_____________________________________________________________________ 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, 1997 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 Offices and Telephone Number No. 1-11299 ENTERGY CORPORATION 72-1229752 (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 1-10764 ENTERGY ARKANSAS, INC. 71-0005900 (an Arkansas corporation) 425 West Capitol Avenue, 40th Floor Little Rock, Arkansas 72201 Telephone (501) 377-4000 1-2703 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) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 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) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 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, 1997 Entergy Corporation ($0.01 par value) 241,269,934
ENTERGY CORPORATION AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 1997 Page Number Definitions 1 Management's Financial Discussion and Analysis - Liquidity and Capital Resources 3 Management's Financial Discussion and Analysis - Significant Factors and Known Trends 6 Results of Operations and Financial Statements: Entergy Corporation and Subsidiaries: Results of Operations 12 Statements of Consolidated Income 15 Statements of Consolidated Cash Flows 16 Consolidated Balance Sheets 18 Selected Operating Results 20 Entergy Arkansas, Inc.: Results of Operations 21 Statements of Income 22 Statements of Cash Flows 23 Balance Sheets 24 Selected Operating Results 26 Entergy Gulf States, Inc.: Results of Operations 28 Statements of Income (Loss) 30 Statements of Cash Flows 31 Balance Sheets 32 Selected Operating Results 34 Entergy Louisiana, Inc.: Results of Operations 35 Statements of Income 36 Statements of Cash Flows 37 Balance Sheets 38 Selected Operating Results 40 Entergy Mississippi, Inc.: Results of Operations 41 Statements of Income 42 Statements of Cash Flows 43 Balance Sheets 44 Selected Operating Results 46 Entergy New Orleans, Inc.: Results of Operations 48 Statements of Income 50 Statements of Cash Flows 51 Balance Sheets 52 Selected Operating Results 54 System Energy Resources, Inc.: Results of Operations 55 Statements of Income 56 Statements of Cash Flows 57 Balance Sheets 58 Notes to Financial Statements for Entergy Corporation and Subsidiaries 60 Part II: Item 1. Legal Proceedings 72 Item 4. Submission of Matters to a Vote of Security Holders 73 Item 5. Other Information 74 Item 6. Exhibits and Reports on Form 8-K 75 Experts 76 Signature 77
This combined Quarterly Report on Form 10-Q is separately filed by Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations 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, 1996, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed by the individual registrants with the SEC and should be read in conjunction therewith. Investors are cautioned that forward-looking statements contained herein with respect to the revenues, earnings, competitive performance, or other prospects for the business of Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., System Energy Resources, Inc. or their affiliated companies may be influenced by factors that could cause actual outcomes and results to be materially different than projected. Such factors include, but are not limited to, the effects of weather, the performance of generating units, fuel prices and availability, regulatory decisions and the effects of changes in law, capital spending requirements, the evolution of competition, changes in accounting standards, and other factors. DEFINITIONS Certain abbreviations or acronyms used in the text are defined below: Abbreviation or Acronym Term Algiers 15th Ward of the City of New Orleans, Louisiana ALJ Administrative Law Judge ANO Arkansas Nuclear One Plant ANO 1 Unit No. 1 of ANO ANO 2 Unit No. 2 of ANO APSC Arkansas Public Service Commission Cajun Cajun Electric Power Cooperative, Inc. Capital Funds Agreement Agreement, dated as of June 21, 1974, as amended, between System Energy and Entergy Corporation, and the assignments thereof CitiPower CitiPower Pty. Council Council of the City of New Orleans, Louisiana domestic utility companies Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively Entergy Entergy Corporation and its various direct and indirect subsidiaries Entergy Arkansas Entergy Arkansas, Inc., formerly Arkansas Power & Light Company Entergy Corporation Entergy Corporation, a Delaware corporation, successor to Entergy Corporation, a Florida corporation Entergy Enterprises Entergy Enterprises, Inc. Entergy Gulf States Entergy Gulf States, Inc., formerly Gulf States Utilities Company (including wholly owned subsidiaries - Varibus Corporation, GSG&T, Inc., Prudential Oil & Gas, Inc., and Southern Gulf Railway Company) Entergy Louisiana Entergy Louisiana, Inc., formerly Louisiana Power & Light Company Entergy Mississippi Entergy Mississippi, Inc., formerly Mississippi Power & Light Company Entergy New Orleans Entergy New Orleans, Inc., formerly New Orleans Public Service Inc. Entergy Operations Entergy Operations, Inc., a subsidiary of Entergy Corporation that has operating responsibility for ANO, Grand Gulf 1, River Bend, and Waterford 3 Entergy Services Entergy Services, Inc. EPA U.S. Environmental Protection Agency
Abbreviation or Acronym Term EPAct Energy Policy Act of 1992 FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Form 10-K The combined Annual Report on Form 10-K for the year ended December 31, 1996, of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Grand Gulf 1 Unit No. 1 (nuclear) of the Grand Gulf Plant ISES Independence Steam Electric Generating Station kWh Kilowatt-hour(s) LPSC Louisiana Public Service Commission London Electricity London Electricity plc - a regional electric company serving London, England, which was acquired by Entergy on February 7, 1997 Merger The combination transaction, consummated on December 31, 1993, by which Entergy Gulf States became a subsidiary of Entergy Corporation and Entergy Corporation became a Delaware corporation MPSC Mississippi Public Service Commission NRC Nuclear Regulatory Commission Owner Participant A corporation that, in connection with the Waterford 3 sale and leaseback transactions, has acquired a beneficial interest in a trust, the Owner Trustee of which is the owner and lessor of undivided interests in Waterford 3 Owner Trustee Each institution and/or individual acting as Owner Trustee under a trust agreement with an Owner Participant in connection with the Waterford 3 sale and leaseback transactions PCBs Polychlorinated biphenyls PUHCA Public Utility Holding Company Act of 1935, as amended PUCT Public Utility Commission of Texas PURPA Public Utility Regulatory Policies Act River Bend River Bend Nuclear Plant, owned 70% by Entergy Gulf States RUS Rural Utilities Service SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board System Energy System Energy Resources, Inc. System Fuels System Fuels, Inc. Waterford 3 Unit No. 3 (nuclear) of the Waterford Plant
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Cash Flows Net cash flow from operations for Entergy, the domestic utility companies, and System Energy for the six months ended June 30, 1997, and 1996 was as follows: Six Months Six Months Company Ended 6/30/97 Ended 6/30/96 (In Millions) Entergy $ 840.2 $ 626.4 Entergy Arkansas $ 177.7 $ 157.8 Entergy Gulf States $ 213.5 $ 113.6 Entergy Louisiana $ 115.2 $ 155.9 Entergy Mississippi $ 87.6 $ 80.7 Entergy New Orleans $ 29.2 $ 15.0 System Energy $ 131.6 $ 129.3 The positive cash flow from operations for the domestic utility companies results from continued efforts to streamline operations and to reduce costs, as well as from collections under rate phase-in plans that exceed current cash requirements for the related costs. In the income statement, these revenue collections are offset by the amortization of the previously deferred costs so that there is no effect on net income. These phase-in plans will continue to contribute to Entergy's cash position in the immediate future. The Grand Gulf 1 phase-in plans will expire in 1998 for Entergy Arkansas and Entergy Mississippi, and in 2001 for Entergy New Orleans. Entergy Gulf States' phase-in plan for River Bend will expire in 1998. However, Entergy Louisiana's phase-in plan for Waterford 3 expired in June 1997. Competitive growth businesses had a positive impact on Entergy's cash flow from operations. In accordance with the purchase method of accounting, London Electricity's results of operations are not included in Entergy's six months ended June 30, 1996 Statements of Consolidated Cash Flows. Financing Sources As discussed in Note 8, the acquisition of London Electricity for $2.1 billion was accomplished in February 1997. The acquisition was financed with $1.7 billion of debt that is non-recourse to Entergy Corporation, and $392 million of equity provided by Entergy Corporation from available cash and borrowings under its $300 million line of credit. Currently, Entergy is pursuing alternatives to refinance a portion of this debt. Excluding the London Electricity investment, cash from operations, supplemented by cash on hand, was sufficient to meet substantially all investing and financing requirements of the domestic utility companies and System Energy, including capital expenditures, dividends, and debt and preferred stock maturities for the six months ended June 30, 1997. Entergy has been able to fund the capital requirements for its domestic utility companies with cash from operations as discussed above in "Cash Flows". Should additional cash be needed to fund investments or to retire debt, the domestic utility companies and System Energy each have the ability, subject to regulatory approval and compliance with issuance tests, to issue debt or preferred securities to meet such requirements. In addition, to the extent market conditions and interest and dividend rates allow, the domestic utility companies and System Energy will continue to refinance and/or redeem higher cost debt and preferred stock prior to maturity. See Note 4 herein for a discussion of the recent refinancing by Entergy Louisiana. The domestic utility companies may continue to establish special purpose trusts as financing subsidiaries for the purpose of issuing preferred trust securities, such as those issued in 1996 by Entergy Louisiana Capital I and Entergy Arkansas Capital I, and those
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES issued in January 1997 by Entergy Gulf States Capital I. Entergy Corporation, the domestic utility companies, and System Energy also have the ability to effect short-term borrowings. See Notes 4, 5, 6, 7, 9 and 10 in the Form 10-K for additional information on Entergy's capital and refinancing requirements in 1997-2001. As of June 30, 1997, Entergy Corporation had $225 million outstanding under its $300 million bank credit facility, representing the remaining balance of the amount used for the acquisition of London Electricity in February 1997. In addition, Entergy Technology Holding Company (ETHC) had $61 million outstanding under its $250 million bank line of credit as of June 30, 1997. See Note 4 to the Form 10-K for information on the domestic utility companies' and System Energy's short-term borrowing authorizations and bank lines of credit. Financing Uses Productive investment by Entergy Corporation is integral to enhancing the long-term value of its common stock. Entergy Corporation has been expanding its investments in business opportunities overseas as well as in the United States. As of June 30, 1997, Entergy Corporation had acquired or participated in foreign electric ventures in Australia, Argentina, Chile, Pakistan, Peru, and the United Kingdom, and had acquired several telecommunications-based businesses in the United States. As of June 30, 1997, Entergy Corporation had a net investment of $1.3 billion in equity capital in competitive growth businesses. See Note 8 for a discussion of Entergy Corporation's acquisition of London Electricity on February 7, 1997. To make capital investments, fund its subsidiaries, and pay dividends, Entergy Corporation will utilize internally generated funds, cash on hand, funds available under its $300 million bank credit facility, funds received from its dividend reinvestment and stock purchase plan, and bank financings as required. See Note 3 herein for information regarding proceeds from the issuance of common stock under Entergy's dividend reinvestment and stock purchase plan during the six months ended June 30, 1997. See Note 9 in the Form 10- K for a discussion of capital requirements. Entergy Corporation receives funds through dividend payments from its subsidiaries. During the six months ended June 30, 1997, such dividend payments from subsidiaries totaled $175.9 million. In order to improve its capital structure, Entergy Gulf States has not paid common stock dividends since the third quarter of 1994. During the six months ended June 30, 1997, Entergy Corporation paid $212.1 million of common stock dividends. Declarations of dividends on common stock are made at the discretion of Entergy Corporation's Board of Directors. Management will not recommend future changes in dividends to the Board unless warranted by economic circumstances and the then current business environment. See Note 8 in the Form 10-K for information on dividend restrictions. Entergy Corporation and Entergy Gulf States See Notes 1 and 2 regarding River Bend and Cajun litigation. An adverse ruling regarding River Bend could result in up to approximately $273 million of potential write-offs (net of tax) and up to $215 million in refunds of previously collected revenue. Such write-offs and charges could result in substantial net losses being reported in the future by Entergy Gulf States, with resulting adverse adjustments to the common equity of Entergy Corporation and Entergy Gulf States. Adverse resolution of these matters could negatively affect Entergy Gulf States' ability to obtain financing, which could in turn affect Entergy Gulf States' liquidity and ability to resume paying common stock dividends.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Entergy Corporation and System Energy Under the Capital Funds Agreement, Entergy Corporation has agreed to supply to System Energy sufficient capital to maintain System Energy's equity capital at a minimum of 35% of its total capitalization (excluding short-term debt), to permit the continued commercial operation of Grand Gulf 1, and to pay in full all indebtedness for borrowed money of System Energy when due under any circumstances. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights thereunder as security for specific debt of System Energy, Entergy Corporation has agreed to make cash capital contributions, if required, to enable System Energy to make payments on such debt when due. The Capital Funds Agreement may be terminated by the parties thereto, subject to the consent of certain creditors.
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, including "Open Access Transmission", "Municipalization", "Industry Consolidation", "Functional Unbundling", and "Effects of Alternate Energy Sources on Retail Electric Sales to Industrial and Large Commercial Customers" for a discussion of the increasing competitive pressures facing Entergy and the electric utility industry. See "ANO Matters", and "Property Tax Exemptions" in the Form 10-K for a discussion of other significant issues affecting Entergy. Set forth below are recent developments to the Form 10-K disclosure for the sections presented. Competition and Industry Challenges Transition to Competition Filings See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K and Note 2 herein for a discussion of the domestic utility companies' filings with their respective state and local regulators concerning the transition to competition. Entergy Gulf States made a supplemental filing with the PUCT on April 4, 1997, outlining a comprehensive market reform proposal calling for the establishment of retail competition, service quality standards, a regional power exchange, and an independent system operator. Entergy Gulf States requested from the PUCT a reciprocal commitment ensuring the full recovery of prudently incurred investments previously approved by regulators. The PUCT has scheduled hearings on the transition to competition beginning in October 1997. The MPSC conducted hearings in April 1997 on various transition to competition issues, including the recoverability of stranded costs, the potential for cost shifting, and electric supply reliability. In early July the MPSC issued an order directing the MPSC Staff to submit a report by November 1, 1997, outlining a plan for restructuring the electric utility industry in Mississippi. Entergy Arkansas filed a supplement to its transition to competition plan with the APSC on May 1, 1997. This filing is similar to the supplemental filing made by Entergy Gulf States as discussed above. See Note 2 for additional information regarding this filing. In October 1996, Entergy Gulf States and Entergy Louisiana filed proposals with the LPSC designed to achieve an orderly transition to retail electric competition in Louisiana, while protecting certain classes of ratepayers from bearing the burden of cost shifting. See Note 2 for additional information regarding this filing. Hearings on these proposals have been delayed until 1998. In February 1997, the LPSC ruled that certain issues embodied in the Entergy Gulf States and Entergy Louisiana proposals would be addressed in those companies' existing rate dockets, and that certain other issues would be addressed in an ongoing generic regulatory proceeding examining electric industry restructuring. In July 1997, Entergy Gulf States and Entergy Louisiana filed supplemental testimony on asset securitization, market price projections, and potential strandable cost quantification in response to the issues identified by the LPSC. The Council established two new dockets in March 1997 regarding electric and gas utility service competition in the City of New Orleans. One docket will address competitive issues, including the advisability of implementing competition, recoverability and measurement of stranded costs, maximization of consumer savings from competition and minimization of cost shifting, and potential conflicts among federal, state, and local regulators, as such issues relate to electric and gas service currently being provided to New Orleans customers by Entergy New Orleans. The second docket will address the same issues related to the provision of electric service to Algiers customers by Entergy Louisiana. A procedural schedule was established which required comments to
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS be filed in April 1997 and set hearings for May, July and October 1997. Entergy New Orleans intends to file a specific transition to competition plan following these hearings. Retail and Wholesale Rate Issues See Note 2 to the Form 10-K for a discussion of the ongoing trend of regulator mandated rate reductions as well as incentive and performance-based regulation and filings made with state and local regulators regarding an orderly transition to a more competitive market for electricity. See Note 2 herein for a discussion of rate reductions implemented at Entergy Louisiana and Entergy New Orleans during the current period. On July 14, 1997, Entergy Services filed with the FERC its wholesale transmission open access compliance tariff incorporating the requirements of FERC Order No. 888-A. Legislative Activity A number of bills recently have been introduced in the U. S. Congress calling for deregulation of the electric power industry. Included in these proposals are some that would amend or repeal PUHCA and/or PURPA. These bills generally have provisions that would give consumers the ability to choose their own electricity service provider. Entergy Gulf States was an active participant in discussions aimed at developing legislation related to electric utility industry restructuring and competition by the Texas Legislature before it adjourned June 2, 1997. No legislation was passed in Texas during the recent session and the legislature will not convene again until January 1999, by which time Entergy Gulf States believes the PUCT will have acted on its transition to competition filing. The Arkansas Senate has passed a resolution requesting a study of the impact of competition in the electric utility industry on the citizens of Arkansas, the electric utility industry, and the regulatory authority of the APSC. This study is scheduled to begin no later than December 1, 1997. Competitive Growth Businesses Entergy Corporation seeks opportunities to expand its domestic and foreign businesses that are not regulated by domestic state and local utility regulatory authorities. Such business ventures currently include power development and operations and retail services related to the utility business. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" for a discussion of Entergy Corporation's 1997 investments in competitive growth businesses. These investments may involve a greater risk than domestic regulated utility enterprises. For the six months ended June 30, 1997, Entergy Corporation's competitive growth businesses increased consolidated net income by approximately $49 million. Entergy Nuclear, Inc. (Entergy Nuclear) began providing management and operations services in February 1997 for an initial period of up to one year to Maine Yankee Atomic Power Company (Maine Yankee) at the Maine Yankee nuclear plant. The creation of Entergy Nuclear and its undertaking with Maine Yankee are authorized by existing SEC orders previously granted to Entergy Enterprises. Entergy Corporation has an
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS application pending at the SEC to create a different structure under which Entergy Nuclear would engage in this business for other nuclear utilities. On August 6, 1997, the board of directors of Maine Yankee announced the permanent closure of the nuclear plant based on economic concerns and uncertainty about the operation of the plant. Entergy Nuclear will honor its short-term contract to provide management services to Maine Yankee to prepare for decommissioning through September 30, 1997 and, at the option of Maine Yankee, through March 31, 1998. As of June 30, 1997, Entergy Corporation controlled 100% of the common shares of London Electricity. For additional information related to this acquisition, see Note 8 herein. Through London Electricity, Entergy expects to gain valuable experience in the deregulated United Kingdom electricity market to apply to the anticipated deregulated electricity market in the United States. London Electricity has already experienced seven years of a partially competitive supply environment and expects to be in a fully competitive supply market beginning April 1, 1998. In conjunction with the acquisition of London Electricity, Entergy established an international retail operations group to coordinate retail electric operations in the United Kingdom, Australia, and Argentina. In February 1997, Entergy Richmond Power Corporation, a wholly- owned subsidiary of Entergy Power Development Corporation, sold its 50% interest in Richmond Power Enterprise LP (owner of a gas-fired electric and steam generation facility), to a third party for $10 million, realizing an after tax gain of $2.7 million. In February 1997, Entergy Corporation announced a joint venture with Hyperion Telecommunications. It is expected that by the end of 1997, the joint venture (to be known as Entergy Hyperion Telecommunications) will offer competitive telephone services primarily to commercial customers in the metropolitan areas of Little Rock, Arkansas, Jackson, Mississippi, and Baton Rouge, Louisiana. In June 1997, Entergy Transener, S.A., a wholly-owned subsidiary of Entergy Power Development Corporation, sold its interest in a consortium that owned 65% of Transener S.A. for $27.5 million, realizing an after-tax gain of $5.8 million. During the second quarter of 1997, Entergy Pakistan Limited, a wholly-owned subsidiary of Entergy Power Development Corporation, sold 25% of its interest in Hub Power Company, Ltd. for $26.9 million, which resulted in an after-tax gain of $9.3 million. During the second quarter of 1997, Entergy Power Chile, S.A., an indirect wholly-owned subsidiary of Entergy Power Development Corporation, purchased a 25% interest in the San Isidro project, a 370 MW gas-fired, combined cycle generating facility under construction in Chile. Entergy Power Chile, S.A. is obligated to fund up to $20 million for the cost of completing the plant, scheduled for commercial operation in 1999. The other owner of the project, which is also the developer, is Empresa Nacional de Electricidad, S.A. (Endesa). On July 1, 1997, Entergy Security acquired the Ranger American group of companies for an aggregate purchase price of approximately $60.8 million. Ranger American is a leading provider of electronic security services in the largest cities in Texas and in Atlanta, Georgia. This expansion increases Entergy Security's customer total to approximately 140,000 and its annual revenues to more than $53 million. See Note 3 for details regarding the Entergy Corporation common stock that was issued in connection with this acquisition.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K, and Note 8 herein, for a discussion of Entergy's major competitive growth businesses. Windfall Profits Tax As a result of Parliamentary elections held on May 1, 1997, the Labour Party gained control of the British government. On July 31, 1997, the British government enacted into law a one-time "windfall profits tax" on privatized industries, including regional electric utilities such as London Electricity. An initial examination of the proposed tax indicates that London Electricity's assessment is approximately 140 million British Pounds (approximately $229 million) which will not be deductible for United Kingdom income tax purposes. Payment of the tax is required in two equal installments, the first to be due on December 1, 1997, and the second installment due a year later. The government also decreased the corporate tax rate in the United Kingdom from the current 33% to 31%, which will be effective as of April 1, 1997. In accordance with SFAS 109, "Accounting for Income Taxes", this reduction in United Kingdom income tax rates will result in a one-time reduction in income tax expense of approximately $65 million to adjust London Electricity's deferred income tax liability to the new rate. Accordingly, the liability for the windfall profits tax (with a corresponding charge against income) and the reduction in London Electricity's deferred income tax liability (with a corresponding reduction in income tax expense), were recorded in July 1997. Waterford 3 Refueling Outage A scheduled 45-day refueling outage for the Waterford 3 nuclear plant began on April 12, 1997. Additional work and two minor incidents caused the outage to be extended from May 27 to mid-June. On May 28, 1997, a start-up transformer at Waterford 3 failed due to an internal fault. A replacement transformer was located and was shipped to Waterford 3, where certain plant configuration changes were made to facilitate its installation. After installation of the replacement transformer, the plant was restarted on July 29, 1997. Cajun - River Bend The RUS entered into an agreement on February 11, 1997 for the sale of Cajun's 30% interest in River Bend to PECO Energy Company (PECO) pursuant to authorization granted in the Bankruptcy Court Order of August 26, 1996. On July 10, 1997, PECO terminated this agreement with the RUS. Under orders of the Bankruptcy Court, RUS now has until mid-October 1997 to determine whether to sell the Cajun interest to another purchaser, to retain it, or to transfer it to Entergy Gulf States at no cost. Labor Agreements During April 1997, Entergy Gulf States and a union representing 1,000 employees in Texas and Louisiana signed a two-year labor contract (expiring August 14, 1999). The contract stipulate that there will be no layoffs in the next two years and wages will be increased 3% in 1997 and 1998. In early July 1997, Entergy Operations and the union representing 317 employees at River Bend, and Entergy Mississippi and the union representing 400 employees signed two-year labor contracts which also stipulates that there will be no layoffs of covered employees over the next two years and that wages will be
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS increased 3% over the next two years. These increases at Entergy Mississippi are to be effective October 15, 1998, and October 15, 1999. The new contract will run from October 1998 to October 2000. Deregulated Utility Operations Entergy Gulf States discontinued regulatory accounting principles in 1989 for its wholesale jurisdiction and steam department, and in 1991 for the Louisiana deregulated portion of River Bend. Operating income from these operations during the three and six months ended June 30, 1997, was $4.6 million and $9.2 million, respectively, compared to $1.8 million and $8.0 million during the comparable periods in 1996. The increase in operating income from these deregulated operations for the three and six months ended June 30, 1997 was principally due to decreased steam products expenses, partially offset by reduced wholesale jurisdiction revenues. The future impact of the deregulated utility operations on Entergy's and Entergy Gulf States' results of operations and financial position will depend on future operating costs, future efficiency and availability of generating units, and future market prices for energy over the remaining life of the assets. Accounting Issues See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" and Note 1 in the Form 10-K for a discussion of the impact of the adoption by Entergy of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", effective January 1, 1996. Continued Application of SFAS 71 - As a result of the EPAct, the actions of regulatory bodies, and other factors, the electric utility industry is moving toward a combination of competition and a modified regulatory environment. The domestic utility companies' and System Energy's financial statements currently reflect, for the most part, assets and costs based on existing cost-based ratemaking regulations in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). Continued applicability of SFAS 71 to the domestic utility companies' and System Energy's financial statements requires that rates set by an independent regulator on a cost-of-service basis be charged to and collected from customers. In the event that all or a portion of a utility's operations cease to meet those criteria for various reasons, including deregulation, a change in the method of regulation, or a change in the competitive environment for the utility's regulated services, the utility is required to discontinue application of SFAS 71 for the relevant portion of its operations by eliminating from the balance sheet the effects of any actions of regulators recorded as regulatory assets and liabilities. Discontinuation of the application of SFAS 71 would have a material adverse impact on Entergy's financial statements. The SEC has expressed concern regarding the continuing applicability of SFAS 71 to the financial statements of electric utilities which either have been ordered by regulators to adopt transition to competition plans, or as in a number of other states, are in the process of participating with the state legislature and/or regulators in the development of such plans. While such plans may call for rate caps or decreases, they generally provide for recovery of above market rate generating plant and other regulatory assets (stranded costs). The SEC is concerned that portions of entities subject to such plans may not meet the criteria for the continued application of SFAS 71. The Emerging Issues Task Force of the FASB (EITF) met in May and July of 1997 to address the issues of when such an entity should discontinue the application of SFAS 71, and how SFAS 101 should be applied to a portion of an entity subject to such a plan. As a result of these meetings, a consensus was reached
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS that SFAS 71 should be discontinued at a date no later than when the details of the transition to competition plan for that portion of the entity are known. Additionally, the EITF reached a consensus that stranded costs which are to be recovered through cash flows derived from another portion of the entity which continues to apply SFAS 71 should not be written off and considered regulatory assets of that segment which will continue to apply SFAS 71. The domestic utility companies' and System Energy's financial statements continue to apply SFAS 71 for their regulated operations, except for those portions of Entergy Gulf States' business described in "Deregulated Utility Operations" above. Although discussions with regulatory authorities regarding retail competition have occurred and are expected to continue, no final transition to competition plan has been adopted, and therefore, the regulated operations continue to apply SFAS 71. See Note 1 to the Form 10-K for additional discussion of Entergy's application of SFAS 71. Accounting for Decommissioning Costs - In February 1996, the FASB issued an exposure draft of a proposed SFAS addressing the accounting for decommissioning costs of nuclear generating units as well as liabilities related to the closure and removal of all long- lived assets. See Note 1 for a discussion of proposed changes in the accounting for decommissioning/closure costs and the potential impact of these changes on Entergy. Year 2000 Issues Like many companies, Entergy is currently evaluating its computer software and databases to determine the extent to which modifications are required to prevent problems related to the year 2000, and the resources which will be required to make such modifications. These problems could result in malfunctions in certain software and databases with respect to dates on or after January 1, 2000, unless corrected. Entergy is evaluating the cost of making the necessary modifications required to correct any "Year 2000" problems. Financial Derivatives Derivative instruments have been used by Entergy on a limited basis. Entergy uses financial derivatives only to mitigate business risks and not for speculative purposes. See Notes 7 and 9 to the Form 10-K and Note 4 herein for additional information concerning Entergy's derivative instruments outstanding as of December 31, 1996, and June 30, 1997.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS On February 7, 1997, Entergy Corporation made unconditional its offer to acquire London Electricity. In accordance with the purchase method of accounting, the results of operations for the three and six months ended June 30, 1996 of Entergy Corporation and subsidiaries reported in the Statements of Consolidated Income and Cash Flows do not include London Electricity's results of operations. Consolidated net income for the three and six months ended June 30, 1997 includes a positive effect due to the inclusion of London Electricity results subsequent to February 1, 1997. See Note 8 for additional information regarding London Electricity. Net Income Consolidated net income decreased for the three months ended June 30, 1997 primarily due to a decrease in electric revenues and an increase in other operation and maintenance expense, partially offset by an increase in competitive growth business revenue and a decrease in income tax expense. Consolidated net income increased for the six months ended June 30, 1997 primarily due to the $174 million net of tax write-off of River Bend rate deferrals in January 1996 pursuant to SFAS 121. Excluding this item, net income would have decreased $19.2 million for the six months ended June 30, 1997 primarily due to a decrease in electric revenues and an increase in other operations and maintenance expense, partially offset by an increase in competitive growth business revenue and a decrease in income tax expense. The increase in competitive growth business revenues for the three and six months ended June 30, 1997 was primarily due to the inclusion of London Electricity revenues and increased earnings of CitiPower. London Electricity contributed earnings of $9.4 million or $0.04 per share for the three months ended June 30, 1997 and $25.0 million or $0.11 per share for the six months ended June 30, 1997 to consolidated net income. CitiPower's net income increased primarily due to favorable weather trends and due to restructuring charges that were recorded in 1996. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues associated with Entergy's domestic regulated operations for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($14.8) ($37.8) Rate riders (12.9) (17.4) Fuel cost recovery (39.8) 23.1 Sales volume/weather (39.8) (36.0) Other revenue (including unbilled) (42.6) (29.1) Sales for resale (22.0) (35.8) ------- ------- Total ($171.9) ($133.0) ======= =======
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues of the domestic utility companies and System Energy decreased for the three and six months ended June 30, 1997 primarily due to reductions in base revenues, the impact of milder weather in the current period, reductions in other revenue, and a decrease in sales for resale to non-associated utilities. Base revenues decreased primarily due to rate reductions for Louisiana retail customers, aggressive pricing strategies for targeted customer segments, and a change in sales mix from residential and commercial customers to industrial customers at Entergy Gulf States. The decrease in other revenue is primarily due to the impact in 1996 of a non-recurring adjustment to reserve for a potential refund associated with a change in accounting for unbilled revenue in 1993, as well as lower unbilled revenue in the current period. Unbilled revenues decreased primarily due to milder weather in the current period. The decrease in sales for resale to non-associated utilities is primarily due to changes in generation requirements and availability among the domestic utility companies. Fuel cost recovery decreased for the three months ended June 30, 1997 primarily due to lower fuel prices and milder weather, which caused a decrease in energy sales. Fuel cost recovery increased for the six months ended June 30, 1997 due to a PUCT order which approved recovery of under-recovered fuel expenses at Entergy Gulf States. See Note 2 herein for further discussion. Competitive growth business revenues increased for the three and six months ended June 30, 1997 primarily due to the February 1997 acquisition of London Electricity. London Electricity generated revenues of $463.2 million and $854.4 million for the three and six months ended June 30, 1997, respectively. Expenses Operating expenses for the three months ended June 30, 1997 and the portion of the six months ended June 1997 subsequent to February 1 include the operating expenses of London Electricity, which were not included in the prior year's financial statements. Excluding the operating expenses of London Electricity, Entergy's operating expenses for the three and six months ended June 30, 1997 are discussed below. For the three months ended June 30, 1997, operating expenses decreased by approximately $35.4 million primarily due to lower fuel expenses, partially offset by an increase in other operations and maintenance expense. Fuel expenses decreased primarily due to lower fuel prices and a decrease in energy sales as a result of the milder weather in the current period. The increase in other operations and maintenance expense is primarily due to an increase in non-outage related maintenance expense at Waterford 3 and an increase in maintenance expense at certain fossil plants. Operating expenses increased by approximately $32 million for the six months ended June 30, 1997 primarily due to an increase in depreciation, amortization and decommissioning expense and a decrease in rate deferrals, partially offset by a decrease in fuel expenses. The increase in depreciation, amortization, and decommissioning is due to (i) additional depreciation recorded by System Energy associated with the sale and leaseback in 1989 of a portion of Grand Gulf 1 and (ii) plant additions and improvements. Rate deferrals recorded in the first quarter of 1996 relate primarily to the LPSC- approved rate deferral of the Waterford 3 property tax first imposed in 1996. This tax is currently included in base rates. Fuel expenses decreased primarily due to a decrease in energy sales as a result of the milder weather in the current period and lower fuel prices.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other Other income increased for the six months ended June 30, 1997 primarily as a result of the 1996 write-off of River Bend rate deferrals pursuant to SFAS 121. Excluding London Electricity, interest on long-term debt decreased for the three and six months ended June 30, 1997 due primarily to ongoing retirement and refinancing of higher cost debt. Interest on debt associated with the London Electricity acquisition more than offset this decrease. Income tax expense decreased for the three months ended June 30, 1997 primarily due to lower pretax income.
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands, Except Share Data) <S> <C> <C> <C> <C> Operating Revenues: Electric $1,502,742 $1,674,610 $2,954,667 $3,087,678 Natural gas 23,025 28,991 80,521 86,464 Steam products 12,872 15,214 23,961 30,792 Competitive growth businesses 639,451 134,862 1,164,694 247,735 ---------- ---------- ---------- ---------- Total 2,178,090 1,853,677 4,223,843 3,452,669 ---------- ---------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 339,778 405,549 738,520 781,313 Purchased power 469,726 189,153 890,688 347,310 Nuclear refueling outage expenses 13,172 13,739 30,408 27,948 Other operation and maintenance 512,830 380,085 938,917 733,297 Depreciation, amortization, and decommissioning 241,286 195,100 469,315 389,667 Taxes other than income taxes 90,205 89,942 183,196 178,913 Rate deferrals (7,909) (11,273) (17,484) (31,075) Amortization of rate deferrals 85,115 90,213 184,178 181,724 ---------- ---------- ---------- ---------- Total 1,744,203 1,352,508 3,417,738 2,609,097 ---------- ---------- ---------- ---------- Operating Income 433,887 501,169 806,105 843,572 ---------- ---------- ---------- ---------- Other Income (Deductions): Allowance for equity funds used during construction 3,035 2,796 6,068 5,354 Write-off of River Bend rate deferrals - - - (194,498) Miscellaneous - net 29,224 12,682 46,617 23,461 ---------- ---------- ---------- ---------- Total 32,259 15,478 52,685 (165,683) ---------- ---------- ---------- ---------- Interest Charges: Interest on long-term debt 205,310 174,704 390,800 347,547 Other interest - net 11,148 10,098 23,053 21,945 Distributions on preferred securities of subsidiaries 4,710 - 8,882 - Allowance for borrowed funds used during construction (2,440) (2,329) (4,877) (4,467) ---------- ---------- ---------- ---------- Total 218,728 182,473 417,858 365,025 ---------- ---------- ---------- ---------- Income Before Income Taxes 247,418 334,174 440,932 312,864 Income Taxes 88,839 127,473 155,868 175,153 ---------- ---------- ---------- ---------- Net Income 158,579 206,701 285,064 137,711 Preferred and Preference Dividend Requirements of Subsidiaries and Other 12,303 18,378 29,026 36,459 ---------- ---------- ---------- ---------- Earnings Applicable to Common Stock $146,276 $188,323 $256,038 $101,252 ========== ========== ========== ========== Earnings per average common share $0.61 $0.83 $1.08 $0.44 Dividends declared per common share $0.45 - $0.90 $0.90 Average number of common shares outstanding 238,577,894 228,036,032 236,865,266 227,908,318 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $285,064 $137,711 Noncash items included in net income: Write-off of River Bend rate deferrals - 194,498 Change in rate deferrals/excess capacity-net 223,311 210,399 Depreciation, amortization, and decommissioning 469,315 390,038 Deferred income taxes and investment tax credits (70,123) (49,738) Allowance for equity funds used during construction (5,475) (5,354) Changes in working capital: Receivables 8,750 (101,595) Fuel inventory 37,965 7,348 Accounts payable (23,891) 7,740 Taxes accrued 106,367 63,797 Interest accrued 868 (6,238) Other working capital accounts (98,449) (132,057) Decommissioning trust contributions (41,757) (26,157) Other (51,731) (64,015) ----------- ----------- Net cash flow provided by operating activities 840,214 626,377 ----------- ----------- Investing Activities: Construction/capital expenditures (296,817) (285,411) Allowance for equity funds used during construction 5,475 5,354 Nuclear fuel purchases (52,323) (73,782) Proceeds from sale/leaseback of nuclear fuel 79,512 54,241 Acquisition of London Electricity, net of cash acquired (1,980,631) - Acquisition of CitiPower - (1,156,112) Investment in nonregulated/nonutility properties 78,537 (6,426) Other (20,767) (20,752) ----------- ----------- Net cash flow used in investing activities (2,187,014) (1,482,888) ----------- ----------- </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Financing Activities: <S> <C> <C> Proceeds from the issuance of: General and refunding mortgage bonds 64,827 39,608 First mortgage bonds 84,064 198,250 Bank notes and other long-term debt 1,691,201 947,443 Preferred securities of subsidiaries trust 82,323 - Common stock 166,870 - Retirement of: First mortgage bonds (192,504) (357,016) General and refunding mortgage bonds (634) (30,000) Other long-term debt (21,160) (93,373) Redemption of preferred stock (103,867) (25,580) Changes in short-term borrowings - net 113,104 225,025 Preferred stock dividends paid (27,275) (36,365) Common stock dividends paid (212,141) (199,493) ---------- --------- Net cash flow provided by financing activities 1,644,808 668,499 ---------- --------- Effect of exchange rates on cash and cash equivalents 809 73 ---------- --------- Net increase (decrease) in cash and cash equivalents 298,817 (187,939) Cash and cash equivalents at beginning of period 388,703 533,590 ---------- --------- Cash and cash equivalents at end of period $687,520 $345,651 ========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $256,899 $354,051 Income taxes $81,165 $159,719 Noncash investing and financing activities: Capital lease obligations incurred - $16,358 Change in unrealized appreciation (depreciation) of decommissioning trust assets $6,268 ($11,103) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $92,263 $34,807 Temporary cash investments - at cost, which approximates market 595,257 346,782 Special deposits - 7,114 ----------- ----------- Total cash and cash equivalents 687,520 388,703 Notes receivable 8,708 1,384 Accounts receivable: Customer (less allowance for doubtful accounts of $17.2 million in 1997 and $9.2 million in 1996) 534,148 324,687 Other 181,641 99,066 Accrued unbilled revenues 478,558 351,429 Deferred fuel 123,720 122,184 Fuel inventory 101,638 139,603 Materials and supplies - at average cost 370,259 339,622 Rate deferrals 369,289 444,543 Prepayments and other 216,618 151,312 ----------- ----------- Total 3,072,099 2,362,533 ----------- ----------- Other Property and Investments: Decommissioning trust funds 399,719 357,962 Non-regulated investments 489,608 513,058 Other 82,411 59,053 ----------- ----------- Total 971,738 930,073 Utility Plant: Electric 25,189,766 22,811,164 Plant acquisition adjustment - Entergy Gulf States 447,293 455,425 Electric plant under leases 674,049 679,991 Property under capital leases - electric 142,109 147,277 Natural gas 175,081 168,143 Steam products 81,743 81,743 Construction work in progress 472,444 401,676 Nuclear fuel under capital leases 274,587 250,651 Nuclear fuel 60,719 112,625 ----------- ----------- Total 27,517,791 25,108,695 Less - accumulated depreciation and amortization 9,286,199 8,885,572 ----------- ----------- Utility plant - net 18,231,592 16,223,123 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 251,437 399,493 SFAS 109 regulatory asset - net 1,195,931 1,196,041 Unamortized loss on reacquired debt 207,481 217,664 Other regulatory assets 460,742 435,652 Long-term receivables 212,224 216,082 CitiPower license (net of $23.3 million of amortization) 563,641 606,214 London Electricity license (net of $16.3 million of amortization) 1,552,542 - Other 263,570 379,419 ----------- ----------- Total 4,707,568 3,450,565 ----------- ----------- TOTAL $26,982,997 $22,966,294 =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $387,630 $345,620 Notes payable 400,468 20,686 Accounts payable 746,602 554,558 Customer deposits 180,128 155,534 Taxes accrued 340,776 180,340 Accumulated deferred income taxes 54,276 78,010 Interest accrued 206,732 203,425 Dividends declared 8,259 8,950 Obligations under capital leases 152,206 151,287 Other 139,651 184,157 ----------- ----------- Total 2,616,728 1,882,567 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,733,064 3,770,760 Accumulated deferred investment tax credits 598,221 607,641 Obligations under capital leases 260,922 247,360 Other 1,502,279 1,298,306 ----------- ----------- Total 7,094,486 5,924,067 ----------- ----------- Long-term debt 9,524,296 7,590,804 Subsidiaries' preferred stock with sinking fund 196,237 216,986 Subsidiary's preference stock 150,000 150,000 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated deferrable debentures 215,000 130,000 Shareholders' Equity: Subsidiaries' preferred stock without sinking fund 345,954 430,955 Common stock, $.01 par value, authorized 500,000,000 shares; issued 240,664,720 shares in 1997 and 234,456,457 shares in 1996 2,407 2,345 Paid-in capital 4,477,900 4,320,591 Retained earnings 2,384,923 2,341,703 Cumulative foreign currency translation adjustment 10,203 21,725 Less - treasury stock (1,123,923 shares in 1997 and 1,496,118 shares in 1996) 35,137 45,449 ----------- ----------- Total 7,186,250 7,071,870 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $26,982,997 $22,966,294 =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Domestic Electric Operating Revenues: Residential $ 454.3 $ 516.5 ($62.2) (12) Commercial 362.4 380.1 (17.7) (5) Industrial 477.0 497.0 (20.0) (4) Governmental 40.4 41.2 (0.8) (2) --------------------------------- Total retail 1,334.1 1,434.8 (100.7) (7) Sales for resale 81.0 103.4 (22.4) (22) Other 87.6 136.4 (48.8) (36) --------------------------------- Total $ 1,502.7 $ 1,674.6 ($171.9) (10) ================================= Billed Electric Energy Sales (Millions of kWh): Residential 5,531 6,305 (774) (12) Commercial 4,952 5,084 (132) (3) Industrial 11,239 10,984 255 2 Governmental 598 591 7 1 --------------------------------- Total retail 22,320 22,964 (644) (3) Sales for resale 1,828 3,235 (1,407) (43) --------------------------------- Total 24,148 26,199 (2,051) (8) ================================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 956.4 $ 1,023.5 ($67.1) (7) Commercial 730.7 734.6 (3.9) (1) Industrial 973.9 957.3 16.6 2 Governmental 82.0 80.0 2.0 3 --------------------------------- Total retail 2,743.0 2,795.4 (52.4) (2) Sales for resale 157.6 193.6 (36.0) (19) Other 54.1 98.7 (44.6) (45) --------------------------------- Total $ 2,954.7 $ 3,087.7 ($133.0) (4) ================================= Billed Electric Energy Sales (Millions of kWh): Residential 11,931 12,972 (1,041) (8) Commercial 9,847 9,877 (30) - Industrial 22,135 21,429 706 3 Governmental 1,193 1,147 46 4 --------------------------------- Total retail 45,106 45,425 (319) (1) Sales for resale 4,253 5,809 (1,556) (27) --------------------------------- Total 49,359 51,234 (1,875) (4) ================================= </TABLE>
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 as a result of decreased electric operating revenues, partially offset by lower income taxes. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($0.7) $0.2 Rate riders (1.8) (0.4) Fuel cost recovery (0.6) 3.2 Sales volume/weather (13.9) (14.7) Other revenue (including unbilled) (6.3) (16.3) Sales for resale (21.1) (24.7) ------ ------ Total ($44.4) ($52.7) ====== ====== Electric operating revenues decreased for the three and six months ended June 30, 1997 primarily as a result of decreased retail energy sales, sales for resale, and other revenues primarily due to milder weather conditions during the current periods. The decrease in sales for resale resulted from changes in the generation requirements and availability among the domestic utility companies and decreased sales to non-associated companies. Other revenues decreased as a result of decreased unbilled revenues primarily due to milder weather conditions in the current periods. Expenses Operating expenses decreased for the three and six months ended June 30, 1997 primarily due to a decrease in fuel and purchased power expenses. This decrease is due to lower fuel costs and reduced sales caused by milder weather conditions in the current periods. Other Miscellaneous other income - net decreased for the three and six months ended June 30, 1997 due to reduced Grand Gulf 1 carrying charges as a result of a decline in the deferral balance which does not impact net income. Income tax expense decreased for the three and six months ended June 30, 1997 because of lower pretax income.
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $423,619 $467,990 $798,350 $851,071 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 62,754 66,475 129,347 131,675 Purchased power 109,120 121,631 203,854 220,256 Nuclear refueling outage expenses 5,367 7,541 12,266 15,083 Other operation and maintenance 86,085 85,871 171,801 169,136 Depreciation, amortization, and decommissioning 41,335 40,786 82,784 81,816 Taxes other than income taxes 9,101 10,425 18,529 19,443 Amortization of rate deferrals 28,984 30,024 68,005 66,470 -------- -------- -------- -------- Total 342,746 362,753 686,586 703,879 -------- -------- -------- -------- Operating Income 80,873 105,237 111,764 147,192 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 1,445 1,061 2,888 2,151 Miscellaneous - net 5,090 7,891 10,414 16,130 -------- -------- -------- -------- Total 6,535 8,952 13,302 18,281 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 23,777 24,932 48,227 49,767 Other interest - net 971 1,260 1,900 2,287 Distributions on preferred securities 1,275 - 2,550 - of subsidiary Allowance for borrowed funds used during construction (869) (634) (1,737) (1,299) -------- -------- -------- -------- Total 25,154 25,558 50,940 50,755 -------- -------- -------- -------- Income Before Income Taxes 62,254 88,631 74,126 114,718 Income Taxes 24,169 32,919 26,193 39,738 -------- -------- -------- -------- Net Income 38,085 55,712 47,933 74,980 Preferred Stock Dividend Requirements and Other 2,798 4,426 5,630 8,884 -------- -------- -------- -------- Earnings Applicable to Common Stock $35,287 $51,286 $42,303 $66,096 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $47,933 $74,980 Noncash items included in net income: Change in rate deferrals/excess capacity-net 81,151 69,808 Depreciation, amortization, and decommissioning 82,784 81,816 Deferred income taxes and investment tax credits (30,693) (28,555) Allowance for equity funds used during construction (2,888) (2,151) Changes in working capital: Receivables 29,939 (28,948) Fuel inventory 29,293 23 Accounts payable (22,365) (7,352) Taxes accrued 11,613 15,028 Interest accrued 622 (3,500) Other working capital accounts (33,731) 2,254 Decommissioning trust contributions (7,869) (7,530) Provision for estimated losses and reserves 5,383 2,362 Other (13,509) (10,471) -------- -------- Net cash flow provided by operating activities 177,663 157,764 -------- -------- Investing Activities: Construction expenditures (61,664) (67,212) Allowance for equity funds used during construction 2,888 2,151 Nuclear fuel purchases (36,532) (26,049) Proceeds from sale/leaseback of nuclear fuel 36,553 25,437 -------- -------- Net cash flow used in investing activities (58,755) (65,673) -------- -------- Financing Activities: Proceeds from issuance of first mortgage bonds 84,064 84,256 Retirement of first mortgage bonds (117,587) (112,807) Redemption of preferred stock - (4,000) Dividends paid: Common stock (31,400) (15,300) Preferred stock (5,729) (8,983) -------- -------- Net cash flow used in financing activities (70,652) (56,834) -------- -------- Net increase in cash and cash equivalents 48,256 35,257 Cash and cash equivalents at beginning of period 43,857 11,798 -------- -------- Cash and cash equivalents at end of period $92,113 $47,055 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $41,995 $49,169 Income taxes $40,864 $56,452 Noncash investing and financing activities: Capital lease obligations incurred - $16,358 Change in unrealized appreciation (depreciation) of decommissioning trust assets $5,817 ($7,482) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $11,772 $5,117 Temporary cash investments - at cost, which approximates market: Associated companies 23,184 17,462 Other 57,157 21,278 ---------- ---------- Total cash and cash equivalents 92,113 43,857 Accounts receivable: Customer (less allowance for doubtful accounts of $2.3 million in 1997 and 1996) 54,353 71,144 Associated companies 29,592 45,303 Other 1,215 5,862 Accrued unbilled revenues 111,974 104,764 Fuel inventory - at average cost 28,026 57,319 Materials and supplies - at average cost 82,927 72,976 Rate deferrals 120,706 153,141 Deferred excess capacity 4,424 9,005 Deferred nuclear refueling outage costs 37,977 24,534 Prepayments and other 7,000 7,491 ---------- ---------- Total 570,307 595,396 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 11,211 11,211 Decommissioning trust fund 221,374 203,274 Other - at cost (less accumulated depreciation) 3,887 5,058 ---------- ---------- Total 236,472 219,543 ---------- ---------- Utility Plant: Electric 4,610,523 4,578,728 Property under capital leases 56,613 57,869 Construction work in progress 116,834 83,524 Nuclear fuel under capital lease 95,040 79,103 Nuclear fuel - 27,500 ---------- ---------- Total 4,879,010 4,826,724 Less - accumulated depreciation and amortization 2,057,738 1,976,204 ---------- ---------- Utility plant - net 2,821,272 2,850,520 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 31,114 75,249 SFAS 109 regulatory asset - net 250,225 244,767 Unamortized loss on reacquired debt 55,647 56,664 Other regulatory assets 94,432 80,257 Other 31,031 31,421 ---------- ---------- Total 462,449 488,358 ---------- ---------- TOTAL $4,090,500 $4,153,817 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $17,465 $32,465 Notes payable 667 667 Accounts payable: Associated companies 47,583 91,205 Other 91,346 97,589 Customer deposits 23,917 21,800 Taxes accrued 65,807 54,194 Accumulated deferred income taxes 58,889 70,506 Interest accrued 28,247 27,625 Co-owner advances 18,819 33,873 Deferred fuel cost 12,995 6,955 Obligations under capital leases 53,086 53,012 Other 14,036 17,967 ---------- ---------- Total 432,857 507,858 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 778,092 785,994 Accumulated deferred investment tax credits 106,103 108,307 Obligations under capital leases 98,567 83,940 Other 128,099 113,998 ---------- ---------- Total 1,110,861 1,092,239 ---------- ---------- Long-term debt 1,241,548 1,255,388 Preferred stock with sinking fund 36,027 40,027 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 470 470 Paid-in capital 590,169 590,169 Retained earnings 502,218 491,316 ---------- ---------- Total 1,209,207 1,198,305 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,090,500 $4,153,817 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 105.2 $ 118.3 ($13.1) (11) Commercial 75.9 77.3 (1.4) (2) Industrial 84.2 87.3 (3.1) (4) Governmental 4.6 4.1 0.5 12 ----------------------------- Total retail 269.9 287.0 (17.1) (6) Sales for resale Associated companies 61.6 75.6 (14.0) (19) Non-associated companies 51.0 58.1 (7.1) (12) Other 41.1 47.3 (6.2) (13) ----------------------------- Total $ 423.6 $ 468.0 ($44.4) (9) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,091 1,274 (183) (14) Commercial 972 1,038 (66) (6) Industrial 1,541 1,567 (26) (2) Governmental 57 57 0 - ----------------------------- Total retail 3,661 3,936 (275) (7) Sales for resale Associated companies 2,906 3,113 (207) (7) Non-associated companies 1,515 2,034 (519) (26) ----------------------------- Total 8,082 9,083 (1,001) (11) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 236.6 $ 250.5 ($13.9) (6) Commercial 148.5 147.9 0.6 - Industrial 165.8 165.0 0.8 - Governmental 8.9 8.2 0.7 9 ----------------------------- Total retail 559.8 571.6 (11.8) (2) Sales for resale Associated companies 122.4 135.4 (13.0) (10) Non-associated companies 95.2 106.9 (11.7) (11) Other 21.0 37.2 (16.2) (44) ----------------------------- Total $ 798.4 $ 851.1 ($52.7) (6) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 2,609 2,845 (236) (8) Commercial 1,980 2,034 (54) (3) Industrial 3,111 3,092 19 1 Governmental 117 113 4 4 ----------------------------- Total retail 7,817 8,084 (267) (3) Sales for resale Associated companies 5,880 5,767 113 2 Non-associated companies 3,011 3,708 (697) (19) ----------------------------- Total 16,708 17,559 (851) (5) ============================= </TABLE>
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three months ended June 30, 1997 primarily due to decreased electric operating revenues, partially offset by a decrease in interest on long-term debt and income taxes. Net income increased for the six months ended June 30, 1997 primarily due to the $174 million net of tax write-off of River Bend rate deferrals required by the adoption of SFAS 121 in the first quarter of 1996. Excluding the effect of the write-off, net income for the six months ended June 30, 1997 would have decreased approximately $10.4 million due to decreased electric operating revenues. The decrease in net income is partially offset by reduced other operation and maintenance expense and interest on long-term debt. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($9.6) ($26.5) Fuel cost recovery (0.4) 22.0 Sales volume/weather (2.7) 3.8 Other revenue (including unbilled) (24.3) (7.2) Sales for resale (8.8) (15.9) ------ ------ Total ($45.8) ($23.8) ====== ====== Electric operating revenues decreased for the three months ended June 30, 1997 as a result of decreased other revenue, base revenues, and sales for resale. The decrease in other revenue is primarily due to the impact in 1996 of a non-recurring adjustment to reserve for a potential refund associated with a change in accounting for unbilled revenue in 1993 as well as lower unbilled revenue. Excluding the non- recurring adjustment, unbilled revenue decreased due to the change in generation for the three months ended June 30, 1997 as compared to the change in generation for the three months ended June 30, 1996. Base revenues decreased primarily due to aggressive pricing strategies for targeted customer segments and a change in the sales mix from residential and commercial customers to industrial customers primarily due to the impact of milder weather. Sales for resale decreased primarily due to changes in generation requirements for non- associated customers.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues decreased for the six months ended June 30, 1997 as a result of decreased base revenue, other revenue, and sales for resale, partially offset by an increase in fuel adjustment revenue. Base revenues decreased primarily due to rate reductions implemented for Louisiana retail customers in February 1997, aggressive pricing strategies for targeted customer segments, and a change in the sales mix from residential and commercial customers to industrial customers primarily due to the impact of milder weather. Sales for resale decreased primarily due to changes in generation requirements for non-associated customers. The decrease in other revenue is primarily due to unbilled revenue, which decreased due to the change in generation for the three months ended June 30, 1997 as compared to the change in generation for the three months ended June 30, 1996. Fuel adjustment revenues increased due to a PUCT order which approved recovery of under-recovered fuel expenses. See Note 2 herein for further discussion. Gas operating revenues increased for the six months ended June 30, 1997 due to an increase in the fixed fuel factor granted by the LPSC. This increase permits recovery of previously deferred gas costs. Steam operating revenues decreased for the three and six months ended June 30, 1997 due to increased customer requirements in 1996. Expenses Fuel expenses, depreciation, amortization, and decommissioning expenses, and amortization of rate deferrals increased for the three and six months ended June 30, 1997. Fuel expenses increased primarily due to a PUCT order which approved recovery of previously under-recovered fuel expenses, as discussed above in "Revenues and Sales". Depreciation, amortization and decommissioning expenses increased primarily due to the purchase of meters and transformers and additions to lines and substations. Amortization of rate deferrals increased based on the LPSC-approved River Bend phase-in- plan. These increases were partially offset by decreased other operation and maintenance expenses and decreased purchased power expenses. The decrease in other operation and maintenance expenses is primarily due to a decrease in the reserve for Cajun's unpaid portion of River Bend related costs which is reflected in long-term receivables. Payments into the registry of the District Court for Entergy Gulf States' portion of expenses for Big Cajun 2, Unit 3, are expected to be recovered during 1997 as a part of the settlement of the disputes between Cajun and Entergy. See Note 1 herein for further discussion. Purchased power decreased due to decreased energy requirements and lower energy prices. Other Other income increased for the six months ended June 30, 1997, primarily due to the write-off of River Bend rate deferrals required by the adoption of SFAS 121 in the first quarter of 1996. Interest charges decreased for the three and six months ended June 30, 1997 due to the retirement of certain high cost long-term debt. Income taxes decreased for the three months ended June 30, 1997 due to lower pretax income. Income taxes increased for the six months ended June 30, 1997 due to higher pretax income.
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF INCOME (LOSS) For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $457,739 $503,490 $905,877 $929,667 Natural gas 5,810 6,863 27,911 21,739 Steam products 12,872 15,214 23,961 30,792 -------- -------- -------- -------- Total 476,421 525,567 957,749 982,198 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 138,692 125,057 259,084 242,466 Purchased power 66,428 86,760 145,769 154,594 Nuclear refueling outage expenses 2,573 2,572 5,218 4,932 Other operation and maintenance 92,182 97,730 175,444 194,471 Depreciation, amortization, and decommissioning 53,833 51,504 106,801 102,755 Taxes other than income taxes 26,803 25,205 56,010 51,539 Amortization of rate deferrals 20,267 18,319 40,766 35,963 -------- -------- -------- -------- Total 400,778 407,147 789,092 786,720 -------- -------- -------- -------- Operating Income 75,643 118,420 168,657 195,478 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 726 739 1,451 1,232 Write-off of River Bend rate deferrals - - - (194,498) Miscellaneous - net 4,488 5,690 8,589 10,630 -------- -------- -------- -------- Total 5,214 6,429 10,040 (182,636) -------- -------- -------- -------- Interest Charges: Interest on long-term debt 41,755 46,476 83,741 92,964 Other interest - net 978 959 3,716 1,909 Distributions on preferred securities of 1,860 - 3,182 - subsidiary Allowance for borrowed funds used during construction (620) (628) (1,239) (1,056) -------- -------- -------- -------- Total 43,973 46,807 89,400 93,817 -------- -------- -------- -------- Income (Loss) Before Income Taxes 36,884 78,042 89,297 (80,975) Income Taxes 9,856 30,902 29,734 24,142 -------- -------- -------- -------- Net Income (Loss) 27,028 47,140 59,563 (105,117) Preferred and Preference Stock Dividend Requirements and Other 4,995 7,066 13,938 14,285 -------- -------- -------- --------- Earnings (Loss) Applicable to Common Stock $22,033 $40,074 $45,625 ($119,402) ======== ======== ======== ========= See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income (loss) $59,563 ($105,117) Noncash items included in net income (loss): Write-off of River Bend rate deferrals - 194,498 Change in rate deferrals 40,549 35,963 Depreciation, amortization, and decommissioning 106,801 102,755 Deferred income taxes and investment tax credits (1,887) 23,368 Allowance for equity funds used during construction (1,451) (1,232) Changes in working capital: Receivables (35,261) (17,731) Fuel inventory 3,889 (4,962) Accounts payable 17,673 6,912 Taxes accrued 26,282 1,869 Interest accrued (1,218) (16,162) Deferred fuel (205) (48,671) Other working capital accounts 12,274 (31,198) Decommissioning trust contributions (3,227) (2,961) Provision for estimated losses and reserves (17,021) (8,222) Other 6,752 (15,525) -------- ---------- Net cash flow provided by operating activities 213,513 113,584 -------- ---------- Investing Activities: Construction expenditures (59,558) (84,521) Allowance for equity funds used during construction 1,451 1,232 Nuclear fuel purchases - (21,580) Proceeds from sale/leaseback of nuclear fuel - 23,375 --------- ----------- Net cash flow used in investing activities (58,107) (81,494) --------- ----------- Financing Activities: Proceeds from the issuance of: Long-term debt - 780 Preferred securities of subsidiary trust 82,323 - Retirement of: First mortgage bonds (46,917) (65,959) Other long-term debt (425) (425) Redemption of preferred and preference stock (89,367) (4,204) Dividends paid on preferred and preference stock (11,936) (14,198) --------- ----------- Net cash flow used in financing activities (66,322) (84,006) --------- ----------- Net increase (decrease) in cash and cash equivalents 89,084 (51,916) Cash and cash equivalents at beginning of period 122,406 234,604 --------- ----------- Cash and cash equivalents at end of period $211,490 $182,688 ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $83,269 $105,598 Income taxes $1,158 $70 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $859 ($752) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $16,467 $6,573 Temporary cash investments - at cost, which approximates market: Associated companies 51,689 45,234 Other 143,334 70,599 ---------- ---------- Total cash and cash equivalents 211,490 122,406 Accounts receivable: Customer (less allowance for doubtful accounts of $2.0 million in 1997 and 1996) 97,230 87,883 Associated companies 7,083 2,777 Other 40,834 30,758 Accrued unbilled revenues 86,883 75,351 Deferred fuel costs 99,708 99,503 Accumulated deferred income taxes 60,059 56,714 Fuel inventory - at average cost 41,120 45,009 Materials and supplies - at average cost 91,077 86,157 Rate deferrals 69,938 105,456 Prepayments and other 19,312 16,321 ---------- ---------- Total 824,734 728,335 ---------- ---------- Other Property and Investments: Decommissioning trust fund 47,119 41,983 Other - at cost (less accumulated depreciation) 38,652 38,358 ---------- ---------- Total 85,771 80,341 ---------- ---------- Utility Plant: Electric 7,164,941 7,112,021 Natural Gas 47,005 45,443 Steam products 81,743 81,743 Property under capital leases 71,422 72,800 Construction work in progress 110,326 112,137 Nuclear fuel under capital lease 41,631 49,833 ---------- ---------- Total 7,517,068 7,473,977 Less - accumulated depreciation and amortization 2,940,806 2,846,083 ---------- ---------- Utility plant - net 4,576,262 4,627,894 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 102,948 120,158 SFAS 109 regulatory asset - net 383,163 372,817 Unamortized loss on reacquired debt 51,380 54,761 Other regulatory assets 40,884 45,139 Long-term receivables 212,225 216,082 Other 197,970 185,921 ---------- ---------- Total 988,570 994,878 ---------- ---------- TOTAL $6,475,337 $6,431,448 ============ ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $150,865 $160,865 Accounts payable: Associated companies 53,636 55,630 Other 105,208 85,541 Customer deposits 29,026 25,572 Taxes accrued 62,429 36,147 Interest accrued 48,433 49,651 Nuclear refueling reserve 19,488 12,354 Obligations under capital leases 39,639 39,110 Other 27,783 18,186 ---------- ---------- Total 536,507 483,056 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,225,525 1,200,935 Accumulated deferred investment tax credits 217,667 219,188 Obligations under capital leases 69,225 83,524 Deferred River Bend finance charges 21,509 33,688 Other 526,800 539,752 ---------- ---------- Total 2,060,726 2,077,087 ---------- ---------- Long-term debt 1,878,048 1,915,346 Preferred stock with sinking fund 75,210 77,459 Preference stock 150,000 150,000 Company - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 85,000 - Shareholders' Equity: Preferred stock without sinking fund 51,444 136,444 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares 114,055 114,055 Paid-in capital 1,152,575 1,152,689 Retained earnings 371,772 325,312 ---------- ---------- Total 1,689,846 1,728,500 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $6,475,337 $6,431,448 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 133.5 $ 141.9 ($ 8.4) (6) Commercial 107.0 109.4 (2.4) (2) Industrial 176.9 177.0 (0.1) - Governmental 8.5 7.8 0.7 9 ----------------------------- Total retail 425.9 436.1 (10.2) (2) Sales for resale Associated companies 4.3 2.8 1.5 54 Non-associated companies 10.8 21.1 (10.3) (49) Other 16.7 43.5 (26.8) (62) ----------------------------- Total $ 457.7 $ 503.5 ($ 45.8) (9) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,644 1,821 (177) (10) Commercial 1,530 1,556 (26) (2) Industrial 4,555 4,163 392 9 Governmental 114 110 4 4 ----------------------------- Total retail 7,843 7,650 193 3 Sales for resale Associated companies 152 84 68 81 Non-associated companies 489 678 (189) (28) ----------------------------- Total 8,484 8,412 72 1 ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease % (In Millions) Electric Operating Revenues: Residential $ 267.1 $ 276.6 ($ 9.5) (3) Commercial 212.3 211.9 0.4 - Industrial 354.9 337.6 17.3 5 Governmental 16.5 14.8 1.7 11 ----------------------------- Total retail 850.8 840.9 9.9 1 Sales for resale Associated companies 5.5 5.5 - - Non-associated companies 24.3 40.2 (15.9) (40) Other 25.3 43.1 (17.8) (41) ----------------------------- Total $ 905.9 $ 929.7 ($ 23.8) (3) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 3,437 3,645 (208) (6) Commercial 3,018 3,018 - - Industrial 8,720 8,064 656 8 Governmental 228 203 25 12 ----------------------------- Total retail 15,403 14,930 473 3 Sales for resale Associated companies 199 140 59 42 Non-associated companies 1,152 1,178 (26) (2) ----------------------------- Total 16,754 16,248 506 3 ============================= </TABLE>
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 due primarily to decreased electric operating revenues and increased other operation and maintenance expenses. These factors were partially offset by a decrease in income taxes. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($0.2) ($5.9) Fuel cost recovery (23.3) (0.9) Sales volume/weather (15.3) (17.5) Other revenue (including unbilled) (5.1) (0.9) Sales for resale (1.7) (4.2) ------ ------ Total ($45.6) ($29.4) ====== ====== Electric operating revenues decreased for the three months ended June 30, 1997 primarily due to lower fuel adjustment revenues, which do not affect net income, and lower sales volume. Fuel adjustment revenues decreased due to lower fuel prices and reduced generation, as described below in "Expenses". Sales volume decreased due to milder weather during the current period. Electric operating revenues decreased for the six months ended June 30, 1997 primarily due to lower sales volume and due to a decrease in base revenues. Sales volume decreased due to milder weather during the current period. Base revenues decreased due to a base rate reduction that became effective in the third quarter of 1996. Expenses Fuel expenses decreased for the three and six months ended June 30, 1997. This decrease was partially offset by increases in purchased power, other operation and maintenance expenses, and the impact of 1996 rate deferrals. Fuel expense decreased due to lower fuel prices and due to reduced generation resulting from the extended refueling outage at the Waterford 3 nuclear plant. Purchased power increased during the period due to shifting generation requirements as a result of the refueling outage at Waterford 3. Other operation and maintenance expenses increased due to non-refueling outage related contract work and maintenance performed at Waterford 3. Waterford 3 property taxes recorded in 1996 were offset by the recording of the LPSC-approved rate deferral for these taxes. Other Income taxes decreased for the three and six months ended June 30, 1997 due to lower pretax income.
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $412,263 $457,847 $846,246 $875,614 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 61,063 100,662 173,979 191,342 Purchased power 114,557 100,062 210,753 200,937 Nuclear refueling outage expenses 1,324 3,933 5,299 7,933 Other operation and maintenance 82,301 70,907 156,386 136,677 Depreciation, amortization, and decommissioning 41,095 41,931 85,466 83,672 Taxes other than income taxes 17,581 18,246 35,820 37,980 Rate deferrals - (4,516) - (11,375) Amortization of rate deferrals 6,431 6,886 12,752 13,546 -------- -------- -------- -------- Total 324,352 338,111 680,455 660,712 -------- -------- -------- -------- Operating Income 87,911 119,736 165,791 214,902 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 219 249 437 526 Miscellaneous - net (276) 442 (917) 728 -------- -------- -------- -------- Total (57) 691 (480) 1,254 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 30,007 31,062 60,090 61,779 Other interest - net 1,276 2,163 3,211 4,499 Distributions on preferred securities of subsidiary 1,575 - 3,150 - Allowance for borrowed funds used during construction (378) (423) (756) (831) -------- -------- -------- -------- Total 32,480 32,802 65,695 65,447 -------- -------- -------- -------- Income Before Income Taxes 55,374 87,625 99,616 150,709 Income Taxes 22,767 32,240 40,837 54,794 -------- -------- -------- -------- Net Income 32,607 55,385 58,779 95,915 Preferred Stock Dividend Requirements and Other 3,254 5,253 6,846 10,168 -------- -------- -------- -------- Earnings Applicable to Common Stock $29,353 $50,132 $51,933 $85,747 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $58,779 $95,915 Noncash items included in net income: Change in rate deferrals 5,749 13,546 Depreciation, amortization, and decommissioning 85,466 83,672 Deferred income taxes and investment tax credits 1,343 (12,206) Allowance for equity funds used during construction (437) (526) Changes in working capital: Receivables (11,709) (25,733) Accounts payable (11,107) 3,694 Taxes accrued 12,737 40,291 Interest accrued (10,083) (5,901) Other working capital accounts (21,691) (14,593) Decommissioning trust contributions (6,590) (6,593) Provision for estimated losses and reserves 3,951 836 Other 8,836 (16,520) -------- -------- Net cash flow provided by operating activities 115,244 155,882 -------- -------- Investing Activities: Construction expenditures (36,173) (53,592) Allowance for equity funds used during construction 437 526 Nuclear fuel purchases (42,920) - Proceeds from sale/leaseback of nuclear fuel 42,920 - -------- -------- Net cash flow used in investing activities (35,736) (53,066) -------- -------- Financing Activities: Proceeds from the issuance of first mortgage bonds - 113,994 Retirement of: First mortgage bonds (16,000) (130,000) Other long-term debt (194) (233) Redemption of preferred stock (7,500) (7,500) Changes in short-term borrowings - net 13,049 (27,386) Dividends paid: Common stock (51,500) (50,200) Preferred stock (6,744) (10,072) -------- --------- Net cash flow used in financing activities (68,889) (111,397) -------- --------- Net increase (decrease) in cash and cash equivalents 10,619 (8,581) Cash and cash equivalents at beginning of period 23,746 34,370 -------- -------- Cash and cash equivalents at end of period $34,365 $25,789 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $68,469 $68,870 Income taxes $17,805 $48,729 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $633 ($1,814) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $11,837 $1,804 Temporary cash investments - at cost, which approximates market 22,528 21,942 ---------- ---------- Total cash and cash equivalents 34,365 23,746 Accounts receivable: Customer (less allowance for doubtful accounts of $1.4 million in 1997 and 1996) 76,314 73,823 Associated companies 14,415 11,606 Other 6,828 7,053 Accrued unbilled revenues 70,513 63,879 Deferred fuel costs 28,453 18,347 Accumulated deferred income taxes - 1,465 Materials and supplies - at average cost 82,119 78,449 Rate deferrals - 5,749 Deferred nuclear refueling outage costs 34,006 5,300 Prepaid income tax 4,808 24,651 Prepayments and other 12,479 10,234 ---------- ---------- Total 364,300 324,302 ---------- ---------- Other Property and Investments: Nonutility property 22,525 22,525 Decommissioning trust fund 58,855 50,481 Investment in subsidiary companies - at equity 14,230 14,230 ---------- ---------- Total 95,610 87,236 Utility Plant: Electric 5,009,817 4,997,456 Property under capital leases 232,582 232,582 Construction work in progress 77,994 56,180 Nuclear fuel under capital lease 72,415 38,157 Nuclear fuel 3,067 34,191 ---------- ---------- Total 5,395,875 5,358,566 Less - accumulated depreciation and amortization 1,960,778 1,881,847 ---------- ---------- Utility plant - net 3,435,097 3,476,719 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 287,009 295,836 Unamortized loss on reacquired debt 35,510 37,552 Other regulatory assets 24,087 30,320 Other 27,389 27,313 ---------- ---------- Total 373,995 391,021 ---------- ---------- TOTAL $4,269,002 $4,279,278 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> Current Liabilities: <C> <C> Currently maturing long-term debt $53,300 $34,275 Notes payable - associated companies 44,115 31,066 Accounts payable: Associated companies 52,586 73,389 Other 66,561 89,550 Customer deposits 60,419 59,070 Taxes accrued 20,127 7,390 Accumulated deferred income taxes 8,045 - Interest accrued 39,166 49,249 Dividends declared 3,252 3,489 Obligations under capital leases 28,000 28,000 Other 6,784 4,940 ---------- ---------- Total 382,355 380,418 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 820,486 831,093 Accumulated deferred investment tax credits 137,088 139,899 Obligations under capital leases 44,415 10,156 Deferred interest - Waterford 3 lease obligation 17,302 16,809 Other 122,804 114,665 ---------- ---------- Total 1,142,095 1,112,622 ---------- ---------- Long-term debt 1,338,276 1,373,233 Preferred stock with sinking fund 85,000 92,500 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 1,088,900 1,088,900 Capital stock expense and other (2,321) (2,659) Retained earnings 64,197 63,764 ----------- ----------- Total 1,251,276 1,250,505 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,269,002 $4,279,278 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 119.5 $ 139.9 ($ 20.4) (15) Commercial 85.1 90.5 (5.4) (6) Industrial 169.7 182.5 (12.8) (7) Governmental 8.1 8.3 (0.2) (2) ----------------------------- Total retail 382.4 421.2 (38.8) (9) Sales for resale Associated companies 0.5 0.5 0.0 - Non-associated companies 13.2 14.9 (1.7) (11) Other 16.1 21.2 (5.1) (24) ----------------------------- Total $ 412.2 $ 457.8 ($45.6) (10) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,581 1,787 (206) (12) Commercial 1,127 1,156 (29) (3) Industrial 4,268 4,400 (132) (3) Governmental 110 110 0 - ----------------------------- Total retail 7,086 7,453 (367) (5) Sales for resale Associated companies 19 15 4 27 Non-associated companies 220 280 (60) (21) ----------------------------- Total 7,325 7,748 (423) (5) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 252.8 $ 275.2 ($ 22.4) (8) Commercial 174.6 176.5 (1.9) (1) Industrial 357.8 358.1 (0.3) - Governmental 17.1 16.8 0.3 2 ----------------------------- Total retail 802.3 826.6 (24.3) (3) Sales for resale Associated companies 0.8 0.7 0.1 14 Non-associated companies 25.1 29.4 (4.3) (15) Other 18.0 18.9 (0.9) (5) ----------------------------- Total $ 846.2 $ 875.6 ($29.4) (3) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 3,304 3,613 (309) (9) Commercial 2,230 2,248 (18) (1) Industrial 8,593 8,613 (20) - Governmental 229 225 4 2 ----------------------------- Total retail 14,356 14,699 (343) (2) Sales for resale Associated companies 26 18 8 44 Non-associated companies 360 513 (153) (30) ----------------------------- Total 14,742 15,230 (488) (3) ============================= </TABLE>
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 primarily due to a decrease in revenues and an increase in other operation and maintenance expenses, partially offset by a decrease in income tax expense. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($1.0) ($1.3) Grand Gulf rate rider (11.1) (17.0) Fuel cost recovery (6.8) 1.3 Sales volume/weather (4.2) (4.2) Other revenue (including unbilled) (7.1) (9.8) Sales for resale (4.4) (7.2) ------ ------ Total ($34.6) ($38.2) ====== ====== Electric operating revenues decreased for the three and the six months ended June 30, 1997 due to decreases in the Grand Gulf 1 rate rider revenues, other revenue, and sales for resale. Revenue from the Grand Gulf 1 rate rider does not affect net income. In connection with an annual MPSC review, in October 1996, Entergy Mississippi's Grand Gulf 1 rate rider was decreased based on the estimate of costs over the next year. Therefore, Grand Gulf 1 rate rider revenues for the three and six months ended June 30, 1997 were lower than revenues for the same period in 1996. The decrease in other revenue is due to the impact of milder weather on unbilled revenue. Sales for resale decreased as a result of reductions in sales to both associated and non-associated companies due to changes in the generation requirements and availability among domestic utility companies. Expenses Fuel expenses decreased for the three and six months ended June 30, 1997 due to the lower cost of purchased power and lower fuel requirements resulting from decreased energy sales. Other operation and maintenance expenses increased as a result of higher contract work and materials and supplies related to maintenance and plant outage expenses for the three and six months ended June 30, 1997. Rate deferrals reducing operating expenses in 1996 and 1997 represent the deferral of Entergy Mississippi's portion of the proposed System Energy rate increase. See Note 2 for a further discussion. Other Income tax expense for the three and six months ended June 30, 1997 decreased because of lower pretax income.
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $212,892 $247,479 $413,220 $451,381 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 26,526 48,080 66,549 87,826 Purchased power 76,215 68,732 146,574 136,044 Other operation and maintenance 33,457 28,828 63,477 56,477 Depreciation and amortization 10,682 10,052 21,381 20,079 Taxes other than income taxes 11,077 11,148 21,413 20,733 Rate deferrals (6,289) (5,372) (13,903) (12,523) Amortization of rate deferrals 20,829 28,728 44,640 54,992 -------- -------- -------- -------- Total 172,497 190,196 350,131 363,628 -------- -------- -------- -------- Operating Income 40,395 57,283 63,089 87,753 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 286 370 572 643 Miscellaneous - net 563 847 251 769 -------- -------- -------- -------- Total 849 1,217 823 1,412 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 10,790 11,517 21,413 22,556 Other interest - net 987 935 2,323 1,874 Allowance for borrowed funds used during construction (231) (297) (462) (521) -------- -------- -------- -------- Total 11,546 12,155 23,274 23,909 -------- -------- -------- -------- Income Before Income Taxes 29,698 46,345 40,638 65,256 Income Taxes 10,299 16,527 12,887 22,513 -------- -------- -------- -------- Net Income 19,399 29,818 27,751 42,743 Preferred Stock Dividend Requirements and Other 1,014 1,392 2,129 2,640 -------- -------- -------- -------- Earnings Applicable to Common Stock $18,385 $28,426 $25,622 $40,103 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $27,751 $42,743 Noncash items included in net income: Change in rate deferrals 71,422 62,928 Depreciation and amortization 21,381 20,079 Deferred income taxes and investment tax credits (13,203) (15,472) Allowance for equity funds used during construction (572) (643) Changes in working capital: Receivables 6,893 (25,853) Fuel inventory 2,112 1,752 Accounts payable (2,733) 15,136 Taxes accrued 18,235 1,132 Interest accrued (2,204) (2,646) Other working capital accounts (2,896) 2,985 Change in other regulatory assets (39,006) (19,431) Other 443 (1,974) -------- -------- Net cash flow provided by operating activities 87,623 80,736 -------- -------- Investing Activities: Construction expenditures (25,426) (42,256) Allowance for equity funds used during construction 572 643 -------- -------- Net cash flow used in investing activities (24,854) (41,613) -------- -------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds 64,827 - Retirement of: First mortgage bonds - (25,000) Other long-term debt (15) (15) Redemption of preferred stock (7,000) (9,876) Changes in short-term borrowings - net (50,253) 2,209 Dividends paid: Common stock (19,600) (17,000) Preferred stock (2,142) (2,630) -------- -------- Net cash flow used in financing activities (14,183) (52,312) -------- -------- Net increase (decrease) in cash and cash equivalents 48,586 ($13,189) Cash and cash equivalents at beginning of period 9,498 16,945 -------- -------- Cash and cash equivalents at end of period $58,084 $3,756 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $24,864 $25,928 Income taxes (refund) ($7,039) $23,973 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $6,699 $2,384 Special deposits - 7,114 Temporary cash investments - at cost, which approximates market 51,385 - ---------- ---------- Total cash and cash equivalents 58,084 9,498 Accounts receivable: Customer (less allowance for doubtful accounts of $1.4 million in 1997 and 1996) 31,639 44,809 Associated companies 5,311 4,382 Other 1,769 2,014 Accrued unbilled revenues 54,977 49,383 Fuel inventory - at average cost 4,549 6,661 Materials and supplies - at average cost 20,445 17,567 Rate deferrals 140,807 142,504 Prepayments and other 8,647 7,434 ---------- ---------- Total 326,228 284,252 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 5,531 5,531 Other - at cost (less accumulated depreciation) 7,850 7,923 ---------- ---------- Total 13,381 13,454 ---------- ---------- Utility Plant: Electric 1,650,394 1,633,484 Construction work in progress 52,410 47,373 ---------- ---------- Total 1,702,804 1,680,857 Less - accumulated depreciation and amortization 652,362 635,754 ---------- ---------- Utility plant - net 1,050,442 1,045,103 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 34,863 104,588 SFAS 109 regulatory asset - net 16,781 11,813 Unamortized loss on reacquired debt 8,829 9,254 Other regulatory assets 85,315 46,309 Other 6,434 6,693 ---------- ---------- Total 152,222 178,657 ---------- ---------- TOTAL $1,542,273 $1,521,466 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $96,000 $96,015 Notes payable - associated companies - 50,253 Accounts payable: Associated companies 30,613 32,878 Other 23,233 23,701 Customer deposits 27,145 26,258 Taxes accrued 44,717 26,482 Accumulated deferred income taxes 57,985 58,634 Interest accrued 18,705 20,909 Other 3,259 3,065 ---------- ---------- Total 301,657 338,195 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 244,588 249,522 Accumulated deferred investment tax credits 24,669 25,422 Other 18,333 19,445 ---------- ---------- Total 287,590 294,389 ---------- ---------- Long-term debt 464,075 399,054 Preferred stock with sinking fund - 7,000 Shareholder's Equity: Preferred stock without sinking fund 57,881 57,881 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares 199,326 199,326 Capital stock expense and other (42) (143) Retained earnings 231,786 225,764 ----------- ---------- Total 488,951 482,828 ----------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $1,542,273 $1,521,466 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 68.7 $ 82.7 ($ 14.0) (17) Commercial 61.9 66.7 (4.8) (7) Industrial 40.5 44.0 (3.5) (8) Governmental 6.4 7.1 (0.7) (10) ----------------------------- Total retail 177.5 200.5 (23.0) (11) Sales for resale Associated companies 10.7 13.2 (2.5) (19) Non-associated companies 4.3 6.4 (2.1) (33) Other 20.4 27.4 (7.0) (26) ----------------------------- Total $ 212.9 $ 247.5 ($ 34.6) (14) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 830 972 (142) (15) Commercial 834 831 3 - Industrial 750 735 15 2 Governmental 77 83 (6) (7) ----------------------------- Total retail 2,491 2,621 (130) (5) Sales for resale Associated companies 233 301 (68) (23) Non-associated companies 81 168 (87) (52) ----------------------------- Total 2,805 3,090 (285) (9) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 143.9 $ 160.2 ($ 16.3) (10) Commercial 126.4 129.0 (2.6) (2) Industrial 83.5 84.8 (1.3) (2) Governmental 13.1 14.0 (0.9) (6) ----------------------------- Total retail 366.9 388.0 (21.1) (5) Sales for resale Associated companies 21.7 26.8 (5.1) (19) Non-associated companies 9.4 11.7 (2.3) (20) Other 15.2 24.9 (9.7) (39) ----------------------------- Total $ 413.2 $ 451.4 ($ 38.2) (8) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,821 2,027 (206) (10) Commercial 1,653 1,608 45 3 Industrial 1,473 1,429 44 3 Governmental 157 164 (7) (4) ----------------------------- Total retail 5,104 5,228 (124) (2) Sales for resale Associated companies 430 570 (140) (25) Non-associated companies 183 284 (101) (36) ----------------------------- Total 5,717 6,082 (365) (6) ============================= </TABLE>
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 due to a decrease in electric and gas operating revenues and an increase in taxes other than income taxes, partially offset by a decrease in income tax expense. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($3.3) ($4.3) Fuel cost recovery (8.8) (2.5) Sales volume/weather (3.7) (3.4) Other revenue (including unbilled) (1.0) (0.9) Sales for resale 3.7 2.9 ------ ----- Total ($13.1) ($8.2) ====== ===== Electric operating revenues decreased for the three and six months ended June 30, 1997 as a result of a decrease in base revenues, fuel adjustment revenues, and sales volume, partially offset by an increase in sales for resale. Fuel adjustment revenues decreased because of lower gas prices. Base revenues decreased due to rate reductions implemented during the current period. Sales volume decreased due to milder weather during the current periods. The increase in sales for resale is the result of an increase in electric sales to associated companies primarily due to changes in the generation requirements and availability among the domestic utility companies. Gas operating revenues decreased for the three and six months ended June 30, 1997 due to a lower unit purchase price for gas purchased for resale and a reduction in sales. Milder weather in the current period is primarily responsible for the reduction in sales. Expenses Operating expenses decreased for the three and six months ended June 30, 1997 because of a decrease in fuel and purchased power expenses partially offset by an increase in taxes other than income taxes and the amortization of rate deferrals. The decrease in fuel and purchased power expenses is the result of lower gas prices. Also contributing to the change in fuel and purchased power expenses are the lower generation requirements due to the decrease in electric sales. Taxes other than income taxes increased because of higher franchise taxes resulting from a December 1996 Council order increasing Entergy New Orleans' annual franchise fee from 2.5% to 5% of gross revenues. The increase in the amortization of rate deferrals in the three and six
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS months ended June 30, 1997 is primarily a result of increased over- recovery of Grand Gulf 1 related costs in 1997 compared to 1996. Other Income tax expense decreased for the three and six months ended June 30, 1997 due to lower pretax income.
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $92,588 $105,701 $182,149 $190,384 Natural gas 17,215 22,128 52,610 64,725 -------- -------- -------- -------- Total 109,803 127,829 234,759 255,109 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 25,658 31,584 68,440 73,020 Purchased power 36,382 41,302 72,964 80,041 Other operation and maintenance 17,427 19,065 32,682 35,489 Depreciation and amortization 5,398 5,011 10,591 9,982 Taxes other than income taxes 8,606 6,757 17,492 13,620 Rate deferrals (1,620) (1,384) (3,581) (2,785) Amortization of rate deferrals 8,552 5,886 18,016 10,382 -------- -------- -------- -------- Total 100,403 108,221 216,604 219,749 -------- -------- -------- -------- Operating Income 9,400 19,608 18,155 35,360 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 80 81 160 155 Miscellaneous - net (11) 288 20 1,062 -------- -------- -------- -------- Total 69 369 180 1,217 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 3,436 3,953 7,059 8,012 Other interest - net 288 320 579 602 Allowance for borrowed funds used during construction (63) (63) (126) (122) -------- -------- -------- -------- Total 3,661 4,210 7,512 8,492 -------- -------- -------- -------- Income Before Income Taxes 5,808 15,767 10,823 28,085 Income Taxes 2,770 5,407 4,967 9,690 -------- -------- -------- -------- Net Income 3,038 10,360 5,856 18,395 Preferred Stock Dividend Requirements and Other 241 241 482 482 -------- -------- -------- -------- Earnings Applicable to Common Stock $2,797 $10,119 $5,374 $17,913 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $5,856 $18,395 Noncash items included in net income: Change in rate deferrals 16,839 15,972 Depreciation and amortization 10,591 9,982 Deferred income taxes and investment tax credits (4,964) 1,167 Allowance for equity funds used during (160) (155) construction Changes in working capital: Receivables 3,129 1,102 Accounts payable 6,217 (3,571) Taxes accrued 5,471 2,295 Interest accrued (631) (501) Other working capital accounts (9,265) (19,728) Other (3,924) (9,992) ------- ------- Net cash flow provided by operating activities 29,159 14,966 ------- ------- Investing Activities: Construction expenditures (3,909) (17,991) Allowance for equity funds used during construction 160 155 ------- -------- Net cash flow used in investing activities (3,749) (17,836) ------- -------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds - 39,608 Retirement of: First mortgage bonds (12,000) (23,250) General and refunding mortgage bonds - (30,000) Dividends paid: Common stock (14,700) (18,900) Preferred stock (724) (482) -------- -------- Net cash flow used in financing activities (27,424) (33,024) -------- -------- Net decrease in cash and cash equivalents (2,014) (35,894) Cash and cash equivalents at beginning of period 17,510 49,746 -------- -------- Cash and cash equivalents at end of period $15,496 $13,852 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $7,969 $8,698 Income taxes - net $4,928 $6,299 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $2,082 $1,015 Temporary cash investments - at cost, which approximates market: Associated companies 3,871 7,435 Other 9,543 9,060 -------- -------- Total cash and cash equivalents 15,496 17,510 Accounts receivable: Customer (less allowance for doubtful accounts of $0.7 million in 1997 and 1996) 22,049 27,430 Associated companies 1,223 714 Other 2,881 1,764 Accrued unbilled revenues 17,690 17,064 Deferred electric fuel and resale gas costs 5,486 7,290 Materials and supplies - at average cost 13,065 9,904 Rate deferrals 37,838 37,692 Prepayments and other 10,813 7,157 -------- -------- Total 126,541 126,525 -------- -------- Other Property and Investments: Investment in subsidiary companies - at equity 3,259 3,259 -------- -------- Utility Plant: Electric 511,432 503,061 Natural gas 128,076 122,700 Construction work in progress 8,184 18,247 -------- -------- Total 647,692 644,008 Less - accumulated depreciation and amortization 356,851 347,790 -------- -------- Utility plant - net 290,841 296,218 -------- -------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 82,513 99,498 SFAS 109 regulatory asset - net 4,242 6,051 Unamortized loss on reacquired debt 1,530 1,647 Other regulatory assets 18,313 15,908 Other 884 890 -------- -------- Total 107,482 123,994 -------- -------- TOTAL $528,123 $549,996 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDER'S EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $ - $12,000 Accounts payable: Associated companies 12,780 18,757 Other 26,324 14,130 Customer deposits 19,169 18,974 Taxes accrued 6,675 1,204 Accumulated deferred income taxes 5,506 5,584 Interest accrued 4,694 5,325 Provision for rate refund 15,149 19,465 Other 1,390 1,521 -------- -------- Total 91,687 96,960 -------- -------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 67,227 72,895 Accumulated deferred investment tax credits 7,691 7,984 Accumulated provision for property insurance 15,666 15,666 Other 23,367 24,713 -------- -------- Total 113,951 121,258 -------- -------- Long-term debt 168,920 168,888 Shareholders' Equity: Preferred stock without sinking fund 19,780 19,780 Common Shareholder's Equity: Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares 33,744 33,744 Paid-in capital 36,294 36,294 Retained earnings subsequent to the elimination of the accumulated deficit on November 30, 1988 63,747 73,072 -------- -------- Total 153,565 162,890 -------- -------- Commitments and Contingencies (Notes 1 and 2) TOTAL $528,123 $549,996 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 27.2 $ 33.8 ($ 6.6) (20) Commercial 32.6 36.1 (3.5) (10) Industrial 5.7 6.2 (0.5) (8) Governmental 12.9 13.9 (1.0) (7) ---------------------------- Total retail 78.4 90.0 (11.6) (13) Sales for resale Associated companies 5.1 0.4 4.7 1175 Non-associated companies 1.9 2.9 (1.0) (34) Other 7.2 12.4 (5.2) (42) ---------------------------- Total $ 92.6 $ 105.7 ($ 13.1) (12) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 386 451 (65) (14) Commercial 488 504 (16) (3) Industrial 125 120 5 4 Governmental 239 230 9 4 ---------------------------- Total retail 1,238 1,305 (67) (5) Sales for resale Associated companies 178 14 164 1171 Non-associated companies 38 74 (36) (49) ---------------------------- Total 1,454 1,393 61 4 ============================ Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 55.9 $ 65.5 ($ 9.6) (15) Commercial 68.9 69.3 (0.4) (1) Industrial 11.9 11.8 0.1 1 Governmental 26.5 26.1 0.4 2 ---------------------------- Total retail 163.2 172.7 (9.5) (6) Sales for resale Associated companies 7.0 2.3 4.7 204 Non-associated companies 3.6 5.4 (1.8) (33) Other 8.4 10.0 (1.6) (16) ---------------------------- Total $ 182.2 $ 190.4 ($ 8.2) (4) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 760 842 (82) (10) Commercial 966 969 (3) - Industrial 239 231 8 3 Governmental 460 442 18 4 ---------------------------- Total retail 2,425 2,484 (59) (2) Sales for resale Associated companies 225 59 166 281 Non-associated companies 61 126 (65) (52) ---------------------------- Total 2,711 2,669 42 2 ============================ </TABLE>
SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income for the three and six months ended June 30, 1997 increased slightly primarily as a result of lower interest charges and income tax expense, partially offset by increased nuclear refueling outage expenses and depreciation, amortization, and decommissioning expenses. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues," "Expenses," and "Other" below. 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 allocable to its investment in Grand Gulf 1. Operating revenues remained relatively unchanged for the three and six months ended June 30, 1997. See Note 2 herein for a discussion of System Energy's proposed rate increase. Expenses Operating expenses increased for the three and six months ended June 30, 1997 due to higher nuclear refueling outage expenses and higher depreciation, amortization, and decommissioning expenses. Nuclear refueling outage expenses increased due to costs that were deferred from the November 1996 outage, which are now being amortized over an 18 month period beginning December 1996. Prior to this outage, such costs were expensed as incurred and none were incurred during the six months ended June 30, 1996. The increase in depreciation, amortization, and decommissioning expense is due to the recognition of additional depreciation associated with the sale and leaseback in 1989 of a portion of Grand Gulf 1, in accordance with regulatory approval. Other Interest charges decreased for the three and six months ended June 30, 1997 due to the refinancing of higher cost long-term debt in 1996. Income taxes decreased for the three and six months ended June 30, 1997 primarily due a decrease in pretax income and an increase in the amortization of the deferred tax liability.
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $161,021 $160,369 $316,682 $316,793 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 12,441 12,171 24,458 25,011 Nuclear refueling outage expenses 3,907 - 7,624 - Other operation and maintenance 28,407 26,591 48,797 48,332 Depreciation, amortization, and decommissioning 35,917 32,014 74,713 64,013 Taxes other than income taxes 6,781 6,699 13,206 13,605 -------- -------- -------- -------- Total 87,453 77,475 168,798 150,961 -------- -------- -------- -------- Operating Income 73,568 82,894 147,884 165,832 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 280 297 561 647 Miscellaneous - net 1,919 627 3,241 1,466 -------- -------- -------- -------- Total 2,199 924 3,802 2,113 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 31,103 37,021 61,861 74,974 Other interest - net 1,830 2,707 3,611 4,698 Allowance for borrowed funds used during construction (279) (283) (557) (637) -------- -------- -------- -------- Total 32,654 39,445 64,915 79,035 -------- -------- -------- -------- Income Before Income Taxes 43,113 44,373 86,771 88,910 Income Taxes 19,020 20,991 38,333 41,998 -------- -------- -------- -------- Net Income $24,093 $23,382 $48,438 $46,912 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: <S> <C> <C> Net income $48,438 $46,912 Noncash items included in net income: Depreciation, amortization, and decommissioning 74,713 64,013 Deferred income taxes and investment tax credits (23,444) (16,354) Allowance for equity funds used during construction (561) (647) Changes in working capital: Receivables (7,290) (2,835) Accounts payable 5,297 (967) Taxes accrued 8,374 17,497 Interest accrued 3,212 9,192 Other working capital accounts 6,353 (3,531) Decommissioning trust contributions (6,315) (9,073) FERC Settlement - refund obligation (2,199) (1,942) Provision for estimated losses and reserves 20,699 23,932 Other 4,308 3,151 --------- -------- Net cash flow provided by operating activities 131,585 129,348 --------- -------- Investing Activities: Construction expenditures (8,466) (3,624) Allowance for equity funds used during construction 561 647 Nuclear fuel purchases (39) (1,135) Proceeds from sale/leaseback of nuclear fuel 39 402 --------- -------- Net cash flow used in investing activities (7,905) (3,710) --------- -------- Financing Activities: Proceeds from the issuance of long term debt - 89,192 Retirement of long term debt - (92,700) Changes in short-term borrowings - net - (2,990) Common stock dividends paid (58,700) (46,300) --------- -------- Net cash flow used in financing activities (58,700) (52,798) --------- -------- Net increase in cash and cash equivalents 64,980 72,840 Cash and cash equivalents at beginning of period 92,315 240 --------- -------- Cash and cash equivalents at end of period $157,295 $73,080 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $57,634 $66,790 Income taxes $42,853 $30,944 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($1,041) ($1,055) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $134 $26 Temporary cash investments - at cost, which approximates market: Associated companies 45,351 41,600 Other 111,810 50,689 ---------- ---------- Total cash and cash equivalents 157,295 92,315 Accounts receivable: Associated companies 77,807 71,337 Other 3,342 2,522 Materials and supplies - at average cost 65,965 66,302 Deferred nuclear refueling outage costs 16,498 24,005 Prepayments and other 5,976 4,929 ---------- ---------- Total 326,883 261,410 ---------- ---------- Other Property and Investments: Decommissioning trust fund 72,372 62,223 ---------- ---------- Utility Plant: Electric 3,010,761 2,994,445 Electric plant under leases 441,467 447,409 Construction work in progress 39,454 41,362 Nuclear fuel under capital lease 65,501 83,558 ---------- ---------- Total 3,557,183 3,566,774 Less - accumulated depreciation and amortization 1,032,062 974,472 ---------- ---------- Utility plant - net 2,525,121 2,592,302 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 254,511 264,758 Unamortized loss on reacquired debt 54,585 57,785 Other regulatory assets 197,711 207,214 Other 14,880 15,601 ---------- ---------- Total 521,687 545,358 ---------- ---------- TOTAL $3,446,063 $3,461,293 ========== ========== See Notes to Financial Statements. </TABEL>
</TABLE> <TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDER'S EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $70,000 $10,000 Accounts payable: Associated companies 25,665 18,245 Other 16,713 18,836 Taxes accrued 76,197 67,823 Interest accrued 37,407 34,195 Obligations under capital leases 28,000 28,000 Other 1,862 2,306 ---------- ---------- Total 255,844 179,405 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 591,474 624,020 Accumulated deferred investment tax credits 101,909 103,647 Obligations under capital leases 37,501 55,558 FERC Settlement - refund obligation 50,640 52,839 Other 198,451 165,517 ---------- ---------- Total 979,975 1,001,581 ---------- ---------- Long-term debt 1,359,068 1,418,869 Common Shareholder's Equity: Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares 789,350 789,350 Retained earnings 61,826 72,088 ---------- ---------- Total 851,176 861,438 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $3,446,063 $3,461,293 ========== ========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. COMMITMENTS AND CONTINGENCIES Cajun - River Bend (Entergy Corporation and Entergy Gulf States) Entergy Gulf States and Cajun, respectively, own 70% and 30% undivided interests in River Bend (operated by Entergy Gulf States), and 42% and 58% undivided interests in Big Cajun 2, Unit 3 (operated by Cajun). These relationships have spawned a number of long- standing disputes and claims between the parties. An agreement setting forth terms for the resolution of all such disputes has been reached by Entergy Gulf States, the Cajun bankruptcy trustee, and the RUS, and was approved by the United States District Court for the Middle District of Louisiana (District Court) on August 26, 1996 (Cajun Settlement). On September 6, 1996, the Committee of Unsecured Creditors in the Cajun bankruptcy proceeding filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit (Fifth Circuit), objecting that the order approving the settlement was separate from the approval of a plan of reorganization and, therefore, improper. On August 5, 1997, the Fifth Circuit ruled that the District Court's order approving the settlement was proper. Approvals by the appropriate regulatory agencies have been obtained. The SEC and FERC have approved the transfer of certain Cajun transmission assets to Entergy Gulf States. Management believes that it is probable that the Cajun Settlement will be consummated prior to the end of 1997. See Note 9 of the Form 10-K for additional information regarding the Cajun litigation, Cajun's bankruptcy proceedings, and related filings. The Cajun Settlement includes, but is not limited to, the following elements: (i) Cajun's interest in River Bend has been turned over to the RUS, which has the option to retain the interest, sell it to a third party, or transfer it to Entergy Gulf States at no cost; (ii) Cajun will set aside a total of $125 million for its share of the decommissioning costs of River Bend; (iii) Cajun will transfer certain transmission assets to Entergy Gulf States; (iv) Cajun and Entergy Gulf States will settle transmission disputes and release each other from claims for payment under transmission arrangements, as discussed under "Cajun - Transmission Service" below; (v) all funds paid by Entergy Gulf States into the registry of the District Court will be returned to Entergy Gulf States; (vi) Cajun will be released from its unpaid past, present, and future liability for River Bend costs and expenses; and (vii) all remaining litigation between Cajun and Entergy Gulf States will be dismissed. Based on the District Court's approval of the Cajun Settlement, a litigation accrual established in 1994 for possible losses associated with the Cajun-River Bend litigation was reversed in September 1996. Cajun has not paid its full share of capital costs, operating and maintenance expenses, and other costs for repairs and improvements to River Bend since 1992. Cajun's unpaid portion of River Bend operating and maintenance expenses (including nuclear fuel) and capital costs for the six months ended June 30, 1997 was approximately $23.9 million. The cumulative cost to Entergy Gulf States resulting from Cajun's failure to pay its full share of River Bend-related costs, reduced by the proceeds from the sale by Entergy Gulf States of Cajun's share of River Bend power and payments into the registry of the District Court for Entergy Gulf States' portion of expenses for Big Cajun 2, Unit 3, was $4.8 million as of June 30, 1997. Cajun's unpaid portion of the River Bend related costs is reflected in long-term receivables which is substantially reserved for in other deferred credits. As discussed above, the Cajun Settlement will conclude all disputes regarding the non-payment by Cajun of River Bend operating and maintenance expenses. Cajun continues to pay its share of decommissioning costs for River Bend. The RUS entered into an agreement on February 11, 1997 for the sale of Cajun's 30% interest in River Bend to PECO Energy Company (PECO) pursuant to authorization granted in the Cajun Settlement. On July 10, 1997, PECO terminated this agreement with the RUS and announced that it would not go forward with the acquisition of the Cajun River Bend interest. Cajun - Transmission Service (Entergy Corporation and Entergy Gulf States) Entergy Gulf States and Cajun are parties to FERC proceedings relating to transmission service charge disputes. As a result of the proposed Cajun Settlement, FERC has dismissed or placed in abeyance various proceedings pending before it, to which Cajun or the Cajun bankruptcy trustee are parties, that would be resolved by the Cajun Settlement. See Note 9 in the Form 10-K for additional information regarding these FERC proceedings and FERC orders issued as a result of such proceedings. Under Entergy Gulf States' interpretation of a 1992 FERC order, as modified by FERC's orders issued on August 3, 1995, and October 2, 1995, and as agreed to by the Cajun bankruptcy trustee, Cajun would owe Entergy Gulf States approximately $73.1 million as of June 30, 1997. Entergy Gulf States further estimates that if it were to prevail in its May 1992 motion for rehearing and on certain other issues decided adversely to Entergy Gulf States in the February 1995, August 1995, and October 1995 FERC orders, which Entergy Gulf States has appealed, Cajun would owe Entergy Gulf States approximately $163.8 million as of June 30, 1997. If Cajun were to prevail in its May 1992 motion for rehearing to FERC, and if Entergy Gulf States were not to prevail in its May 1992 motion for rehearing to FERC, and if Cajun were to prevail in appealing FERC's August and October 1995 orders, Entergy Gulf States estimates it would owe Cajun approximately $117.4 million as of June 30, 1997. The above amounts are exclusive of a $7.3 million payment by Cajun on December 31, 1990, which the parties agreed to apply to the disputed transmission service charges. Pending FERC's ruling on the May 1992 motions for rehearing, Entergy Gulf States has continued to bill Cajun utilizing the historical billing methodology and has recorded underpaid transmission charges, including interest, in the amount of $147.6 million as of June 30, 1997. This amount is reflected in long-term receivables with an offsetting reserve in other deferred credits. FERC has determined that the collection of the pre-petition debt of Cajun is an issue properly decided in the bankruptcy proceeding. Refer to "Cajun - River Bend" above for a discussion of the Cajun Settlement. Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) On January 13, 1997, Entergy Gulf States filed a declaratory judgment action in the U.S. Bankruptcy Court where the Cajun bankruptcy is pending, seeking a ruling that Entergy Gulf States would not be liable for damages to certain coal suppliers for Big Cajun 2, Unit 3, if the Cajun bankruptcy trustee were to reject their coal contracts as a part of a plan of reorganization in the bankruptcy proceeding. In its pleading, Entergy Gulf States takes the position that it is not a party to, and has no liability under, those coal contracts. On February 12, 1997, the coal suppliers and the Cajun bankruptcy trustee filed a response in the declaratory judgment action and made certain counterclaims and crossclaims. The coal suppliers contend that Entergy Gulf States' declaratory judgment action should be dismissed and, in the alternative, argue that Cajun is Entergy Gulf States' agent in the procurement of coal for Big Cajun 2, Unit 3, and that Entergy Gulf States is a party to and has liability under the coal supply contracts. While Entergy Gulf States believes that it has no obligation under these contracts, the potential liability if Entergy Gulf States' position is not sustained, could be materially adverse to Entergy Gulf States and Entergy Corporation. This matter, which has not been scheduled for a hearing, will be strongly contested by Entergy Gulf States. However, at present there is no basis upon which to predict the timing or outcome of this litigation. 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 Form 10-K for information on the domestic utility companies' and System Energy's construction expenditures (excluding nuclear fuel), for the years 1997, 1998, and 1999 and long- term debt and preferred stock maturities and cash sinking fund requirements for the period 1997-1999. 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 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 ANO, River Bend, Waterford 3, and Grand Gulf 1. The FASB issued an exposure draft of a proposed SFAS (which proposed a 1997 effective date) in February 1996 regarding the recognition, measurement and classification of decommissioning costs for nuclear power plants. The proposed SFAS would require measurement of the liability for closure and removal of long-lived assets (including decommissioning) based on discounted future cash flows. Those future cash flows should be determined by estimating current costs and adjusting for inflation, efficiencies that may be gained from experience with similar activities, and consideration of reasonable future advances in technology. After receiving comments on the exposure draft, the FASB has decided that the effective date for the proposed SFAS will be later than 1997, although a final effective date has not yet been announced. If current electric utility industry accounting practices with respect to nuclear decommissioning and other closure costs are changed, annual provisions for such costs could increase, the estimated cost for decommissioning/closure could be recorded as a liability rather than as accumulated depreciation, and trust fund income from decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. ANO Matters (Entergy Corporation and Entergy Arkansas) Cracks in certain steam generator tubes at ANO 2 were discovered and repaired during an outage in March 1992. Further inspections and repairs were conducted at subsequent refueling and mid-cycle outages, including the most recent refueling outage in May 1997. Turbine modifications were installed in May 1997 to restore most of the output lost due to steam generator fouling and tube plugging. The unit may be approaching the current limit for the number of steam generator tubes that can be plugged with the unit in operation. If the established limit is reached during a future outage, it could become necessary for Entergy Operations to insert sleeves in steam generator tubes that were previously plugged. On October 25, 1996, Entergy Corporation's Board of Directors authorized Entergy Operations to negotiate a contract, with appropriate cancellation provisions, for the fabrication and replacement of the steam generators at ANO 2. Entergy estimates the cost of fabrication and replacement of the steam generators to be approximately $150 million. Entergy Operations has entered into letters of intent for the fabrication and installation, which include a commitment for not more than $7.7 million through August 1997. Contracts are expected to be entered into in 1997. It is anticipated that the steam generators will be installed during a planned refueling outage in 2000. Entergy Operations periodically meets with the NRC to discuss the results of inspections of the steam generator tubes, as well as the timing of future inspections. Environmental Issues (Entergy Arkansas) In May 1995, Entergy Arkansas was named as a defendant in a suit by Reynolds Metals Company (Reynolds), seeking to recover a share of the costs associated with the clean-up of hazardous substances at a site south of Arkadelphia, Arkansas. Reynolds alleges that it has spent $11.2 million to clean-up the site, and that the site was contaminated with PCBs for which Entergy Arkansas bears some responsibility. Entergy Arkansas, voluntarily, at its expense, completed remediation at a nearby substation site and believes that it has no liability for contamination at that portion of the site that is subject to the Reynolds suit and is contesting the lawsuit. An August 1997 trial date has been tentatively scheduled. Regardless of the outcome, Entergy Arkansas does not believe this matter will have a materially adverse effect on its financial condition or results of operations. See "Environmental Regulation" in Item 1 of Part I of the Form 10-K for additional information on the PCB contamination at the two former Reynolds plant sites in Arkansas to which Entergy Arkansas had supplied power. (Entergy Gulf States) Entergy Gulf States has been designated as a potentially responsible party (PRP) for the clean-up of certain hazardous waste disposal sites. Entergy Gulf States is currently negotiating with the EPA and state authorities regarding the clean-up of certain of these sites. As of June 30, 1997, a remaining recorded liability of $19.8 million existed relating to the clean-up of the sites at which Entergy Gulf States has been designated a PRP. See "Environmental Regulation" in Item 1 of Part I of the Form 10-K for additional discussion of the sites where Entergy Gulf States has been designated as a PRP by the EPA and related litigation. (Entergy Louisiana) During 1993, the Louisiana Department of Environmental Quality issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana has determined that certain of its power plant waste water impoundments were affected by these regulations and chose to upgrade or close them. A remaining recorded liability in the amount of $6.7 million existed at June 30, 1997, for waste water upgrades and closures to be completed by the end of 1997. Cumulative expenditures relating to the upgrades and closures of waste water impoundments were $7.1 million as of June 30, 1997. Waterford 3 Lease Obligations (Entergy Louisiana) On September 28, 1989, Entergy Louisiana entered into three transactions for the sale and leaseback of undivided interests (aggregating approximately 9.3%) in Waterford 3. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the Owner Participants to withdraw from the lease transactions, and Entergy Louisiana may be required to assume the outstanding bonds issued by the Owner Trustee to finance, in part, its acquisition of the undivided interests in Waterford 3. See Note 10 to the Form 10-K and Note 4 herein for further information. Reimbursement Agreement (System Energy) Under a bank letter of credit and reimbursement agreement, System Energy has agreed to a number of covenants relating to the maintenance of certain capitalization and fixed charge coverage ratios. System Energy agreed, during the term of the agreement, to maintain its equity at not less than 33% of its adjusted capitalization (defined in the agreement to include certain amounts not included in capitalization for financial statement purposes). In addition, System Energy must maintain, with respect to each fiscal quarter during the term of the agreement, a ratio of adjusted net income to interest expense (calculated, in each case, as specified in the agreement) of at least 1.60 times earnings. System Energy was in compliance with the above covenants at June 30, 1997. See Note 9 to the Form 10-K for further information. Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) See Note 9 to the Form 10-K for further information relating to lawsuits filed by former employees asserting they were wrongfully terminated and/or discriminated against on the basis of age, race, and/or sex. (Entergy Corporation and Entergy Arkansas) Entergy Corporation and Entergy Arkansas are defendants in a number of lawsuits filed in federal court on behalf of a total of approximately 62 plaintiffs who claim they were illegally terminated from their jobs due to discrimination on the basis of age or race. The first of these lawsuits, originally involving 29 plaintiffs, was tried before a jury beginning in April 1997. Settlements were reached with two of the plaintiffs prior to the trial. On May 1, 1997, the jury rendered findings as to 22 of the plaintiffs indicating that Entergy had no liability to them for discrimination. The jury did find that Entergy had intentionally discriminated against the remaining 5 plaintiffs on the basis of age. As a result, these plaintiffs will be awarded damages equal to twice their back pay plus lost future wages and attorneys' fees. A date for the next phase of the case has not yet been set. A trial date for another suit involving 18 plaintiffs, originally scheduled for May 1997, has been continued with no new date set. Another of the suits is set for trial in November 1997. No trial dates have been set for the remaining cases. (Entergy Corporation and Entergy Gulf States) Entergy Corporation and Entergy Gulf States were defendants in a lawsuit involving approximately 176 plaintiffs filed in state court in Texas by former employees who claim that they lost their jobs as a result of the Merger. The plaintiffs in these cases asserted various claims, including discrimination on the basis of age, race, and/or sex. The court made a preliminary ruling that each plaintiff's claim should be tried separately. However, all of these claims were settled before reaching trial in June 1997. NOTE 2. RATE AND REGULATORY MATTERS River Bend (Entergy Corporation and Entergy Gulf States) In 1988, the PUCT granted Entergy Gulf States a permanent increase in annual revenues of $59.9 million resulting from the inclusion in rate base of approximately $1.6 billion of company-wide River Bend plant investment and approximately $182 million of related Texas retail jurisdiction deferred River Bend costs (Allowed Deferrals). At the same time, the PUCT disallowed as imprudent $63.5 million of company-wide River Bend plant costs and placed in abeyance, with no finding as to prudence, approximately $1.4 billion of company-wide River Bend plant investment and approximately $157 million of Texas retail jurisdiction deferred River Bend operating and carrying costs (Abeyed Deferrals). The PUCT's order has been the subject of several appellate proceedings, culminating in an appeal to the Texas Supreme Court (Supreme Court). On January 31, 1997, the Supreme Court issued an opinion reversing the PUCT's order and remanding the case to the PUCT for further proceedings. The Supreme Court found that the PUCT had prejudiced Entergy Gulf States' rights by attempting to defer a ruling on the abeyed plant costs and incorrectly determined the amount of federal income tax expense that should have been allowed in rates. The Supreme Court ruled that the PUCT could choose either to conduct hearings and take further evidence or to decide the case on the original evidence. On February 18, 1997, the Texas Office of Public Utility Counsel filed a motion for rehearing of the Supreme Court's decision, arguing that the Supreme Court's remand should have instructed the PUCT as to how the case should be dealt with on remand. On July 31, 1997, the Supreme Court overruled the motion for rehearing and issued its mandate that the case be returned to the PUCT for further deliberations. No procedural schedule has yet been issued by the PUCT concerning the case on remand. As of June 30, 1997, the River Bend plant costs disallowed for retail ratemaking purposes in Texas and the River Bend plant costs held in abeyance totaled (net of taxes and depreciation) approximately $12 million and $261 million, respectively. The Allowed Deferrals were approximately $74 million, net of taxes and amortization, as of June 30, 1997. Entergy Gulf States estimates it has collected approximately $215 million of revenues as of June 30, 1997, as a result of the originally ordered rate treatment by the PUCT of these deferred costs. If recovery of the Allowed Deferrals is not upheld, future refunds could be required and future revenues based upon the Allowed Deferrals could also be lost. However, management believes that it is probable that the Allowed Deferrals will continue to be recovered in rates. As a result of the application of SFAS 121, Entergy Gulf States wrote off Abeyed Deferrals of $169 million, net of tax, effective January 1, 1996. In light of the continuing proceedings before the PUCT and the courts (including the January 31, 1997 decision of the Texas Supreme Court), Entergy Gulf States has made no write-offs or reserves for the River Bend plant-related costs. At this time, management and legal counsel are unable to predict the amount of the abeyed and previously disallowed River Bend plant costs, if any, that may ultimately be allowed in Entergy Gulf States' Texas retail rates. In prior proceedings involving other utilities, the PUCT has held that the original cost of nuclear power plants will be recoverable in electric rates to the extent those costs were prudently incurred. In another proceeding Entergy Gulf States has previously filed with the PUCT a cost reconciliation study prepared by Sandlin Associates, management consultants with expertise in the cost analysis of nuclear power plants, which supports the reasonableness of the River Bend costs held in abeyance by the PUCT. This reconciliation study determined that approximately 82% of the River Bend cost increase above the amount included by the PUCT in rate base was a result of changes in federal nuclear safety requirements, and provided other support for the remainder of the abeyed amounts. In particular, there have been four other rate proceedings in Texas involving nuclear power plants. Disallowed investment in the plants ranged from 0% to 15%. Each case was unique, and the disallowances in each were made for different reasons. Appeals of two of these PUCT decisions are currently pending. Based upon the PUCT's prior decisions, management believes that River Bend construction costs were prudently incurred and that it is reasonably possible that it will recover through rates, or otherwise through means such as a deregulated asset plan, all or substantially all of the abeyed River Bend plant costs. In the event of an adverse ruling in this case, a net of tax write-off, as of June 30, 1997, of up to $273 million and up to $215 million in refunds of previously collected revenue could be required. Retail Rate Proceedings Filings with the APSC (Entergy Corporation and Entergy Arkansas) In October 1996, Entergy Arkansas filed a proposal with the APSC designed to achieve an orderly transition to retail electric competition in Arkansas. Entergy Arkansas supplemented its proposal with a May 1, 1997 filing. The proposal includes a rate decrease totaling $158 million over a two year period beginning January 1998 and provides for a universal service charge for customers that remain connected to Entergy Arkansas' electric facilities but choose to purchase their electricity from another source. Although these proposals allow for the complete recovery of the remaining plant investment associated with ANO 1, ANO 2, and Entergy Arkansas' portion of Grand Gulf 1 as of December 31, 1995, over a seven year period, the NRC operating licenses for these plants permit continued operation until the years 2014, 2018, and 2022, respectively. Hearings are expected to begin in September 1997. Filings with the PUCT (Entergy Corporation and Entergy Gulf States) In December 1995, Entergy Gulf States filed a petition with the PUCT for reconciliation of fuel and purchased power expenses for the period January 1, 1994, through June 30, 1995. Entergy Gulf States believes that there was an under-recovered fuel balance, including interest, of $22.4 million as of June 1995. Hearings were concluded in October 1996, and in April 1997 the PUCT issued an order which approved recovery of approximately $18.8 million of the under- recovered fuel balance, including interest. In June 1997, the PUCT issued a subsequent order based on a rehearing, which reduced the approved recovery to $18.5 million. In accordance with the Merger agreement, Entergy Gulf States filed a rate proceeding with the PUCT in November 1996. In April 1996, certain cities served by Entergy Gulf States (Cities) instituted investigations of the reasonableness of Entergy Gulf States' rates. In May 1996, the Cities agreed to forego their pending investigation based on the assurance that any rate decrease ordered in the November 1996 filing will be retroactive to June 1, 1996, and will accrue interest until refunded. The agreement further provides that no base rate increase will be retroactive. Subsequent to the November 1996 filing, the Cities passed ordinances reducing Entergy Gulf States' rates by $43.6 million. Entergy Gulf States has appealed these ordinances to the PUCT, and these appeals have been consolidated in the pending rate proceeding. Included in the November 1996 filing was a proposal to achieve an orderly transition to retail electric competition in Texas, similar to the filing described below that Entergy Gulf States made with the LPSC. This filing with the PUCT will be litigated in four phases as follows: (i) fuel factor/fuel reconciliation phase, of which Entergy Gulf States believes there was an under-recovered fuel balance of $41.4 million, including interest, for the period July 1, 1995 through June 30, 1996; (ii) revenue requirement phase; (iii) cost allocation/rate design phase; and (iv) competitive issues phase. Hearings on the first two phases began in June and July 1997, respectively. No assurance can be given as to the outcome of these hearings. Filings with the LPSC (Entergy Corporation and Entergy Gulf States) On May 31, 1995, Entergy Gulf States filed its second required post-Merger earnings analysis with the LPSC. Hearings on this review were held in December 1995. On October 4, 1996, the LPSC issued an order requiring a $33.3 million annual base rate reduction and a $9.6 million refund. One component of the rate reduction removes from base rates approximately $13.4 million annually of costs that will be recovered in the future through the fuel adjustment clause. On October 23, 1996, Entergy Gulf States appealed the LPSC's order and obtained an injunction to stay the order, except insofar as it requires the $13.4 million reduction, which Entergy Gulf States implemented in November 1996. In addition, pursuant to an October 1996 settlement with the LPSC, Entergy Gulf States will be allowed to recover $8.1 million annually related to certain gas transportation and storage facilities costs. This amount will be applied as an offset against any refund that may be required by a final judgment in Entergy Gulf States' appeal of the second post-Merger earnings review order. On May 31, 1996, Entergy Gulf States filed its third required post-Merger earnings analysis with the LPSC. Based on this earnings filing, on June 1, 1996, Entergy Gulf States implemented a $5.3 million annual rate reduction. Hearings on this filing concluded in March 1997. An additional rate reduction may be required upon the issuance by the LPSC of a final rate order which is expected by the end of 1997. On May 30, 1997, Entergy Gulf States filed its fourth post- Merger earnings analysis with the LPSC. This filing showed a revenue deficiency such that no rate reduction is warranted. Entergy Gulf States' filing will be subject to further review by the LPSC. (Entergy Corporation, Entergy Gulf States, and Entergy Louisiana) In October 1996, Entergy Gulf States and Entergy Louisiana filed proposals with the LPSC designed to achieve an orderly transition to retail electric competition in Louisiana, while protecting certain classes of ratepayers from bearing the burden of cost shifting. The proposals do not increase rates for any customer class. However, these proposals do provide for a universal service charge for customers that remain connected to Entergy Gulf States' or Entergy Louisiana's electric facilities but choose to purchase their electricity from another source. In addition, the proposals include a base rate freeze, which would be put into effect for seven years in the Louisiana areas serviced by Entergy Gulf States and Entergy Louisiana. Although these proposals allow for the complete recovery of the remaining plant investment associated with River Bend, and Waterford 3 as of December 31, 1995, over a seven year period, the NRC operating licenses for these plants permit continued operation until the years 2025 and 2024, respectively. Hearings on these proposals have been delayed until 1998. In February 1997, the LPSC identified certain issues embodied in the Entergy Gulf States and Entergy Louisiana proposals that will be addressed in those companies' existing rate dockets, and other issues that will be addressed in an ongoing generic regulatory proceeding examining electric industry restructuring. On May 30, 1997, Entergy Louisiana filed its annual formula rate plan with the LPSC for the 1996 test year. In conjunction with the filing, Entergy Louisiana proposed to apply one half of the $59 million in 1996 overearnings to accelerate depreciation of the Waterford 3 nuclear plant. In a June 10, 1997 order, the LPSC denied Entergy Louisiana's motion and ordered the Company to implement a prospective rate reduction. Entergy Louisiana implemented this rate reduction on July 1, 1997. Filings with the MPSC (Entergy Corporation and Entergy Mississippi) On March 15, 1997, Entergy Mississippi filed its annual earnings review with the MPSC under its formula rate plan for the 1996 test year. In April 1997, the MPSC issued an order approving a prospective rate reduction of $11.2 million. This rate reduction went into effect May 1, 1997. Entergy Mississippi has initiated discussions with the MPSC regarding an orderly transition to a more competitive market for electricity. In August 1996, Entergy Mississippi filed a proposal with the MPSC for a rate rider to assure recovery of all Grand Gulf costs incurred to serve customers. The rider would maintain current rates for electric service provided by Entergy Mississippi and would apply to customers within Entergy Mississippi's service area who obtain electricity in the future from a source other than Entergy Mississippi. Entergy Mississippi designed this rider to assure that commitments made under the current system of regulation are honored and that cost burdens are not unfairly transferred from departing customers to those who remain on the Entergy Mississippi system. On August 22, 1996, the MPSC remanded this proposal and established a generic docket to consider competition for retail electric service. Hearings on this docket concluded in April 1997. The MPSC issued an order in July 1997 calling for continued study of electric power industry deregulation by the commission's staff, with a report due to the MPSC by November 1, 1997. Filings with the Council (Entergy Corporation and Entergy New Orleans) The Council issued a resolution in February 1997 indicating that it will conduct an investigation of the justness and reasonableness of Entergy New Orleans' allowed rate of return, base rates, and adjustment clauses. The Council conducted hearings in April 1997 on the issue of rate of return, and directed Entergy New Orleans to make a cost of service and revenue requirement filing on May 1, 1997. In April 1997, Entergy New Orleans proposed a $16 million prospective rate reduction in order to resolve the disputed rate of return and other issues raised in the first phase of the proceeding. The proposed settlement would also postpone the cost of service and revenue requirement filing until September 1997. A settlement conference was held in June 1997 and Entergy New Orleans increased the proposed rate reduction to $18 million. The Council accepted the settlement offer and Entergy New Orleans implemented the $18 million rate reduction (retroactive to May 1, 1997) in July 1997. A procedural schedule has not been set with respect to the other issues. Proposed Rate Increase (System Energy) System Energy filed an application with FERC on May 12, 1995, for a $65.5 million rate increase. The request seeks changes to System Energy's rate schedule, including increases in the revenue requirement associated with decommissioning costs, the depreciation rate, and the rate of return on common equity. The request also includes a proposed change in the accounting recognition of nuclear refueling outage costs from that of expensing those costs as incurred to the deferral and amortization method described in Note 1 in the Form 10-K with respect to Entergy Arkansas. On December 12, 1995, System Energy implemented a $65.5 million rate increase, subject to refund. Management has decided to record a reserve for a portion of the rate increase. Hearings on System Energy's request began in January 1996 and were completed in February 1996. On July 11, 1996, the ALJ issued an initial decision in this proceeding that agreed with certain of System Energy's proposals, including the change in accounting for nuclear refueling outage costs, while rejecting a proposed increase in return on common equity and recommending a slight decrease. The ALJ also rejected the proposed change in the decommissioning cost methodology. The decision of the ALJ is preliminary and may be modified in the final decision from FERC which is expected at any time. Management is unable to predict the final outcome of the rate increase request or the amount of any refunds in excess of reserves that may be required. (Entergy Mississippi) Entergy Mississippi's allocation of the proposed System Energy wholesale rate increase is $21.6 million annually. In July 1995, Entergy Mississippi filed a schedule with the MPSC that defers the retail recovery of the System Energy rate increase. The deferral plan, which was approved by the MPSC, began in December 1995, the effective date of the System Energy rate increase, and will end after the issuance of a final order by FERC. The final amount of the deferred rate increase is to be amortized over 48 months beginning in October 1998. (Entergy New Orleans) Entergy New Orleans' allocation of the proposed System Energy wholesale rate increase is $11.1 million annually. In February 1996, Entergy New Orleans filed a plan with the Council to defer 50% of the amount of the System Energy rate increase. The deferral began in February 1996 and will end after the issuance of a final order by FERC. NOTE 3. COMMON STOCK (Entergy Corporation) During the six months ended June 30, 1997, Entergy Corporation issued 372,195 shares of common stock, reducing the amount held as treasury stock by approximately $10 million. Entergy Corporation issued these shares to meet the requirements of its various stock plans. In addition, Entergy Corporation received proceeds of $158.9 million from the issuance of 6,208,263 shares of common stock under its dividend reinvestment and stock purchase plan during the six months ended June 30, 1997. On July 1, 1997, Entergy Corporation issued 813,161 shares of common stock at a value of $21.5 million in connection with the acquisition of the security monitoring company, Ranger American. NOTE 4. LONG-TERM DEBT (Entergy Corporation) See Note 7 of the Form 10-K for a discussion of Entergy Power UK plc's credit facility. Approximately 1.015 billion British Pounds (1.67 billion US dollars) of variable rate borrowings were outstanding under this facility as of June 30, 1997. The weighted average interest rate on the borrowings outstanding as of June 30, 1997 was 7.92%. Entergy Power UK plc (Entergy Power UK) entered into several interest rate swaps to reduce the impact of interest rate changes on its debt related to the London Electricity acquisition. The interest rate swap agreements involve the exchange of floating rate interest payments for fixed rate interest payments over the life of the agreements. Entergy Power UK recognizes interest expense currently based on the fixed rate of interest resulting from use of these swap agreements. If the counterparties to an interest rate swap agreement were to default on contractual payments, Entergy Power UK could be exposed to increased costs related to replacing the original agreement. However, Entergy Power UK does not anticipate nonperformance by any counterparty to any interest rate swap in effect at June 30, 1997. At June 30, 1997, Entergy Power UK was a party to a notional amount of 600 million British Pounds of interest rate swaps with maturity dates ranging from March 1999 to September 2001. An Entergy subsidiary signed an agreement with several banks on January 5, 1996, to obtain a revolving credit facility for the acquisition of CitiPower. The subsidiary entered into several interest rate swaps to reduce the impact of interest rate changes on its debt related to the CitiPower acquisition. See Note 7 of the Form 10-K for a discussion of the credit facility and the interest rate swap agreements. The interest rate swap agreements involve the exchange of floating rate interest payments for fixed rate interest payments over the life of the agreements. Interest expense is recognized currently based on the fixed rate of interest resulting from use of these swap agreements. Entergy enters into interest rate swaps as part of its overall risk management strategy and does not hold or issue material amounts of derivative financial instruments for trading purposes. Entergy accounts for its interest rate swaps in accordance with the concepts established in SFAS 80, "Accounting for Futures Contracts", and various Emerging Issues Task Force pronouncements. If the interest rate swaps were to be sold or terminated, any resulting gain or loss would be deferred and amortized over the remaining life of the debt instrument being hedged by the interest rate swaps. If the debt instrument being hedged by the interest rate swaps was to be extinguished, any resulting gain or loss attributable to the swaps would be recognized in the period in which the debt was extinguished. (Entergy Corporation and Entergy Louisiana) Entergy Louisiana is the lessee of three separate undivided interests in Unit 3 of the Waterford Steam Electric Generating Station under three separate, but substantially identical, long-term net leases. The lessors under such leases acquired the undivided interests (aggregating approximately 9.3%) in Waterford 3 from Entergy Louisiana in three separate sale-leaseback transactions that occurred in 1989. Approximately 87.7% of the aggregate consideration paid by the Lessors for their respective undivided interests was provided to the Lessors from the issuance of Waterford 3 Secured Lease Obligation Bonds (Initial Series Bonds) in 1989. As of June 30, 1997, the outstanding debt consisted of three series of bonds with interest rates ranging from 10.30% to 10.67% and maturity dates ranging from 2005 to 2017. In July 1997, Entergy Louisiana issued $307,632,000 Waterford 3 Secured Lease Obligation Bonds, 8.09% Series due 2017, to refinance the outstanding Initial Series Bonds. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the Owner Participants to withdraw from the lease transactions, and Entergy Louisiana may be required to assume the outstanding bonds issued by the Owner Trustee to finance, in part, its acquisition of the undivided interests in Waterford 3. See Note 10 to the Form 10-K for further information. (Entergy Mississippi) On July 15, 1997, Entergy Mississippi retired $50 million of its 6.95% Series General and Refunding Bonds and $46 million of its 11.20% Series General and Refunding Bonds upon maturity. (Entergy Gulf States) On July 1, 1997, Entergy Gulf States retired, pursuant to sinking fund requirements, $50 million of its 9.72% Series Debentures due 1998. NOTE 5. RETAINED EARNINGS (Entergy Corporation) On July 25, 1997, Entergy Corporation's Board of Directors declared a common stock dividend of 45 cents per share payable on September 1, 1997, to holders of record on August 13, 1997. NOTE 6. RESTRUCTURING COSTS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) In 1994 and 1995, Entergy implemented various restructuring programs to reduce the number of employees and consolidate offices and facilities. The programs were designed to reduce costs and improve operating efficiencies. The restructuring liability associated with these programs was $3.2 million as of December 31, 1996. Approximately $2.8 million of restructuring charges were incurred through June 30, 1997, resulting in a remaining liability of $.4 million. The restructuring charges primarily include employee severance costs related to the expected termination of approximately 2,750 employees in various groups. As of June 30, 1997, substantially all of these employees had either been terminated or accepted voluntary separation packages under the restructuring plan. In December 1996, Entergy recorded $21.3 million of restructuring charges (of which $18 million was recorded by Entergy Services) associated with the transition to competition. Approximately $11.1 million of charges related to the transition to competition were incurred through June 30, 1997, resulting in a remaining liability of $10.2 million. NOTE 7. ACCOUNTING ISSUES (Entergy Corporation) New Accounting Standard - In March 1997, the FASB issued SFAS 128, "Earnings per Share", effective for financial statements for periods ending after December 15, 1997. This statement will simplify the computation of earnings per share for many companies by eliminating calculation provisions which were required by the prior earnings per share standard, Accounting Principles Board Opinion 15. The adoption of SFAS 128 is not expected to have a material effect on the calculation of earnings per share for Entergy Corporation. In May and July, 1997, the EITF of the FASB met regarding EITF Issues No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation", and SFAS 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71". As a result of these meetings, a consensus was reached that SFAS 71 should be discontinued at a date no later than when the details of the transition to competition plan for that portion of the entity are known. Additionally, the EITF reached a consensus that stranded costs which are to be recovered through cash flows derived from another portion of the entity which continues to apply SFAS 71 should not be written off and considered regulatory assets of that segment which will continue to apply SFAS 71. NOTE 8. ACQUISITION OF LONDON ELECTRICITY (Entergy Corporation) On December 18, 1996, Entergy made a formal cash offer to acquire London Electricity for $2.1 billion. London Electricity is a regional electric company serving approximately two million customers in the metropolitan area of London, England. The offer was approved by authorities in the United Kingdom, and as of February 7, 1997, the offer was made unconditional. Entergy, through a wholly owned subsidiary, now controls 100% of the common shares of London Electricity. Entergy has included the results of operations of London Electricity in its results of operations beginning February 1, 1997, based on management's determination that effective control was achieved on that date. The acquisition was financed with $1.7 billion of debt that is non-recourse to Entergy Corporation and $392 million of equity provided by Entergy Corporation from available cash and borrowings under its $300 million line of credit. The cost of the London Electricity license is being amortized on a straight-line basis over a 40 year period beginning February 1, 1997. As of June 30, 1997, the unamortized balance of the license was approximately $1.6 billion, which is based on a preliminary purchase price allocation. In accordance with the purchase method of accounting, the three and six months ended June 30, 1997, results of operations for Entergy Corporation reported in its Statements of Consolidated Income and Cash Flows do not reflect London Electricity's results of operations for any period prior to February 1, 1997. The pro forma combined revenues, net income, and earnings per common share of Entergy Corporation presented below give effect to the acquisition as if it had occurred on January 1, 1997. This pro forma information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated for the period for which it is being given effect. The three and six months ended June 30, 1996 pro forma information is not available for comparative purposes. Six Months Ended June 30, 1997 (In Thousands of U.S. Dollars, Except Share Data) Operating revenues $4,422,537 Net income $ 287,579 Earnings per average common share $ 1.09 On July 31, 1997, the British government enacted into law a one- time "windfall profits tax" on privatized industries, including regional electric utilities such as London Electricity. An initial examination of the proposed tax indicates that London Electricity's liability is approximately 140 million British Pounds (approximately $229 million) which will not be deductible for United Kingdom income tax purposes. Payment of the tax is required in two equal installments, the first to be due on December 1, 1997, and the second installment due a year later. The government also decreased the corporate tax rate in the United Kingdom from the current 33% to 31%, which will be effective as of April 1, 1997. In accordance with SFAS 109, "Accounting for Income Taxes", this reduction in United Kingdom income tax rates will result in a one-time reduction in income tax expense of approximately $65 million to adjust London Electricity's deferred income tax liability to the new rate. Accordingly, the liability for the windfall profits tax (with a corresponding charge against income) and the reduction in London Electricity's deferred income tax liability (with a corresponding reduction in income tax expense), were recorded in July 1997. __________________________________ In the opinion of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited condensed financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassifying 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 Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans is subject to seasonal fluctuations, with the peak period occurring during the summer months. 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 Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) See "Employment Litigation" in Item 1 of Part I of the Form 10-K for information relating to lawsuits filed by former employees asserting they were wrongfully terminated and/or discriminated against due to age, race, and/or sex. See "Employment Litigation" in Note 1 herein for developments that have occurred since the filing of the Form 10-K. Federal Income Tax Audit (Entergy Corporation, Entergy Louisiana, and System Energy) In August 1994, Entergy received an IRS report covering the federal income tax audit of Entergy Corporation and subsidiaries for the years 1988 - 1990. The report asserted an $80 million tax deficiency for the 1990 consolidated federal income tax returns related primarily to the utilization of accelerated investment tax credits associated with Waterford 3 and Grand Gulf. Changes to the initial report, made in the IRS appeal process, reduced the assessment to $58 million. In March 1997, Entergy Corporation received notification that the IRS National Office had resolved the audit in Entergy's favor and that no additional tax payments would be due. Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) See "Cajun - Coal Contracts" in Note 1 herein for developments that have occurred since the filing of Form 10-K. Taxes Paid Under Protest (Entergy Corporation and Entergy Louisiana) Since the mid-1980's, Entergy Louisiana and the tax authorities of St. Charles Parish, Louisiana (Parish), the parish in which Waterford 3 is located, have disputed use taxes on nuclear fuel paid under protest by Entergy Louisiana. Entergy Louisiana has been successful in lawsuits in the Parish with regard to recovering these taxes, plus interest, and also with regard to Parish lease tax issues pertaining to fuel financing arrangements. In June 1995, Entergy Louisiana received a favorable decision from the Louisiana Fifth Circuit Court of Appeals that confirmed that no such use and lease taxes are due. In May 1997, the Parish and Entergy Louisiana settled all pending use and lease tax litigation. This settlement includes returns to Entergy Louisiana of additional payments under protest on nuclear fuel and the dismissal of nuclear fuel related suits against Entergy Louisiana and/or the fuel lessors. The suits by Entergy Louisiana with regard to state use tax paid under protest on nuclear fuel are still pending. 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 9, 1997. 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 W. Frank Blount 204,019,263 N/A 1,723,668 N/A John A. Cooper, Jr. 204,030,546 N/A 1,712,385 N/A Lucie J. Fjeldstad 204,059,200 N/A 1,683,731 N/A Norman C. Francis 203,945,806 N/A 1,797,125 N/A Robert v. d. Luft 204,095,766 N/A 1,647,165 N/A Edwin Lupberger 203,720,662 N/A 2,022,269 N/A Kinnaird R. McKee 203,926,940 N/A 1,815,991 N/A Paul W. Murrill 204,035,147 N/A 1,707,784 N/A James R. Nichols 204,032,347 N/A 1,710,584 N/A Eugene H. Owen 204,017,280 N/A 1,725,651 N/A John N. Palmer, Sr. 204,119,836 N/A 1,623,095 N/A Robert D. Pugh 203,939,504 N/A 1,803,427 N/A Wm. Clifford Smith 204,044,210 N/A 1,698,721 N/A Bismark A. Steinhagen 204,108,780 N/A 1,634,151 N/A 2. Appointment of independent public accountants, Coopers & Lybrand L.L.P., for the year 1997: 202,841,564 votes for; 2,147,815 votes against; 753,552 abstentions; and broker non-votes are not applicable. (Entergy Arkansas) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, R. Drake Keith, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Gulf States) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Karen R. Johnson, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Louisiana) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Mississippi) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Edwin A. Lupberger, Jerry L. Maulden, Gerald D. McInvale, and Donald E. Meiners. (Entergy New Orleans) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: Frank F. Gallaher, Jerry D. Jackson, Edwin A. Lupberger, Jerry L. Maulden, Gerald D. McInvale, and Daniel F. Packer. (System Energy) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. 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: Donald C. Hintz, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. Item 5. Other Information 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, 1992 1993 1994 1995 1996 1997 Entergy Arkansas 2.28 3.11(b) 2.32 2.56 2.93 2.63 Entergy Gulf States 1.72 1.54 .36(c) 1.86 1.47 2.32 Entergy Louisiana 2.79 3.06 2.91 3.18 3.16 2.82 Entergy Mississippi 2.37 3.79(b) 2.12 2.92 3.40 2.93 Entergy New Orleans 2.66 4.68(b) 1.91 3.93 3.51 2.73 System Energy 2.04 1.87 1.23 2.07 2.21 2.32 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Twelve Months Ended December 31, June 30, 1992 1993 1994 1995 1996 1997 Entergy Arkansas 1.86 2.54(b) 1.97 2.12 2.44 2.27 Entergy Gulf States (a) 1.37 1.21 .29(c) 1.54 1.19 1.91 Entergy Louisiana 2.18 2.39 2.43 2.60 2.64 2.43 Entergy Mississippi 1.97 3.08(b) 1.81 2.51 2.94 2.57 Entergy New Orleans 2.36 4.12(b) 1.73 3.56 3.22 2.48 (a) "Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock. (b) Earnings for the year ended December 31, 1993, include $81 million, $52 million, and $18 million for Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans, respectively, related to the change in accounting principle to provide for the accrual of estimated unbilled revenues. (c) Earnings for the year ended December 31, 1994, for Entergy Gulf States were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $144.8 million and $197.1 million, respectively. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* ** 4(a) - Eleventh Supplemental Indenture, dated as of June 1, 1997, to Entergy Mississippi's Mortgage and Deed of Trust, dated as of February 1, 1988 (filed as Exhibit A-2(a) to Rule 24 Certificate dated June 27, 1997 in File No. 70-8719). 4(b) - Credit Facility Agreement, dated as of December 17, 1996, for Entergy Power UK PLC and ABN Amro Bank, N.V., Bank of America International Limited, Union Bank of Switzerland as amended by amendments 1, 2, and 3 dated February 6, 1997, March 18, 1997, and June 30, 1997, respectively. 23(a) - Consent of Sandlin Associates. 27(a) - Financial Data Schedule for Entergy Corporation and Subsidiaries as of June 30, 1997. 27(b) - Financial Data Schedule for Entergy Arkansas as of June 30, 1997. 27(c) - Financial Data Schedule for Entergy Gulf States as of June 30, 1997. 27(d) - Financial Data Schedule for Entergy Louisiana as of June 30, 1997. 27(e) - Financial Data Schedule for Entergy Mississippi as of June 30, 1997. 27(f) - Financial Data Schedule for Entergy New Orleans as of June 30, 1997. 27(g) - Financial Data Schedule for System Energy as of June 30, 1997. 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 Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(d) - Entergy Mississippi 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. ** 99(g) - Annual Reports on Form 10-K of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy for the fiscal year ended December 31, 1996, portions of which are incorporated herein by reference as described elsewhere in this document (filed with the SEC in File Nos. 1-11299, 1-10764, 1- 2703, 1-8474, 0-320, 0-5807, and 1-9067, respectively). ** 99(h) - Quarterly Reports on Form 10-Q of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy for the quarter ended March 31, 1997, portions of which are incorporated herein by reference as described elsewhere in this document (filed with the SEC in File Nos. 1-11299, 1-10764, 1- 2703, 1-8474, 0-320, 0-5807, and 1-9067, respectively). ___________________________ 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, 1997, 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, 1997. ** Incorporated herein by reference as indicated. (b) Reports on Form 8-K Entergy A current report on Form 8-K, dated July 2, 1997, was filed with the SEC on July 11, 1997, reporting information under Item 5. "Other Events." Entergy Louisiana A current report on Form 8-K, dated June 26, 1997, was filed with the SEC on July 14, 1997, reporting information under Item 5. "Other Events" and Item 7. " Financial Statements and Exhibits." EXPERTS The statements attributed to Sandlin Associates regarding the analysis of River Bend construction costs of Entergy Gulf States in Note 2 to Entergy Corporation and Subsidiaries Consolidated Financial Statements, "Rate and Regulatory Matters," have been reviewed by such firm and are included herein upon the authority of such firm as experts.
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/ Louis E. Buck Louis E. Buck Vice President, Chief Accounting Officer and Assistant Secretary (For each Registrant and for each as Principal Accounting Officer) Date: August 8, 1997