936 212,893 350,733 -------- -------- -------- -------- OPERATING INCOME 13,151 9,373 11,476 13,591 -------- -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 463 453 893 851 Interest and dividend income 89 1,055 363 2,161 Miscellaneous - net (377) (735) (837) (1,147) -------- -------- -------- -------- TOTAL 175 773 419 1,865 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 4,469 4,450 8,937 8,568 Other interest - net 3,547 386 3,998 812 Allowance for borrowed funds used during construction (472) (386) (866) (706) -------- -------- -------- -------- TOTAL 7,544 4,450 12,069 8,674 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 5,782 5,696 (174) 6,782 Income taxes 2,583 2,327 567 2,938 -------- -------- -------- -------- NET INCOME (LOSS) 3,199 3,369 (741) 3,844 Preferred dividend requirements and other 241 241 482 482 -------- -------- -------- -------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $2,958 $3,128 ($1,223) $3,362 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income (loss) ($741) $3,844 Noncash items included in net income (loss): Other regulatory charges - net 4,331 2,643 Depreciation and amortization 13,734 12,507 Deferred income taxes and investment tax credits 3,098 (2,588) Allowance for equity funds used during construction (893) (851) Changes in working capital: Receivables 654 (4,101) Fuel inventory 3,057 4,096 Accounts payable 14,518 (12,011) Taxes accrued - 3,971 Interest accrued 2,295 307 Deferred fuel costs (18,517) 11,719 Other working capital accounts (40,041) (8,049) Provision for estimated losses and reserves (2,258) (2,136) Changes in other regulatory assets 12 (12,295) Other 5,733 1,181 ------- ------- Net cash flow used in operating activities (15,018) (1,763) ------- ------- INVESTING ACTIVITIES Construction expenditures (31,036) (28,898) Allowance for equity funds used during construction 893 851 Changes in other temporary investments - net 14,859 - ------- ------- Net cash flow used in investing activities (15,284) (28,047) ------- ------- FINANCING ACTIVITIES Proceeds from the issuance of long-term debt - 29,769 Dividends paid: Preferred stock (482) (241) ------- ------- Net cash flow provided by (used in) financing activities (482) 29,528 ------- ------- Net decrease in cash and cash equivalents (30,784) (282) Cash and cash equivalents at beginning of period 38,184 6,302 ------- ------- Cash and cash equivalents at end of period $7,400 $6,020 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $10,377 $8,845 See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $7,400 $5,237 Temporary cash investments - at cost, which approximates market - 32,947 -------- -------- Total cash and cash equivalents 7,400 38,184 -------- -------- Other temporary investments - 14,859 Accounts receivable: Customer 32,545 33,827 Allowance for doubtful accounts (2,234) (2,234) Associated companies - 10,527 Other 6,885 4,511 Accrued unbilled revenues 28,808 20,027 -------- -------- Total accounts receivable 66,004 66,658 -------- -------- Deferred fuel costs 8,321 - Accumulated deferred income taxes - 4,882 Fuel inventory - at average cost 24 3,081 Materials and supplies - at average cost 7,496 8,273 Prepayments and other 41,359 26,239 -------- -------- TOTAL 130,604 162,176 -------- -------- OTHER PROPERTY AND INVESTMENTS Investment in affiliates - at equity 3,259 3,259 -------- -------- UTILITY PLANT Electric 610,725 597,575 Natural gas 147,030 142,741 Construction work in progress 52,366 43,166 -------- -------- TOTAL UTILITY PLANT 810,121 783,482 Less - accumulated depreciation and amortization 404,936 396,535 -------- -------- UTILITY PLANT - NET 405,185 386,947 -------- -------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: Unamortized loss on reacquired debt 655 761 Other regulatory assets 10,831 10,843 Other 1,276 2,051 -------- -------- TOTAL 12,762 13,655 -------- -------- TOTAL ASSETS $551,810 $566,037 ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $25,000 $ - Accounts payable: Associated companies 22,399 18,199 Other 33,958 23,640 Customer deposits 19,087 18,931 Accumulated deferred income taxes 1,847 - Interest accrued 9,327 7,032 Deferred fuel costs - 10,196 System Energy Refund - 33,614 Other 9,559 1,799 -------- -------- TOTAL 121,177 113,411 -------- -------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 17,035 25,326 Accumulated deferred investment tax credits 5,119 5,361 SFAS 109 regulatory liability - net 25,674 19,868 Accumulated provisions 3,544 5,802 Other 25,904 16,735 -------- -------- TOTAL 77,276 73,092 -------- -------- Long-term debt 204,143 229,097 SHAREHOLDERS' EQUITY Preferred stock without sinking fund 19,780 19,780 Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares in 2002 33,744 33,744 and 2001 Paid-in capital 36,294 36,294 Retained earnings 59,396 60,619 -------- -------- TOTAL 149,214 150,437 -------- -------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $551,810 $566,037 ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Monts Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 37.0 $ 45.8 ($8.8) (19) Commercial 34.7 48.0 (13.3) (28) Industrial 5.3 8.4 (3.1) (37) Governmental 14.8 20.9 (6.1) (29) ------- ------- ------ Total retail 91.8 123.1 (31.3) (25) Sales for resale Associated companies 1.0 1.7 (0.7) (41) Non-associated companies 0.5 1.1 (0.6) (55) Other 11.2 13.2 (2.0) (15) ------- ------- ------ Total $ 104.5 $ 139.1 ($34.6) (25) ======= ======= ====== Billed Electric Energy Sales (GWH): Residential 504 457 47 10 Commercial 554 545 9 2 Industrial 96 104 (8) (8) Governmental 260 247 13 5 ------- ------- ------ Total retail 1,414 1,353 61 5 Sales for resale Associated companies 15 26 (11) (42) Non-associated companies 9 15 (6) (40) ------- ------- ------ Total 1,438 1,394 44 3 ======= ======= ====== Six Months Ended Increase/ Description 2002 2001 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 64.2 $ 86.8 ($22.6) (26) Commercial 65.4 96.9 (31.5) (33) Industrial 9.9 16.7 (6.8) (41) Governmental 27.4 41.8 (14.4) (34) ------- ------- ------ Total retail 166.9 242.2 (75.3) (31) Sales for resale Associated companies 1.3 8.7 (7.4) (85) Non-associated companies 1.0 1.7 (0.7) (41) Other 8.5 15.7 (7.2) (46) ------- ------- ------ Total $ 177.7 $ 268.3 ($90.6) (34) ======= ======= ====== Billed Electric Energy Sales (GWH): Residential 907 854 53 6 Commercial 1,059 1,033 26 3 Industrial 185 196 (11) (6) Governmental 490 475 15 3 ------- ------- ------ Total retail 2,641 2,558 83 3 Sales for resale Associated companies 31 90 (59) (66) Non-associated companies 20 27 (7) (26) ------- ------- ------ Total 2,692 2,675 17 1 ======= ======= ====== SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months and six months ended June 30, 2002 compared with the three months and six months ended June 30, 2001 primarily due to decreased interest charges, partially offset by decreased interest income. Revenues Operating revenues recover operating expenses, depreciation, and capital costs attributable to Grand Gulf 1. Capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1 and adding to such amount System Energy's effective interest cost for its debt. Operating revenues decreased for the three and six months ended June 30, 2002 as a result of the suspension of the GGART for Entergy Arkansas in July 2001. The net income impact of the suspended tariff is substantially offset in other regulatory charges. See further discussion of the GGART in Note 2 to the financial statements in the Form 10-K. Expenses Nuclear refueling outage expenses Nuclear refueling outage expenses decreased for the three and six months ended June 30, 2002 due to lower monthly amortization of outage expenses resulting from lower expenses incurred during the April/May 2001 refueling and maintenance outage compared to the previous outage. Other operation and maintenance Other operation and maintenance expenses increased for the six months ended June 30, 2002 primarily due to: o lower nuclear insurance refunds of $1.7 million; and o an increase in outside services employed of $1.3 million. Depreciation and amortization Depreciation and amortization expenses decreased for the three and six months ended June 30, 2002 primarily due to a lower depreciation rate used in 2002 as mandated by FERC. See further discussion of the System Energy rate proceeding in Note 2 to the financial statements in the Form 10-K. Other regulatory charges - net Other regulatory charges decreased for the three and six months ended June 30, 2002 primarily due to the suspension of the GGART for Entergy Arkansas in July 2001. SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other Other income Interest income decreased for the three and six months ended June 30, 2002 as a result of decreased interest earned on System Energy's investments in the money pool due to lower advances to the money pool in 2002 compared to the same period in 2001. Interest and other charges Interest on long-term debt decreased for the three and six months ended June 30, 2002 primarily due to the retirement of $135 million of long-term debt in August 2001, combined with a decrease in interest expense related to the sale-leaseback of Grand Gulf 1. Other interest expense decreased for the three and six months ended June 30, 2002 due to interest recorded in 2001 on System Energy's reserve for rate refund. The refund was made in December 2001. Income taxes The effective income tax rates for the three months ended June 30, 2002 and 2001 were 43.1% and 45.7%, respectively. The effective income tax rates for the six months ended June 30, 2002 and 2001 were 41.8% and 45.7%, respectively. The decrease in the effective tax rate for the six months ended June 30, 2002 was primarily due to updating book and tax timing differences related to research and experimental expenses consistent with amended tax returns in addition to book and tax timing differences related to depreciation.
SYSTEM ENERGY RESOURCES, INC. INCOME STATEMENTS For the Three and Six Months Ended June 30, 2002 and 2001 (Unaudited) Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands) (In Thousands) OPERATING REVENUES Domestic electric $142,892 $152,902 $285,222 $304,068 -------- -------- -------- -------- OPERATING EXPENSES Operation and Maintenance: Fuel, fuel-related expenses, and gas purchased for resale 9,362 7,822 18,966 17,894 Nuclear refueling outage expenses 2,618 3,988 5,238 8,022 Other operation and maintenance 23,042 21,433 42,255 37,806 Decommissioning 4,014 4,736 8,028 9,472 Taxes other than income taxes 6,861 6,460 13,577 13,168 Depreciation and amortization 24,745 27,227 52,042 56,708 Other regulatory charges - net 13,128 19,955 26,054 39,122 -------- -------- -------- -------- TOTAL 83,770 91,621 166,160 182,192 -------- -------- -------- -------- OPERATING INCOME 59,122 61,281 119,062 121,876 -------- -------- -------- -------- OTHER INCOME Allowance for equity funds used during construction 700 484 1,250 754 Interest and dividend income 609 4,743 1,089 9,844 Miscellaneous - net (29) (20) (390) (50) -------- -------- -------- -------- TOTAL 1,280 5,207 1,949 10,548 -------- -------- -------- -------- INTEREST AND OTHER CHARGES Interest on long-term debt 15,544 18,756 30,651 37,767 Other interest - net 718 8,929 1,503 17,636 Allowance for borrowed funds used during construction (247) (224) (479) (361) -------- -------- -------- -------- TOTAL 16,015 27,461 31,675 55,042 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 44,387 39,027 89,336 77,382 Income taxes 19,137 17,825 37,359 35,382 -------- -------- -------- -------- NET INCOME $25,250 $21,202 $51,977 $42,000 ======== ======== ======== ======== See Notes to Financial Statements.
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SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (Unaudited) 2002 2001 (In Thousands) OPERATING ACTIVITIES Net income $51,977 $42,000 Noncash items included in net income: Reserve for regulatory adjustments - 53,475 Other regulatory charges - net 26,054 39,122 Depreciation, amortization, and decommissioning 60,070 66,180 Deferred income taxes and investment tax credits (22,881) (44,214) Allowance for equity funds used during construction (1,250) (754) Changes in working capital: Receivables (38,756) (101,734) Accounts payable (1,293) (11,514) Taxes accrued 50,002 62,571 Interest accrued (27,075) (18,683) Other working capital accounts 2,448 (7,612) Provision for estimated losses and reserves (291) (425) Changes in other regulatory assets 15,148 20,394 Other 7,451 (3,295) -------- -------- Net cash flow provided by operating activities 121,604 95,511 -------- -------- INVESTING ACTIVITIES Construction expenditures (18,036) (22,758) Allowance for equity funds used during construction 1,250 754 Nuclear fuel purchases - (37,592) Proceeds from sale/leaseback of nuclear fuel - 37,592 Decommissioning trust contributions and realized change in trust assets (2,854) (11,676) Changes in other temporary investments - net 22,354 - -------- -------- Net cash flow provided by (used in) investing activities 2,714 (33,680) -------- -------- FINANCING ACTIVITIES Retirement of long-term debt (30,891) (16,800) Dividends paid: Common stock (49,900) (43,000) -------- -------- Net cash flow used in financing activities (80,791) (59,800) -------- -------- Net increase in cash and cash equivalents 43,527 2,031 Cash and cash equivalents at beginning of period 49,579 202,218 -------- -------- Cash and cash equivalents at end of period $93,106 $204,249 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $57,121 $71,878 Income taxes - $3,463 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($5,715) ($1,417) See Notes to Financial Statements.
SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS ASSETS June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT ASSETS Cash and cash equivalents: Cash $92 $15 Temporary cash investments - at cost, which approximates market 93,014 49,564 ---------- ---------- Total cash and cash equivalents 93,106 49,579 ---------- ---------- Other temporary investments - 22,354 Accounts receivable: Associated companies 109,553 70,755 Other 1,151 1,193 ---------- ---------- Total accounts receivable 110,704 71,948 ---------- ---------- Materials and supplies - at average cost 52,659 51,665 Deferred nuclear refueling outage costs 3,551 8,728 Prepayments and other 3,963 1,631 ---------- ---------- TOTAL 263,983 205,905 ---------- ---------- OTHER PROPERTY AND INVESTMENTS Decommissioning trust funds 135,685 138,546 ---------- ---------- UTILITY PLANT Electric 3,100,775 3,098,446 Property under capital lease 450,014 450,014 Construction work in progress 51,370 36,868 Nuclear fuel under capital lease 48,347 61,905 ---------- ---------- TOTAL UTILITY PLANT 3,650,506 3,647,233 Less - accumulated depreciation and amortization 1,467,793 1,416,337 ---------- ---------- UTILITY PLANT - NET 2,182,713 2,230,896 ---------- ---------- DEFERRED DEBITS AND OTHER ASSETS Regulatory assets: SFAS 109 regulatory asset - net 154,944 173,470 Unamortized loss on reacquired debt 46,593 48,381 Other regulatory assets 161,327 157,949 Other 8,865 8,894 ---------- ---------- TOTAL 371,729 388,694 ---------- ---------- TOTAL ASSETS $2,954,110 $2,964,041 ========== ========== See Notes to Financial Statements.
SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDER'S EQUITY June 30, 2002 and December 31, 2001 (Unaudited) 2002 2001 (In Thousands) CURRENT LIABILITIES Currently maturing long-term debt $81,375 $100,891 Accounts payable: Associated companies 993 2,404 Other 14,434 14,316 Taxes accrued 162,524 112,522 Accumulated deferred income taxes 353 2,360 Interest accrued 20,020 47,095 Obligations under capital leases 26,503 26,503 Other 2,180 1,583 ---------- ---------- TOTAL 308,382 307,674 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES Accumulated deferred income taxes 468,808 498,404 Accumulated deferred investment tax credits 84,302 86,040 Obligations under capital leases 21,844 35,401 Other regulatory liabilities 179,921 135,878 Decommissioning 142,957 140,103 Accumulated provisions 414 705 Other 36,024 39,117 ---------- ---------- TOTAL 934,270 935,648 ---------- ---------- Long-term debt 818,700 830,038 SHAREHOLDER'S EQUITY Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 2002 and 2001 789,350 789,350 Retained earnings 103,408 101,331 ---------- ---------- TOTAL 892,758 890,681 ---------- ---------- Commitments and Contingencies TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $2,954,110 $2,964,041 ========== ========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. COMMITMENTS AND CONTINGENCIES Capital Requirements and Financing (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) See Note 9 to the financial statements in the Form 10-K for information on Entergy's estimated construction expenditures (including nuclear fuel but excluding AFUDC), as updated by the following paragraph, long-term debt and preferred stock maturities, and cash sinking fund requirements. ANO 1 Steam Generator Replacement (Entergy Corporation and Entergy Arkansas) See "ANO Matters" in Part I of the Form 10-K for discussion of the ANO 1 steam generators and reactor vessel closure head. On July 25, 2002, the Board authorized Entergy Arkansas and Entergy Operations to replace the ANO 1 steam generators and reactor vessel closure head. Entergy management estimates the cost of the fabrication and replacement to be approximately $235 million, of which approximately $135 million will be incurred through 2004. Management expects a contractor for the installation of the replacement steam generators and reactor vessel closure head to be selected by December 2002. Management expects that the replacement will occur during a planned refueling outage in 2005. Sales Warranties and Indemnities (Entergy Corporation) See Note 9 to the financial statements in the Form 10-K for information on certain warranties made by Entergy or its subsidiaries in the Entergy London and CitiPower sales transactions. See Note 14 to the financial statements in the Form 10-K for information on certain warranties made by Entergy or its subsidiaries in the Saltend sale transaction. Nuclear Insurance, Spent Nuclear Fuel, and Decommissioning Costs (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) See Note 9 to the financial statements in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, the disposal of spent nuclear fuel, other high-level radioactive waste, and decommissioning costs associated with Entergy's nuclear power plants. Regarding nuclear insurance, the Price-Anderson Act expired on August 1, 2002, and the U.S. Congress is currently considering a number of proposals for its renewal. Entergy's current nuclear operating licenses will not be affected by the expiration, because operating licenses issued prior to August 2002 are not affected by the expiration. In July 2002, Entergy's domestic non-utility nuclear business purchased the Vermont Yankee nuclear power plant from Vermont Yankee Nuclear Power Corporation (VYNPC). Entergy's domestic non-utility nuclear business has accepted assignment of the Vermont Yankee spent fuel disposal contract with the DOE previously held by VYNPC. VYNPC has paid or retained liability for the DOE fees for all generation prior to the purchase date of Vermont Yankee. Vermont Yankee currently has sufficient spent fuel storage capacity until approximately 2007. As part of the Vermont Yankee purchase, VYNPC transferred a $310 million decommissioning trust fund, along with the liability to decommission Vermont Yankee, to Entergy's domestic non-utility nuclear business. Entergy believes that Vermont Yankee's decommissioning trust fund will be adequate to cover future decommissioning costs for the plant without any additional deposits to the trust. Environmental Issues (Entergy Arkansas) In previous years, Entergy Arkansas has received notices from the EPA and the ADEQ alleging that Entergy Arkansas, along with others, may be a potentially responsible party (PRP) for clean-up costs associated with a site in Arkansas. As of June 30, 2002, a remaining recorded liability of approximately $5.0 million existed related to the cleanup of that site. (Entergy Gulf States) Entergy Gulf States has been designated as a PRP for the cleanup of certain hazardous waste disposal sites. Entergy Gulf States is currently negotiating with the EPA and state authorities regarding the cleanup of these sites. As of June 30, 2002, a remaining recorded liability of approximately $14.7 million existed related to the cleanup of the remaining sites at which the EPA has designated Entergy Gulf States as a PRP. (Entergy Louisiana and Entergy New Orleans) During 1993, the LDEQ issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana and Entergy New Orleans have determined that certain of their power plant wastewater impoundments were affected by these regulations and have chosen to upgrade or close them. Recorded liabilities in the amounts of $5.8 million for Entergy Louisiana and $0.5 million for Entergy New Orleans existed at June 30, 2002 for wastewater upgrades and closures. Completion of this work is awaiting LDEQ approval. City Franchise Ordinances (Entergy New Orleans) Entergy New Orleans provides electric and gas service in the City of New Orleans pursuant to franchise ordinances. These ordinances contain a continuing option for the City of New Orleans to purchase Entergy New Orleans' electric and gas utility properties. Waterford 3 Lease Obligations (Entergy Louisiana) On September 28, 1989, Entergy Louisiana entered into three separate but substantially identical transactions for the sale and leaseback of undivided interests (aggregating approximately 9.3%) in Waterford 3, which were refinanced in 1997. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the termination of the lease transactions and may be required to assume the outstanding bonds issued to finance, in part, the lessors' acquisition of the undivided interests in Waterford 3. See Note 10 to the financial statements in the Form 10- K for further information. Off Balance Sheet Turbine Financing Arrangement (Entergy Corporation) As discussed in Note 9 to the financial statements in the Form 10-K, EWO obtained contracts in October 1999 to acquire 36 turbines from General Electric. Entergy's rights and obligations under the contracts for 22 of the turbines were sold to an independent special- purpose entity in May 2001. For the six months ended June 30, 2002, Entergy recorded a $180.2 million ($117.1 million net of tax) provision for Entergy's estimate of the impairments resulting from cancellation or sale of the turbines subject to purchase commitments with the special-purpose entity. The Consolidated Statement of Operations reflects the pre-tax effect of this liability in operation and maintenance expenses. Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans are defendants in numerous lawsuits filed by former employees asserting that they were wrongfully terminated and/or discriminated against on the basis of age, race, sex, or other protected characteristics. The defendant companies are vigorously defending these suits and deny any liability to the plaintiffs. Nevertheless, no assurance can be given as to the outcome of these cases. Asbestos and Hazardous Material Litigation (Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) Numerous lawsuits have been filed in federal and state courts in Texas and Louisiana primarily by contractor employees in the 1950- 1980 timeframe against Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans, as premises owners of power plants, for damages caused by alleged exposure to asbestos or other hazardous material. See Note 9 to the financial statements in the Form 10-K for further information. Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) In addition to those proceedings discussed elsewhere herein and in the Form 10-K, Entergy and the domestic utility companies are involved in a number of other legal proceedings and claims in the ordinary course of their businesses. While management is unable to predict the outcome of these other legal proceedings and claims, it is not reasonably expected that their ultimate resolution individually or collectively will have a material adverse effect on the results of operations, cash flows, or financial condition of these entities. NOTE 2. RATE AND REGULATORY MATTERS Electric Industry Restructuring and the Continued Application of SFAS 71 Previous developments and information related to electric industry restructuring are presented in Note 2 to the financial statements in the Form 10-K. Texas (Entergy Corporation and Entergy Gulf States) Retail open access legislation is in place in Texas, but the implementation of retail open access in Entergy Gulf States' service territory is delayed until at least September 15, 2002. Management does not expect that retail open access in Entergy Gulf States' Texas service territory within the context of a functional FERC-approved RTO is likely to begin before January 2004. Several proceedings necessary to implement retail open access are still pending, including the proceeding to set the price-to-beat fuel rate that will be charged by Entergy's retail electric service provider. In addition, the LPSC has not approved for the Louisiana jurisdictional operations the transfer of generation assets to, or a power purchase agreement with, Entergy's Texas generation company. Given the delay, Entergy Gulf States cannot predict what, if any, additional changes to previously approved plans may be required by the PUCT or the LPSC. Therefore, neither the necessary regulatory actions nor the opportunity for a reasonable determination of the effect of deregulation has occurred that are prerequisites for Entergy Gulf States to discontinue the application of regulatory accounting principles to its Texas generation operations. Retail Rate Proceedings Filings with the APSC (Entergy Corporation and Entergy Arkansas) March 2002 Settlement Agreement As discussed in the Form 10-K, in March 2002, Entergy Arkansas, the APSC staff, and the Arkansas Attorney General submitted a settlement agreement to the APSC for approval. The settlement agreement proposed a resolution of issues discussed in the Form 10-K under "Retail Rates," "Transition Cost Account," and "December 2000 Ice Storm Cost Recovery." In May 2002, the APSC approved the March 2002 settlement agreement without revision. Transition Cost Account In May 2002, Entergy Arkansas filed its 2001 earnings evaluation report with the APSC. In June 2002, the APSC approved a contribution of $5.9 million to the TCA. The balance in the TCA after this contribution was $155.5 million, including interest, through June 2002. A principal provision in the March 2002 settlement agreement is to offset $137.4 million of ice storm recovery costs with the TCA on a rate class basis. In accordance with the settlement agreement and following the APSC's approval of Entergy Arkansas' 2001 earnings review, Entergy Arkansas filed to return $18.1 million of the TCA to certain large general service class customers that paid more into the TCA than their allocation of storm costs. The APSC approved the return of funds to the large general service customer class in the form of refund checks in August 2002. December 2000 Ice Storm Cost Recovery The March 2002 settlement agreement provisions allow Entergy Arkansas to offset incremental ice storm expenses with the funds accumulated in the TCA on a rate class basis, and any excess of ice storm costs over the amount available in the TCA will be deferred for recovery. The allocated ice storm expenses exceed the available TCA funds by $15.8 million. This excess amount was recorded as a regulatory asset in June 2002 and will be amortized over a 30-year period. Fuel Cost Recovery In March 2002, Entergy Arkansas filed its annually redetermined energy cost rate with the APSC, including a new energy allocation factor. The filing reflected a decrease due to reduced fuel and purchased power costs in 2001 and the accumulated over-recovery of 2001 energy costs. The decreased energy cost rate is effective April 2002 through March 2003. Filings with the PUCT and Texas Cities (Entergy Corporation and Entergy Gulf States) Recovery of River Bend Costs In March 1998, the PUCT disallowed recovery of $1.4 billion of company-wide abeyed River Bend plant costs, which have been held in abeyance since 1988. Entergy Gulf States appealed the PUCT's decision on this matter to the Travis County District Court in Texas. In June 1999, subsequent to the settlement agreement discussed in the Form 10-K, Entergy Gulf States removed the reserve for River Bend plant costs held in abeyance and reduced the value of the plant asset. The settlement agreement limits potential recovery of the remaining plant asset, less depreciation, to $115 million as of January 1, 2002. In a settlement in its transition to competition proceedings, and consistent with the June 1999 settlement, Entergy Gulf States agreed not to prosecute its appeal until January 1, 2002. Entergy Gulf States also agreed that it will not seek recovery of the abeyed plant costs through any additional charge to Texas ratepayers. In its interim order approving this settlement, however, the PUCT recognized that any additional River Bend investment found prudent, subject to the $115 million cap, could be used as an offset against stranded benefits, should legislation be passed requiring Entergy Gulf States to return stranded benefits to retail customers. Entergy Gulf States is now prosecuting its appeal and in April 2002, the Travis County District Court issued an order affirming the PUCT's order on remand. Entergy Gulf States has appealed this ruling to the Third District Court of Appeals. The financial statement impact of the retail rate settlement agreement on the remaining abeyed plant costs will ultimately depend on several factors, including the possible discontinuance of SFAS 71 accounting treatment for the Texas generation business, the determination of the market value of generation assets, and any future legislation in Texas addressing the pass-through or sharing of any stranded benefits with Texas ratepayers. While Entergy Gulf States expects to prevail in its lawsuit, no assurance can be given that additional reserves or write- offs will not be required in the future. PUCT Fuel Cost Review As determined in the June 1999 retail rate settlement agreement, Entergy Gulf States adopted a methodology for calculating its fixed fuel factor based on the market price of natural gas. This calculation and any necessary adjustments occur semi-annually. The settlement that delayed implementation of retail open access in Texas for Entergy Gulf States provides that Entergy Gulf States will continue the use of this methodology until retail open access begins. The amounts collected under Entergy Gulf States' fixed fuel factor until the date retail open access commences are subject to fuel reconciliation proceedings before the PUCT. The interim surcharge discussed below will also be subject to the fuel reconciliation proceeding. In January 2001, Entergy Gulf States filed a fuel reconciliation case covering the period from March 1999 through August 2000. Entergy Gulf States is reconciling approximately $583.0 million of fuel and purchased power costs. As part of this filing, Entergy Gulf States requested a surcharge to collect $28.0 million, plus interest, of under-recovered fuel and purchased power costs. A hearing on the merits concluded in August 2001, and the ALJ has recommended that the surcharge be reduced to $7.0 million. The PUCT considered the ALJ's recommendation in February 2002, but did not reach a final decision. The PUCT remanded certain issues related to the eligibility of costs for Entergy Gulf States 30% non-regulated share of River Bend for further consideration by the ALJ. After considering the remanded issues in June 2002, the PUCT issued an oral ruling indicating that the surcharge request should be reduced to approximately $5.0 million. Approximately $4.7 million of the total reduction to the requested surcharge relates to nuclear fuel costs that the PUCT deferred ruling on at this time. The PUCT issued a written order supporting its decisions, which will be subject to rehearing. No assurance can be given as to the final outcome of this proceeding. In November 2001, Entergy Gulf States filed an application with the PUCT requesting an interim surcharge to collect $71 million, plus interest, of under-recovered fuel and purchased power expenses incurred from September 2000 through September 2001. Entergy Gulf States made the application pursuant to one of the terms of the settlement agreement that delayed implementation of retail open access in Texas for Entergy Gulf States. In March 2002, Entergy Gulf States revised its request to collect $30.3 million, plus interest, of under-recovered fuel and purchased power expenses incurred from September 2000 through February 2002. Entergy Gulf States requested that the surcharge begin in April 2002 and extend through August 2002, or until the fuel cost is fully recovered, whichever is sooner. In March 2002, the PUCT issued an order approving the surcharge. The surcharge was implemented in the first billing cycle of April 2002. Filings with the LPSC Annual Earnings Reviews (Entergy Corporation and Entergy Gulf States) In May 2001, Entergy Gulf States filed its eighth required post- merger earnings review with the LPSC. This filing is subject to review by the LPSC and may result in a change in rates. In April 2002, the LPSC staff filed testimony recommending a $16.5 million rate refund and a $40.1 million prospective rate reduction. The prospective reduction includes a recommended reduction in the rate of return on common equity (ROE) that would not take effect until the later of June 2003 or the date of the LPSC's order. Hearings were held in April 2002 and will continue in August 2002. In May 2002, Entergy Gulf States filed its ninth and last required post-merger earnings analysis with the LPSC. The filing was based on the 2001 test year and resulted in a rate decrease of $11.5 million, which was implemented effective June 2002. This filing is subject to review by the LPSC and may result in additional or different changes in rates than those sought in the filing. No procedural schedule has been adopted. In June 2002, an ALJ issued a proposed recommendation to the LPSC with regard to issues raised in Entergy Gulf States' fifth annual post-merger earnings review. The ALJ recommended adoption of the LPSC Staff's position on most issues, including the recommendation that Entergy Gulf States' authorized ROE be set at 10.0%. However, due to a settlement agreement currently in effect, Entergy Gulf States' currently authorized ROE of 11.1% will remain in effect through May 2003. Entergy Gulf States cannot predict the timing or outcome of this proceeding. Formula Rate Plan Filings (Entergy Corporation and Entergy Louisiana) In May 1997, Entergy Louisiana made its second annual performance-based formula rate plan filing with the LPSC for the 1996 test year. This filing resulted in a total rate reduction of approximately $54.5 million, which was implemented in July 1997. At the same time, rates were reduced by an additional $0.7 million and by an additional $2.9 million effective March 1998. Upon completion of the hearing process in December 1998, the LPSC issued an order requiring an additional rate reduction and refund, although the resulting amounts were not quantified. Entergy Louisiana appealed this order and obtained a preliminary injunction pending a final decision on appeal. The Louisiana Supreme Court rendered a non- unanimous decision in April 2002 affirming the LPSC's order. Entergy Louisiana has filed an application for rehearing. In May 2000, Entergy Louisiana submitted its fifth annual performance-based formula rate plan filing for the 1999 test year. As a result of this filing, Entergy Louisiana implemented a $24.8 million base rate reduction in August 2000. In September 2001, the LPSC approved a settlement in which Entergy Louisiana agreed to increase to $28.2 million the total base rate reduction, effective August 2000. The additional rate reduction and the associated credit were implemented in September 2001. The settlement resolved all issues in the proceeding except for Entergy Louisiana's claim for an increase in its allowed return on common equity from 10.5% to 11.6%. A hearing to address the return on common equity issue was held in March 2002. This issue was resolved in the June 2002 settlement between Entergy Louisiana and the LPSC discussed below. In April 2001, Entergy Louisiana submitted its sixth annual performance-based formula rate plan filing, which used a 2000 test year. The filing indicated that an immaterial base rate reduction might be appropriate. Subsequently, Entergy Louisiana agreed to implement a $3.4 million rate reduction effective August 2001. This stipulation resolved all issues relating to the 2000 test year, except issues relating to its return on common equity and the treatment of certain capacity costs in the formula rate plan process. These issues were addressed in a hearing in June 2002 and were resolved in the settlement discussed below. In June 2002, Entergy Louisiana and the LPSC Staff reached a settlement that resolved all remaining issues in the 2000 and 2001 formula rate plan proceedings. Entergy Louisiana has agreed to a $5 million annual rate reduction effective August 2001. The prospective rate reduction will be implemented beginning in August 2002 and the refund for the retroactive period will occur in September 2002. As part of the settlement, Entergy Louisiana's rates, including its previously authorized ROE of 10.5%, would then remain in effect until changed pursuant to a new formula rate plan filing or a revenue requirement analysis to be filed by June 30, 2003. The settlement was approved by the LPSC in July 2002. Filings with the MPSC (Entergy Corporation and Entergy Mississippi) Formula Rate Plan Filings In March 2002, Entergy Mississippi submitted its annual performance-based formula rate plan filing for the 2001 test year. The submittal indicated that a $2.8 million rate increase was appropriate under the formula rate plan. In April 2002, the MPSC Staff and Entergy Mississippi entered into a stipulation, which the MPSC approved, that provided for an increase of $1.95 million effective in May 2002. Filings with the Council (Entergy Corporation and Entergy New Orleans) Retail Rate Filings In May 2002, Entergy New Orleans filed a cost of service study and revenue requirement filing with the Council for the 2001 test year. The filing indicated that a revenue deficiency exists and that a $28.9 million electric rate increase and a $15.3 million gas rate increase are appropriate. Additionally, Entergy New Orleans has proposed a $6.0 million public benefit fund. The Council has not established a procedural schedule for consideration of the filing. Natural Gas In a resolution adopted in August 2001, the Council ordered Entergy New Orleans to account for $36 million of certain natural gas costs charged to its gas distribution customers from July 1997 through May 2001. The resolution suggests that refunds may be due to the gas distribution customers if Entergy New Orleans cannot account satisfactorily for these costs. Entergy New Orleans filed a response to the Council in September 2001. Entergy New Orleans has documented a full reconciliation for the natural gas costs during that period. The ultimate outcome of the proceeding cannot be predicted at this time. Fuel Adjustment Clause Litigation In April 1999, a group of ratepayers filed a complaint against Entergy New Orleans, Entergy Corporation, Entergy Services, and Entergy Power in state court in Orleans Parish purportedly on behalf of all Entergy New Orleans ratepayers. The plaintiffs seek treble damages for alleged injuries arising from the defendants' alleged violations of Louisiana's antitrust laws in connection with certain costs passed on to ratepayers in Entergy New Orleans' fuel adjustment filings with the Council. In particular, plaintiffs allege that Entergy New Orleans improperly included certain costs in the calculation of fuel charges and that Entergy New Orleans imprudently purchased high-cost fuel from other Entergy affiliates. Plaintiffs allege that Entergy New Orleans and the other defendant Entergy companies conspired to make these purchases to the detriment of Entergy New Orleans' ratepayers and to the benefit of Entergy's shareholders, in violation of Louisiana's antitrust laws. Plaintiffs also seek to recover interest and attorneys' fees. Entergy filed exceptions to the plaintiffs' allegations, asserting, among other things, that jurisdiction over these issues rests with the Council and FERC. If necessary, at the appropriate time, Entergy will also raise its defenses to the antitrust claims. At present, the suit in state court is stayed by stipulation of the parties. Plaintiffs also filed this complaint with the Council in order to initiate a review by the Council of the plaintiffs' allegations and to force restitution to ratepayers of all costs they allege were improperly and imprudently included in the fuel adjustment filings. Testimony was filed on behalf of the plaintiffs in this proceeding in April 2000 and has been supplemented. The testimony, as supplemented, asserts, among other things, that Entergy New Orleans and other defendants have engaged in fuel procurement and power purchasing practices and included costs in Entergy New Orleans' fuel adjustment that could have resulted in New Orleans customers being overcharged by more than $100 million over a period of years. In June 2001, the Council's advisors filed testimony on these issues in which they allege that Entergy New Orleans ratepayers may have been overcharged by more than $32 million, the vast majority of which is reflected in the plaintiffs' claim. However, it is not clear precisely what periods and damages are being alleged in the proceeding. Entergy intends to defend this matter vigorously, both in court and before the Council. Hearings were held in February and March 2002. The ultimate outcome of the lawsuit and the Council proceeding cannot be predicted at this time. Purchased Power for Summer 2000, 2001, and 2002 (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) The domestic utility companies requested that the APSC, the LPSC, the MPSC, and the Council to approve the sale of power by Entergy Gulf States from its unregulated, undivided 30% interest in River Bend formerly owned by Cajun to the other domestic utility companies during the summer of 2000. These applications were approved subject to subsequent prudence reviews. In addition, Entergy Gulf States and Entergy Louisiana filed an application with the LPSC for authorization to purchase capacity and electric power from third parties for the summer of 2000, and filed a similar application for the summer of 2001. The LPSC approved these applications, with reservation of its rights to review the prudence of the purchases and the appropriate categorization of the costs as either capacity or energy charges for purposes of recovery. The LPSC reviewed the 2000 purchases and found that Entergy Louisiana's and Entergy Gulf States' costs were prudently incurred, but decided that approximately 34% of the costs should be categorized as capacity charges, and therefore should be recovered through base rates and not through the fuel adjustment clause. In November 2000, the LPSC ordered refunds of $11.1 million for Entergy Louisiana and $3.6 million for Entergy Gulf States, for which adequate provisions were made. In May 2001, the LPSC determined that 24% of Entergy Louisiana's and Entergy Gulf States' costs relating to summer 2001 purchases should be categorized as capacity charges, and has reviewed certain prudence issues related to the 2001 purchases. The LPSC has questioned the system's contract mix and raised issues relating to potential uprates at nuclear facilities. Hearings on those issues were conducted in May 2002, and briefs have been filed by the parties. Those costs that are categorized as capacity charges will be included in the costs of service used to determine the base rates of Entergy Louisiana and Entergy Gulf States. In 2001, these companies recorded a regulatory asset for the capacity charges incurred in both 2000 and 2001. The capacity charges for 2000 were amortized through May 2002 for Entergy Gulf States and through July 2002 for Entergy Louisiana. The capacity charges for 2001 are being amortized over a twelve-month period, which began in June 2002 for Entergy Gulf States and will begin in August 2002 for Entergy Louisiana. In March 2002, Entergy Louisiana and Entergy Gulf States filed an application with the LPSC for the summer of 2002 similar to the applications filed for the summers of 2000 and 2001. A procedural schedule has been adopted for that docket. Entergy Louisiana, Entergy Gulf States, and the LPSC Staff reached a settlement in which those parties agreed that 14% of Entergy Louisiana's and Entergy Gulf States' costs relating to summer 2002 purchases should be categorized as capacity charges. A fairness hearing was held in May 2002 and no party to this proceeding opposed the settlement. The LPSC approved the settlement at its July 2002 public meeting. A procedural schedule has been adopted to address any prudence issues relating to summer 2002 purchases. A hearing is expected in October 2002. System Energy's 1995 Rate Proceeding (Entergy Corporation, Entergy Arkansas, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) As discussed in the Form 10-K, FERC denied requests for rehearing in the System Energy rate increase proceeding and the July 2000 order became final. System Energy made a compliance tariff filing in August 2001 and it was accepted by FERC in November 2001. System Energy made refunds to the domestic utility companies in December 2001. A portion of the refund to the domestic utility companies has been or will be refunded to customers. Entergy Arkansas refunded $54.3 million, including interest, through the issuance of refund checks in March 2002 as approved by the APSC. Entergy Mississippi is refunding $14.8 million to its customers through credits to the Grand Gulf Riders. The credits began in October 2001 and will occur through September 2002. Entergy New Orleans refunded $27.0 million to its customers through the issuance of refund checks in the first quarter of 2002. Entergy Louisiana will refund $4.9 million, including interest, to its customers through a credit on the September 2002 bills as approved by the LPSC. NOTE 3. COMMON STOCK (Entergy Corporation) The average number of common shares outstanding for the presentation of diluted earnings per share was greater by 4,517,098 and 4,592,823 shares for the three months ended June 30, 2002 and 2001, respectively, and 4,445,242 and 4,230,700 shares for the six months ended June 30, 2002 and 2001, respectively, than the number of such shares for the presentation of basic earnings per share due to Entergy's stock option and other stock compensation plans discussed more thoroughly in Note 5 to the financial statements in the Form 10- K. The dilutive effect of the stock options on earnings per share for the three months ended June 2002 and 2001 was $.02 for both periods. The dilutive effect of the stock options on earnings per share for the six months ended June 30, 2002 and 2001 was $.01 and $.03, respectively. During the six months ended June 30, 2002, Entergy Corporation issued 3,941,176 shares of its previously repurchased common stock to satisfy stock option exercises. NOTE 4. LONG-TERM DEBT (Entergy Corporation) As discussed in Note 7 to the financial statements in the Form 10-K, the Damhead Creek credit facility requires that the annual debt service coverage ratio be at least 1.05 to 1 for the previous 12 months at semi-annual dates commencing with June 30, 2002. Given the low electricity prices currently affecting the UK market, Damhead Creek would not have met the annual debt service coverage ratio test in respect of the 12 months ended June 30, 2002, but the lenders amended the facility so that the coverage ratio calculations would not commence until December 31, 2002. Damhead Creek is currently in negotiations with the lenders to develop and implement a debt restructuring for the project prior to December 2002. If a debt restructuring agreement cannot be reached, however, Damhead Creek will likely not meet the debt service coverage ratio provisions of the credit facility on December 31, 2002. In the event the annual debt service coverage ratio is deficient at December 31, 2002, Damhead Creek will seek a waiver of the default from the lenders. There is no requirement for Entergy or EPDC to make capital contributions or provide credit support to Damhead Creek following the occurrence of an event of default. (Entergy Arkansas) On March 1, 2002, Entergy Arkansas retired, at maturity, $85 million of 7% Series First Mortgage Bonds with internally generated funds. On March 28, 2002, Entergy Arkansas issued $100 million of 6.70% Series First Mortgage Bonds due April 1, 2032. A portion of the net proceeds was used to satisfy the annual replacement fund requirement under the mortgage relating to the bonds by redeeming $85 million of 8.75% Series First Mortgage Bonds due March 1, 2026. The remaining net proceeds were used to replace a portion of the cash that was used to meet the maturity of the $85 million 7% Series First Mortgage Bonds retired on March 1, 2002 discussed above. (Entergy Gulf States) On January 1, 2002, Entergy Gulf States retired, at maturity, $148 million of 8.21% Series First Mortgage Bonds with internally generated funds. (Entergy Louisiana) On January 1, 2002, Entergy Louisiana retired, at maturity, $23 million of 7.5% Series First Mortgage Bonds. On March 1, 2002, Entergy Louisiana retired, at maturity, $75 million of 5.80% Series First Mortgage Bonds. On March 27, 2002, Entergy Louisiana issued $150 million of 7.60% Series First Mortgage Bonds due April 1, 2032. A portion of the net proceeds was used to satisfy the annual replacement fund requirement under the mortgage relating to the bonds by redeeming $115 million of 8.75% Series First Mortgage Bonds due March 1, 2026. The remaining net proceeds will be used to reduce short-term debt which, among other things, was incurred to meet the maturities of the First Mortgage Bonds discussed above. On June 1, 2002, Entergy Louisiana remarketed $55 million St. Charles Parish Pollution Control Revenue Refunding Bonds due 2030, accruing interest at a rate of 4.9% through May 31, 2005. On July 1, 2002, Entergy Louisiana retired, at maturity, $56.4 million of 7.74% Series First Mortgage Bonds with internally generated funds. (Entergy Mississippi) On June 1, 2002, Entergy Mississippi retired, at maturity, $65 million of 6.875% Series First Mortgage Bonds with internally generated funds. NOTE 5. RETAINED EARNINGS (Entergy Corporation) On July 26, 2002, Entergy Corporation's Board of Directors declared a common stock dividend of $0.33 per share, payable on September 1, 2002, to holders of record as of August 13, 2002. NOTE 6. BUSINESS SEGMENT INFORMATION (Entergy Corporation) Entergy's reportable segments as of June 30, 2002 are domestic utility, domestic non-utility nuclear, and energy commodity services. "All Other" includes the parent company, Entergy Corporation, and other business activity, which is principally gains or losses on the sales of businesses and the earnings on the proceeds of those sales. Entergy's segment financial information for the three months ended June 30, 2002 and 2001 is as follows (in thousands):
Domestic Domestic Non- Energy All Eliminations Consolidated Utility Utility Commodity Other* Nuclear* Services* 2002 Operating Revenues $1,712,248 $297,072 $81,071 $8,586 ($2,396) $2,096,581 Equity in earnings of unconsolidated equity affiliates - - 17,740 - - 17,740 Income Taxes (Benefit) 136,536 35,656 (20,171) (3,487) - 148,534 Net Income (Loss) 200,782 53,531 (1,688) (5,040) - 247,585 2001 Operating Revenues $2,022,354 $150,041 $327,031 $8,092 ($1,243) $2,506,275 Equity in earnings of unconsolidated equity affiliates - - 70,780 - - 70,780 Income Taxes 115,228 21,403 26,972 2,239 - 165,842 Net Income 175,155 33,101 30,179 7,148 - 245,583
Entergy's segment financial information for the six months ended June 30, 2002 and 2001 is as follows (in thousands):
Domestic Domestic Non- Energy All Other* Eliminations Consolidated Utility Utility Commodity Nuclear* Services* 2002 Operating Revenues $3,160,047 $575,968 $206,832 $17,587 ($3,019) $3,957,415 Equity in earnings of unconsolidated equity affiliates - - 92,804 - - 92,804 Income Taxes (Benefit) 201,912 61,909 (133,508) (7,677) - 122,636 Net Income (Loss) 309,026 93,596 (216,814) (11,207) - 174,601 Total Assets 19,993,613 3,790,815 2,469,812 977,658 (1,230,564) 26,001,334 2001 Operating Revenues $4,006,062 $329,416 $804,981 $20,482 ($2,235) $5,158,706 Equity in earnings of unconsolidated equity affiliates - - 95,543 - - 95,543 Income Taxes (Benefit) 200,733 42,089 34,569 (3,119) - 274,272 Net Income (Loss) 295,593 64,484 48,524 (2,147) - 406,454 Total Assets 20,706,094 2,093,291 2,604,398 958,379 (995,320) 25,366,842
Businesses marked with * are sometimes referred to as the "competitive businesses," with the exception of the parent company, Entergy Corporation. Eliminations are primarily intersegment activity. Energy commodity services' net loss for the six months ended June 30, 2002 includes charges of $419.5 million to operating expenses ($271.5 million net of tax), including $18.1 million ($10.6 million net of tax) in the second quarter, to reflect the effect of Entergy's decision to discontinue additional EWO greenfield power plant development and to reflect asset impairments resulting from the deteriorating economics of wholesale power markets in the United States and the United Kingdom. The charges consist of the following: o as discussed in Note 1, $180.2 million (($36) million in the second quarter) of the charges is a provision for the net costs resulting from cancellation or sale of the turbines subject to purchase commitments with a special-purpose entity; o $167.5 million ($15 million in the second quarter) of the charges result from the write-off of EPDC's equity investment in the Damhead Creek project ($55.0 million) and the impairment of the values of the Warren Power power plant, the Crete project, and the RS Cogen project ($112.5 million combined). This portion of the charges reflects Entergy's estimate of the effects of reduced spark spreads in the United States and the United Kingdom. These estimates are based on various sources of information, including discounted cash flow projections and current market prices; o $39.1 million ($39.1 million in the second quarter) of the charges relates to the restructuring of EWO, including impairments of EWO administrative fixed assets, estimated sublease losses, and employee-related costs for approximately 135 affected employees. These restructuring costs, which are included in the "Provision for turbine commitments, asset impairments and restructuring charges" in the accompanying consolidated statement of income as of June 30, 2002, were comprised of the following (in millions): Accrual for Expected Paid Cash in Non- Total Payments Cash Cash Expense Fixed asset impairments - - $22.5 $22.5 Sublease losses $10.7 - - 10.7 Severance and related costs 5.9 - - 5.9 ----- ----- ----- Total $16.6 - $22.5 $39.1 ===== ===== ===== Management expects the restructuring of EWO to be substantially complete by the end of 2002; and o $32.7 million (none in the second quarter) of the charges results from the write-off of capitalized project development costs for projects that will not be completed. NOTE 7. NEW ACCOUNTING PRONOUNCEMENTS (Entergy Corporation) As discussed in the Form 10-K, Entergy implemented SFAS 142, "Goodwill and Other Intangible Assets" and SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets" effective January 1, 2002. The implementation of SFAS 142 resulted in the cessation of Entergy's amortization of the remaining plant acquisition adjustment recorded in conjunction with its acquisition of Entergy Gulf States; this will increase Entergy's annual net income by approximately $16.3 million. The following table is a reconciliation of reported earnings applicable to common stock to earnings applicable to common stock without goodwill amortization for the three and six months ended June 30, 2002 and 2001.
Three Months Ended Six Months Ended 2002 2001 2002 2001 (In Thousands, Except Share Data) Reported earnings (loss) applicable to common stock $241,653 $238,906 $162,729 $393,061 Add back: Goodwill amortization - 4,066 - 8,133 Earnings (loss) applicable to common stock without -------- -------- -------- -------- goodwill amortization $241,653 $242,972 $162,729 $401,194 ======== ======== ======== ======== Basic earnings (loss) per average common share: Reported earnings (loss) applicable to common stock $1.08 $1.08 $0.73 $1.78 Goodwill amortization - 0.02 - 0.04 Earnings (loss) applicable to common stock without -------- -------- -------- -------- goodwill amortization $1.08 $1.10 $0.73 $1.82 ======== ======== ======== ======== Diluted earnings (loss) per average common share: Reported earnings (loss) applicable to common stock $1.06 $1.06 $0.72 $1.75 Goodwill amortization - 0.02 - 0.04 Earnings (loss) applicable to common stock without -------- -------- -------- -------- goodwill amortization $1.06 $1.08 $0.72 $1.79 ======== ======== ======== ========
NOTE 8. EQUITY METHOD INVESTMENTS (Entergy Corporation) See Note 13 to the financial statements in the Form 10-K for a discussion of Entergy's equity method investments. In the first quarter of 2002, EWO sold its interests in projects in Argentina, Chile, and Peru, including Generandes Peru S.A. and Compania Electrica San Isidro S.A. EWO had $100.8 million reflected in "Investments in affiliates - at equity" for these investments as of December 31, 2001, and reported $11.6 million of "Equity in earnings of unconsolidated equity affiliates" from these investments for the year ended December 31, 2001. After impairment provisions recorded for these interests in 2001, the net loss realized on the sale in the first quarter of 2002 is insignificant. Approximately $66 million of cumulative translation adjustments were realized in the sale. As discussed in Note 6, for the six months ended June 30, 2002, Entergy recorded an impairment of $78.3 million against the book value of its investments in Crete Energy Ventures, LLC and RS Cogen LLC. __________________________________ In the opinion of the management of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassification of previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. However, the business of the domestic utility companies and System Energy is subject to seasonal fluctuations with the peak periods occurring during the third quarter. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year. ENTERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings See "PART I, Item 1, Other Regulation and Litigation" in the Form 10-K for a discussion of legal proceedings affecting Entergy. Murphy Oil Lawsuit (Entergy Corporation) Residents located near the Murphy Oil Refinery in Meraux, Louisiana filed several lawsuits in state court in St. Bernard Parish, Louisiana against Murphy Oil, Entergy Louisiana, and others for injuries they allegedly suffered as a result of an explosion at the refinery in June 1995. The lawsuits were consolidated and a class of plaintiffs was certified. Plaintiffs alleged, among other things, that an electrical fault at an Entergy Louisiana substation contributed to causing the explosion. Murphy Oil filed a cross-claim against Entergy Louisiana based on the same allegation, in which Murphy Oil seeks recovery of any damages it has paid to the plaintiffs. Claiborne P. Deming, who became a director of Entergy Corporation in 2002, is the President and Chief Executive Officer of Murphy Oil. Murphy Oil and other defendants settled with the plaintiffs for $8.8 million, but Entergy Louisiana did not participate in the settlement. Entergy Louisiana believes the claims against it are without merit and is vigorously defending itself. Entergy Louisiana also has insurance in place for claims of this type. The proceeding is currently recessed pending rescheduling for trial involving the remaining parties in the proceeding. Franchise Service Area Litigation (Entergy Gulf States) See "Franchise Service Area Legislation" in Item 1 of Part I of the Form 10-K for a discussion of the litigation with Beaumont Power & Light (BP&L). In July 2002, the ALJ in that proceeding recommended denial of BP&L's certificate of convenience and necessity request. The PUCT has not yet issued a decision. Ratepayer Lawsuits (Entergy New Orleans) See "Entergy New Orleans Rate of Return Lawsuit" in Item 1 of Part I of the Form 10-K for a discussion of the litigation filed by ratepayers against Entergy New Orleans. The hearing scheduled for June 2002 was postponed and the proceeding has been continued without date. Franchise Fee Litigation (Entergy Corporation and Entergy Gulf States) See "Franchise Fee Legislation" in Item 1 of Part I of the Form 10-K for a discussion of the lawsuit filed by the City of Nederland. The proceeding has now been abated. Item 4. Submission of Matters to a Vote of Security Holders Election of Board of Directors Entergy Corporation The annual meeting of stockholders of Entergy Corporation was held on May 10, 2002. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes: 1. Election of Directors: Votes Broker Name of Nominee Votes For Abstentions Withheld Non-Votes Maureen S. Bateman 181,918,377 N/A 3,014,980 N/A W. Frank Blount 177,813,782 N/A 7,119,575 N/A George W. Davis 181,933,748 N/A 2,999,609 N/A Simon D. deBree 183,053,198 N/A 1,880,159 N/A Claiborne P. Deming 183,088,815 N/A 1,844,542 N/A Norman C. Francis 183,072,393 N/A 1,860,964 N/A J. Wayne Leonard 183,168,265 N/A 1,765,092 N/A Robert v.d. Luft 183,156,928 N/A 1,776,429 N/A Kathleen A. Murphy 181,950,155 N/A 2,983,202 N/A Paul W. Murrill 183,097,772 N/A 1,835,585 N/A James R. Nichols 183,182,464 N/A 1,750,893 N/A William A. Percy, II 183,164,972 N/A 1,768,385 N/A Dennis H. Reilley 181,933,742 N/A 2,999,615 N/A Wm. Clifford Smith 183,159,657 N/A 1,773,700 N/A Bismark A. Steinhagen 181,962,498 N/A 2,970,859 N/A 2. Stockholder proposal that Management and Directors change the format of Entergy's proxy card in two areas: 149,636,941 votes against; 15,596,344 broker non-votes; 16,554,434 votes for; and 3,145,638 abstentions. 3. Stockholder proposal that the Board of Directors seek shareholder approval prior to adopting any poison pill: 132,733,146 votes for; 34,192,716 votes against; 15,596,345 broker non-votes; and 2,411,150 abstentions. (Entergy Arkansas) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Hugh T. McDonald, Donald C. Hintz, Richard J. Smith, and C. John Wilder. (Entergy Gulf States) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: Joseph F. Domino, E. Renae Conley, Donald C. Hintz, Richard J. Smith, and C. John Wilder. (Entergy Louisiana) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: E. Renae Conley, Donald C. Hintz, Richard J. Smith, and C. John Wilder. (Entergy Mississippi) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Carolyn C. Shanks, Donald C. Hintz, Richard J. Smith, and C. John Wilder. (Entergy New Orleans) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Daniel F. Packer, Donald C. Hintz, Richard J. Smith, and C. John Wilder. (System Energy) A consent in lieu of the annual meeting of common stockholders was executed on June 28, 2002. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Jerry W. Yelverton, Donald C. Hintz, and C. John Wilder. Item 5. Other Information Environmental Regulation (Entergy Gulf States) The State of Louisiana is implementing emission control strategies to address continued ozone non-attainment status of areas in and around Baton Rouge, Louisiana. In March 2002, the LDEQ issued a final rule for control of NOx as part of the State Implementation Plan (SIP) to bring this area into attainment with the National Ambient Air Quality standards for ozone by May 2005. The rule contains provisions that will lead to installation of new NOx control equipment at Entergy Gulf States generating units. The latest analyses indicate compliance costs may be as much as $44 million in new capital spending. Most of the related expenditures would take place in 2003 and 2004. A final revision to the rule was issued in July 2002. Cost estimates will be refined to include this final revision, but preliminary analyses indicate that compliance costs will be lower. Entergy Gulf States will be required to obtain revised operating permits from the LDEQ and meet new, lower emission limits for NOx. In March 2002 however, a federal district court issued a judgment ordering EPA to determine the ozone non-attainment status of the Baton Rouge area and, if appropriate, reclassify the area as a result of the determination. As a result of the Court's order, the EPA issued on June 24, 2002 a final rule determining that the Baton Rouge area did not attain the ozone national air quality standard, and reclassifying the area from a "serious" to a "severe" non- attainment area for ozone. Also on June 24, 2002, however, the EPA proposed to delay the effective date of its ozone non-attainment decision until October 4, 2002, in order to consider LDEQ's December 31, 2001 request for an extension of the ozone attainment deadline based on transport or migration of ozone into the Baton Rouge area from Texas (the Attainment Plan/Transport SIP). On July 28, 2002 the EPA announced that it will issue a proposed rule approving Baton Rouge's Attainment Plan/Transport SIP, extending the ozone attainment date until November 15, 2005, and withdrawing the "severe" ozone non-attainment designation. The proposed rule has been published in the Federal Register, and is now subject to public comment before a final rule is promulgated. Additionally, in litigation involving the District of Columbia metropolitan area ozone attainment status, the federal appeals court for the Washington D.C. Circuit ruled on July 2, 2002 that the EPA's regulations providing for attainment deadline extensions based on ozone transport are invalid. That decision is not controlling authority for the Baton Rouge transport extension, and it is also subject to further appeal. Accordingly, EPA's authority to extend Baton Rouge's deadline for ozone compliance based on ozone transport is uncertain at this time. Accordingly, the final schedule for Entergy Gulf States' compliance with the new NOx emission limits, and for corresponding expenditures, also cannot be determined at this time. Wholesale Rate Matters (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) As discussed in Part I, Item 1 of the Form 10-K, Entergy is involved in litigation before the FERC and the LPSC regarding production cost equalization under the System Agreement. Negotiations among the parties have not resolved the proceeding before the FERC, and that proceeding is now set for hearing in February 2003. In the ex-parte proceeding commenced by the LPSC, the procedural schedule has changed and an evidentiary hearing is now set to commence in November 2002. FERC Notice of Proposed Rulemaking (Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) On July 31, 2002, FERC issued a notice of proposed rulemaking to establish a standardized transmission service and wholesale electric market design. The proposed rules would o establish a network access transmission service applicable to all transmission users; o require utilities to take the transmission component of bundled transmission service under an open access transmission tariff; o require transmission facilities to be operated by an independent transmission provider; o require that the independent transmission provider administer the day-ahead and real-time energy and ancillary services markets; o establish an access charge for embedded transmission costs; o use location marginal pricing for transmission congestion management and provide tradable congestion revenue rights; o establish open imbalance energy markets; o establish procedures to mitigate market power in the day-ahead and real-time markets o require under certain conditions that generation owners submit offers to supply energy at prices that do not exceed specified price ceilings; and o establish procedures to assure adequate transmission, generation and demand-side resources. Comments on the proposed rule are due by mid-October 2002. Some of the retail regulators in Entergy's service territory have publicly expressed opposition to the proposed rulemaking. Management is in the process of evaluating this complex and lengthy proposal. Sarbanes-Oxley Act and Other Corporate Governance Standards (Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) In response to recent corporate collapses resulting from accounting irregularities and perceived failures of ethics and controls, the U.S. Congress passed the Sarbanes-Oxley Act on July 25, 2002. President Bush signed the Act on July 30, 2002. The stated purpose of the Act is to increase the reliability and accuracy of corporate reporting and accounting and audit practices and to ensure the independence of securities analyst advice and recommendations. The Act purports to strengthen accounting oversight and corporate accountability by enhancing disclosure requirements, increasing accounting and auditor regulation, creating new federal crimes and increasing penalties for existing federal crimes. In addition, on August 1, 2002, the New York Stock Exchange adopted, subject to approval by the Securities and Exchange Commission, new standards and changes in corporate governance and practices for companies whose securities are listed on that exchange. Management and the Board are reviewing the new law and regulations so that Entergy can adopt new policies or procedures necessary to comply with the new law and regulations as their various provisions become effective. Labor Relations (Entergy Gulf States) The contract covering the approximately 270 employees at River Bend who are represented by the International Brotherhood of Electrical Workers Union expired in June 2002. The employees continue to work without a contract as negotiations continue. Entergy Corporation and Entergy Gulf States Merger See "Entergy Corporation and Entergy Gulf States Merger" in Part I, Item 1 of the Form 10-K for a discussion of the appeal to the D.C. Circuit by the APSC, Arkansas Cities and Cooperatives, Arkansas Electric Energy Consumers, the MPSC, and the State of Mississippi of the FERC's approval of the merger of Entergy Corporation and Gulf States Utilities. In May 2002 the D.C. Circuit denied the petitions for review, thereby upholding the FERC's decision approving the merger. Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of Regulation S-K of the SEC as follows: Ratios of Earnings to Fixed Charges Twelve Months Ended December 31, June 30, 1997 1998 1999 2000 2001 2002 Entergy Arkansas 2.54 2.63 2.08 3.01 3.29 2.86 Entergy Gulf States 1.42 1.40 2.18 2.60 2.36 2.36 Entergy Louisiana 2.74 3.18 3.48 3.33 2.76 3.79 Entergy Mississippi 2.98 3.12 2.44 2.33 2.14 2.17 Entergy New Orleans 2.70 2.65 3.00 2.66 (b) (c) System Energy 2.31 2.52 1.90 2.41 2.12 2.45 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Twelve Months Ended December 31, June 30, 1997 1998 1999 2000 2001 2002 Entergy Arkansas 2.24 2.28 1.80 2.70 2.99 2.59 Entergy Gulf States (a) 1.23 1.20 1.86 2.39 2.21 2.20 Entergy Louisiana 2.36 2.75 3.09 2.93 2.51 3.49 Entergy Mississippi 2.69 2.80 2.18 2.09 1.96 1.98 Entergy New Orleans 2.44 2.41 2.74 2.43 (b) (c) (a) "Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock for the twelve months ended 1997, 1998, and 1999. (b) Earnings for the twelve months ended December 31, 2001, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $6.6 million and $9.5 million, respectively. (c) Earnings for the twelve months ended June 30, 2002, for Entergy New Orleans were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $13.5 million and $15.7 million, respectively. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* 4(a) - Credit Agreement, dated as of May 16, 2002, among Entergy Corporation, the Banks (Citibank, N.A., ABN AMRO Bank N.V., The Bank of New York, Barclays Bank PLC, Mizuho Corporate Bank Limited, BNP Paribas, Bayerische Hypo-und Vereinsbank AG (New York Branch), J. P. Morgan Chase Bank, The Royal Bank of Scotland plc, Societe Generale, Wachovia Bank (National Association), Bank One, NA, Mellon Bank, N.A., The Bank of Nova Scotia, Morgan Stanley Bank, Union Bank of California, N.A., Deutsche Bank AG New York Branch, KBC Bank N.V., Lehman Commercial Paper Inc., Regions Bank, and Westdeutsche Landesbank Girozentrale), and Citibank, N.A., as Administrative Agent. 4(b)- Assumption Agreement, dated July 15, 2002, among Entergy Corporation, CO BANK, ACB, (as Additional Lender), and Citibank, N.A., (as Administrative Agent). 99(a) - Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(b) - Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(c) - Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(d) - Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(e) - Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(f) - System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. ___________________________ Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of Entergy Corporation and its subsidiaries on a consolidated basis. * Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, 2002, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended June 30, 2002. (b) Reports on Form 8-K Entergy Corporation A Current Report on Form 8-K, dated April 11, 2002, was filed with the SEC on April 11, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated April 25, 2002, was filed with the SEC on April 25, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated May 1, 2002, was filed with the SEC on May 1, 2002, reporting information under Item 5. "Other Events and Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated June 14, 2002, was filed with the SEC on June 14, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated June 21, 2002, was filed with the SEC on June 21, 2002, reporting information under Item 5. "Other Events and Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated July 8, 2002, was filed with the SEC on July 8, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". Entergy Corporation A Current Report on Form 8-K, dated July 30, 2002, was filed with the SEC on July 30, 2002, reporting information under Item 7. "Financial Statements, Pro Forma Financial Statements and Exhibits" and Item 9. "Regulation FD Disclosure". SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries. ENTERGY CORPORATION ENTERGY ARKANSAS, INC. ENTERGY GULF STATES, INC. ENTERGY LOUISIANA, INC. ENTERGY MISSISSIPPI, INC. ENTERGY NEW ORLEANS, INC. SYSTEM ENERGY RESOURCES, INC. /s/ Nathan E. Langston Nathan E. Langston Senior Vice President and Chief Accounting Officer (For each Registrant and for each as Principal Accounting Officer) Date: August 12, 2002