_____________________________________________________________________ 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, 1998 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address of Principal Executive Identification No. Offices and Telephone Number 1-11299 ENTERGY CORPORATION 72-1229752 (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 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 333-33331 ENTERGY LONDON INVESTMENTS PLC N/A (a limited company under the laws of England and Wales) Templar House 81-87 High Holborn London WC1V 6NU England Telephone 011-44-171-242-9050 _____________________________________________________________________
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, 1998 Entergy Corporation ($0.01 par value) 246,602,469
ENTERGY CORPORATION AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 1998 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 11 Consolidated Statements of Income and Comprehensive Income 15 Consolidated Statements of Cash Flows 16 Consolidated Balance Sheets 18 Selected Operating Results 20 Entergy Arkansas, Inc.: Results of Operations 21 Statements of Income 23 Statements of Cash Flows 25 Balance Sheets 26 Selected Operating Results 28 Entergy Gulf States, Inc.: Results of Operations 29 Statements of Income (Loss) 31 Statements of Cash Flows 33 Balance Sheets 34 Selected Operating Results 36 Entergy Louisiana, Inc.: Results of Operations 37 Statements of Income 39 Statements of Cash Flows 41 Balance Sheets 42 Selected Operating Results 44 Entergy Mississippi, Inc.: Results of Operations 45 Statements of Income 47 Statements of Cash Flows 49 Balance Sheets 50 Selected Operating Results 52 Entergy New Orleans, Inc.: Results of Operations 53 Statements of Income 55 Statements of Cash Flows 57 Balance Sheets 58 Selected Operating Results 60 System Energy Resources, Inc.: Results of Operations 61 Statements of Income 62 Statements of Cash Flows 63 Balance Sheets 64 Entergy London Investments plc and Subsidiary: Results of Operations 66 Consolidated Statements of Income and Comprehensive Income 68 Consolidated Statements of Cash Flows 69 Consolidated Balance Sheets 70 Notes to Financial Statements for Entergy Corporation and Subsidiaries 72 Part II: Item 1. Legal Proceedings 79 Item 4. Submission of Matters to a Vote of Security Holders 81 Item 5. Other Information 83 Item 6. Exhibits and Reports on Form 8-K 84 Signature 87
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., System Energy Resources, Inc, and Entergy London Investments plc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company reports herein only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 1997, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, filed by the individual registrants with the SEC, and should be read in conjunction therewith. EXCHANGE RATES For the convenience of the reader, this Form 10-Q contains translations of certain British pounds sterling (BPS) amounts into U.S. dollars at specified rates, or, if not so specified, at the noon buying rate in New York City for cable transfers in BPS as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on June 30, 1998 of $1.6678 = BPS1.00. No representation is made that the BPS amounts have been, could have been or could be converted into U.S. dollars at the rates indicated or at any other rates. The following table sets out, for the periods indicated, certain information concerning the exchange rates between BPS and U.S. dollars based on the Noon Buying Rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York. Period Period End Average(1) High Low ($ per BPS1.00) Three months ended March 31, 1997 1.64 1.63 1.70 1.59 Three months ended June 30, 1997 1.67 1.64 1.67 1.61 Six months ended June 30, 1997 1.67 1.63 1.70 1.59 Twelve months ended December 31, 1997 1.65 1.64 1.71 1.58 Three months ended March 31, 1998 1.67 1.65 1.69 1.61 Three months ended June 30, 1998 1.67 1.65 1.69 1.62 Six months ended June 30, 1998 1.67 1.65 1.69 1.61 (1) The average of the Noon Buying Rates in effect on the last business day of each month during the relevant period. Forward Looking Information 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., Entergy London Investments plc or their affiliated companies may be influenced by factors that could cause actual outcomes to be materially different than anticipated. 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, interest rate changes, changes in foreign currency exchange rates, and other factors.
DEFINITIONS Certain abbreviations or acronyms used in the text are defined below: Abbreviation or Acronym Term 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 BPS British pounds sterling 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 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 EPI Entergy Power, Inc. EPMC Entergy Power Marketing Corp. ETHC Entergy Technology Holding Company Entergy Entergy Corporation and its various direct and indirect subsidiaries Entergy Arkansas Entergy Arkansas, Inc. Entergy Corporation Entergy Corporation, a Delaware corporation, successor to Entergy Corporation, a Florida corporation Entergy Gulf States Entergy Gulf States, Inc. (including wholly owned subsidiaries - Varibus Corporation, GSG&T, Inc., Prudential Oil & Gas, Inc., and Southern Gulf Railway Company) Entergy London Entergy London Investments plc, formerly Entergy Power UK plc (including its wholly owned subsidiary, London Electricity plc) Entergy Louisiana Entergy Louisiana, Inc. Entergy Mississippi Entergy Mississippi, Inc. Entergy New Orleans Entergy New Orleans, 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 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, 1997, of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and Entergy London Grand Gulf 1 Unit No. 1 (nuclear) of the Grand Gulf Plant Independence Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 11% by Entergy Power London Electricity London Electricity plc - a regional electric company serving London, England, which was acquired by Entergy effective February 1, 1997 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 PUHCA Public Utility Holding Company Act of 1935, as amended PUCT Public Utility Commission of Texas River Bend River Bend Nuclear Plant, owned by Entergy Gulf States SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board System Agreement Agreement, effective January 1, 1983, as modified, among the domestic utility companies relating to the sharing of generating capacity and other power resources System Energy System Energy Resources, Inc. UK The United Kingdom of Great Britain and Northern Ireland Waterford 3 Unit No. 3 (nuclear) of the Waterford Plant White Bluff White Bluff Steam Electric Generating Station 57% owned by Entergy Arkansas
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Cash Flows Net cash flow from operations for Entergy Corporation, the domestic utility companies, System Energy, and Entergy London for the six months ended June 30, 1998 and 1997 was as follows: Six Months Six Months Company Ended 6/30/98 Ended 6/30/97 (In Millions) Entergy Corporation $653.3 $840.2 Entergy Arkansas $ 95.3 $177.7 Entergy Gulf States $161.7 $213.5 Entergy Louisiana $128.7 $115.2 Entergy Mississippi $ 73.3 $ 87.6 Entergy New Orleans $ 6.3 $ 29.2 System Energy $ 93.2 $131.6 Entergy London $165.3 $144.7 For the first six months of 1998, cash flow from operations declined compared to 1997 due to rate reductions at Entergy Arkansas, Entergy Gulf States, and Entergy New Orleans, as discussed in "Entergy Corporation and Subsidiaries, Management's Financial Discussion and Analysis, Results of Operations." Revenue collections under rate phase-in plans that exceed current cash requirements for the related costs continue to contribute to cash flow from operations. In the income statement, revenue collections from phase-in plans are offset by the amortization of the previously deferred costs so that there is no effect on net income. These phase-in plans, which currently contribute to Entergy Corporation's cash position, will expire in November 1998 for Entergy Arkansas, in September 1998 for Entergy Mississippi, and in 2001 for Entergy New Orleans. Entergy Gulf States' Louisiana retail phase-in plan for River Bend expired in February 1998. Competitive businesses contributed $150.8 million to Entergy Corporation's cash flow from operations for the first six months of 1998. In accordance with the purchase method of accounting, London Electricity's results of operations are not included in the Entergy Corporation and Subsidiaries and the Entergy London Consolidated Statements of Cash Flows prior to February 1, 1997, the effective date of the acquisition of London Electricity. Financing Sources 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, 1998. In the first six months of 1998, Entergy's domestic utility companies have been able to fund their capital requirements 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. Although the rate proceedings in Texas discussed in Note 2 will have an impact on Entergy Gulf States' cash flows from operations, management believes that Entergy Gulf States' cash flow from operations will be sufficient to fund its capital requirements for the foreseeable future. In addition, to the extent market conditions and interest and dividend rates allow, the domestic utility companies, System Energy, and Entergy London will continue to refinance and/or redeem higher cost debt and preferred stock prior to maturity. See Note 4 for a discussion of Entergy's recent redemptions. Entergy's domestic utility companies and Entergy London may continue to establish special purpose trusts or limited partnerships as financing subsidiaries for the purpose of issuing quarterly income preferred securities, such as those issued in 1996 by Entergy Louisiana Capital I and Entergy Arkansas Capital I, and those issued in 1997 by Entergy Gulf States Capital I and Entergy London Capital, L.P. Entergy Corporation, the domestic utility companies, System Energy, and Entergy London 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 1998-2002.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, Entergy Corporation had $190 million outstanding under its $300 million bank credit facility. In addition, Entergy Corporation had $165.5 million outstanding and ETHC had $112.8 million outstanding under a joint $300 million bank line of credit as of June 30, 1998. See Note 4 to the Form 10-K for information on the short- term borrowing authorizations and bank lines of credit of the domestic utility companies, System Energy, and Entergy London. London Electricity is Entergy London's only asset. Dividends paid by London Electricity provide Entergy London with its sole source of cash flow to pay its debt service. In addition to London Electricity's cash flow from operations, Entergy London has other primary sources of liquidity, including a commercial paper program and several committed and uncommitted credit lines provided to London Electricity by banking institutions. London Electricity intends to use credit available under existing facilities to finance its remaining payment of windfall profits taxes in December 1998, which will total approximately $117 million (BPS70 million). Management believes that cash flow from operations, together with Entergy London's sources of credit, will provide sufficient financial resources to meet London Electricity and Entergy London's projected capital needs and other expenditure requirements for the foreseeable future. London Electricity has represented to the Director General of Electricity Supply for the UK, in connection with its Public Electricity Supply License, that it will use all reasonable endeavors to maintain an investment grade rating on its long-term debt. Financing Uses During the last several years, Entergy has made a number of utility related investments overseas. These include investments in electricity related businesses in the UK, Australia, Argentina, Chile, Peru, Pakistan, and China. The ability of Entergy Corporation to provide additional capital to exempt wholesale generators or foreign utility companies currently is subject to the SEC's regulations under PUHCA. Absent SEC approval, these regulations limit the aggregate amount that Entergy may invest in foreign utility companies and exempt wholesale generators to 50% of consolidated retained earnings at the time an investment is made. As of November 1997, Entergy Corporation no longer had capacity to make additional investments under these regulations without SEC approval. Entergy has applied to the SEC to obtain additional authority to make such investments, and is also exploring means of raising capital for foreign electricity-related investments in a manner not inconsistent with these regulations. As of June 30, 1998, Entergy Corporation had a net investment of $1.3 billion in equity capital in competitive businesses. In addition to its electricity related foreign investments, Entergy has made investments in security monitoring and other telecommunications related businesses in the United States. No specific SEC approvals are required for such investments, and there is no maximum regulatory limit on such investments. Entergy has also made investments in energy-related businesses, including energy efficiency services and power marketing. Under PUHCA, the SEC imposes a limit equal to 15% of consolidated capitalization on the amount that may be invested in such businesses without specific SEC approval. Entergy currently has considerable capacity to make additional investments of this type before such limits would be exceeded.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES To make capital investments, fund its subsidiaries, and pay dividends, Entergy Corporation utilizes internally generated funds, cash on hand, funds available under its bank credit facilities, and bank financing as required. 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, 1998 such dividend payments from the domestic utility companies and System Energy totaled $176.8 million. During the six months ended June 30, 1998, Entergy Corporation paid $221.8 million of cash dividends on its common stock. Declarations of dividends on Entergy's common stock are made at the discretion of Entergy Corporation's Board of Directors (the Board). On August 2, 1998 the Board declared a quarterly dividend of $.30 per share on Entergy's common stock. This dividend represents a $.15 per share reduction from the recent level of Entergy's quarterly common stock dividends. The reduction was made in order to strengthen Entergy's financial position and fund investments. The Board will continue to evaluate the level of the dividend on Entergy's common stock, based upon Entergy's earnings and the Board's assessment of the financial strength of Entergy. See Note 8 in the Form 10-K for information on dividend restrictions. Entergy Corporation and Entergy Gulf States During the fourth quarter of 1997, Entergy Gulf States established reserves of $381 million ($227 million net of tax) for the probable outcome of the pending rate case and abeyed plant cost proceedings in Texas based on management's estimates of the effects thereof. Entergy Gulf States recorded additional reserves of $101.3 million ($60.3 million net of tax) in the first six months of 1998 for the retroactive rate actions contained in the order issued by the PUCT on July 22, 1998. Final resolution of these matters could negatively affect Entergy Gulf States' ability to obtain financing, which in turn could affect Entergy Gulf States' liquidity and ability to pay common stock dividends to Entergy Corporation. See "Entergy Corporation and Subsidiaries, Management's Financial Discussion and Analysis, Significant Factors and Known Trends, Retail and Wholesale Rate Issues" and Note 2 for additional information. Entergy Corporation and System Energy Under the Capital Funds Agreement, Entergy Corporation has agreed to supply System Energy with 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. 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 committed 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", "Effects of Alternate Energy Sources on Retail Electric Sales to Industrial and Large Commercial Customers", and "Changes in Contract with Steam Customer" for a discussion of the competitive pressures facing Entergy and the electric utility industry. See also "Foreign Distribution and Supply", "Property Tax Exemptions", and "Market Risks" in the Form 10-K for a discussion of other significant issues affecting Entergy. Set forth below are recent developments to update the information contained in the Form 10-K for the sections presented. Domestic Competition and Industry Challenges Transition to Competition Filings See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS - Transition to Competition Filings" in the Form 10-K for a discussion of the domestic utility companies' filings with their respective state regulators concerning the transition to competition. Subsequent to the APSC's approval of Entergy Arkansas' transition to competition filing on December 12, 1997, the APSC opened four new generic restructuring dockets and scheduled a series of hearings throughout 1998. The APSC conducted hearings in these dockets in May 1998, in which the majority of the participating parties indicated that competition in the electric industry in Arkansas can begin by January 1, 2002. The APSC will submit a report and recommendations to the Legislature by October 1998. Similar generic proceedings have also been established by the public service commissions in Louisiana and Mississippi and by the Council. Entergy has proposed to FERC a regional transmission company as an alternative to an Independent System Operator (ISO) for electricity transmission. Entergy's proposal is a for-profit, FERC-regulated regional transmission company that would operate independently of Entergy's utility subsidiaries. Under the proposal, the transmission system and the employees who would operate and maintain it would be transferred from Entergy's utility subsidiaries to a separate legal entity owned by Entergy, but not operated or maintained by Entergy. Retail and Wholesale Rate Issues On June 30, 1998, the PUCT held the first of several meetings to decide the outcome of Entergy Gulf States' pending Texas rate case. In so doing, the PUCT indicated that it would not act upon the most recent settlement agreement entered into among Entergy Gulf States and various intervenor groups in the rate case. After refining its decision over the course of several meetings, the PUCT issued its written order in the rate proceeding on July 22, 1998. The decision will result in a $122 million annual rate reduction, offset through May 1999 by recovery of accounting order deferrals, resulting in a net reduction of approximately $81 million through that date, as well as a rate refund of approximately $82 million retroactive to June 1, 1996. The order disallows recovery through rates by Entergy Gulf States of a majority of the charges for services provided by Entergy affiliates and provides a rate incentive for Entergy Gulf States to improve service quality. This decision does not address the majority of the transition to competition issues contained in the initial rate filing by Entergy Gulf States, including the accelerated recovery of the allowed nuclear investment. However, the PUCT's order provides for the accelerated amortization, through May 31, 1999, of the nuclear-related accounting order deferrals, which had been scheduled to be amortized through 2009. In light of the base rate reduction, Entergy Gulf States withdrew its voluntary commitment to open its retail market to direct competition. See Note 2 for additional information regarding this proceeding.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS The PUCT's July 22, 1998 order, if sustained, will have material adverse consequences on Entergy Gulf States' revenues and net income. Entergy Gulf States will file a motion for reconsideration with the PUCT. Entergy Gulf States plans to seek such further remedies as may be available to it, including appealing the order if the motion for reconsideration fails to alter what Entergy Gulf States believes is an incorrect result based on the evidence before the PUCT. On July 29, 1998, a Texas state district court granted Entergy Gulf States' request for a temporary restraining order until August 12, 1998 to prevent enforcement of the PUCT's July 22, 1998 order. Additionally, Entergy Gulf States has a hearing on August 10, 1998 to determine if a temporary injunction against enforcement of the PUCT's order should also be granted. If sustained, the PUCT's ruling on the recoverability by Entergy Gulf States of charges for services provided by Entergy affiliates could result in Entergy Gulf States reevaluating the use of such services. See Note 2 for additional information regarding this proceeding. Effective July 29, 1998, Entergy Gulf States lowered its base retail electric rates in Louisiana by $18 million per year. This reduction, which was agreed to by Entergy Gulf States and the LPSC staff and approved by order of the LPSC, will facilitate the completion of Entergy's fourth post-merger earnings review, which was filed with the LPSC on May 30, 1997. However, pending proceedings in Entergy Gulf States' second, third and fourth earnings reviews will continue. See Note 2 to the Form 10-K and Note 2 herein 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. On March 13, 1998, on remand from the Supreme Court of Texas, the PUCT ruled by a vote of two to one that Entergy Gulf States should not be allowed to recover in rates any of the $1.4 billion of abeyed costs associated with its Texas jurisdictional investment in River Bend. These costs have been held in abeyance since 1988, during which time they have been the subject of appeals by Entergy Gulf States. Entergy Gulf States filed a motion for rehearing on this issue with the PUCT on April 2, 1998. This motion was denied by the PUCT by order dated July 8, 1998. Entergy Gulf States has again appealed the PUCT's decision on this matter in the Texas courts. Based on advice of counsel, management believes that it is probable that the matter will be remanded again to the PUCT for further ruling on the prudence of the abeyed plant costs. See Note 2 for additional information. Legislative Activity In late March 1998, the Clinton Administration released its plan for electricity restructuring. The plan calls for customer choice by 2003 in addition to the recovery of stranded costs and repeal of PUHCA. In late June, the Administration submitted a bill containing the above provisions along with one allowing states to "opt out" of competition if they felt restructuring would harm residents. With little time remaining on the congressional calendar, it is unlikely that any comprehensive electric restructuring legislation or a repeal of PUHCA will be enacted during 1998.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Domestic and Foreign Competitive 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" in the Form 10-K for a discussion of Entergy Corporation's investments in nonregulated and foreign energy-related businesses. These investments may involve a greater risk than domestic regulated utility enterprises. For the six months ended June 30, 1998, these investments contributed approximately $96 million to Entergy Corporation's consolidated net income. Entergy's investment in London contributed $74 million to net income for the six months ended June 30, 1998, including $52 million due to non-recurring tax benefits and gains on investments. Domestic power marketing operations contributed $24 million to net income for the six months ended June 30, 1998; CitiPower Pty., an Australian distribution business, contributed $10 million; Edesur, S. A., an Argentine distribution business, contributed $3.5 million; and foreign power development and generation operations contributed $4 million. Energy retail businesses had a net loss of $20 million for the six months ended June 30, 1998. Following the conclusion of Entergy's Board of Directors meeting on August 2, 1998, management announced its intention to focus Entergy's resources on international power generation, nuclear operations, and power trading and marketing. Consistent with this intention, management expects to sell several businesses over the next eighteen months. These businesses include international distribution businesses in the UK and Australia, security monitoring, energy management, and portions of Entergy's telecommunications interests. See Note 7 for further information. London Electricity has an exclusive right to supply electricity to residential and small industrial and commercial customers in its franchise area with demand of less than 100 KW. In late 1998, however, this segment of the supply business will become open to competition, subject to a six-month transition period. This means the retail market will be fully opened and all customers will have access to competition by June 1999. See Note 2 in the Form 10-K for a discussion of Entergy London regulatory matters. On June 30, 1997, the UK government announced a review of the regulatory framework governing the utilities, including electricity and distribution. The Department of Trade and Industry paper, "A Fair Deal for Consumers - Modernising the Framework for Utility Regulation", was published in late March 1998. Among the proposals with implications for Entergy London contained in this paper are recommendations for the separation of the electric distribution and supply businesses, the placing of customer interests on a statutory footing, and mechanisms to ensure that unearned gains are shared among all stakeholders. London Electricity submitted its response to these proposals to the Department of Trade and Industry in May 1998. The issue of separation of businesses is being carried forward as part of the Review of Public Electricity Suppliers 1998 to 2000. A consultation paper detailing the implications of the separation of distribution and supply and the options for legislative reform was published in May 1998 by the Office of Electricity Regulation. The Office of Electricity Regulation stated that it favored the separation of the electric industry into independent distribution and supply companies. London Electricity responded to the consultation paper in June 1998.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Two documents regarding power generation in the UK were published in June 1998. The first, "Review of Energy Sources for Power Generation - A Consultation Document", was published by the Department of Trade and Industry. This document contains the preliminary conclusions arising from the Review of Energy Sources for Power Generation. It concludes that the basic flaws in the existing electricity market arrangements have been identified. The resulting distortions need to be corrected so that the government can achieve its policy objective of diverse, secure, and sustainable energy supplies at competitive prices for consumers while protecting the environment. London Electricity responded to the preliminary conclusions in July 1998. The second document, "Report on Pool Price Increases in Winter 1997/98", published by the Office of Electricity Regulation, states that further steps need to be taken to increase the competitiveness of the generation market. It concludes that the most effective route in the short term would be to transfer National Power and PowerGen's coal fired plants to competitors, who are expected to more actively compete. London Electricity responded to this document in July 1998. In June 1998, the UK's Department of Trade and Industry issued the last remaining consent for Entergy's Damhead Creek merchant power plant project in Southeast England. Construction of the plant is now expected to begin in late 1998. Financing and other project requirements are currently in the final stages of development. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" and Note 13 in the Form 10-K for a discussion of Entergy's major nonregulated business opportunities and foreign energy-related investments. Domestic Deregulated 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. In late 1997, Cajun's 30% interest in River Bend was transferred by the Cajun bankruptcy trustee to Entergy Gulf States and such interest is being treated as a deregulated operation. The domestic deregulated operations of Entergy Gulf States showed operating losses of $2.7 million and $5.6 million during the three and six months ended June 30, 1998, respectively, compared to operating income of $4.6 million and $9.2 million during the comparable periods in 1997. The decrease in net income from these deregulated operations for the three and six months ended June 30, 1998 was principally due to (1) lower revenues from the wholesale jurisdiction resulting from reduced rates charged to both a large wholesale customer and to Cajun for transmission service, (2) decreased steam products revenues as a result of the revised contractual arrangement with the steam customer, and (3) revenues from off-system sales of the transferred 30% portion of River Bend not fully recovering the costs associated with those sales. These decreases were partially offset by higher revenues from the Louisiana deregulated portion of River Bend. The future impact of these deregulated operations on Entergy's and Entergy Gulf States' results of operations and financial position will depend on operating costs, efficiency and availability of generating units, and market prices for energy over the remaining life of the assets.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Accounting Issues New Accounting Standards - In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for Entergy in 2000. In early 1998, The American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which will be effective for Entergy in 1999. The adoption of SFAS 133 and SOP 98-1 is not expected to have a material effect on the financial position, results of operations, or cash flows of Entergy. See Note 6 herein for additional developments concerning these new accounting standards. Continued Application of SFAS 71 - 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 for the foreseeable future. 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 "Domestic Deregulated Operations" above. Although discussions with regulatory authorities regarding retail competition have occurred and are expected to continue, definitive outcomes have not yet been determined. 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. Year 2000 Issues Like many companies, Entergy has been evaluating its computer software, databases, embedded microprocessors, suppliers, and other relationships to determine the extent to which actions are required to prevent problems related to the year 2000, and the resources that will be required to take such actions. These problems could result in malfunctions in certain software applications, databases, and computer equipment with respect to dates on or after January 1, 2000, unless corrected. Many of Entergy's suppliers also face year 2000 issues, which could affect their performance and indirectly affect Entergy. Entergy has been working on the above mentioned modifications and contingencies and will continue these efforts throughout mid-2000. Maintenance or modification costs will be expensed as incurred, while the costs of new software will be capitalized and amortized over the software's useful life. Management's updated estimate of maintenance and modification costs related to this project to be incurred in 1998 through mid-2000 is approximately $90 to 95 million. These expenses are being funded through operating cash flows.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Effective February 1, 1997, Entergy Corporation acquired London Electricity. Accordingly, consolidated net income for the six months ended June 30, 1997 reflects London Electricity's results subsequent to February 1, 1997. Net Income Consolidated net income increased for the three months ended June 30, 1998, primarily due to higher competitive business revenues and lower income taxes, partially offset by an increase in operating expenses. Net income decreased for the six months ended June 30, 1998, primarily due to decreased domestic electric revenues and higher operating expenses, partially offset by increased competitive business revenues and lower income taxes. Additional reserves were recorded for anticipated rate actions for Texas retail customers which totaled $54.8 million and $60.3 million net of tax for the three and six months ended June 30, 1998, respectively. Excluding the effects of the additional reserves, net income for the three and six months ended June 30, 1998 would have increased approximately, $112.8 million and $56.9 million, respectively, net of tax, compared to the periods ended June 30, 1997. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($135.0) ($157.7) Rate riders (10.9) (36.5) Fuel cost recovery (0.9) (65.0) Sales volume/weather 84.1 65.8 Other revenue (including unbilled) 36.0 28.3 Sales for resale 26.3 32.8 ------- ------- Total ($0.4) ($132.3) ======= ======= Electric operating revenues for the domestic utility companies decreased for the three and six months ended June 30, 1998 primarily due to a decrease in base revenues at Entergy Gulf States and Entergy Louisiana, decreased rate rider revenue at Entergy Arkansas, and for the six months ended June 30, 1998, decreased fuel cost recovery at Entergy Arkansas and Entergy Louisiana. Base revenues at Entergy Gulf States decreased primarily due to the reserves recorded for anticipated rate refunds for Texas retail customers, aggressive pricing strategies for targeted customer segments, and a base rate reduction for the Louisiana retail customers that became effective in March 1998. Base revenues at Entergy Louisiana decreased due to a base rate reduction that became effective in the third quarter of 1997. The decrease in rate rider revenue at Entergy Arkansas, which does not affect net income, was due to the scheduled decline in Grand Gulf 1 cost recovery rate rider revenues as provided in the phase-in plan. Fuel cost recovery revenues decreased at Entergy Louisiana due to lower pricing resulting from a change in generation mix. Partially offsetting these decreases were increases in sales volume, other revenue (primarily unbilled revenue), and sales for resale. Sales volume increased due to significantly warmer weather in
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS the second quarter of 1998. Unbilled revenue increased due to higher sales volume. Sales for resale increased primarily due to sales to non- associated utilities and additional revenues related to the sale of energy from the 30% interest in River Bend transferred by the Cajun bankruptcy trustee to Entergy Gulf States in December 1997. Competitive business revenues increased for the three and six months ended June 30, 1998. Entergy London revenues for the six months ended June 30, 1998 were higher due to an additional month of activity under Entergy ownership recorded in 1998 compared to 1997, partially offset by the impact of a 3% price reduction, effective April 1, 1997, for kilowatt- hours distributed. An additional 3% price reduction, effective April 1, 1998, also impacted the three months ended June 30, 1998. Also contributing to the increase in competitive business revenues was an increase in revenue at EPMC and EPI. This revenue increase was a result of increased sales volume and price on the spot market due to increased demand resulting from significantly warmer weather in the second quarter of 1998. This increase was partially offset for EPMC by increased power purchased for resale as discussed below. The acquisition of new security companies at ETHC also contributed to the increase in competitive business revenues. Expenses Operating expenses increased for the three and six months ended June 30, 1998. The increase in the three months ended June 30, 1998 was primarily due to an increase in purchased power expenses and a decrease in other regulatory credits, partially offset by the decreased amortization of rate deferrals. The increase in the six months ended June 30, 1998 was primarily due to increases in purchased power expenses, other operation and maintenance expenses, and depreciation, amortization, and decommissioning expense, partially offset by decreases in fuel expenses and in the amortization of rate deferrals. The increases in purchased power expenses were primarily the result of a higher level of power trading by EPMC and, for the six months ended June 30, 1998, due to an additional month of Entergy London activity. The decrease in other regulatory credits for the three months ended June 30, 1998 was primarily due to the decrease in the under-recovery of Grand Gulf 1 related costs at Entergy Mississippi. The increase in other operation and maintenance expenses for the six months ended June 30, 1998 was primarily due to an additional month of Entergy London operations in 1998 as compared to 1997. Operation and maintenance expenses of security companies acquired by ETHC subsequent to the second quarter of 1997 also contributed to the increase in such expenses. Additionally, at Entergy Gulf States, other operation and maintenance expenses increased as a result of the inclusion of expenses related to the 30% interest in River Bend transferred by the Cajun bankruptcy trustee to Entergy Gulf States in December 1997. Beginning in 1998, Entergy Gulf States includes 100% of River Bend's operation and maintenance expenses in its operating expenses, as compared to 70% of such expenses for the three and six months ended June 30, 1997. The increase in depreciation, amortization, and decommissioning for the six months ended June 30, 1998 is primarily due to the inclusion of an additional month of depreciation and amortization expense at Entergy London in 1998 and the acquisition of additional security company assets by ETHC. A decrease in fuel expenses for the six months ended June 30, 1998, primarily at Entergy Arkansas, was due to a reduction in generation due to outages and disruption of coal deliveries to coal plants. Partially offsetting the increases in operating expenses for the three and six months ended June 30, 1998 were decreases in the amortization of rate deferrals. These decreases were caused by a lower amortization as prescribed in the Grand Gulf 1 rate phase-in plan and the Stipulation and Settlement Agreement with the APSC at Entergy Arkansas and the expiration of the Louisiana retail phase-in plan for River Bend in February 1998 at Entergy Gulf States.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other Interest on long-term debt decreased for the three and six months ended June 30, 1998 primarily due to the retirement of certain long-term debt in 1998 at Entergy Arkansas, Entergy Gulf States, and System Energy. The effective income tax rates for the three months ended June 30, 1998 and 1997 were 23.6% and 35.9%, respectively. For the six months ended June 30, 1998 and 1997 the effective income tax rates were 29.4% and 35.3%, respectively. The decreases in 1998 were primarily due to the recording of a $44 million deferred tax benefit in June 1998 related to expected utilization of Entergy's capital loss carryforwards. The expected utilization results from potential gain transactions that would originate from investment/disposition strategies to be implemented within five years. Realization of the deferred tax asset is dependent upon Entergy's ability to utilize the capital loss carryforwards, which will expire in 2002. Partially offsetting these decreases was an increase primarily related to the increased reversal of previously recorded AFUDC amounts included in depreciation at Entergy Arkansas and Entergy Gulf States. The impact of the amortization of investment tax credits and of excess deferred taxes on rate deferrals at Entergy Mississippi, and a decrease in the flow-through of tax benefits related to operating reserves at Entergy Gulf States also contributed to the offsetting increases.
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands, Except Share Data) <S> <C> <C> <C> <C> Operating Revenues: Domestic electric $1,502,357 $1,502,742 $2,822,409 $2,954,667 Natural gas 24,188 23,025 74,613 80,521 Steam products 12,125 12,872 20,525 23,961 Competitive businesses 970,144 639,451 1,904,359 1,164,694 ---------- ---------- ---------- ---------- Total 2,508,814 2,178,090 4,821,906 4,223,843 ---------- ---------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 327,854 339,778 676,817 738,520 Purchased power 808,264 469,726 1,586,938 890,688 Nuclear refueling outage expenses 21,015 13,172 43,689 30,408 Other operation and maintenance 500,505 512,830 984,193 938,917 Depreciation, amortization, and decommissioning 245,089 241,286 497,547 469,315 Taxes other than income taxes 90,318 90,205 186,112 183,196 Other regulatory credits (25,017) (35,225) (59,783) (56,771) Amortization of rate deferrals 68,076 112,431 148,176 223,465 ---------- ---------- ---------- ---------- Total 2,036,104 1,744,203 4,063,689 3,417,738 ---------- ---------- ---------- ---------- Operating Income 472,710 433,887 758,217 806,105 ---------- ---------- ---------- ---------- Other Income: Allowance for equity funds used during construction 3,274 3,035 5,623 6,068 Miscellaneous - net 18,208 29,224 49,781 46,617 ---------- ---------- ---------- ---------- Total 21,482 32,259 55,404 52,685 ---------- ---------- ---------- ---------- Interest Charges: Interest on long-term debt 191,310 205,310 382,886 390,800 Other interest - net 14,053 11,148 24,155 23,053 Distributions on preferred securities of subsidiaries 8,950 4,710 20,128 8,882 Allowance for borrowed funds used during construction (2,682) (2,440) (4,562) (4,877) ---------- ---------- ---------- ---------- Total 211,631 218,728 422,607 417,858 ---------- ---------- ---------- ---------- Income Before Income Taxes 282,561 247,418 391,014 440,932 Income Taxes 66,582 88,839 114,981 155,868 ---------- ---------- ---------- ---------- Net Income before Preferred Dividend Requirements and Other 215,979 158,579 276,033 285,064 Preferred and Preference Dividend Requirements of Subsidiaries and Other 11,704 12,303 23,480 29,026 ---------- ---------- ---------- ---------- Consolidated Net Income 204,275 146,276 252,553 256,038 Other Comprehensive Income: Foreign Currency Translation Adjustment (20,541) (10,763) (3,848) (11,522) ---------- ---------- ---------- ---------- Comprehensive Net Income $183,734 $135,513 $248,705 $244,516 ========== ========== ========== ========== Earnings per average common share Basic and diluted $0.83 $0.61 $1.03 $1.08 Dividends declared per common share - $0.45 $0.90 $0.90 Average number of common shares outstanding: Basic 246,452,120 238,577,894 246,187,736 236,865,266 Diluted 246,501,362 238,639,480 246,298,479 236,944,435 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income before preferred dividend requirements and other $276,033 $285,064 Noncash items included in net income: Amortization of rate deferrals 148,176 223,311 Other regulatory credits (59,783) (21,546) Depreciation, amortization, and decommissioning 497,547 469,315 Deferred income taxes and investment tax credits (88,348) (70,123) Allowance for equity funds used during construction (5,623) (5,475) Changes in working capital: Receivables (54,452) 8,750 Fuel inventory 3,868 37,965 Accounts payable (38,423) (23,891) Taxes accrued 134,994 106,367 Interest accrued 590 868 Other working capital accounts (117,599) (98,449) Reserve for rate refund 101,255 - Provision for estimated losses and reserves (80,643) (11,594) Decommissioning trust contributions and realized change in trust assets (37,674) (35,489) Other (26,583) (24,859) -------- -------- Net cash flow provided by operating activities 653,335 840,214 -------- -------- Investing Activities: Construction/capital expenditures (454,309) (296,817) Allowance for equity funds used during construction 5,623 5,475 Nuclear fuel purchases (41,126) (52,323) Proceeds from sale/leaseback of nuclear fuel 37,666 79,512 Acquisition of London Electricity, net of cash acquired - (1,980,631) Investment in other nonregulated/nonutility properties (21,961) 78,537 Other (33,731) (20,767) -------- -------- Net cash flow used in investing activities (507,838) (2,187,014) -------- -------- See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Financing Activities: Proceeds from the issuance of: General and refunding mortgage bonds 78,703 64,827 First mortgage bonds 112,556 84,064 Bank notes and other long-term debt 201,070 1,691,201 Preferred securities of subsidiary trusts - 82,323 Common stock 15,228 166,870 Retirement of: First mortgage bonds (341,335) (192,504) General and refunding mortgage bonds (80,000) (634) Other long-term debt (125,389) (21,160) Redemption of preferred stock (6,250) (103,867) Changes in short-term borrowings - net 186,167 113,104 Preferred stock dividends paid (23,580) (27,275) Common stock dividends paid (221,772) (212,141) --------- ---------- Net cash flow provided by (used in) financing activities (204,602) 1,644,808 --------- ---------- Effect of exchange rates on cash and cash equivalents 1,894 809 --------- ---------- Net increase (decrease) in cash and cash equivalents (57,211) 298,817 Cash and cash equivalents at beginning of period 830,547 388,703 --------- ---------- Cash and cash equivalents at end of period $773,336 $687,520 ========= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $427,136 $256,899 Income taxes $78,761 $81,165 Noncash investing and financing activities: Change in unrealized appreciation of decommissioning trust assets $22,854 $6,268 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $78,332 $85,067 Temporary cash investments - at cost, which approximates market 673,404 700,431 Special deposits 21,600 45,049 ----------- ----------- Total cash and cash equivalents 773,336 830,547 Notes receivable 5,449 8,157 Accounts receivable: Customer (less allowance for doubtful accounts of $29.9 million in 1998 and $32.8 million in 1997) 488,903 458,085 Other 312,294 225,523 Accrued unbilled revenues 533,192 580,194 Deferred fuel costs 232,512 150,596 Fuel inventory 115,463 119,331 Materials and supplies - at average cost 391,948 367,870 Rate deferrals 106,451 237,302 Prepayments and other 215,282 193,717 ----------- ----------- Total 3,174,830 3,171,322 ----------- ----------- Other Property and Investments: Decommissioning trust funds 649,578 589,050 Non-regulated investments 615,064 568,951 Other 222,633 225,818 ----------- ----------- Total 1,487,275 1,383,819 ----------- ----------- Utility Plant: Electric 25,547,716 25,310,122 Plant acquisition adjustment - Entergy Gulf States 431,028 439,160 Electric plant under leases 674,483 674,483 Property under capital leases - electric 128,459 134,278 Natural gas 178,186 169,964 Steam products 82,751 82,289 Construction work in progress 766,786 565,667 Nuclear fuel under capital leases 247,811 269,011 Nuclear fuel 91,084 72,875 ----------- ----------- Total 28,148,304 27,717,849 Less - accumulated depreciation and amortization 10,006,232 9,585,021 ----------- ----------- Utility plant - net 18,142,072 18,132,828 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 145,277 162,602 SFAS 109 regulatory asset - net 1,157,286 1,174,187 Unamortized loss on reacquired debt 189,888 196,891 Other regulatory assets 520,482 466,780 Long-term receivables 35,693 36,984 CitiPower license (net of amortization of $30.6 million in 1998 and $25.6 million in 1997) 459,971 486,153 London Electricity license (net of amortization of $48.8 million in 1998 and $25.6 million in 1997) 1,330,902 1,327,312 Other 529,702 461,822 ----------- ----------- Total 4,369,201 4,312,731 ----------- ----------- TOTAL $27,173,378 $27,000,700 =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY <S> <C> <C> Current Liabilities: Currently maturing long-term debt $305,027 $390,674 Notes payable 622,609 428,964 Accounts payable 893,454 915,800 Customer deposits 178,176 178,162 Taxes accrued 500,023 359,996 Accumulated deferred income taxes 7,384 56,524 Interest accrued 214,506 214,763 Dividends declared 8,068 8,166 Obligations under capital leases 163,189 167,700 Other 71,628 81,303 ----------- ----------- Total 2,964,064 2,802,052 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,539,504 4,567,052 Accumulated deferred investment tax credits 569,519 587,781 Obligations under capital leases 213,396 236,000 Other 1,987,049 1,857,514 ----------- ----------- Total 7,309,468 7,248,347 ----------- ----------- Long-term debt 8,977,087 9,068,325 Subsidiaries' preferred stock with sinking fund 182,755 185,005 Subsidiary's preference stock 150,000 150,000 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated deferrable debentures 215,000 215,000 Company-obligated redeemable preferred securities of subsidiary partnership holding solely junior subordinated deferrable debentures 300,000 300,000 Shareholders' Equity: Subsidiaries' preferred stock without sinking fund 334,455 338,455 Common stock, $.01 par value, authorized 500,000,000 shares; issued 246,686,106 shares in 1998 and 246,149,198 shares in 1997 2,467 2,461 Additional paid-in capital 4,627,648 4,613,572 Retained earnings 2,188,165 2,157,912 Cumulative foreign currency translation adjustment (73,665) (69,817) Less - treasury stock (134,504 shares in 1998 and 306,852 shares in 1997) 4,066 10,612 ----------- ----------- Total 7,075,004 7,031,971 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $27,173,378 $27,000,700 =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Domestic Electric Operating Revenues: Residential $ 503.7 $ 454.3 $ 49.4 11 Commercial 360.8 362.4 (1.6) - Industrial 439.5 477.0 (37.5) (8) Governmental 42.7 40.4 2.3 6 ---------------------------------- Total retail 1,346.7 1,334.1 12.6 1 Sales for resale 107.3 81.0 26.3 32 Other 48.3 87.6 (39.3) (45) ---------------------------------- Total $ 1,502.3 $ 1,502.7 ($0.4) - ================================== Billed Electric Energy Sales (Millions of kWh): Residential 6,697 5,531 1,166 21 Commercial 5,496 4,952 544 11 Industrial 10,854 11,239 (385) (3) Governmental 669 598 71 12 ---------------------------------- Total retail 23,716 22,320 1,396 6 Sales for resale 2,645 1,828 817 45 ---------------------------------- Total 26,361 24,148 2,213 9 ================================== Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 966.7 $ 956.4 $ 10.3 1 Commercial 693.5 730.7 (37.2) (5) Industrial 884.2 973.9 (89.7) (9) Governmental 84.2 82.0 2.2 3 ---------------------------------- Total retail 2,628.6 2,743.0 (114.4) (4) Sales for resale 190.4 157.6 32.8 21 Other 3.4 54.1 (50.7) (94) ---------------------------------- Total $ 2,822.4 $ 2,954.7 ($132.3) (4) ================================== Billed Electric Energy Sales (Millions of kWh): Residential 12,937 11,931 1,006 8 Commercial 10,325 9,847 478 5 Industrial 21,266 22,135 (869) (4) Governmental 1,297 1,193 104 9 ---------------------------------- Total retail 45,825 45,106 719 2 Sales for resale 4,574 4,253 321 8 ---------------------------------- Total 50,399 49,359 1,040 2 ================================== </TABLE>
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months ended June 30, 1998 primarily due to decreases in operating expenses and interest expense, partially offset by decreases in electric operating revenues and other income. Net income decreased for the six months ended June 30, 1998 primarily due to decreases in electric operating revenues and other income, partially offset by decreases in operating expenses and interest expense. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($3.8) ($2.2) Rate riders (20.4) (47.5) Fuel cost recovery (0.7) (7.5) Sales volume/weather 24.1 22.5 Other revenue (including unbilled) 1.8 17.5 Sales for resale (33.3) (60.0) ------ ------ Total ($32.3) ($77.2) ====== ====== Electric operating revenues decreased for the three and six months ended June 30, 1998 primarily as a result of a decrease in rate rider revenue and sales for resale, partially offset by an increase in sales volume and, for the six months ended June 30, 1998, an increase in other revenue (primarily unbilled revenue). Rate rider revenue, which does not affect net income, decreased due to the decline in Grand Gulf 1 cost recovery rate rider revenues reflecting scheduled reductions in the phase- in plan. Sales for resale decreased due to a decrease in sales to associated companies. This decrease was a result of reduced generation due to outages at both ANO1 and ANO2 and restricted generation at the Independence and White Bluff coal plants due to disruption in coal deliveries. Sales volume increased due to significantly warmer weather in the second quarter of 1998. Unbilled revenue increased for the six months ended June 30, 1998 primarily as a result of increased sales volume.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses decreased for the three and six months ended June 30, 1998 primarily due to decreases in fuel expenses and the amortization of Grand Gulf 1 rate deferrals and an increase in other regulatory credits, partially offset by slight increases in various other operating expenses. Fuel expenses decreased primarily due to a reduction in generation due to the outages and disrupted coal deliveries discussed above. The decrease in the amortization of Grand Gulf 1 rate deferrals is due to a decrease in amortization prescribed in the Grand Gulf 1 rate phase-in plan and the Stipulation and Settlement Agreement with the APSC. See Note 2 for further discussion. The increase in other regulatory credits is a result of the increase in the net under-recovery of Grand Gulf 1 related costs. Other Miscellaneous other income - net decreased for the three and six months ended June 30, 1998 primarily due to reduced Grand Gulf 1 carrying charges as a result of a decline in the deferral balance, which does not impact net income. Interest charges decreased for the three and six months ended June 30, 1998 primarily due to the retirement of certain long-term debt in 1998. The effective income tax rate of 38.3% for the three months ended June 30, 1998 remained relatively unchanged from the rate of 38.8% for the three months ended June 30, 1997. For the six months ended June 30, 1998 and 1997 the effective income tax rates were 38.9% and 35.3%, respectively. The increase in 1998 is primarily due to the increased reversal of previously recorded AFUDC amounts included in depreciation.
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $391,357 $423,619 $721,146 $798,350 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 29,142 62,754 75,365 129,347 Purchased power 114,997 109,120 210,312 203,854 Nuclear refueling outage expenses 7,728 5,367 15,819 12,266 Other operation and maintenance 90,497 86,085 176,296 171,801 Depreciation, amortization, and decommissioning 44,773 41,335 90,033 82,784 Taxes other than income taxes 9,840 9,101 20,200 18,529 Other regulatory credits (11,524) (9,485) (22,105) (8,749) Amortization of rate deferrals 22,067 38,469 44,135 76,754 -------- -------- -------- -------- Total 307,520 342,746 610,055 686,586 -------- -------- -------- -------- Operating Income 83,837 80,873 111,091 111,764 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 1,628 1,445 2,332 2,888 Miscellaneous - net 1,678 5,090 8,548 10,414 -------- -------- -------- -------- Total 3,306 6,535 10,880 13,302 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 21,657 23,777 45,121 48,227 Other interest - net 584 971 1,360 1,900 Distributions on preferred securities of subsidiary 1,295 1,275 2,550 2,550 Allowance for borrowed funds used during construction (1,164) (869) (1,651) (1,737) -------- -------- -------- -------- Total 22,372 25,154 47,380 50,940 -------- -------- -------- -------- Income Before Income Taxes 64,771 62,254 74,591 74,126 Income Taxes 24,804 24,169 29,001 26,193 -------- -------- -------- -------- Net Income 39,967 38,085 45,590 47,933 Preferred Stock Dividend Requirements and Other 2,593 2,798 5,219 5,630 -------- -------- -------- -------- Earnings Applicable to Common Stock $37,374 $35,287 $40,371 $42,303 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $45,590 $47,933 Noncash items included in net income: Amortization of rate deferrals 44,135 76,754 Other regulatory credits (22,105) (8,749) Depreciation, amortization, and decommissioning 90,033 82,784 Deferred income taxes and investment tax credits 2,886 (30,693) Allowance for equity funds used during construction (2,332) (2,888) Changes in working capital: Receivables (34,717) 29,939 Fuel inventory (4,464) 29,293 Accounts payable 69,394 (22,365) Taxes accrued 9,713 11,613 Interest accrued (4,013) 622 Deferred fuel costs (43,643) 6,044 Other working capital accounts (13,017) (39,775) Decommissioning trust contributions and realized change in trust assets (12,679) (12,283) Provision for estimated losses and reserves (3,075) 5,383 Other (26,449) 4,051 -------- --------- Net cash flow provided by operating activities 95,257 177,663 -------- --------- Investing Activities: Construction expenditures (81,803) (61,664) Allowance for equity funds used during construction 2,332 2,888 Nuclear fuel purchases (6,997) (36,532) Proceeds from sale/leaseback of nuclear fuel 6,997 36,553 -------- --------- Net cash flow used in investing activities (79,471) (58,755) -------- --------- Financing Activities: Proceeds from the issuance of first mortgage bonds - 84,064 Retirement of: First mortgage bonds (105,774) (117,587) Other long term debt (45,500) - Redemption of preferred stock (4,000) - Dividends paid: Common stock (7,500) (31,400) Preferred stock (5,318) (5,729) -------- --------- Net cash flow used in financing activities (168,092) (70,652) -------- --------- Net increase (decrease) in cash and cash equivalents (152,306) 48,256 Cash and cash equivalents at beginning of period 203,391 43,857 -------- --------- Cash and cash equivalents at end of period $51,085 $92,113 ======== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $48,855 $41,995 Income taxes $16,747 $40,864 Noncash investing and financing activities: Change in unrealized appreciation of decommissioning trust assets $15,048 $5,817 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $4,394 $6,076 Temporary cash investments - at cost, which approximates market: Associated companies 12,813 41,389 Other 33,878 110,877 Special deposits - 45,049 ---------- ---------- Total cash and cash equivalents 51,085 203,391 Accounts receivable: Customer (less allowance for doubtful accounts of $1.8 million in 1998 and 1997) 82,406 71,910 Associated companies 60,964 46,166 Other 7,235 10,282 Accrued unbilled revenues 102,086 89,616 Deferred fuel costs 27,399 - Fuel inventory - at average cost 32,633 28,169 Materials and supplies - at average cost 84,861 79,692 Rate deferrals 31,114 75,249 Deferred nuclear refueling outage costs 32,107 24,335 Prepayments and other 13,675 8,647 ---------- ---------- Total 525,565 637,457 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 11,213 11,213 Decommissioning trust fund 278,300 250,573 Other - at cost (less accumulated depreciation) 4,980 4,939 ---------- ---------- Total 294,493 266,725 ---------- ---------- Utility Plant: Electric 4,667,501 4,650,065 Property under capital leases 52,513 53,843 Construction work in progress 190,969 123,087 Nuclear fuel under capital lease 81,450 92,621 Nuclear fuel 32,607 - ---------- ---------- Total 5,025,040 4,919,616 Less - accumulated depreciation and amortization 2,207,859 2,116,826 ---------- ---------- Utility plant - net 2,817,181 2,802,790 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 251,789 252,712 Unamortized loss on reacquired debt 53,665 53,780 Other regulatory assets 95,295 79,461 Other 21,130 13,952 ---------- ---------- Total 421,879 399,905 ---------- ---------- TOTAL $4,059,118 $4,106,877 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $850 $60,650 Notes payable 667 667 Accounts payable: Associated companies 106,866 59,438 Other 98,371 76,405 Customer deposits 25,420 23,437 Taxes accrued 87,040 77,327 Accumulated deferred income taxes 24,802 32,239 Interest accrued 24,813 28,826 Co-owner advances 17,710 7,666 Deferred fuel costs - 16,244 Obligations under capital leases 47,751 62,623 Other 14,621 21,696 ---------- ---------- Total 448,911 467,218 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 771,997 759,489 Accumulated deferred investment tax credits 101,333 103,899 Obligations under capital leases 86,212 83,841 Other 175,490 169,884 ---------- ---------- Total 1,135,032 1,117,113 ---------- ---------- Long-term debt 1,168,618 1,244,860 Preferred stock with sinking fund 31,027 31,027 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 112,350 116,350 Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares 470 470 Additional paid-in capital 590,134 590,134 Retained earnings 512,576 479,705 ---------- ---------- Total 1,215,530 1,186,659 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,059,118 $4,106,877 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 118.3 $ 105.2 $ 13.1 12 Commercial 68.9 75.9 (7.0) (9) Industrial 78.4 84.2 (5.8) (7) Governmental 3.6 4.6 (1.0) (22) ---------------------------- Total retail 269.2 269.9 (0.7) - Sales for resale: Associated companies 25.4 61.6 (36.2) (59) Non-associated companies 53.9 51.0 2.9 6 Other 42.8 41.1 1.7 4 ---------------------------- Total $ 391.3 $ 423.6 ($32.3) (8) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 1,357 1,091 266 24 Commercial 1,116 972 144 15 Industrial 1,642 1,541 101 7 Governmental 56 57 (1) (2) ---------------------------- Total retail 4,171 3,661 510 14 Sales for resale: Associated companies 863 2,906 (2,043) (70) Non-associated companies 1,236 1,515 (279) (18) ---------------------------- Total 6,270 8,082 (1,812) (22) ============================ Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 239.2 $ 236.6 $ 2.6 1 Commercial 128.3 148.5 (20.2) (14) Industrial 150.8 165.8 (15.0) (9) Governmental 6.9 8.9 (2.0) (22) ---------------------------- Total retail 525.2 559.8 (34.6) (6) Sales for resale: Associated companies 59.6 122.4 (62.8) (51) Non-associated companies 98.0 95.2 2.8 3 Other 38.4 21.0 17.4 83 ---------------------------- Total $ 721.2 $ 798.4 ($77.2) (10) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 2,861 2,609 252 10 Commercial 2,119 1,980 139 7 Industrial 3,208 3,111 97 3 Governmental 111 117 (6) (5) ---------------------------- Total retail 8,299 7,817 482 6 Sales for resale: Associated companies 2,500 5,880 (3,380) (57) Non-associated companies 2,409 3,011 (602) (20) ---------------------------- Total 13,208 16,708 (3,500) (21) ============================ </TABLE>
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income (loss) decreased for the three and six months ended June 30, 1998 primarily due to a decrease in operating revenues caused by additional reserves recorded for anticipated rate actions for Texas retail customers which totaled $54.8 million and $60.3 million net of tax, respectively. The decrease was partially offset by lower income taxes and decreases in operating expenses and interest charges. Excluding the effects of the additional reserves, net income for the three and six months ended June 30, 1998 would have increased approximately $22.5 million and $10.2 million, respectively. See Note 2 for a discussion of the additional reserves recorded for anticipated rate actions for Texas retail customers. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($114.6) ($124.8) Fuel cost recovery 1.9 0.3 Sales volume/weather 26.1 26.1 Other revenue (including unbilled) 13.9 0.9 Sales for resale 20.4 29.0 ------ ------ Total ($52.3) ($68.5) ====== ====== Electric operating revenues decreased for the three and six months ended June 30, 1998 primarily due to a decrease in base revenues, partially offset by higher sales volume and increases in sales for resale and an increase in the second quarter of 1998 in other revenue (primarily unbilled revenue). Base revenues decreased primarily due to reserves recorded during the three and six months ended June 30, 1998 for anticipated rate actions for Texas retail customers, aggressive pricing strategies for targeted customer segments, and a base rate reduction in Louisiana that became effective in March 1998. Sales volume increased due to significantly warmer weather in the second quarter of 1998. Sales for resale increased due to an increase in sales to non-associated utilities and additional revenues related to the sale of energy from the 30% interest in River Bend transferred by the Cajun bankruptcy trustee to Entergy Gulf States in December 1997. Unbilled revenues increased for the three months ended June 30, 1998 primarily as a result of increased sales volume, partially offset by decreased pricing caused by the rate reduction. Gas operating revenues decreased for the six months ended June 30, 1998 due to a lower unit price for gas purchased for resale. Steam operating revenues decreased for the six months ended June 30, 1998 primarily due to changes in the customer contract, which took effect in August 1997.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses decreased for the three and six months ended June 30, 1998 primarily due to a decrease in the amortization of rate deferrals, partially offset by increased other operation and maintenance expenses and a net increase in fuel and purchased power expenses. The amortization of rate deferrals decreased due to the expiration of the Louisiana retail phase-in plan for River Bend in February 1998. Other operation and maintenance expenses increased as a result of the inclusion of expenses related to the 30% interest in River Bend transferred by the Cajun bankruptcy trustee to Entergy Gulf States in December 1997. Entergy Gulf States now includes 100% of River Bend's operation and maintenance expenses in its operating expenses, as compared to 70% of such expenses for the three and six months ended June 30, 1997. The net increase in fuel and purchased power expenses is primarily due to an increase in generation, partially offset by the impact of the under- recovered deferred fuel costs in excess of the fixed fuel factor applied in Entergy Gulf States' Texas retail jurisdiction. Other Interest charges decreased for the three and six months ended June 30, 1998 primarily due to the retirement of certain long-term debt in 1997 and 1998. For the three months ended June 30, 1998 and 1997, the effective income tax rates were 16.1% and 26.7%, respectively. The effective income tax rates for the six months ended June 30, 1998 and 1997 were 55.7% and 33.3%, respectively. The changes in the effective income tax rates in 1998 are primarily due to a decrease in the flow-through of tax benefits related to operating reserves and the increased reversal of previously recorded AFUDC amounts included in depreciation.
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF INCOME (LOSS) For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $405,475 $457,739 $837,339 $905,877 Natural gas 6,055 5,810 23,300 27,911 Steam products 12,125 12,872 20,525 23,961 -------- -------- -------- -------- Total 423,655 476,421 881,164 957,749 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 128,968 138,692 247,254 259,084 Purchased power 80,972 66,428 159,632 145,769 Nuclear refueling outage expenses 3,675 2,573 8,224 5,218 Other operation and maintenance 98,161 92,182 196,700 175,444 Depreciation, amortization, and decommissioning 52,740 53,833 107,037 106,801 Taxes other than income taxes 28,057 26,803 58,968 56,010 Other regulatory credits (2,715) (6,083) (9,051) (11,948) Amortization of rate deferrals 2,268 26,350 17,210 52,714 -------- -------- -------- -------- Total 392,126 400,778 785,974 789,092 -------- -------- -------- -------- Operating Income 31,529 75,643 95,190 168,657 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 688 726 1,300 1,451 Miscellaneous - net 2,538 4,488 6,498 8,589 -------- -------- -------- -------- Total 3,226 5,214 7,798 10,040 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 38,717 41,755 77,088 83,741 Other interest - net 971 978 1,715 3,716 Distributions on preferred securities of subsidiary 1,859 1,860 3,719 3,182 Allowance for borrowed funds used during construction (547) (620) (1,014) (1,239) -------- -------- -------- -------- Total 41,000 43,973 81,508 89,400 -------- -------- -------- -------- Income (Loss) Before Income Taxes (6,245) 36,884 21,480 89,297 Income Taxes (Benefit) (1,004) 9,856 11,965 29,734 -------- -------- -------- -------- Net Income (Loss) (5,241) 27,028 9,515 59,563 Preferred and Preference Stock Dividend Requirements and Other 4,774 4,995 9,588 13,938 -------- -------- -------- -------- Earnings (Loss) Applicable to Common Stock ($10,015) $22,033 ($73) $45,625 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) Six Months Ended 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $9,515 $59,563 Noncash items included in net income: Amortization of rate deferrals 17,210 52,714 Other regulatory credits (9,051) (11,948) Depreciation, amortization, and decommissioning 107,037 106,801 Deferred income taxes and investment tax credits (29,286) (1,887) Allowance for equity funds used during construction (1,300) (1,451) Changes in working capital: Receivables (14,082) (35,261) Fuel inventory 2,909 3,889 Accounts payable (10,274) 17,673 Taxes accrued 28,932 26,282 Interest accrued (209) (1,218) Deferred fuel costs (23,103) (205) Other working capital accounts (7,269) 12,274 Decommissioning trust contributions and realized change in trust assets (7,466) (4,277) Provision for estimated losses and reserves (3,443) (17,021) Reserve for rate refund 101,255 - Other 280 7,585 -------- -------- Net cash flow provided by operating activities 161,655 213,513 -------- -------- Investing Activities: Construction expenditures (52,288) (59,558) Allowance for equity funds used during construction 1,300 1,451 Nuclear fuel purchases (200) - Proceeds from sale/leaseback of nuclear fuel 193 - -------- -------- Net cash flow used in investing activities (50,995) (58,107) -------- -------- Financing Activities: Proceeds from the issuance of : Long-term debt 21,600 - Preferred securities of subsidiary trust - 82,323 Retirement of: First mortgage bonds (25,000) (46,917) Other long-term debt (25) (425) Redemption of preferred and preference stock (2,250) (89,367) Dividends paid: Common stock (80,315) - Preferred and preference stock (9,588) (11,936) -------- -------- Net cash flow used in financing activities (95,578) (66,322) -------- -------- Net increase in cash and cash equivalents 15,082 89,084 Cash and cash equivalents at beginning of period 165,164 122,406 -------- -------- Cash and cash equivalents at end of period $180,246 $211,490 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $74,414 $83,269 Income taxes $22,532 $1,158 Noncash investing and financing activities: Change in unrealized appreciation of decommissioning trust assets $3,154 $859 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $7,565 $10,549 Temporary cash investments - at cost, which approximates market: Associated companies 36,378 37,389 Other 114,703 117,226 Special deposits 21,600 - ---------- ---------- Total cash and cash equivalents 180,246 165,164 Accounts receivable: Customer (less allowance for doubtful accounts of $1.8 million in 1998 and 1997) 100,119 99,762 Associated companies 10,253 9,024 Other 26,902 32,837 Accrued unbilled revenues 93,256 74,825 Deferred fuel costs 168,860 145,757 Accumulated deferred income taxes 28,757 22,093 Fuel inventory - at average cost 34,718 37,627 Materials and supplies - at average cost 110,370 104,690 Rate deferrals 9,077 21,749 Prepayments and other 28,646 21,680 ---------- ---------- Total 791,204 735,208 ---------- ---------- Other Property and Investments: Decommissioning trust fund 198,082 187,462 Other - at cost (less accumulated depreciation) 175,789 176,953 ---------- ---------- Total 373,871 364,415 ---------- ---------- Utility Plant: Electric 7,197,023 7,168,668 Natural gas 50,554 47,656 Steam products 82,751 82,289 Property under capital leases 65,106 67,946 Construction work in progress 106,071 90,333 Nuclear fuel under capital lease 43,683 54,390 Nuclear fuel 18,300 23,051 ---------- ---------- Total 7,563,488 7,534,333 Less - accumulated depreciation and amortization 3,091,721 2,996,147 ---------- ---------- Utility plant - net 4,471,767 4,538,186 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 93,872 98,410 SFAS 109 regulatory asset - net 377,434 376,275 Unamortized loss on reacquired debt 45,559 48,417 Other regulatory assets 83,361 86,819 Long-term receivables 35,693 36,984 Other 215,357 203,923 ---------- ---------- Total 851,276 850,828 ---------- ---------- TOTAL $6,488,118 $6,488,637 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $212,065 $190,890 Accounts payable: Associated companies 54,216 48,726 Other 93,680 109,444 Customer deposits 31,456 30,311 Taxes accrued 77,250 48,318 Interest accrued 44,945 45,154 Nuclear refueling reserve 11,096 3,386 Obligations under capital leases 34,648 30,280 Other 14,168 17,646 ---------- ---------- Total 573,524 524,155 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,114,298 1,124,644 Accumulated deferred investment tax credits 204,983 215,438 Obligations under capital leases 74,141 92,055 Other 1,019,191 923,409 ---------- ---------- Total 2,412,613 2,355,546 ---------- ---------- Long-term debt 1,678,229 1,702,719 Preferred stock with sinking fund 66,728 68,978 Preference stock 150,000 150,000 Company - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 85,000 85,000 Shareholders' Equity: Preferred stock without sinking fund 51,444 51,444 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares 114,055 114,055 Additional paid-in capital 1,152,575 1,152,575 Retained earnings 203,950 284,165 ---------- ---------- Total 1,522,024 1,602,239 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $6,488,118 $6,488,637 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 139.5 $ 133.5 $ 6.0 4 Commercial 103.2 107.0 (3.8) (4) Industrial 174.6 176.9 (2.3) (1) Governmental 10.7 8.5 2.2 26 ------------------------------- Total retail 428.0 425.9 2.1 - Sales for resale: Associated companies 8.2 4.3 3.9 91 Non-associated companies 27.3 10.8 16.5 153 Other (1) (58.1) 16.7 (74.8) (448) ------------------------------- Total $ 405.4 $ 457.7 ($ 52.3) (11) =============================== Billed Electric Energy Sales (Millions of kWh): Residential 1,948 1,644 304 18 Commercial 1,647 1,530 117 8 Industrial 4,614 4,555 59 1 Governmental 166 114 52 46 ------------------------------- Total retail 8,375 7,843 532 7 Sales for resale: Associated companies 205 152 53 35 Non-associated companies 946 489 457 93 ------------------------------- Total 9,526 8,484 1,042 12 =============================== Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 267.8 $ 267.1 $ 0.7 - Commercial 203.5 212.3 (8.8) (4) Industrial 350.2 354.9 (4.7) (1) Governmental 21.3 16.5 4.8 29 ------------------------------- Total retail 842.8 850.8 (8.0) (1) Sales for resale: Associated companies 10.0 5.5 4.5 82 Non-associated companies 48.8 24.3 24.5 101 Other (1) (64.3) 25.2 (89.5) (355) ------------------------------- Total $ 837.3 $ 905.8 ($ 68.5) (8) =============================== Billed Electric Energy Sales (Millions of kWh): Residential 3,668 3,437 231 7 Commercial 3,088 3,018 70 2 Industrial 8,962 8,720 242 3 Governmental 320 228 92 40 ------------------------------- Total retail 16,038 15,403 635 4 Sales for resale: Associated companies 262 199 63 32 Non-associated companies 1,447 1,152 295 26 ------------------------------- Total 17,747 16,754 993 6 =============================== (1) Includes the effect of the provision for rate refunds. </TABLE>
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months ended June 30, 1998 primarily due to an increase in electric operating revenues and a decrease in operating expenses, partially offset by higher income taxes. Net income increased for the six months ended June 30, 1998 primarily due to a decrease in operating expenses, partially offset by higher income taxes and a decrease in electric operating revenues. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($10.4) ($18.9) Fuel cost recovery (21.2) (67.3) Sales volume/weather 18.0 1.9 Other revenue (including unbilled) 14.1 7.0 Sales for resale 11.4 11.2 ----- ------ Total $11.9 ($66.1) ===== ====== Electric operating revenues increased for the three months ended June 30, 1998 primarily due to increases in sales volume, other revenue (primarily unbilled revenue), and sales for resale, partially offset by lower fuel cost recovery revenues, which do not affect net income, and a decrease in base revenues. Electric operating revenues decreased for the six months ended June 30, 1998, primarily due to decreases in fuel cost recovery revenues and base revenues, partially offset by an increase in sales for resale. Sales volume increased due to significantly warmer weather in the second quarter of 1998. This increase in sales volume was partially offset by the loss of a large industrial customer as well as substantially lower sales to another large industrial customer due to cogeneration. The increase in unbilled revenue is primarily a result of increased sales volume. Sales for resale increased as a result of an increase in sales to associated companies primarily due to changes in generation requirements and availability among the domestic utility companies. Fuel cost recovery revenues decreased due to lower pricing resulting from a change in generation mix. Base revenues decreased due to a base rate reduction that became effective in the third quarter of 1997.
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses decreased for the three months ended June 30, 1998 primarily due to a decrease in purchased power expenses and other operation and maintenance expenses, partially offset by increases in fuel expenses and nuclear refueling outage expenses. Operating expenses decreased for the six months ended June 30, 1998 primarily due to decreases in fuel expenses, purchased power expenses, and other operation and maintenance expenses, partially offset by an increase in nuclear refueling outage expenses. Purchased power expenses decreased due to shifting generation requirements in 1997 as a result of the extended refueling outage at the Waterford 3 nuclear plant. Fuel expenses increased for the three months ended June 30, 1998 as a result of increased generation. The 1997 extended refueling outage at Waterford 3, which resulted in reduced generation, also contributed to this increase. Fuel expenses decreased for the six months ended June 30,1998 due to a shift in mix to nuclear fuel. Other operation and maintenance expenses decreased due to non-refueling outage related contract work and maintenance performed at Waterford 3 in 1997. Nuclear refueling outage expenses increased due to increased outage expenses and a shortened amortization period resulting from the extended refueling outage at Waterford 3 in 1997. Other For the three and six months ended June 30, 1998 and 1997 the effective income tax rates were relatively unchanged. The effective income tax rates for the three months ended June 30, 1998 and 1997 were 40.8% and 41.1%, respectively. The effective income tax rates for the six months ended June 30, 1998 and 1997 were 42.3% and 41.0%, respectively.
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $424,115 $412,263 $780,153 $846,246 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 71,007 61,063 145,709 173,979 Purchased power 101,359 114,557 189,355 210,753 Nuclear refueling outage expenses 5,435 1,324 10,870 5,299 Other operation and maintenance 72,486 82,301 143,510 156,386 Depreciation, amortization, and decommissioning 43,152 41,095 87,230 85,466 Taxes other than income taxes 17,013 17,581 35,471 35,820 Other regulatory charges (credits) (877) 3,521 (1,754) 7,016 Amortization of rate deferrals - 2,910 - 5,736 -------- -------- -------- -------- Total 309,575 324,352 610,391 680,455 -------- -------- -------- -------- Operating Income 114,540 87,911 169,762 165,791 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 459 219 820 437 Miscellaneous - net 229 (276) 2,369 (917) -------- -------- -------- -------- Total 688 (57) 3,189 (480) -------- -------- -------- -------- Interest Charges: Interest on long-term debt 28,848 30,007 57,610 60,090 Other interest - net 1,511 1,276 3,017 3,211 Distributions on preferred securities of subsidiary 1,575 1,575 3,150 3,150 Allowance for borrowed funds used during construction (417) (378) (750) (756) -------- -------- -------- -------- Total 31,517 32,480 63,027 65,695 -------- -------- -------- -------- Income Before Income Taxes 83,711 55,374 109,924 99,616 Income Taxes 34,165 22,767 46,461 40,837 -------- -------- -------- -------- Net Income 49,546 32,607 63,463 58,779 Preferred Stock Dividend Requirements and Other 3,254 3,254 6,507 6,846 -------- -------- -------- -------- Earnings Applicable to Common Stock $46,292 $29,353 $56,956 $51,933 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Six Months ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $63,463 $58,779 Noncash items included in net income: Amortization of rate deferrals - 5,736 Other regulatory charges (credits) (1,754) 7,016 Depreciation, amortization, and decommissioning 87,230 85,466 Deferred income taxes and investment tax credits 1,866 1,343 Allowance for equity funds used during construction (820) (437) Changes in working capital: Receivables (22,000) (11,709) Accounts payable (8,329) (11,107) Taxes accrued 39,706 12,737 Interest accrued (1,037) (10,083) Deferred fuel costs (5,491) - Other working capital accounts (221) (21,691) Other deferred credits (22,396) 4,188 Decommissioning trust contributions and realized change in trust assets (6,000) (8,101) Provision for estimated losses and reserves 2,961 3,951 Other 1,510 (844) -------- -------- Net cash flow provided by operating activities 128,688 115,244 -------- -------- Investing Activities: Construction expenditures (42,204) (36,173) Allowance for equity funds used during construction 820 437 Nuclear fuel purchases - (42,920) Proceeds from sale/leaseback of nuclear fuel - 42,920 -------- -------- Net cash flow used in investing activities (41,384) (35,736) -------- -------- Financing Activities: Proceeds from the issuance of first mortgage bonds 112,556 - Retirement of: First mortgage bonds (150,561) (16,000) Other long-term debt (115) (194) Redemption of preferred stock - (7,500) Changes in short-term borrowings - net - 13,049 Dividends paid: Common stock (24,300) (51,500) Preferred stock (6,507) (6,744) -------- -------- Net cash flow used in financing activities (68,927) (68,889) -------- -------- Net increase in cash and cash equivalents 18,377 10,619 Cash and cash equivalents at beginning of period 49,749 23,746 -------- -------- Cash and cash equivalents at end of period $68,126 $34,365 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $60,913 $68,469 Income taxes $25,657 $17,805 Noncash investing and financing activities: Change in unrealized appreciation of decommissioning trust assets $2,991 $633 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $7,221 $5,148 Temporary cash investments - at cost, which approximates market 60,905 44,601 ---------- ---------- Total cash and cash equivalents 68,126 49,749 Accounts receivable: Customer (less allowance for doubtful accounts of $1.2 million in 1998 and 1997) 73,624 69,566 Associated companies 17,775 15,035 Other 8,504 7,441 Accrued unbilled revenues 76,013 61,874 Deferred fuel costs 2,223 - Accumulated deferred income taxes 11,472 10,994 Materials and supplies - at average cost 83,372 82,850 Deferred nuclear refueling outage costs 16,306 27,176 Prepayments and other 18,301 10,793 ---------- ---------- Total 375,716 335,478 ---------- ---------- Other Property and Investments: Nonutility property 22,525 22,525 Decommissioning trust fund 74,095 65,104 Investment in subsidiary companies - at equity 14,230 14,230 ---------- ---------- Total 110,850 101,859 ---------- ---------- Utility Plant: Electric 5,073,099 5,058,130 Property under capital leases 233,513 233,513 Construction work in progress 70,441 52,632 Nuclear fuel under capital lease 39,872 57,811 Nuclear fuel 1,560 1,560 ---------- ---------- Total 5,418,485 5,403,646 Less - accumulated depreciation and amortization 2,096,117 2,021,392 ---------- ---------- Utility plant - net 3,322,368 3,382,254 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 269,047 278,234 Unamortized loss on reacquired debt 32,707 33,468 Other regulatory assets 29,009 29,991 Other 15,590 14,116 ---------- ---------- Total 346,353 355,809 ---------- ---------- TOTAL $4,155,287 $4,175,400 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $198 $35,300 Accounts payable: Associated companies 46,445 43,508 Other 84,620 95,886 Customer deposits 55,654 55,331 Taxes accrued 64,949 25,243 Interest accrued 33,534 34,571 Dividends declared 3,253 3,253 Deferred fuel costs - 3,268 Obligations under capital leases 16,932 29,232 Other 5,194 8,578 ---------- ---------- Total 310,779 334,170 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 810,300 813,748 Accumulated deferred investment tax credits 131,482 134,276 Obligations under capital leases 22,940 28,579 Deferred interest - Waterford 3 lease obligation 19,408 17,799 Other 100,084 119,519 ---------- ---------- Total 1,084,214 1,113,921 ---------- ---------- Long-term debt 1,338,793 1,338,464 Preferred stock with sinking fund 85,000 85,000 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) (2,321) Retained earnings 79,422 46,766 ---------- ---------- Total 1,266,501 1,233,845 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,155,287 $4,175,400 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 126.9 $ 119.5 $ 7.4 6 Commercial 83.7 85.1 (1.4) (2) Industrial 136.4 169.7 (33.3) (20) Governmental 7.4 8.1 (0.7) (9) ----------------------------- Total retail 354.4 382.4 (28.0) (7) Sales for resale: Associated companies 9.3 0.5 8.8 1760 Non-associated companies 15.8 13.2 2.6 20 Other (1) 44.6 16.1 28.5 177 ----------------------------- Total $ 424.1 $ 412.2 $ 11.9 3 ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,906 1,581 325 21 Commercial 1,275 1,127 148 13 Industrial 3,675 4,268 (593) (14) Governmental 114 110 4 4 ----------------------------- Total retail 6,970 7,086 (116) (2) Sales for resale: Associated companies 207 19 188 989 Non-associated companies 259 220 39 18 ----------------------------- Total 7,436 7,325 111 2 ============================= Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 241.0 $ 252.8 ($ 11.8) (5) Commercial 162.4 174.6 (12.2) (7) Industrial 286.0 357.8 (71.8) (20) Governmental 15.8 17.1 (1.3) (8) ----------------------------- Total retail 705.2 802.3 (97.1) (12) Sales for resale: Associated companies 10.2 0.8 9.4 1175 Non-associated companies 26.9 25.1 1.8 7 Other (1) 37.8 18.0 19.8 110 ----------------------------- Total $ 780.1 $ 846.2 ($66.1) (8) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 3,562 3,304 258 8 Commercial 2,364 2,230 134 6 Industrial 7,315 8,593 (1,278) (15) Governmental 238 229 9 4 ----------------------------- Total retail 13,479 14,356 (877) (6) Sales for resale: Associated companies 235 26 209 804 Non-associated companies 412 360 52 14 ----------------------------- Total 14,126 14,742 (616) (4) ============================= (1) Includes the effect of the provision for rate refunds. </TABLE>
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three and six months ended June 30, 1998 primarily as a result of an increase in electric operating revenues, partially offset by an increase in operating expenses and higher income taxes. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($3.3) ($5.5) Grand Gulf rate rider 9.6 11.0 Fuel cost recovery 10.1 5.9 Sales volume/weather 9.1 10.3 Other revenue (including unbilled) 13.6 16.8 Sales for resale 16.9 22.2 ----- ----- Total $56.0 $60.7 ===== ===== Electric operating revenues increased for the three and six months ended June 30, 1998 primarily due to increases in sales for resale, other revenue (primarily unbilled revenue), fuel cost recovery revenues, Grand Gulf rate rider revenue, and higher sales volume. Sales for resale increased as a result of an increase in sales to associated companies primarily due to changes in generation requirements and availability among the domestic utility companies. The increase in unbilled revenue is primarily a result of increased sales volume and, for the six months ended June 30, 1998, the prior year's unfavorable price variance in fuel revenues that is not occurring in the current year due to the fixed fuel factor. Fuel cost recovery revenues, which do not affect net income, increased due to an MPSC order, effective May 1, 1997, that changed fuel recovery pricing to a fixed fuel factor, subject to annual review. The increases in the Grand Gulf rate rider revenue, which does not affect net income, and in sales volume are primarily due to significantly warmer weather in the second quarter of 1998. Expenses Operating expenses increased for the three and six months ended June 30, 1998 primarily due to an increase in fuel expenses and a decrease in other regulatory credits, partially offset by decreases in purchased power expenses and other operation and maintenance expenses. The increase in fuel expenses is due to increased generation requirements and, for the six months ended June 30, 1998, the shift from higher priced purchased power to lower priced fossil fuel. The decrease in other regulatory credits is a result of the reduction in the under-recovery of Grand Gulf 1 related costs. Other operation and maintenance expenses decreased primarily as a result of higher contract work in the six months ended June 30, 1997 as compared to the same period in 1998.
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other The effective income tax rate of 35.9% for the three months ended June 30, 1998 remained relatively unchanged from the rate of 34.7% for the three months ended June 30, 1997. For the six months ended June 30, 1998 and 1997 the effective income tax rates were 34.1% and 31.7%, respectively. The increase in 1998 is primarily due to the impact of excess deferred taxes on rate deferrals and the amortization of investment tax credits.
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $268,908 $212,892 $473,925 $413,220 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 59,089 26,526 110,401 66,549 Purchased power 72,032 76,215 138,626 146,574 Other operation and maintenance 32,407 33,457 60,230 63,477 Depreciation and amortization 11,079 10,682 22,394 21,381 Taxes other than income taxes 11,043 11,077 22,198 21,413 Other regulatory credits (7,451) (21,172) (22,029) (40,686) Amortization of rate deferrals 34,989 35,712 69,979 71,423 -------- -------- -------- -------- Total 213,188 172,497 401,799 350,131 -------- -------- -------- -------- Operating Income 55,720 40,395 72,126 63,089 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction (20) 286 - 572 Miscellaneous - net 1,004 563 2,031 251 -------- -------- -------- -------- Total 984 849 2,031 823 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 9,885 10,790 19,461 21,413 Other interest - net 865 987 2,160 2,323 Allowance for borrowed funds used during construction (93) (231) (133) (462) -------- -------- -------- -------- Total 10,657 11,546 21,488 23,274 -------- -------- -------- -------- Income Before Income Taxes 46,047 29,698 52,669 40,638 Income Taxes 16,535 10,299 17,963 12,887 -------- -------- -------- -------- Net Income 29,512 19,399 34,706 27,751 Preferred Stock Dividend Requirements and Other 841 1,014 1,684 2,129 -------- -------- -------- -------- Earnings Applicable to Common Stock $28,671 $18,385 $33,022 $25,622 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $34,706 $27,751 Noncash items included in net income: Amortization of rate deferrals 69,979 71,423 Other regulatory credits (22,029) (40,686) Depreciation and amortization 22,394 21,381 Deferred income taxes and investment tax credits (15,721) (13,203) Allowance for equity funds used during construction - (572) Changes in working capital: Receivables (29,624) 6,893 Fuel inventory (532) 2,112 Accounts payable 15,398 (2,733) Taxes accrued 20,395 18,235 Interest accrued (244) (2,204) Other working capital accounts (15,021) (2,896) Other (6,355) 2,122 ------- ------- Net cash flow provided by operating activities 73,346 87,623 ------- ------- Investing Activities: Construction expenditures (18,641) (25,426) Allowance for equity funds used during construction - 572 ------- ------- Net cash flow used in investing activities (18,641) (24,854) ------- ------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds 78,703 64,827 Retirement of: General and refunding mortgage bonds (80,000) - Other long-term debt (20) (15) Redemption of preferred stock - (7,000) Changes in short-term borrowings - net (35,521) (50,253) Dividends paid: Common stock (16,900) (19,600) Preferred stock (1,685) (2,142) ------- ------- Net cash flow used in financing activities (55,423) (14,183) ------- ------- Net increase (decrease) in cash and cash equivalents (718) 48,586 Cash and cash equivalents at beginning of period 6,816 9,498 ------- ------- Cash and cash equivalents at end of period $6,098 $58,084 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $21,100 $24,864 Income taxes (refund) $1,054 ($7,039) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents $6,098 $6,816 Accounts receivable: Customer (less allowance for doubtful accounts of $1 million in 1998 and 1997) 47,255 36,636 Associated companies 7,589 6,842 Other 1,674 4,139 Accrued unbilled revenues 70,716 49,993 Deferred fuel costs 16,584 14,967 Fuel inventory - at average cost 3,918 3,386 Materials and supplies - at average cost 18,409 17,657 Rate deferrals 34,989 104,969 Prepayments and other 17,750 24,896 ---------- ---------- Total 224,982 270,301 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 5,531 5,531 Other - at cost (less accumulated depreciation) 7,674 7,757 ---------- ---------- Total 13,205 13,288 ---------- ---------- Utility Plant: Electric 1,694,718 1,687,400 Construction work in progress 31,300 22,960 ---------- ---------- Total 1,726,018 1,710,360 Less - accumulated depreciation and amortization 675,618 656,828 ---------- ---------- Utility plant - net 1,050,400 1,053,532 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 26,168 22,993 Unamortized loss on reacquired debt 8,428 8,404 Other regulatory assets 102,477 64,827 Other 6,376 6,216 ---------- ---------- Total 143,449 102,440 ---------- ---------- TOTAL $1,432,036 $1,439,561 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $20 $20 Notes payable - associated companies 11,641 47,162 Accounts payable: Associated companies 40,467 36,057 Other 22,264 11,276 Customer deposits 17,120 24,084 Taxes accrued 52,709 32,314 Accumulated deferred income taxes 9,257 44,277 Interest accrued 14,065 14,309 Other 3,104 2,806 ---------- ---------- Total 170,647 212,305 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 267,938 244,464 Accumulated deferred investment tax credits 23,161 23,915 Other 11,862 15,892 ---------- ---------- Total 302,961 284,271 ---------- ---------- Long-term debt 463,477 464,156 Shareholders' Equity: Preferred stock without sinking fund 50,381 50,381 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares 199,326 199,326 Capital stock expense and other (59) (59) Retained earnings 245,303 229,181 ---------- ---------- Total 494,951 478,829 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $1,432,036 $1,439,561 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 83.0 $ 68.7 $ 14.3 21 Commercial 69.7 61.9 7.8 13 Industrial 43.5 40.5 3.0 7 Governmental 6.7 6.4 0.3 5 ------------------------------- Total retail 202.9 177.5 25.4 14 Sales for resale: Associated companies 24.8 10.7 14.1 132 Non-associated companies 7.1 4.3 2.8 65 Other 34.1 20.4 13.7 67 ------------------------------- Total $ 268.9 $ 212.9 $ 56.0 26 =============================== Billed Electric Energy Sales (Millions of kWh): Residential 1,005 830 175 21 Commercial 938 834 104 12 Industrial 790 750 40 5 Governmental 83 77 6 8 ------------------------------- Total retail 2,816 2,491 325 13 Sales for resale: Associated companies 693 233 460 197 Non-associated companies 146 81 65 80 ------------------------------- Total 3,655 2,805 850 30 =============================== Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 157.9 $ 143.9 $ 14.0 10 Commercial 132.5 126.4 6.1 5 Industrial 84.9 83.5 1.4 2 Governmental 13.2 13.1 0.1 1 ------------------------------- Total retail 388.5 366.9 21.6 6 Sales for resale: Associated companies 42.0 21.7 20.3 94 Non-associated companies 11.3 9.4 1.9 20 Other 32.1 15.2 16.9 111 ------------------------------- Total $ 473.9 $ 413.2 $ 60.7 15 =============================== Billed Electric Energy Sales (Millions of kWh): Residential 2,010 1,821 189 10 Commercial 1,774 1,653 121 7 Industrial 1,529 1,473 56 4 Governmental 159 157 2 1 ------------------------------- Total retail 5,472 5,104 368 7 Sales for resale: Associated companies 1,233 430 803 187 Non-associated companies 211 183 28 15 ------------------------------- Total 6,916 5,717 1,199 21 =============================== </TABLE>
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months ended June 30, 1998 primarily due to an increase in electric and gas operating revenues, partially offset by higher income taxes and operating expenses. Net income decreased slightly for the six months ended June 30, 1998 primarily due to an increase in operating expenses, partially offset by an increase in electric operating revenues. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($2.8) ($6.3) Fuel cost recovery 9.2 3.6 Sales volume/weather 6.7 5.0 Other revenue (including unbilled) 3.3 3.1 Sales for resale (2.0) (0.1) ----- ---- Total $14.4 $5.3 ===== ==== Electric operating revenues increased for the three and six months ended June 30, 1998 primarily due to increases in fuel cost recovery revenues, sales volume, and other revenue (primarily unbilled revenue), partially offset by a decrease in base revenues. Fuel cost recovery revenues, which do not affect net income, increased for the three months ended June 30, 1998 due to higher fuel prices and increased generation. For the six months ended June 30, 1998, fuel cost recovery revenues increased primarily due to increased generation. The increase in sales volume is primarily due to significantly warmer weather in the second quarter of 1998. The increase in unbilled revenue is primarily due to increased sales volume. Base revenues decreased primarily due to reductions in residential and commercial rates that went into effect in August 1997. Gas operating revenues increased slightly for the three months ended June 30, 1998 primarily due to a higher unit purchase price for gas purchased for resale. Gas operating revenues decreased slightly for the six months ended June 30, 1998 primarily due to $1.5 million of rate reductions that went into effect in August 1997. Expenses Operating expenses increased for the three and six months ended June 30, 1998 primarily due to an increase in purchased power expenses. This increase is partially offset by a decrease in fuel expenses and gas purchased for resale. Purchased power expenses increased primarily due to increased generation as a result of warmer weather in the second quarter of 1998. Fuel expenses decreased for the three and six months ended June 30, 1998 primarily due to increased under-recovery of fuel costs as a result of increased generation requirements in the second quarter 1998.
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other For the three months ended June 30, 1998 and 1997 the effective income tax rates were 41.0% and 47.7%, respectively. The decrease in 1998 is primarily due to the reversal of previously recorded AFUDC amounts included in depreciation. The effective income tax rate of 44.9% for the six months ended June 30, 1998 remained relatively unchanged from the rate of 45.9% for the six months ended June 30, 1997.
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $106,975 $92,588 $187,457 $182,149 Natural gas 18,131 17,215 51,312 52,610 -------- -------- -------- -------- Total 125,106 109,803 238,769 234,759 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 16,793 25,658 55,684 68,440 Purchased power 52,067 36,382 86,828 72,964 Other operation and maintenance 19,943 17,427 37,086 32,682 Depreciation and amortization 5,298 5,398 11,079 10,591 Taxes other than income taxes 9,237 8,606 18,725 17,492 Other regulatory credits (2,451) (2,059) (4,844) (2,404) Amortization of rate deferrals 8,751 8,991 16,852 16,839 -------- -------- -------- -------- Total 109,638 100,403 221,410 216,604 -------- -------- -------- -------- Operating Income 15,468 9,400 17,359 18,155 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction (10) 80 89 160 Miscellaneous - net (643) (11) 122 20 -------- -------- -------- -------- Total (653) 69 211 180 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 3,429 3,436 6,859 7,059 Other interest - net 236 288 477 579 Allowance for borrowed funds used during construction 8 (63) (68) (126) -------- -------- -------- -------- Total 3,673 3,661 7,268 7,512 -------- -------- -------- -------- Income Before Income Taxes 11,142 5,808 10,302 10,823 Income Taxes 4,565 2,770 4,627 4,967 -------- -------- -------- -------- Net Income 6,577 3,038 5,675 5,856 Preferred Stock Dividend Requirements and Other 241 241 482 482 -------- -------- -------- -------- Earnings Applicable to Common Stock $6,336 $2,797 $5,193 $5,374 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $5,675 $5,856 Noncash items included in net income: Amortization of rate deferrals 16,852 16,839 Other regulatory credits (4,844) (2,404) Depreciation and amortization 11,079 10,591 Deferred income taxes and investment tax credits (2,491) (4,964) Allowance for equity funds used during construction (89) (160) Changes in working capital: Receivables (7,564) 3,129 Accounts payable (885) 6,217 Taxes accrued 2,825 5,471 Interest accrued (383) (631) Deferred fuel and resale gas costs (8,061) 1,804 Other working capital accounts (3,809) (11,069) Other (1,998) (1,520) ------- ------- Net cash flow provided by operating activities 6,307 29,159 ------- ------- Investing Activities: Construction expenditures (7,688) (3,909) Allowance for equity funds used during construction 89 160 ------- ------- Net cash flow used in investing activities (7,599) (3,749) ------- ------- Financing Activities: Retirement of: First mortgage bonds - (12,000) Dividends paid: Common stock - (14,700) Preferred stock (482) (724) ------- ------- Net cash flow used in financing activities (482) (27,424) ------- ------- Net decrease in cash and cash equivalents (1,774) (2,014) Cash and cash equivalents at beginning of period 11,376 17,510 ------- ------- Cash and cash equivalents at end of period $9,602 $15,496 ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $7,500 $7,969 Income taxes - net $4,802 $4,928 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $1,935 $4,321 Temporary cash investments - at cost, which approximates market: Associated companies 2,104 1,918 Other 5,563 5,137 -------- -------- Total cash and cash equivalents 9,602 11,376 Accounts receivable: Customer (less allowance for doubtful accounts of $0.7 million in 1998 and 1997) 29,918 26,913 Associated companies 1,272 1,081 Other 3,341 4,155 Accrued unbilled revenues 21,265 16,083 Deferred electric fuel and resale gas costs 17,445 9,384 Materials and supplies - at average cost 9,193 9,389 Rate deferrals 31,270 35,336 Prepayments and other 7,542 6,087 -------- -------- Total 130,848 119,804 -------- -------- Other Property and Investments: Investment in subsidiary companies - at equity 3,259 3,259 -------- -------- Utility Plant: Electric 508,012 508,338 Natural gas 127,632 122,308 Construction work in progress 24,102 19,184 -------- -------- Total 659,746 649,830 Less - accumulated depreciation and amortization 368,304 355,854 -------- -------- Utility plant - net 291,442 293,976 -------- -------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 51,406 64,192 SFAS 109 regulatory asset - net 1,496 1,202 Unamortized loss on reacquired debt 1,341 1,435 Other regulatory assets 16,675 13,392 Other 866 890 -------- -------- Total 71,784 81,111 -------- -------- TOTAL $497,333 $498,150 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Accounts payable: Associated companies $20,942 $15,922 Other 11,600 17,505 Customer deposits 17,387 16,982 Taxes accrued 8,095 5,270 Accumulated deferred income taxes 13,554 11,544 Interest accrued 4,666 5,049 Provision for rate refund - 3,108 Other 2,384 2,231 -------- -------- Total 78,628 77,611 -------- -------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 56,969 61,000 Accumulated deferred investment tax credits 7,145 7,396 Accumulated provision for property insurance 15,487 15,487 Other 13,550 16,327 -------- -------- Total 93,151 100,210 -------- -------- Long-term debt 168,985 168,953 Shareholders' Equity: Preferred stock without sinking fund 19,780 19,780 Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares 33,744 33,744 Additional paid-in capital 36,294 36,294 Retained earnings subsequent to the elimination of the accumulated deficit on November 30, 1988 66,751 61,558 -------- -------- Total 156,569 151,376 -------- -------- Commitments and Contingencies (Notes 1 and 2) TOTAL $497,333 $498,150 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 36.0 $ 27.2 $ 8.8 32 Commercial 35.4 32.6 2.8 9 Industrial 6.4 5.7 0.7 12 Governmental 14.3 12.9 1.4 11 ------------------------------- Total retail 92.1 78.4 13.7 17 Sales for resale: Associated companies 1.8 5.1 (3.3) (65) Non-associated companies 3.2 1.9 1.3 68 Other (1) 9.9 7.2 2.7 38 ------------------------------- Total $107.0 $ 92.6 $ 14.4 16 =============================== Billed Electric Energy Sales (Millions of kWh): Residential 481 386 95 25 Commercial 521 488 33 7 Industrial 133 125 8 6 Governmental 250 239 11 5 ------------------------------- Total retail 1,385 1,238 147 12 Sales for resale: Associated companies 57 178 (121) (68) Non-associated companies 57 38 19 50 ------------------------------- Total 1,499 1,454 45 3 =============================== Six Months Ended Increase/ Description 1998 1997 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 60.9 $ 55.9 $ 5.0 9 Commercial 66.7 68.9 (2.2) (3) Industrial 12.3 11.9 0.4 3 Governmental 27.0 26.5 0.5 2 ------------------------------- Total retail 166.9 163.2 3.7 2 Sales for resale: Associated companies 5.2 7.0 (1.8) (26) Non-associated companies 5.3 3.6 1.7 47 Other (1) 10.0 8.3 1.7 20 ------------------------------- Total $187.4 $ 182.1 $ 5.3 3 =============================== Billed Electric Energy Sales (Millions of kWh): Residential 836 760 76 10 Commercial 980 966 14 1 Industrial 251 239 12 5 Governmental 469 460 9 2 ------------------------------- Total retail 2,536 2,425 111 5 Sales for resale: Associated companies 180 225 (45) (20) Non-associated companies 95 61 34 56 ------------------------------- Total 2,811 2,711 100 4 =============================== (1) Includes the effect of the provision for rate refunds. </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, 1998 remained relatively unchanged as compared to the same periods in 1997. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 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. See Note 2 to the Form 10- K for a discussion of System Energy's proposed rate increase, which is subject to refund. Expenses Operating expenses decreased for the three and six months ended June 30, 1998 primarily due to lower fuel expenses, other operation and maintenance expenses, and depreciation, amortization, and decommissioning expenses. Fuel expenses decreased because of a scheduled nuclear refueling outage in April and May of this year. The decrease in other operation and maintenance expenses was due primarily to the impact of various materials and supplies refunds and adjustments and an insurance refund. Depreciation, amortization, and decommissioning expenses were lower as a result of the recognition of additional depreciation in the three and six months ended June 30, 1997 associated with the sale and leaseback in 1989 of a portion of Grand Gulf 1. Other Interest on long-term debt decreased for the three and six months ended June 30, 1998 as a result of the redemption of a series of First Mortgage Bonds in April 1998. For the three and six months ended June 30, 1998 and 1997 the effective income tax rates were relatively unchanged. The effective income tax rates for the three months ended June 30, 1998 and 1997 were 45.2% and 44.1%, respectively. The effective income tax rates for the six months ended June 30, 1998 and 1997 were 45.2% and 44.2%, respectively.
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $144,336 $161,021 $292,942 $316,682 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 6,183 12,441 17,030 24,458 Nuclear refueling outage expenses 4,177 3,907 8,776 7,624 Other operation and maintenance 22,491 28,407 43,772 48,797 Depreciation, amortization, and decommissioning 32,432 35,917 65,590 74,713 Taxes other than income taxes 6,876 6,781 13,638 13,206 -------- -------- -------- -------- Total 72,159 87,453 148,806 168,798 -------- -------- -------- -------- Operating Income 72,177 73,568 144,136 147,884 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 528 280 1,081 561 Miscellaneous - net 2,507 1,919 5,612 3,241 -------- -------- -------- -------- Total 3,035 2,199 6,693 3,802 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 28,875 31,103 58,451 61,861 Other interest - net 1,614 1,830 3,267 3,611 Allowance for borrowed funds used during construction (470) (279) (946) (557) -------- -------- -------- -------- Total 30,019 32,654 60,772 64,915 -------- -------- -------- -------- Income Before Income Taxes 45,193 43,113 90,057 86,771 Income Taxes 20,414 19,020 40,691 38,333 -------- -------- -------- -------- Net Income $24,779 $24,093 $49,366 $48,438 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $49,366 $48,438 Noncash items included in net income: Depreciation, amortization, and decommissioning 65,590 74,713 Deferred income taxes and investment tax credits (16,796) (23,444) Allowance for equity funds used during construction (1,081) (561) Changes in working capital: Receivables 195 (7,290) Accounts payable (9,691) 5,297 Taxes accrued (7,374) 8,374 Interest accrued (7,560) 3,212 Other working capital accounts (9,377) 6,353 Decommissioning trust contributions and realized change in trust assets (11,529) (11,190) FERC Settlement - refund obligation (2,491) (2,199) Provision for estimated losses and reserves 37,147 20,699 Other 6,772 9,183 -------- -------- Net cash flow provided by operating activities 93,171 131,585 -------- -------- Investing Activities: Construction expenditures (19,472) (8,466) Allowance for equity funds used during construction 1,081 561 Nuclear fuel purchases (30,476) (39) Proceeds from sale/leaseback of nuclear fuel 30,476 39 -------- -------- Net cash flow used in investing activities (18,391) (7,905) -------- -------- Financing Activities: Retirement of first mortgage bonds (60,000) - Common stock dividends paid (47,800) (58,700) -------- -------- Net cash flow used in financing activities (107,800) (58,700) -------- -------- Net increase (decrease) in cash and cash equivalents (33,020) 64,980 Cash and cash equivalents at beginning of period 206,410 92,315 -------- -------- Cash and cash equivalents at end of period $173,390 $157,295 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $61,012 $57,634 Income taxes $54,956 $42,853 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $1,661 ($1,041) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $401 $792 Temporary cash investments - at cost, which approximates market: Associated companies 47,472 55,891 Other 125,517 149,727 ---------- ---------- Total cash and cash equivalents 173,390 206,410 Accounts receivable: Associated companies 78,769 79,262 Other 4,438 4,140 Materials and supplies - at average cost 61,512 63,782 Deferred nuclear refueling outage costs 18,317 7,777 Prepayments and other 4,930 3,658 ---------- ---------- Total 341,356 365,029 ---------- ---------- Other Property and Investments: Decommissioning trust fund 99,102 85,912 ---------- ---------- Utility Plant: Electric 3,025,241 3,025,389 Electric plant under leases 440,970 440,970 Construction work in progress 55,888 36,445 Nuclear fuel under capital lease 82,807 64,190 ---------- ---------- Total 3,604,906 3,566,994 Less - accumulated depreciation and amortization 1,144,753 1,086,820 ---------- ---------- Utility plant - net 2,460,153 2,480,174 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 231,353 243,027 Unamortized loss on reacquired debt 48,186 51,386 Other regulatory assets 193,666 192,290 Other 13,572 14,213 ---------- ---------- Total 486,777 500,916 ---------- ---------- TOTAL $3,387,388 $3,432,031 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDER'S EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $70,000 $70,000 Accounts payable: Associated companies 25,941 29,131 Other 12,621 19,122 Taxes accrued 68,301 75,675 Interest accrued 34,762 42,322 Obligations under capital leases 36,156 41,977 Other 1,506 1,341 ---------- ---------- Total 249,287 279,568 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 533,363 562,051 Accumulated deferred investment tax credits 98,433 100,171 Obligations under capital leases 46,651 22,213 FERC Settlement - refund obligation 45,809 48,300 Other 288,074 227,847 ---------- ---------- Total 1,012,330 960,582 ---------- ---------- Long-term debt 1,274,272 1,341,948 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 62,149 60,583 ---------- ---------- Total 851,499 849,933 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $3,387,388 $3,432,031 ========== ========== See Notes to Financial Statements. </TABLE>
ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The following discussion compares the results of operations for the three and six months ended June 30, 1998 with the results of operations for the same periods in 1997. The six months ended June 30, 1997 includes five months of results of operations for London Electricity due to its acquisition effective February 1, 1997. Net Income Net income increased for the three and six months ended June 30, 1998 primarily due to increases in operating revenues, partially offset by increases in operating expenses and interest charges for the six month periods. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1998 and 1997 are discussed under "Revenues", "Expenses", and "Other" below. Revenues The changes in operating revenues for the three and six months ended June 30, 1998 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Electricity distribution $4 $51 Electricity supply 8 174 Other 16 33 Intra-business (3) (58) --- ---- Total $25 $200 === ==== Two principal factors determine the amount of revenues produced by the main electricity distribution and supply businesses: the unit prices of the electricity distributed and supplied (which are controlled by the Distribution Price Control Formula and Supply Price Control Formula, respectively, which determine the maximum average price per unit (kilowatt hour) of electricity that may be charged) and the number of electricity units distributed and supplied which depends on the demand of London Electricity's customers for electricity within its Franchise Area. Demand varies based upon weather conditions and economic activity. London Electricity is expected to have the exclusive right to supply all franchise supply customers in its Franchise Area until late 1998. Revenues from the distribution business increased for both the three and six months ended June 30, 1998. For the three month period, the increase was due to an increase in the units distributed. The increase for the six month period was principally due to an increase in units distributed as a result of there being six months of London Electricity operations compared to only five months during the same period in 1997. Partially offsetting these factors were 3% distribution price reductions effective April 1, 1997 and April 1, 1998. Franchise supply customers, who are generally residential and small commercial customers, comprised 58% and 60% of total supply sales volume for the three and six months ended June 30, 1998, respectively. The volume of unit sales of electricity for franchise supply customers is influenced largely by the number of customers in London Electricity's Franchise Area, weather conditions and prevailing economic conditions. Unit sales to non-franchise supply customers, who are typically large commercial and industrial businesses, constituted 42% and 40% of total sales volume for the three and six months ended June 30, 1998, respectively. Sales to non-franchise supply customers are determined primarily by the success of the supply business in contracting to supply
ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS customers with electricity both inside and outside of London Electricity's Franchise Area. Such sales have declined as a percentage of the total supply sales mix from 46% and 45% for the comparable periods of 1997. During the three months ended June 30, 1998, the number of electricity units supplied decreased by 5% compared to the same period in 1997 while total revenues produced by the supply business increased by 2%. Sales volume increased by 3% for franchise customers but decreased by 14% for non-franchise customers for the three months ended June 30, 1998. The decrease in sales volume for non-franchise customers was due to a focus on higher profit margin customers. During the six months ended June 30, 1998, the number of electricity units supplied increased by 17% due to the additional month included in 1998 results. Volume increased for both franchise supply customers (27%) and non-franchise supply customers (5%) for the six months of 1998 compared with 1997. Other revenues increased for the three and six month periods ended June 30, 1998. The increase for the three month period was attributable primarily to increased marketing of natural gas to retail customers. The additional increase in other revenues for the six month period is due to six months of London Electricity operations in 1998 compared to five months during the same period in 1997. Expenses Operating expenses decreased for the three months ended June 30, 1998 primarily due to reversal of a valuation allowance on an investment and the start of amortization of the provision for an unfavorable long- term purchased power contract. The valuation allowance was originally recorded in the quarters ended December 1997 and March 1998. Management subsequently determined that reversal of a portion of such allowance was appropriate based on improved prospects for recovery of this investment. The unfavorable long-term contract provision was established at the time of the acquisition of London Electricity. Amortization of this provision offsets a portion of the purchased power costs related to this contract. The decreases in operating expenses noted above were partially offset by increases in purchased power costs and in depreciation and amortization expense. Operating expenses increased for the six months ended June 30, 1998 due principally to one additional month of operations included in 1998 compared to 1997. Other Interest charges increased for the three and six months ended June 30, 1998, compared to the same periods in 1997, due principally to an increase in the average level of debt and preferred securities outstanding during 1998 compared to 1997. The increase in average debt levels was due principally to the acquisition of London Electricity effective February 1, 1997 which was not fully funded until May 1997. Such increase was partially offset by the November 1997 decrease in debt due to the transfer of a $114 million facility to Entergy London's parent in exchange for additional equity. Also, interest expense increased for the six months ended June 30, 1998 due to one additional month of operations included in 1998 compared to 1997. Other income decreased for the three months ended June 30, 1998 due principally to a decrease in gains on disposition of property. The effective income tax rate for the three months ended June 30, 1998 and 1997 were 31.1% and 30.5%, respectively. The rates for the six months ended June 30, 1998 and 1997 were 31.0% and 33.1%, respectively. The decrease in 1998 for the six months period is principally due to the reduction in the UK corporation tax rate from 33% to 31%, effective as of April 1, 1997.
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) Three Months Ended Six Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $479,003 $453,968 $1,029,791 $829,924 -------- -------- ---------- -------- Operating Expenses: Purchased power 296,339 289,700 663,235 552,998 Depreciation and amortization 35,274 32,936 69,020 53,697 Other operation and maintenance costs 73,180 85,603 167,365 138,391 -------- -------- ---------- -------- Total 404,793 408,239 899,620 745,086 -------- -------- ---------- -------- Operating Income 74,210 45,729 130,171 84,838 -------- -------- ---------- -------- Other Income: Interest and dividend income 2,727 3,362 4,151 3,684 Gain on disposition of property 2,681 6,579 5,088 11,029 Miscellaneous - net 3,409 5,643 8,318 2,802 -------- -------- ---------- -------- Total 8,817 15,584 17,557 17,515 -------- -------- ---------- -------- Interest Charges: Distributions on preferred securities of subsidiary 6,469 - 12,938 - Other interest - net 43,099 44,612 84,204 65,051 -------- -------- ---------- -------- Total 49,568 44,612 97,142 65,051 -------- -------- ---------- -------- Income Before Income Taxes 33,459 16,701 50,586 37,302 Income Taxes 10,410 5,102 15,660 12,344 -------- -------- ---------- -------- Net Income 23,049 11,599 34,926 24,958 Other comprehensive income: Foreign currency translation adjustments (2,031) 5,798 10,224 8,166 -------- -------- ---------- -------- Comprehensive Income $21,018 $17,397 $45,150 $33,124 ======== ======== ========== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net Income $34,926 $24,958 Noncash items included in net income: Depreciation and amortization 69,020 53,697 Deferred income taxes 7,216 63,249 Imputed interest on parent company debt 55,702 - Changes in assets and liabilities: Inventory (1,441) 1,340 Accounts receivable and unbilled revenue 125,659 21,602 Other receivables 16,953 10,429 Prepayments and other (1,109) (3,760) Long-term receivables and other (8,903) (2,652) Accounts payable (76,281) 1,656 Income taxes accrued 4,932 (70,403) Interest accrued 228 10,529 Deferred revenue and other current liabilities 4,388 15,056 Other liabilities (64,637) 2,438 Other (1,402) 16,531 -------- -------- Net cash flow provided by operating activities 165,251 144,670 -------- -------- Investing Activities: Construction expenditures (89,649) (59,609) Acquisition of London Electricity, net of cash acquired - (1,980,631) Other investments (4,406) 21,654 -------- -------- Net cash flow used in investing activities (94,055) (2,018,586) -------- -------- Financing Activities: Proceeds from the issuance of: Bank notes and other long-term debt - 1,691,201 Common Stock - 391,953 Retirement of long-term debt (13,330) - Common stock dividends paid (53,184) - Changes in short-term borrowings - net 15,264 (153,154) -------- -------- Net cash flow provided by (used in) financing activities (51,250) 1,930,000 -------- -------- Effect of exchange rates on cash and cash equivalents 1,366 1,263 -------- -------- Net increase in cash and cash equivalents 21,312 57,347 Cash and cash equivalents at beginning of period 44,388 - -------- -------- Cash and cash equivalents at end of period $65,700 $57,347 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $75,193 $27,391 Income taxes - net $8,251 $9,893 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> Current Assets: <C> <C> Cash and cash equivalents: Cash $6,396 $ - Temporary cash investments - at cost, which approximates market 59,304 44,388 ---------- ---------- Total cash and cash equivalents 65,700 44,388 Notes receivable 4,964 7,364 Accounts receivable: Customer (less allowance for doubtful accounts of $21.1 million in 1998 and $19.3 million in 1997) 140,195 139,265 Other 38,471 52,374 Accrued unbilled revenue 140,480 262,818 Accumulated deferred income taxes 47,113 12,401 Inventory 15,298 13,650 Prepayments and other 14,935 13,623 ---------- ---------- Total 467,156 545,883 ---------- ---------- Property, Plant, and Equipment: Property, plant and equipment 2,472,070 2,353,181 Less - accumulated depreciation 139,870 90,021 ---------- ---------- Property, plant, and equipment - net 2,332,200 2,263,160 ---------- ---------- Other Property, Investments, and Assets: Investments, long-term 16,028 11,413 Distribution license (net of accumulated amortization of $48.8 million in 1998 and $25.6 million in 1997) 1,330,902 1,327,312 Long-term receivables 17,413 17,172 Prepaid pension asset 252,985 241,216 Other 10,839 10,079 ---------- ---------- Total 1,628,167 1,607,192 ---------- ---------- TOTAL $4,427,523 $4,416,235 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS June 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDER'S EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Currently maturing long-term debt $21,894 $33,814 Notes payable 259,608 240,794 Accounts payable 277,606 349,821 Customer deposits 27,552 24,946 Taxes accrued 127,666 120,981 Interest accrued 14,631 14,201 Other 732 805 ---------- ---------- Total 729,689 785,362 ---------- ---------- Other Liabilities: Accumulated deferred income taxes 1,051,684 995,865 Other 240,893 299,775 ---------- ---------- Total 1,292,577 1,295,640 ---------- ---------- Long-term debt 1,691,757 1,669,401 Company-obligated redeemable preferred securities of subsidiary partnership holding solely junior subordinated deferrable debentures 300,000 300,000 Shareholders' Equity: Common stock, BPS1 par value, 901,000,000 shares authorized, 877,359,785 shares issued and outstanding (less Entergy UK Limited debt adjustment of $1,351.5 million) 114,000 114,000 Additional paid-in capital 391,981 391,981 Accumulated deficit (94,946) (132,390) Cumulative foreign currency translation 2,465 (7,759) ---------- ---------- Total 413,500 365,832 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,427,523 $4,416,235 ========== ========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. COMMITMENTS AND CONTINGENCIES Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) See "Cajun - Coal Contracts" in Note 9 of the Form 10-K for information relating to the declaratory judgment action filed by Entergy Gulf States against the coal suppliers to Big Cajun 2, a coal-fired power station located in Point Coupee Parish, Louisiana, of which Entergy Gulf States owns a 42% undivided interest in Unit 3. Entergy Gulf States filed a similar petition for a declaratory judgment against the rail and barge companies that transport the coal from Wyoming to Big Cajun 2. A motion for summary judgment in that proceeding was filed by Entergy Gulf States and denied by the Cajun bankruptcy judge. Concurrently with this denial, the bankruptcy judge filed a report with the district court, recommending that the appeal by the coal suppliers be remanded for reconsideration by the bankruptcy judge in light of his decision in the coal transporters' action. The district court remanded the declaratory judgment proceeding against the coal suppliers back to the bankruptcy court, and a trial was held on the issue of liability of Entergy Gulf States to both the coal suppliers and transporters. No assurance can be given regarding the timing or outcome of this proceeding. Collectively, the coal suppliers and transporters have asserted claims in the Cajun bankruptcy case that exceed $1.6 billion. Entergy Gulf States believes these claims to be significantly exaggerated. The coal suppliers and transporters allege that Entergy Gulf States, as a joint venturer with Cajun in Big Cajun 2, should be responsible under Louisiana law for 50% of their alleged claims against Cajun, despite Entergy Gulf States only owning 14% of the entire power station. Entergy Gulf States believes this position is totally without merit and that it has no liability to either the coal suppliers or transporters. Entergy Gulf States' position is that it was not engaged in a joint venture with Cajun but rather that Cajun was the operator of Unit 3 in which Entergy Gulf States owns an undivided interest. Whether liability will ultimately be asserted against Entergy Gulf States by the coal suppliers and transporters depends upon which plan of reorganization is confirmed in the Cajun bankruptcy case. Three competing plans of reorganization have been filed in the bankruptcy case, two of which contain settlements with the coal suppliers and transporters that would satisfy their claims. The district judge disqualified the third plan of reorganization, which does not contain a settlement with the coal suppliers and transporters, in June 1998. The proponent of that plan appealed the decision of the district judge, including the judge's decision to deny a stay of the proceeding pending appeal. The United States Court of Appeals for the Fifth Circuit has ordered a stay of the order of the district court and the plan confirmation proceedings, and heard oral argument on the appeal on August 4, 1998. No assurance can be given regarding the timing or outcome of this appeal. Capital Requirements and Financing (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, Entergy London, and System Energy) See Note 9 in the Form 10-K for information on the domestic utility companies', System Energy's, and Entergy London's construction expenditures (excluding nuclear fuel) for the years 1998, 1999, and 2000 and long-term debt and preferred stock maturities and cash sinking fund requirements for the period 1998-2000. 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 in the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, the disposal of spent nuclear fuel, other high-level radioactive waste, and decommissioning costs associated with ANO 1, ANO 2, River Bend, Waterford 3, and Grand Gulf 1. The owner/licensees of each of Entergy's five nuclear units previously participated in a private insurance program that provides coverage for certain worker tort claims filed for bodily injury caused by radiation exposure. The program continues to provide for a maximum aggregate assessment of approximately $16 million for the five nuclear units in the event that losses exceed accumulated reserve funds. ANO Matters (Entergy Corporation and Entergy Arkansas) See Note 9 in the Form 10-K for information on cracks in a number of steam generator tubes at ANO 2 that were discovered and repaired during an outage in March 1992. Further repairs were conducted at subsequent refueling and mid-cycle outages, including the most recent mid-cycle outage in March 1998. In March 1998, Entergy Arkansas filed a Petition for Declaratory Order and Approval of New Depreciation Rates with the APSC, requesting approval of the steam generator replacement project and appropriate revised depreciation rates. Environmental Issues (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, 1998, a remaining recorded liability of $20 million existed relating to the clean up of the remaining 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 (LDEQ) issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana has determined that certain of its power plant wastewater impoundments were affected by these regulations and chose to upgrade or close them. Cumulative expenditures relating to the upgrades and closures of wastewater impoundments were $7.1 million as of June 30, 1998. A remaining recorded liability in the amount of $6.7 million existed at June 30, 1998, for wastewater upgrades and closures. Completion of this work is pending LDEQ approval. 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, which were refinanced in 1997. 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. 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, 1998. 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 in the Form 10-K for 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, Entergy Louisiana, and Entergy New Orleans) Entergy Corporation, Entergy Louisiana and Entergy New Orleans are defendants in numerous lawsuits filed in Louisiana state court on behalf of approximately 147 plaintiffs who claim that they were illegally terminated from their jobs due to discrimination on the basis of age. The plaintiffs requested that the court certify the matter as a class action. In August 1997, the district court certified the case as a class action. The district court decision to certify the class action was reversed by the Louisiana Fifth Circuit Court of Appeal in April 1998. No assurance can be given as to the timing or outcome of these proceedings. (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. These plaintiffs have appealed that decision. The jury did find that Entergy had intentionally discriminated against the remaining five plaintiffs on the basis of age. Entergy concluded settlements with these five plaintiffs during the first quarter of 1998. The remaining lawsuits have predominately either been settled for nominal amounts or decided by summary judgment in favor of Entergy. However, certain plaintiff appeals are still pending. NOTE 2. RATE AND REGULATORY MATTERS River Bend (Entergy Corporation and Entergy Gulf States) See Note 2 to the Form 10-K for information related to previous developments in the original Entergy Gulf States rate proceeding in 1988 seeking recovery of River Bend plant investment and related deferred costs. On March 13, 1998, the PUCT issued an order disallowing recovery of $1.4 billion of company-wide abeyed plant costs and approximately $157 million of Texas retail jurisdiction deferred River Bend operating and carrying costs (Abeyed Deferrals). On June 30, 1998, the PUCT affirmed its March 1998 decision on Motions for Rehearing, and issued an order to that effect on July 8, 1998. Entergy Gulf States has again appealed the PUCT's decision in the Texas courts. Based on advice of counsel, management believes that it is probable that the matter will be remanded again to the PUCT for further ruling on the prudence of the abeyed plant costs, and it is reasonably possible that some portion of these costs will be included in rate base. Therefore, management believes that the reserves discussed below in "Retail Rate Proceedings, Filings with the PUCT," are adequate to reflect the probable outcome of the abeyed plant costs proceeding. The Texas share of these costs, which is not currently in rates, is approximately $624 million, based on 1988 costs and the jurisdictional allocation included in current rates. As of June 30, 1998, 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 $11 million and $246 million, respectively. On April 14, 1998, an ALJ issued a proposal for decision (PFD) in the pending judicial remand of the PUCT's 1988 decision to require Entergy Gulf States to use tax benefits generated by disallowed expenses to reduce rates. The PFD called for recovery of $100.1 million plus carrying costs over a period not to exceed seven years. Entergy Gulf States believes that additional amounts should be allowed to account for tax liabilities that will result from the recovery and for certain other matters. On June 30, 1998, the PUCT adjusted the PFD to call for the recovery of $74 million primarily by reducing the allowed carrying costs from the overall rate of return to the amount allowed for the over and under billing for utility service. These costs were used to offset the retroactive rate refund discussed below. Retail Rate Proceedings Filings with the PUCT (Entergy Corporation and Entergy Gulf States) On June 30, 1998, the PUCT began its deliberations on the Entergy Gulf States' rate case filed in November 1996 based on the merits of the record established in that case, thereby not accepting settlements filed in March and June by Entergy Gulf States and various intervenor groups. On July 22, 1998, the PUCT issued an order reducing Entergy Gulf States' Texas rates by $122 million annually, offset through May 1999 by recovery of accounting order deferrals, resulting in a net reduction of $81 million through that date. The PUCT also ordered a refund of $82 million. This refund is calculated as a retroactive rate reduction and service quality refund to June 1, 1996, offset by the recovery of the accounting order deferrals and actual taxes paid. Entergy Gulf States established reserves of approximately $381 million ($227 million net of taxes) in the fourth quarter of 1997 to reflect the probable outcome of the rate case and abeyed plant cost proceedings based on management's estimates of the effects thereof. Entergy Gulf States recorded additional reserves of $101.3 million ($60.3 million net of taxes) for the retroactive rate actions for the six months ended June 30, 1998 based on management's estimates. The results of operations of Entergy Gulf States for the three and six months ended June 30, 1998 reflected these corresponding charges in operating revenues. The PUCT's July 22, 1998 order, if sustained, will have material adverse consequences on Entergy Gulf States' revenues and net income. Entergy Gulf States will file a motion for reconsideration with the PUCT. Entergy Gulf States plans to seek such further remedies as may be available to it, including appealing the order if the motion for reconsideration fails to alter what Entergy Gulf States believes is an incorrect result based on the evidence before the PUCT. On July 29, 1998, a Texas state district court granted Entergy Gulf States' request for a temporary restraining order until August 12, 1998 to prevent enforcement of the PUCT's July 22, 1998 order. Additionally, Entergy Gulf States has a hearing on August 10, 1998 to determine if a temporary injunction against enforcement of the PUCT's order should also be granted. Included in the rulings discussed above, the PUCT disallowed recovery of approximately $49 million of Entergy's affiliate costs allocated to Entergy Gulf States in Texas. Entergy's affiliate costs result from managing Entergy Gulf States' fossil generating plants and transmission and distribution systems, managing Entergy Gulf States' nuclear plant, as well as providing human resources, accounting, and other necessary services to Entergy Gulf States and Entergy Corporation's other electric utility subsidiaries. The PUCT has also issued proposed rules governing the affiliate transactions of Texas utility companies, including Entergy Gulf States, with their affiliated companies. Entergy Gulf States filed comments on the rules in June 1998. Hearings concerning the proposed rules were conducted by the PUCT in July 1998. The rules, if adopted in their proposed form, could severely restrict the type and extent of services provided to Entergy Gulf States by Entergy Services and Entergy Operations, and will result in higher costs to Entergy Gulf States for equivalent services. It is not certain when or in what form the rules will be adopted. Filings with the LPSC (Entergy Corporation and Entergy Gulf States) On May 30, 1997, Entergy Gulf States filed its fourth post-Merger earnings analysis with the LPSC. In July 1998, the LPSC and Entergy Gulf States agreed to implement an $18 million rate reduction for Entergy Gulf States residential customers in Louisiana. This rate reduction is effective July 29, 1998. Proceedings on remaining issues in the second, third, and fourth post-Merger earnings analyses will continue. (Entergy Corporation and Entergy Louisiana) Entergy Louisiana filed annual formula rate plan filings with the LPSC in April 1996 and May 1997. The LPSC determined in July 1998 that the annual formula rate plan filings for Entergy Louisiana will be extended for an additional three years, through an April 2000 filing for the 1999 test year. Filings with the MPSC (Entergy Corporation and Entergy Mississippi) On March 15, 1998, Entergy Mississippi filed its annual earnings review with the MPSC under its formula rate plan for the 1997 test year. In April 1998, the MPSC issued an order approving a prospective rate reduction of $6.6 million. This rate reduction went into effect May 1, 1998. Filings with the Council (Entergy Corporation and Entergy New Orleans) Hearings on the ratemaking issues in Entergy New Orleans' September 1997 cost of service and revenue requirement filing were held in July 1998. A ruling from the Council is expected in the fall of 1998. Grand Gulf Accelerated Recovery Tariff In April 1998, FERC approved the Grand Gulf Accelerated Recovery Tariff that Entergy Arkansas filed as part of the settlement agreement, which was approved by the APSC in December 1997. The tariff was designed to allow Entergy Arkansas to pay down a portion of its Grand Gulf obligation in advance of the implementation to retail access in Arkansas. The tariff will go into effect January 1, 1999. See Note 2 to the Form 10-K for a discussion of the settlement agreement with the APSC. River Bend Cost Deferrals (Entergy Corporation and Entergy Gulf States) Entergy Gulf States deferred approximately $369 million of River Bend operating and purchased power costs, depreciation, and accrued carrying charges, pursuant to a 1986 PUCT accounting order. Approximately $182 million of these costs were being amortized over a 20- year period, and the remaining $187 million was written off in the first quarter of 1996 in accordance with SFAS 121. As of June 30, 1998, the unamortized balance of the remaining costs was $103 million. These accounting order deferrals have been given accelerated recovery in the July 22, 1998 PUCT order discussed above. For further discussion, see Retail Rate Proceedings above. NOTE 3. COMMON STOCK (Entergy Corporation) During the six months ended June 30, 1998, Entergy Corporation issued 172,348 shares of its previously repurchased common stock to satisfy stock options exercised and stock purchases under its Equity Ownership Plan. In addition, Entergy Corporation received proceeds of $6.5 million from the issuance of 243,745 shares of common stock under its dividend reinvestment and stock purchase plan during the six months ended June 30, 1998. NOTE 4. LONG-TERM DEBT (Entergy Gulf States and Entergy New Orleans) (Entergy Gulf States) On July 1, 1998, Entergy Gulf States redeemed, prior to maturity, $21.6 million of 7% Parish of Iberville Pollution Control Revenue Refunding Bonds, 1976 Series A, due 2006. Proceeds from the issuance in May 1998 of $21.6 million of 5.7% Parish of Iberville Pollution Control Revenue Refunding Bonds due 2014 were used for this redemption. (Entergy New Orleans) On July 14, 1998, Entergy New Orleans issued $30 million of 7% Series First Mortgage Bonds due 2008. The proceeds will be used in August to redeem $30 million of 8.67% General and Refunding Mortgage Bonds due 2005. NOTE 5. RETAINED EARNINGS (Entergy Corporation) On August 2, 1998, Entergy Corporation's Board of Directors declared a common stock dividend of $.30 per share, payable on September 1, 1998, to holders of record on August 12, 1998. NOTE 6. ACCOUNTING ISSUES (Entergy Corporation and Entergy London) New Accounting Standards - In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for Entergy in 2000. This statement requires that all derivatives be recognized in the statement of financial position as either assets or liabilities and measured at fair value. The statement also requires the designation and reassessment of all hedging relationships. The changes in fair value of derivatives will be recognized in earnings or in comprehensive income, depending on the type of hedge relationship involved. The adoption of SFAS 133 is not expected to have a material effect on the financial position, results of operations, or cash flows of Entergy Corporation or Entergy London. In early 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which will be effective for Entergy in 1999. This SOP requires that computer software costs that are incurred in the preliminary project stage be expensed as incurred. Once the capitalization criteria of the SOP have been met, external direct cost of materials and services used in developing or obtaining internal use computer software, as well as payroll and payroll-related costs of employees (to the extent of time spent directly on internal use computer software projects), and interest costs incurred in developing such computer software should be capitalized. Training costs and data conversion costs should be expensed as incurred, with certain exceptions. The adoption of SOP 98-1 is not expected to have a material effect on the financial position, results of operations, or cash flows of Entergy Corporation. NOTE 7. SUBSEQUENT EVENT (Entergy Corporation and Entergy London) On August 2, 1998, Entergy's Board of Directors approved a new strategic direction for Entergy that includes the expected sale of several businesses over the next eighteen months. These businesses include London Electricity, CitiPower Pty., Entergy Security, Inc., Entergy Integrated Solutions, Inc., and certain portions of Entergy's telecommunications businesses. These businesses collectively represent $5.8 billion of Entergy's total assets as of June 30, 1998 and $73.3 million of Entergy's net income for the six months then ended. Management believes that the sale price of these businesses will exceed their net book value at June 30, 1998. Accordingly, no adjustment has been recorded at June 30, 1998 for the carrying amount of these businesses in the accompanying financial statements. __________________________________ In the opinion of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and Entergy London, 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 the domestic utility companies, System Energy, and Entergy London is subject to seasonal fluctuations with the peak periods occurring during the third quarter for the domestic utilities companies and System Energy and occurring during the first quarter for Entergy London. 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. Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) See "Cajun - Coal Contracts" in Note 9 of the Form 10-K for information relating to the declaratory judgment action filed by Entergy Gulf States and the counterclaims filed by the defendants. See "Cajun - Coal Contracts" in Note 1 herein for developments that have occurred since the filing of the Form 10-K. Catalyst Technologies, Inc. (Entergy Corporation) See "Catalyst Technologies, Inc." in Item 1 of Part I of the Form 10- K for information relating to the lawsuit filed by Catalyst Technologies, Inc. The plaintiff filed its appeal brief in March 1998, and Entergy Corporation filed its response brief in May 1998. The date of oral argument on the appeal has not been set. Union Pacific Railroad Company (Entergy Corporation and Entergy Arkansas) See "Item 1. Legal Proceedings" in the 1998 first quarter Entergy Form 10-Q for a discussion of the civil suit filed by Entergy Arkansas and Entergy Services against Union Pacific Railroad Company (Union Pacific). The case has been transferred to the United States District Court for the District of Nebraska, in Omaha, Nebraska. As a result of Union Pacific's failure to transport coal, inventories at the coal plants were below normal during the spring of 1998. In anticipation of the summer season, and with no apparent cure to Union Pacific's delivery problems, generation at the two coal-fired stations was curtailed to increase the coal inventories. As a result of the curtailment and some improvement in the number of Union Pacific's deliveries, the inventory levels have improved. However, Union Pacific's deliveries continue to be delayed. Entergy Arkansas continues to seek an order from the Federal Surface Transportation Board requiring Union Pacific to allow another railroad to bring coal to one of the Entergy Arkansas generating plants. The operational and financial effect of Union Pacific's failure to deliver coal to Entergy Arkansas during the third and fourth quarters of 1998 will depend upon a number of factors that are not within Entergy Arkansas' control. Aquila Power Corporation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) In March 1998, Aquila Power Corporation ("Aquila") filed a complaint with the FERC against Entergy Services, as agent for the domestic utility companies, alleging that Entergy's domestic utility companies improperly reserved transmission capacity on Entergy's transmission system, resulting in the denial of Aquila's request for transmission service. Aquila's complaint seeks compensation for lost profits, an order prohibiting Entergy and/or its affiliates from engaging in similar conduct, and suspension of the domestic utility companies' and EPMC's market-rate authority. In May 1998, Entergy filed its response denying the Aquila allegations. Subsequently, Aquila amended and restated its complaint, alleging additional instances of improper activities by Entergy. In addition to its requests in its original complaint, Aquila's amended complaint seeks a finding by FERC that Entergy is in violation of FERC Orders No. 888 and 889, and an order that Entergy should be required to join or agree to the formation of an independent system operator. Entergy filed its response to the amended and restated complaint denying the alleged improper conduct. Ratepayer Lawsuits (Entergy Corporation, Entergy Louisiana, and Entergy New Orleans) In April 1998, a group of residential and business ratepayers filed a complaint against Entergy New Orleans in state court in Orleans Parish purportedly on behalf of all ratepayers in New Orleans. The plaintiffs allege that Entergy New Orleans overcharged ratepayers by at least $300 million since 1975 in violation of limits that the plaintiffs allege are set by the 1922 franchise ordinances passed by the New Orleans City Council. The plaintiffs seek, among other things, (1) a declaratory judgment that such franchise ordinances have been violated, and (2) a remand to the City Council for the establishment of the amount of overcharges plus interest. Management believes the lawsuit is completely without merit. Entergy New Orleans has charged only those rates authorized by the City Council, which the City Council has set in accordance with applicable law. Entergy New Orleans will vigorously defend itself in the lawsuit. In May 1998, a group of ratepayers filed a complaint against Entergy Corporation, EPI, and Entergy Louisiana in state court in Orleans Parish purportedly on behalf of all Entergy Louisiana ratepayers. The plaintiffs allege that the fuel costs passed by Entergy Louisiana through its fuel adjustment clause were improper. The plaintiffs seek, among other things, a refund of the amounts allegedly charged in excess of the proper fuel adjustment. This same group of ratepayers also filed with the LPSC a complaint against Entergy Corporation and Entergy Louisiana seeking relief similar to that which they seek by their lawsuit in state court. Management believes the lawsuit in state court and the complaint to the LPSC are completely without merit. Entergy will vigorously defend itself in the lawsuit. In May 1998, a group of ratepayers filed a complaint against Entergy Louisiana in state court in East Baton Rouge Parish purportedly on behalf of all Entergy Louisiana ratepayers. The plaintiffs allege that the formula ratemaking plan authorized by the LPSC has allowed Entergy Louisiana to earn amounts in excess of a fair return. The plaintiffs seek, among other things, (1) a declaratory judgment that the formula ratemaking plan is an improper ratemaking practice, and (2) a refund of the amounts allegedly charged in excess of proper ratemaking practices. Management believes the lawsuit is completely without merit. Entergy Louisiana will vigorously defend itself in the lawsuit. Asbestos Litigation (Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) Entergy's domestic utility subsidiaries, and in particular Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans, are defendants along with manufacturers, distributors, and other businesses in numerous individual and class action lawsuits filed on behalf of persons claiming injury as a result of exposure to asbestos. While Entergy and its domestic utility subsidiaries believe that the exposure to material liability to any single plaintiff as a result of these lawsuits is not material, there can be no assurance that the aggregate liability in the lawsuits to which Entergy Gulf States, Entergy Louisiana, or Entergy New Orleans are parties would not be material as to those companies, respectively. 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 15, 1998. 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: <TABLE> <CAPTION> Broker Name of Nominee Votes For Abstentions Votes Withheld Non-Votes <S> <C> <C> <C> <C> W. Frank Blount 197,742,237 N/A 14,558,746 N/A John A. Cooper, Jr. 197,763,872 N/A 14,537,111 N/A George W. Davis 197,559,329 N/A 14,741,654 N/A Norman C. Francis 197,614,238 N/A 14,686,745 N/A Robert v.d. Luft 197,702,815 N/A 14,598,168 N/A Edwin Lupberger 177,496,679 N/A 34,804,304 N/A Kinnaird R. McKee 197,623,536 N/A 14,677,447 N/A Paul W. Murrill 197,693,717 N/A 14,607,266 N/A James R. Nichols 197,787,475 N/A 14,513,508 N/A Eugene H. Owen 197,720,711 N/A 14,580,272 N/A John N. Palmer, Sr. 197,820,140 N/A 14,480,843 N/A Robert D. Pugh 197,691,692 N/A 14,609,291 N/A Wm. Clifford Smith 197,733,663 N/A 14,567,320 N/A Bismark A. Steinhagen 197,780,078 N/A 14,520,905 N/A </TABLE> Subsequent to the annual meeting of stockholders, Edwin Lupberger relinquished his duties as a director and chairman of the board of directors. Robert v.d. Luft is now serving as chairman of the board of directors. 2.Approval of the 1998 Equity Ownership Plan: 184,693,496 votes for; 25,946,435 votes against; 1,661,052 abstentions; and broker non-votes are not applicable. 3.Approval of the 1998 Executive Annual Incentive Plan: 198,088,955 votes for; 9,793,680 votes against; 4,418,348 abstentions; and broker non-votes are not applicable. 4.Ratify the appointment of independent public accountants, Coopers & Lybrand L.L.P. for the year 1998: 209,764,961 votes for; 687,557 votes against; 1,848,465 abstentions; and broker non-votes are not applicable. (Entergy Arkansas) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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: Wayne Leonard, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, R. Drake Keith, and Jerry L. Maulden. (Entergy Gulf States) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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: Wayne Leonard, John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, and Jerry L. Maulden. (Entergy Louisiana) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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: Wayne Leonard, John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, and Jerry L. Maulden. (Entergy Mississippi) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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: Wayne Leonard, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Jerry L. Maulden, and Donald E. Meiners. (Entergy New Orleans) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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: Robert v.d. Luft, Wayne Leonard, Jerry D. Jackson, and Daniel F. Packer. (System Energy) A consent in lieu of the annual meeting of common stockholders was executed on June 18, 1998. 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 Resources: Robert v.d. Luft, Wayne Leonard, Donald C. Hintz, and Jerry L. Maulden. Item 5. Other Information Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and Entergy London) The domestic utility companies, System Energy, and Entergy London 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, 1993 1994 1995 1996 1997 1998 Entergy Arkansas 3.11(b) 2.32 2.56 2.93 2.54 2.62 Entergy Gulf States 1.54 (c)- 1.86 1.47 1.42 1.08 Entergy Louisiana 3.06 2.91 3.18 3.16 2.74 2.84 Entergy Mississippi 3.79(b) 2.12 2.92 3.40 2.98 3.34 Entergy New Orleans 4.68(b) 1.91 3.93 3.51 2.70 2.69 System Energy 1.87 1.23 2.07 2.21 2.31 2.39 Entergy London N/A N/A N/A N/A 1.16 1.20 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Twelve Months Ended December 31, June 30, 1993 1994 1995 1996 1997 1998 Entergy Arkansas 2.54(b) 1.97 2.12 2.44 2.24 2.30 Entergy Gulf States (a) 1.21 (c)- 1.54 1.19 1.23 (d)- Entergy Louisiana 2.39 2.43 2.60 2.64 2.36 2.44 Entergy Mississippi 3.08(b) 1.81 2.51 2.95 2.69 3.02 Entergy New Orleans 4.12(b) 1.73 3.56 3.22 2.44 2.43 (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 a 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. (d) As a result of the reserves recorded for PUCT rate actions, earnings for the twelve months ended June 30, 1998 for Entergy Gulf States were not adequate to cover combined fixed charges and preferred dividends by $19.3 million. Shareholder Proposals (Entergy Corporation) Stockholders wishing to bring a proposal before the 1999 Annual Meeting of Stockholders, but not to include it in Entergy Corporation's Proxy Statement, must cause written notice of the proposal to be received by the Secretary of the Company at the principal executive offices in New Orleans, Louisiana by no later than February 13, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* 3(a) - By-laws of Entergy Arkansas, as amended and currently in effect. 3(b) - By-laws of Entergy Gulf States, as amended and currently in effect. 3(c) - By-laws of Entergy Louisiana, as amended and currently in effect. 3(d) - By-laws of Entergy Mississippi, as amended and currently in effect. 3(e) - By-laws of Entergy New Orleans, as amended and currently in effect. 3(f) - By-laws of System Energy, as amended and currently in effect. ** 4(a) - Refunding Agreement between Entergy Gulf States and Parish of Iberville, State of Louisiana dated as of May 1, 1998 (B-3(a) to Rule 24 Certificate dated May 29, 1998 in File No. 70-8721). 4(b) - Seventh Supplemental Indenture, dated as of July 1, 1998, to Entergy New Orleans' Mortgage and Deed of Trust, dated as of May 1, 1987. 27(a) - Financial Data Schedule for Entergy Corporation and Subsidiaries as of June 30, 1998. 27(b) - Financial Data Schedule for Entergy Arkansas as of June 30, 1998. 27(c) - Financial Data Schedule for Entergy Gulf States as of June 30, 1998. 27(d) - Financial Data Schedule for Entergy Louisiana as of June 30, 1998. 27(e) - Financial Data Schedule for Entergy Mississippi as of June 30, 1998. 27(f) - Financial Data Schedule for Entergy New Orleans as of June 30, 1998. 27(g) - Financial Data Schedule for System Energy as of June 30, 1998. 27(h) - Financial Data Schedule for Entergy London as of June 30, 1998. 99(a) - Entergy Arkansas' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(b) - Entergy Gulf States' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(c) - Entergy Louisiana's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(d) - Entergy Mississippi's Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(e) - Entergy New Orleans' Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(f) - System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. 99(g) - Entergy London's Computation of Ratios of Earnings to Fixed Charges, as defined. ** 99(h) - Annual Reports on Form 10-K of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and Entergy London for the fiscal year ended December 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, 1-9067, and 333-33331, respectively). ** 99(i) - Quarterly Reports on Form 10-Q of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, and Entergy London for the quarter ended March 31, 1998, 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, 1-9067, and 333-33331, 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, 1998, 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, 1998. ** Incorporated herein by reference as indicated. (b) Reports on Form 8-K Entergy Mississippi A Current Report on Form 8-K, dated April 3, 1998, was filed with the SEC on April 3, 1998, reporting information under Item 5. "Other Events" and Item 7. "Financial Statements. Pro Forma Financial Information and Exhibits". Entergy Corporation and Entergy New Orleans A Current Report on Form 8-K, dated April 15, 1998, was filed with the SEC on April 21, 1998, reporting information under Item 5. "Other Events". Entergy New Orleans A Current Report on Form 8-K, dated April 28, 1998, was filed with the SEC on April 28, 1998, reporting information under Item 5. "Other Events". Entergy New Orleans A Current Report on Form 8-K/A, dated April 28, 1998, was filed with the SEC on April 29, 1998, reporting information under Item 5. "Other Events". Entergy New Orleans A Current Report on Form 8-K/A, dated April 28, 1998, was filed with the SEC on April 29, 1998, reporting information under Item 5. "Other Events". Entergy Corporation and Entergy Gulf States A Current Report on Form 8-K, dated May 4, 1998, was filed with the SEC on May 12, 1998, reporting information under Item 5. "Other Events".
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. ENTERGY LONDON INVESTMENTS PLC /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 5, 1998