_____________________________________________________________________ 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 September 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 October 31, 1998 Entergy Corporation ($0.01 par value) 246,596,137 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 Reports on Form 10-Q for the quarters ended March 31, 1998 and June 30, 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 September 30, 1998 of $1.6989 = BPS1.00. No representation is made that the BPS amounts have been, could have been, or could be converted into U.S. dollars at the rates indicated or at any other rates. The following table sets out, for the periods indicated, certain information concerning the exchange rates between BPS and U.S. dollars based on the Noon Buying Rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York. <TABLE> <CAPTION> Period Period End Average (1) High Low ($ per BPS1.00) <S> <C> <C> <C> <C> Three months ended September 30, 1997 1.62 1.63 1.69 1.58 Nine months ended September 30, 1997 1.62 1.63 1.71 1.58 Twelve months ended December 31, 1997 1.65 1.64 1.71 1.58 Three months ended September 30, 1998 1.70 1.65 1.71 1.62 Nine months ended September 30, 1998 1.70 1.65 1.71 1.61 </TABLE> (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 and changes in financial markets generally, changes in foreign currency exchange rates, the availability and cost of personnel trained in the year 2000 compliance area, the ability to locate and correct computer codes relevant to year 2000 issues, and other factors.
ENTERGY CORPORATION AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q September 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 13 Consolidated Statements of Income and Comprehensive Income 17 Consolidated Statements of Cash Flows 18 Consolidated Balance Sheets 20 Selected Operating Results 22 Entergy Arkansas, Inc.: Results of Operations 23 Statements of Income 25 Statements of Cash Flows 27 Balance Sheets 28 Selected Operating Results 30 Entergy Gulf States, Inc.: Results of Operations 31 Statements of Income 33 Statements of Cash Flows 35 Balance Sheets 36 Selected Operating Results 38 Entergy Louisiana, Inc.: Results of Operations 39 Statements of Income 41 Statements of Cash Flows 43 Balance Sheets 44 Selected Operating Results 46 Entergy Mississippi, Inc.: Results of Operations 47 Statements of Income 49 Statements of Cash Flows 51 Balance Sheets 52 Selected Operating Results 54 Entergy New Orleans, Inc.: Results of Operations 55 Statements of Income 57 Statements of Cash Flows 59 Balance Sheets 60 Selected Operating Results 62 System Energy Resources, Inc.: Results of Operations 63 Statements of Income 64 Statements of Cash Flows 65 Balance Sheets 66 Entergy London Investments plc and Subsidiary: Results of Operations 68 Consolidated Statements of Income (Loss) and Comprehensive Income 70 Consolidated Statements of Cash Flows 71 Consolidated Balance Sheets 72 Notes to Financial Statements for Entergy Corporation and Subsidiaries 74 Part II: Item 1. Legal Proceedings 83 Item 4. Submission of Matters to a Vote of Security Holders 84 Item 5. Other Information 85 Item 6. Exhibits and Reports on Form 8-K 86 Signature 88
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 EPA U.S. Environmental Protection Agency EPDC Energy Power Development Corporation 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) 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. 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 GWH one million kilowatt-hours Independence Independence Steam Electric Station (coal), owned 16% by Entergy Arkansas, 25% by Entergy Mississippi, and 11% by EPI LPSC Louisiana Public Service Commission London Electricity London Electricity plc - a regional electric company serving London, England, which was acquired by Entergy effective February 1, 1997 Merger The combination transaction, consummated on December 31, 1993, by which Entergy Gulf States became a subsidiary of Entergy Corporation and Entergy Corporation became a Delaware corporation MPSC Mississippi Public Service Commission
Abbreviation or Acronym Term 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 PUCT Public Utility Commission of Texas PUHCA Public Utility Holding Company Act of 1935, as amended 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 nine months ended September 30, 1998 and 1997 was as follows: Nine Months Nine Months Company Ended 9/30/98 Ended 9/30/97 (In Millions) Entergy Corporation $ 1,272.6 $1,574.7 Entergy Arkansas $ 272.4 $ 400.5 Entergy Gulf States $ 322.2 $ 382.6 Entergy Louisiana $ 261.2 $ 271.6 Entergy Mississippi $ 151.5 $ 141.0 Entergy New Orleans $ 34.9 $ 36.8 System Energy $ 184.9 $ 201.0 Entergy London $ 326.5 $ 200.4 For the first nine months of 1998, cash flow from operations declined compared to 1997 principally 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, and in 2001 for Entergy New Orleans. Entergy Gulf States' Louisiana retail phase-in plan for River Bend expired in February 1998, and Entergy Mississippi's phase-in plan for Grand Gulf 1 expired in September 1998. Competitive businesses contributed $202.8 million to Entergy Corporation's cash flow from operations for the first nine months of 1998. Substantially all of such contributions came from London Electricity and CitiPower Pty, both of which are expected to be sold by Entergy during the next year. 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 nine months ended September 30, 1998. 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 could have a material adverse 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 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
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES issued in 1996 by Entergy Louisiana Capital I and Entergy Arkansas Capital I, and those issued in 1997 by Entergy Gulf States Capital I. 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 and its subsidiaries' capital and refinancing requirements in 1998-2002. As of September 30, 1998, Entergy Corporation had no loans outstanding under a $250 million bank credit facility that expires in September 1999. In addition, Entergy Corporation had $165.5 million outstanding and ETHC had $82.8 million outstanding under a joint $300 million bank line of credit that also expires in September 1999. 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 $119 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. Since November 1997, Entergy Corporation has not had the 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 consistent with these regulations. As of September 30, 1998, Entergy Corporation had a net investment of $1.3 billion in equity capital in businesses other than the domestic utility businesses. However, if London Electricity and CitiPower are sold during the next twelve months, as expected, it is anticipated that Entergy may regain substantial ability to make investments under the SEC's PUHCA regulations, regardless of whether the SEC has acted on the pending application. See Note 7. In addition to its electricity-related foreign investments, Entergy has made investments in security monitoring and other telecommunications related businesses in the United States. Entergy's security monitoring businesses are currently being offered for sale. 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 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
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES approval. Entergy currently has considerable capacity to make additional investments of this type before such limits would be exceeded. 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 nine months ended September 30, 1998 such dividend payments from the domestic utility companies and System Energy totaled $488.5 million. During the nine months ended September 30, 1998, Entergy Corporation paid $296 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 and October 30, 1998 the Board declared quarterly dividends of $.30 per share on Entergy's common stock. These dividends represent a $.15 per share reduction from the prior 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. On October 30, 1998, Entergy Corporation's Board approved a plan for the repurchase in the open market of up to 5 million shares of common stock for an aggregate consideration of up to $250 million through December 31, 2001. Substantially all of the repurchased shares are expected to be used to fulfill the requirements of various compensation and benefit plans. 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 $123.5 million ($73.6 million net of tax) in 1998 which include $101.3 million ($60.3 million net of tax) for the retroactive rate reductions for the nine months ended September 30, 1998, and $22.2 million ($13.3 million net of tax) for the prospective portion of the rate reduction for the three months ended September 30, 1998 based on management's estimates. Refunds to customers began in August 1998, pursuant to the PUCT's order. Final resolution of these matters could have a material adverse effect on Entergy Gulf States' cash flow, return on investment, and 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 three of these dockets in May 1998, in which the majority of the participating parties indicated that competition in the electric industry in Arkansas should begin by January 1, 2002. On October 1, 1998, the APSC submitted to the Arkansas Legislature its "Report on Restructuring the Arkansas Electric Utility Industry". This report recommended that electric generation supply competition in the electric industry in Arkansas start no later than the beginning of 2002. The report also recommends that the APSC be given the authority to address the following: market power, including affiliate codes of conduct; potential divestiture of utility assets; the determination, recovery, and securitization of stranded costs; and reliability of electric service. Arkansas law requires that legislation be enacted before competition is allowed in the state's retail electric utility industry. The Arkansas Legislature is expected to address the deregulation of the electric industry during its 1999 legislative session. The MPSC issued a Revised Proposed Transition Plan (the Plan) in June 1998 that included deletion of the previous prohibition on securitization of stranded costs and provided for enabling legislation necessary to implement the Plan in 2000. The Plan also provides for retail competition in Mississippi to begin January 1, 2001 and for recovery of allowable stranded costs through a non-bypassable charge during a transition period between January 2001 and the end of 2004. The MPSC conducted hearings in September 1998 on the market power and reliability studies previously filed (as requested by the MPSC) by the investor-owned utilities in Mississippi and has scheduled a hearing for November 1998 to address certification requirements and load dispatch and control rules. The LPSC and the Council have also established generic proceedings similar to those in Arkansas and Mississippi. During two recent technical conferences, Entergy has urged the FERC to consider the formation of a regional transmission company (Transco) as an acceptable alternative to an Independent System Operator (ISO) for the transmission of electricity. As currently contemplated by Entergy, Transco would be a FERC-regulated regional transmission company that would operate independently of Entergy's utility subsidiaries. Under the proposal, the transmission system and the employees who operate and maintain it would be transferred from Entergy's utility subsidiaries to a separate legal entity owned by Entergy, which would then be responsible for the operation and maintenance of the transmission system. The domestic utility companies would retain a passive ownership interest in the Transco, but would not control or otherwise direct the operation and management of Transco. Entergy anticipates filing with the FERC in late 1998 or early 1999, seeking a declaration as to whether a Transco would
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS be consistent with applicable FERC precedent on the formation of independent regional entities. Subsequent filings will be made with the FERC and the applicable state regulatory authorities seeking necessary approvals for the formation of the Transco. Retail and Wholesale Rate Issues See Note 2 to the Form 10-K for information regarding the settlement agreement filed with the APSC and the establishment of a transition cost account. The estimated reserve recorded in December 1997 was adjusted in September 1998 as a result of a mid-year streamlined earnings review procedure for a negative net income impact of $3.7 million. Entergy Arkansas also recorded an additional reserve of $27.9 million in September 1998 in the transition cost account to reflect the estimated 1998 accrual of excess earnings. Additional reserves may also be required in 1999 based on earnings reviews. On June 30, 1998, the PUCT began its deliberations on the Entergy Gulf States rate case filed in November 1996. The PUCT did not accept settlements filed in March and June by Entergy Gulf States and various intervenor groups. On July 22, 1998, the PUCT issued an order and after making modifications on rehearing, issued a second order on rehearing on October 14, 1998. The second order on rehearing reduces Entergy Gulf States' Texas rates by $111 million annually effective December 1, 1998, offset through May 1999 by the accelerated recovery of accounting order deferrals, resulting in a net reduction of $69 million on an annual basis through that date. This order also required a refund of $76 million. This refund is calculated as a rate reduction and service quality refund retroactive to June 1, 1996, offset by the accelerated recovery of the accounting order deferrals, actual taxes paid, and a fuel surcharge. This refund amount was reduced by $32 million from the original refund ordered in the July 22, 1998 order, but was offset by the passage of time from the original rate reduction's assumed effective date of August 1998 to the new assumed effective date of December 1, 1998. Entergy Gulf States established reserves of $381 million ($227 million net of tax) in the fourth quarter of 1997 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 $123.5 million ($73.6 million net of tax) in 1998 based on management's estimates which include $101.3 million ($60.3 million net of tax) for the retroactive rate reductions for the nine months ended September 30, 1998 and $22.2 million ($13.3 million net of tax) for the prospective portion of the rate reduction for the three months ended September 30, 1998. The results of operations of Entergy Gulf States for the three and nine months ended September 30, 1998 reflect these corresponding charges in operating revenues. See Note 2 for further discussion of accounting order deferrals and actual taxes paid. The PUCT's October 14, 1998 order on rehearing, if sustained, is expected to have a material adverse effect on Entergy Gulf States' revenues, cash flows, and net income. Entergy Gulf States will file a motion for reconsideration with the PUCT. The PUCT has until November 28, 1998 to act on the motion, or the motion is overruled by operation of law. 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. Subsequent to this, Entergy Gulf States entered an agreement with the PUCT that allowed for refunds pursuant to the PUCT's order to begin in August 1998 and delayed the implementation of the ordered rate decrease until 18 days following the issuance by the PUCT of a final and appealable order.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS A component of the rulings discussed above was a disallowance by the PUCT of 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 and nuclear generating plants and transmission and distribution systems, as well as providing human resources, accounting, legal, and other necessary services to Entergy Gulf States and Entergy Corporation's other electric utility subsidiaries. The PUCT had previously issued proposed rules governing affiliate transactions of Texas utility companies, including Entergy Gulf States. Hearings concerning the proposed rules were conducted by the PUCT in July 1998. However, the PUCT has withdrawn these proposed rules pending the outcome of the 1999 legislative session. The rules, if adopted in their proposed form, could severely restrict the types 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 may be adopted. 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 to the Travis County District Court in Texas and it is currently in the scheduling process. Based on advice of counsel, management believes that it is probable that the matter will be remanded again to the PUCT for a 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. On September 8, 1998, Entergy Gulf States filed an application with the PUCT for an increase in its fixed fuel factor and a surcharge to Texas retail customers for the cumulative under-recovery of fuel and purchased power costs. The proposed increase in the fixed fuel factor would result in increased revenues of $55.6 million annually compared to the current fixed fuel factor. The proposed surcharge is designed to recover $128.1 million, including interest, for fuel under-recoveries incurred during the period July 1, 1996 through June 30, 1998. Hearings on the merits were held in October 1998, and the PUCT is required to rule on the application by December 7, 1998. All amounts at issue in this proceeding will be subject to review in a future fuel reconciliation proceeding before the PUCT, at which time the PUCT will consider the reasonableness of Entergy Gulf States' fuel and purchased power expenses extending back to July 1, 1996. Entergy Gulf States cannot predict the outcome of this proceeding. In July 1998, Entergy Gulf States agreed to implement an $18 million rate reduction for Louisiana retail electric customers effective July 29, 1998 to reflect reductions that are expected to occur as a result of Entergy Gulf States' annual LPSC earnings reviews. Proceedings on issues in the second, third, and fourth post-Merger earnings analyses will continue. On September 10, 1998, the LPSC issued an order in the third required post-Merger earnings analysis that required a refund of $44.8 million for the period June 1, 1996 through May 31, 1997, and a prospective rate reduction of $54.6 million effective September 20, 1998. Due to the $18 million reduction that was implemented on July 29, 1998, an additional prospective reduction of $36.6 million would be required as a result of the third earnings analysis. Entergy Gulf States has not reserved for this reduction. Entergy Gulf States has appealed this order and has been granted injunctive relief pending a final decision on appeal.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS In July 1998, the LPSC also issued an order extending the Formula Rate Plan (FRP) for Entergy Louisiana through three additional annual filings. On September 10, 1998, Entergy Louisiana filed its FRP Evaluation Report, based on a 1997 test year. The filing indicated that earnings were such that no change in rates would be warranted with the exception of the elimination of a $3.7 million one-time credit that will result in a rate increase of this amount. Hearings will be conducted on this filing. On September 18, 1998, the MPSC announced a net rate reduction of $127.1 million, effective October 1, 1998 for all Entergy Mississippi customers. The reduction was scheduled to coincide with the expiration of the phase-in plan, which was implemented in the late 1980's in regard to Entergy Mississippi's portion of costs of System Energy's Grand Gulf 1 unit. The reduction was partially offset by the accelerated recovery of Entergy Mississippi's Grand Gulf purchased power obligation and the recovery of a portion of Entergy Mississippi's allocation of the proposed System Energy wholesale rate increase. See Note 2 for further discussion of these offsets. The rate reduction will not result in a decrease in Entergy Mississippi's income, as the phase-in plan deferrals have now been fully amortized and there is no further expense associated with the phase-in plan to be recognized. See Note 2 to the Form 10-K and Note 2 herein for additional information regarding the above rate actions as well as a discussion of the ongoing trend of regulatory mandated rate reductions, incentive and performance-based regulation, and filings made with state and local regulators regarding an orderly transition to a more competitive market for electricity. Domestic and Foreign Competitive Businesses Following the conclusion of Entergy's Board of Directors meeting on August 2, 1998, management announced its intention to focus Entergy's resources on its domestic utilities, international power generation, nuclear operations, and power trading and marketing. Consistent with this intention, management expects to sell several businesses before the end of 1999. These businesses include the international distribution businesses of London Electricity and CitiPower Pty., Entergy's security monitoring business, and portions of Entergy's telecommunications interests. See Note 7 for further information. Proceeds from the sales will be used, in part, to pay off debt associated with the acquisition of these businesses. Also refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" in the Form 10-K for a discussion of Entergy Corporation's current investments in nonregulated and foreign energy-related businesses. These investments may involve a greater risk than domestic regulated utility enterprises. For the nine months ended September 30, 1998, these investments contributed approximately $79 million to Entergy Corporation's consolidated net income. Entergy's investment in Entergy London contributed $161 million to net income for the nine months ended September 30, 1998, including $97 million due to recognition of foreign tax credits and other tax benefits and $39 million net of tax due to capitalization of information technology systems development costs, an adjustment to pension surplus based on actuarial studies, and a decrease in a provision for restructuring. Domestic power marketing operations and foreign power development and generation operations incurred net losses of $21 million and $6 million, respectively, for the nine months ended September 30, 1998, as a result of power trading losses and a counterparty default. CitiPower Pty., an Australian distribution business, contributed $21 million; and Edesur, S. A., an Argentine distribution business, contributed $5.2 million to net income. Entergy's domestic unregulated energy-related retail businesses had a net loss of $81 million for the nine months ended September 30, 1998, partially as a result of the net of tax loss of $36 million on the September 30, 1998 sale of Efficient Solutions, Inc., formerly Entergy Integrated Solutions, Inc.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS 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 be opened 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. In September 1998, Damhead Creek, a 775 MW combined cycle gas turbine merchant power plant located in Southeast England, entered the construction phase. Agreements have been finalized regarding interim financing and construction and gas supply contracts. Damhead Creek's power will be sold through the England and Wales Electricity Pool. The target date for commercial operation is the fourth quarter of 2000. See Note 4 for information regarding the financing. In September 1998, EPMC entered into a six-year energy management agreement (beginning January 1, 2000) with Ormet Primary Aluminum Corporation, which produces high-quality aluminum products for the fabrication, extrusion, and conversion markets. Under the terms of the contract, EPMC will acquire and optimize supply of up to 535 megawatts of electricity for Ormet's aluminum reduction plant and rolling mill in Hannibal, Ohio. In October 1998, Entergy Nuclear, Inc. (Entergy Nuclear) and the Maine Yankee Atomic Power Company, which owns the Maine Yankee nuclear plant, signed a long-term contract that calls for Entergy Nuclear to provide management oversight of decommissioning activities at Maine Yankee through the projected completion of such activities in 2004. Management believes this arrangement is the first of its kind for decommissioning and reflects a growing trend among utilities to utilize outside management for nuclear activities. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS", Note 7, 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 income of $2.3 million and an operating loss of $3.3 million during the three and nine months ended September 30, 1998, respectively, compared to operating income of $6.6 million and $15.8 million during the comparable periods in 1997. The decrease in operating income from these deregulated operations for the three and nine months ended September 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, and (2) revenues from off-system sales of the transferred 30% portion of River Bend not fully recovering the costs associated with those sales. For the nine months ended September 30, 1998, the decrease in operating income was also due to decreased steam products revenues as a result of the revised contractual arrangement with the steam customer. 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 regulation 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 Entergy has been evaluating its computer software and hardware, databases, embedded microprocessors (collectively referred to as "IT and non-IT assets"), suppliers, and other relationships to determine which actions are required to prevent problems related to the year 2000, and the resources required to take such actions. These problems may result in malfunctions in certain software applications, databases, and computer equipment with respect to dates on or after January 1, 2000, unless corrected. These malfunctions could disrupt operations of nuclear or fossil generating plants, operation of transmission and distribution systems, access to interconnections with neighboring utilities, and cause other operational problems. Entergy has adopted a four-step approach to address Year 2000 issues including: 1) an inventory of all IT and non-IT assets; 2) an assessment to determine if the assets are critical to the business and, if so, whether Year 2000 has an impact; 3) remediation to fix or replace systems determined to be Year 2000 deficient; and 4) certification of such critical systems to confirm Year 2000 compliance. Entergy has substantially completed its inventory of IT and non-IT assets, has identified systems and equipment that could be affected by the millennium change, and has assessed the risk of potential failure for most of its assets. Management defines year 2000 compliant services or products as those that perform the business, office automation, or process control requirements as designed into the twenty-first century. Management defines an asset as "certified" as year 2000 compliant after it has been modified or upgraded if necessary, tested, and deployed in the operating environment. Certification of Entergy's assets that significantly affect operations is scheduled to be substantially complete by the end of the first quarter of 1999, and is on schedule and approximately 40% complete at this time. Certification will continue for assets that do not significantly affect operations, but do impact efficiency and profitability, throughout 1999.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Entergy is currently performing an assessment of its vendors that affect Entergy's operations. Entergy's goal is to receive written confirmation of the year 2000 compliance of its critical vendors. Alternative suppliers or contingency plans will be considered for those suppliers who do not demonstrate a sufficient effort towards year 2000 readiness. Entergy intends to implement year 2000 contingency plans for suppliers throughout 1998 and 1999. 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 current estimate of maintenance and modification costs related to year 2000 issues to be incurred in 1998 through mid-2000 is approximately $81 million, of which approximately $15 million has been incurred through September 1998. These expenses are being funded through operating cash flows. Capitalized costs related to year 2000 issues are not considered material. An independent consultant has been engaged to assist management in its assessment of the risks of year 2000 malfunctions. This assessment is currently in progress. Based on the risk determinations of this assessment, and the results of certification activities, management will create and implement contingency plans to address year 2000 issues, as needed, throughout 1999. Please see "Forward Looking Information" herein.
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 nine months ended September 30, 1997 reflects London Electricity's results subsequent to February 1, 1997. Net Income Consolidated net income increased for the three and nine months ended September 30, 1998, primarily due to higher competitive business revenues and lower income taxes, partially offset by an increase in operating expenses. The increase in competitive business revenues was partially offset by losses at EPMC due to increased power trading and a counterparty default. Additional reserves were recorded for rate reductions ordered by the PUCT with respect to Texas retail customers which totaled $13.3 million and $73.6 million net of tax for the three and nine months ended September 30, 1998, respectively. Income taxes were lower for the three and nine months ended September 30, 1998 due to an additional reduction in the UK corporation tax rate from 31% to 30% in the third quarter of 1998 and the recording of a one-time windfall profits tax at London Electricity in July 1997. This decrease was partially offset by a one-time reduction in income tax expense for London Electricity due to a reduction in the UK corporation tax rate from 33% to 31% in July 1997. Excluding the effects of the additional reserves in 1998 and the net tax adjustments in 1998 and 1997, net income would have decreased approximately $17.8 million, net of tax, for the three months ended September 30, 1998, and increased approximately $39.1 million, net of tax, for the nine months ended September 30, 1998 compared to the respective periods ended September 30, 1997. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($66.5) ($238.5) Rate riders (17.5) (54.0) Fuel cost recovery 17.0 (39.1) Sales volume/weather 86.8 158.0 Other revenue (including unbilled) (20.2) 8.4 Sales for resale 34.8 67.4 ----- ------ Total $34.4 ($97.8) ===== ====== Electric operating revenues for the domestic utility companies increased for the three months ended September 30, 1998, primarily due to increased sales volume at all domestic utility companies, increased sales for resale at Entergy Gulf States, and increased fuel cost recovery revenues at Entergy Gulf States, Entergy
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Mississippi, and Entergy New Orleans. Sales volume increased as a result of significantly warmer weather in the third quarter of 1998. Sales for resale at Entergy Gulf States 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. Fuel cost recovery revenues, which do not impact net income, increased at Entergy Gulf States, Entergy Mississippi, and Entergy New Orleans primarily due to increased fuel prices and increased generation. Partially offsetting these increases were decreases in base revenue, rate rider revenue, and other revenue (primarily unbilled). Base revenues decreased at Entergy Gulf States primarily due to reserves recorded for rate reductions ordered by the PUCT with respect to Texas retail customers, aggressive pricing strategies for targeted customer segments, and base rate reductions in Louisiana that became effective in March and July 1998. Rate rider revenue, which does not affect net income, decreased at Entergy Arkansas due to the decline in Grand Gulf 1 cost recovery rate rider revenues reflecting scheduled reductions in the phase-in plan and the Stipulation and Settlement Agreement with the APSC. Unbilled revenue decreased at Entergy Louisiana primarily as a result of decreased sales to three large industrial customers and a decrease in sales volume due to distribution outages caused by major storms at the end of September 1998. Electric operating revenues for the domestic utility companies decreased for the nine months ended September 30, 1998. The decrease was primarily due to a decrease in base revenues at Entergy Gulf States, decreased rate rider revenue at Entergy Arkansas, and decreased fuel cost recovery revenues at Entergy Louisiana. Base revenues at Entergy Gulf States decreased primarily due to reserves recorded during the nine months ended September 30, 1998 for rate reductions ordered by the PUCT with respect to Texas retail customers, aggressive pricing strategies for targeted customer segments, and base rate reductions in Louisiana that became effective in March and July 1998. 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 at Entergy Louisiana decreased due to lower pricing resulting from a change in generation mix. Partially offsetting these decreases were increases in sales volume and sales for resale. Sales volume increased for all domestic utility companies as a result of significantly warmer weather in 1998. Sales for resale at Entergy Gulf States increased due to an increase in sales to non-associated utilities and additional revenues related to the sale of energy from River Bend as discussed above. Competitive business revenues increased for the three and nine months ended September 30, 1998, primarily due to the significant increase in revenue at EPMC and EPI. This revenue increased as a result of increased sales volume on the spot market driven by increased demand resulting from increased marketing efforts and significantly warmer weather in 1998. This increase was offset for EPMC by increased power purchased for resale as discussed in expenses below. Entergy London revenues for the nine months ended September 30, 1998 were higher due to nine months of activity under Entergy ownership recorded in 1998 compared to eight months in 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 and nine months ended September 30, 1998. Expenses Operating expenses increased for the three and nine months ended September 30, 1998. The increase in the three months ended September 30, 1998 was primarily due to increases in fuel expenses, purchased power expenses, other operation and maintenance expenses, and other regulatory charges, partially offset by the decreased amortization of rate deferrals. The increase in the nine months ended September 30, 1998 was primarily due to increases in purchased power expenses, other operation and maintenance expenses, depreciation, amortization, and decommissioning expense, and other regulatory charges, partially offset by a decrease in amortization of rate deferrals.
ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The increase in fuel expenses for the three months ended September 30, 1998 was primarily due to increased volume of fuel purchased for resale at EPMC. The increase in purchased power expenses for the three and nine months ended September 30, 1998 was primarily the result of significantly increased power trading by EPMC. Also, for the three months ended September 30, 1998, the increase in purchased power expenses at EPMC was due to a $44 million counterparty default. Other regulatory charges for the three and nine months ended September 30, 1998, increased due to additional accruals made in 1998 for the transition cost account at Entergy Arkansas and the over-recovery of Grand Gulf 1-related costs at Entergy Mississippi. The increase in other operation and maintenance expenses for the three and nine months ended September 30, 1998 was principally due to: i) the write-off of certain costs related to Efficient Solutions, Inc. and ETHC's security companies in preparation for the sale; ii) the additional operation and maintenance expenses of security companies acquired by ETHC; and iii) increased transmission expenses at EPMC due to significantly increased power trading sales volume. These increases in other operation and maintenance expenses were partially offset by capitalization of information technology systems development costs, an adjustment to pension surplus based on actuarial studies, and a decrease in a provision for restructuring at London Electricity. The decrease in the amortization of rate deferrals was 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. Other The decrease in other income was a result of the loss on the sale of Efficient Solutions, Inc. in September 1998. See Note 7 for further information. Interest on long-term debt decreased for the three and nine months ended September 30, 1998, primarily due to the retirement, redemption, or refinancing 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 September 30, 1998 and 1997 were 22.9% and 79.0%, respectively. The effective income tax rates for the nine months ended September 30, 1998 and 1997 were 26.4% and 57.3%, respectively. The decreases were due to i) the impact of the one-time windfall profits tax recorded in July 1997, partially offset by a reduction in the UK corporation tax rate from 33% to 31% in the same period, ii) the recording of a $44 million deferred tax benefit in June 1998 related to expected utilization of Entergy's capital loss carryforwards, and iii) the impact of an additional reduction in the UK corporation tax rate from 31% to 30% in the third quarter of 1998. The decrease in the three months ended September 30, 1998 was also due to decreased pretax income at certain competitive businesses and the expected utilization of foreign tax credits.
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands, Except Share Data) <S> <C> <C> <C> <C> Operating Revenues: Domestic electric $2,032,463 $1,998,058 $4,854,872 $4,952,725 Natural gas 17,003 17,516 91,616 98,037 Steam products 11,626 11,142 32,151 35,103 Competitive businesses 2,526,355 770,871 4,430,714 1,935,565 ---------- ---------- ---------- ---------- Total 4,587,447 2,797,587 9,409,353 7,021,430 ---------- ---------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 579,961 509,532 1,256,778 1,248,052 Purchased power 2,423,958 702,582 4,010,896 1,593,270 Nuclear refueling outage expenses 20,445 18,675 64,134 49,083 Other operation and maintenance 482,129 420,012 1,466,322 1,358,929 Depreciation, amortization, and decommissioning 256,375 246,736 753,922 716,051 Taxes other than income taxes 91,033 92,233 277,145 275,429 Other regulatory charges (credits) 71,542 22,541 11,759 (34,230) Amortization of rate deferrals 71,331 112,659 219,507 336,124 ---------- ---------- ---------- ---------- Total 3,996,774 2,124,970 8,060,463 5,542,708 ---------- ---------- ---------- ---------- Operating Income 590,673 672,617 1,348,890 1,478,722 ---------- ---------- ---------- ---------- Other Income (Deductions): Allowance for equity funds used during construction 4,027 1,777 9,650 7,845 Sale of non-regulated business (68,590) - (68,590) - Miscellaneous - net 18,660 (914) 68,440 45,703 ---------- ---------- ---------- ---------- Total (45,903) 863 9,500 53,548 ---------- ---------- ---------- ---------- Interest Charges: Interest on long-term debt 182,899 208,909 565,785 599,709 Other interest - net 11,481 16,541 35,636 39,594 Distributions on preferred securities of subsidiaries 13,407 4,709 33,535 13,591 Allowance for borrowed funds used during construction (3,453) (1,455) (8,015) (6,332) ---------- ---------- ---------- ---------- Total 204,334 228,704 626,941 646,562 ---------- ---------- ---------- ---------- Income Before Income Taxes 340,436 444,776 731,449 885,708 Income Taxes 77,839 351,455 192,820 507,323 ---------- ---------- ---------- ---------- Net Income before Preferred Dividend Requirements and Other 262,597 93,321 538,629 378,385 Preferred and Preference Dividend Requirements of Subsidiaries and Other 11,611 12,379 35,091 41,405 ---------- ---------- ---------- ---------- Consolidated Net Income 250,986 80,942 503,538 336,980 Other Comprehensive Income: Foreign Currency Translation Adjustment (14,708) (15,885) (18,556) (27,407) ---------- ---------- ---------- ---------- Comprehensive Net Income $236,278 $65,057 $484,982 $309,573 ========== ========== ========== ========== Earnings per average common share: Basic and diluted $1.02 $0.33 $2.04 $1.41 Dividends declared per common share $0.30 $0.90 $1.20 $1.80 Average number of common shares outstanding: Basic 246,615,620 242,172,319 246,331,931 238,653,723 Diluted 246,699,893 242,258,956 246,432,782 238,735,315 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income before preferred dividend requirements and other $538,629 $378,385 Noncash items included in net income: Amortization of rate deferrals 219,507 336,124 Other regulatory charges 11,759 (34,230) Depreciation, amortization, and decommissioning 753,922 716,051 Deferred income taxes and investment tax credits (125,224) (169,887) Allowance for equity funds used during construction (9,650) (7,845) Sale of non-regulated businesses 68,590 - Changes in working capital: Receivables (438,679) (175,147) Fuel inventory 26,119 68,892 Accounts payable 286,360 59,540 Taxes accrued 338,440 387,233 Windfall profit tax liability - 234,080 Interest accrued (19,151) (30,923) Deferred fuel (121,413) (31,819) Other working capital accounts (94,325) (71,912) Reserve for rate refund 76,883 - Provision for estimated losses and reserves (132,556) (40,814) Decommissioning trust contributions and realized change in trust assets (56,915) (50,950) Other (49,742) 7,937 ---------- ---------- Net cash flow provided by operating activities 1,272,554 1,574,715 ---------- ---------- Investing Activities: Construction/capital expenditures (712,671) (554,638) Allowance for equity funds used during construction 9,650 7,845 Nuclear fuel purchases (59,409) (52,323) Proceeds from sale/leaseback of nuclear fuel 78,969 91,504 Acquisition of London Electricity, net of cash acquired - (1,951,701) Investment in other nonregulated/nonutility properties (40,704) (10,576) Sale of non-regulated businesses (21,893) - Other (35,595) (25,863) ---------- ---------- Net cash flow used in investing activities (781,653) (2,495,752) ---------- ---------- See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For The Nine Months Ended September 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 141,994 84,064 Bank notes and other long-term debt 282,219 1,717,569 Preferred securities of subsidiary trusts and partnerships - 82,323 Common stock 15,333 238,193 Retirement of: First mortgage bonds (351,335) (327,692) General and refunding mortgage bonds (110,000) (7,622) Other long-term debt (211,754) (76,583) Redemption of preferred stock (10,250) (119,367) Changes in short-term borrowings - net (17,964) 103,454 Preferred stock dividends paid (35,217) (39,540) Common stock dividends paid (296,022) (328,182) ---------- ---------- Net cash flow provided by (used in) financing activities (514,293) 1,391,444 ---------- ---------- Effect of exchange rates on cash and cash equivalents 1,006 2,655 ---------- ---------- Net increase (decrease) in cash and cash equivalents (22,386) 473,062 Cash and cash equivalents at beginning of period 830,547 388,703 ---------- ---------- Cash and cash equivalents at end of period $808,161 $861,765 ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $654,846 $650,190 Income taxes $97,775 $116,761 Noncash investing and financing activities: Change in unrealized appreciation/(depreciation) of decommissioning trust assets ($4,696) $16,309 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 (In Thousands) ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $101,056 $85,067 Temporary cash investments - at cost, which approximates market 707,105 700,431 Special deposits - 45,049 ----------- ----------- Total cash and cash equivalents 808,161 830,547 Notes receivable 9,490 8,157 Accounts receivable: Customer (less allowance for doubtful accounts of $31 million in 1998 and $32.8 million in 1997) 580,825 458,085 Other 517,060 225,523 Accrued unbilled revenues 564,447 580,194 Deferred fuel costs 272,009 150,596 Accumulated deferred income taxes 18,800 - Fuel inventory 93,212 119,331 Materials and supplies - at average cost 392,778 367,870 Rate deferrals 46,710 237,302 Prepayments and other 170,600 193,717 ----------- ----------- Total 3,474,092 3,171,322 ----------- ----------- Other Property and Investments: Decommissioning trust funds 641,270 589,050 Non-regulated investments 529,023 568,951 Other 222,526 225,818 ----------- ----------- Total 1,392,819 1,383,819 ----------- ----------- Utility Plant: Electric 25,774,603 25,310,122 Plant acquisition adjustment - Entergy Gulf States 426,961 439,160 Electric plant under leases 675,317 674,483 Property under capital leases - electric 117,772 134,278 Natural gas 183,438 169,964 Steam products 83,037 82,289 Construction work in progress 811,872 565,667 Nuclear fuel under capital leases 254,062 269,011 Nuclear fuel 59,959 72,875 ----------- ----------- Total 28,387,021 27,717,849 Less - accumulated depreciation and amortization 10,205,316 9,585,021 ----------- ----------- Utility plant - net 18,181,705 18,132,828 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 133,687 162,602 SFAS 109 regulatory asset - net 1,148,885 1,174,187 Unamortized loss on reacquired debt 184,931 196,891 Other regulatory assets 514,416 466,780 Long-term receivables 35,163 36,984 CitiPower license (net of amortization of $32.2 million in 1998 and $25.6 million in 1997) 436,738 486,153 London Electricity license (net of amortization of $58.5 million in 1998 and $31.1 million in 1997) 1,344,518 1,327,312 Other 523,305 461,822 ----------- ----------- Total 4,321,643 4,312,731 ----------- ----------- TOTAL $27,370,259 $27,000,700 =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 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 $323,992 $390,674 Notes payable 414,052 428,964 Accounts payable 1,197,566 915,800 Customer deposits 178,877 178,162 Taxes accrued 702,078 359,996 Accumulated deferred income taxes - 56,524 Interest accrued 194,873 214,763 Dividends declared 8,040 8,166 Obligations under capital leases 138,526 167,700 Other 26,295 81,303 ----------- ----------- Total 3,184,299 2,802,052 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,502,106 4,567,052 Accumulated deferred investment tax credits 572,115 587,781 Obligations under capital leases 233,482 236,000 Other 1,855,571 1,857,514 ----------- ----------- Total 7,163,274 7,248,347 ----------- ----------- Long-term debt 8,942,186 9,068,325 Subsidiaries' preferred stock with sinking fund 178,755 185,005 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 246,763,336 shares in 1998 and 246,149,198 shares in 1997 2,468 2,461 Additional paid-in capital 4,629,098 4,613,572 Retained earnings 2,365,285 2,157,912 Cumulative foreign currency translation adjustment (88,373) (69,817) Less - treasury stock (222,354 shares in 1998 and 306,852 shares in 1997) 6,188 10,612 ----------- ----------- Total 7,236,745 7,031,971 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $27,370,259 $27,000,700 =========== =========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Domestic Electric Operating Revenues: Residential $ 844.5 $ 803.6 $ 40.9 5 Commercial 454.9 466.2 (11.3) (2) Industrial 496.3 532.6 (36.3) (7) Governmental 48.9 46.8 2.1 4 --------------------------------- Total retail 1,844.6 1,849.2 (4.6) - Sales for resale 144.9 110.1 34.8 32 Other 43.0 38.8 4.2 11 --------------------------------- Total $ 2,032.5 $ 1,998.1 $ 34.4 2 ================================= Billed Electric Energy Sales (GWH): Residential 11,229 9,892 1,337 14 Commercial 7,122 6,563 559 9 Industrial 11,311 11,425 (114) (1) Governmental 745 693 52 8 --------------------------------- Total retail 30,407 28,573 1,834 6 Sales for resale 3,005 2,883 122 4 --------------------------------- Total 33,412 31,456 1,956 6 ================================= Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Domestic Electric Operating Revenues: Residential $ 1,811.2 $ 1,759.9 $ 51.3 3 Commercial 1,148.4 1,197.0 (48.6) (4) Industrial 1,380.5 1,506.5 (126.0) (8) Governmental 133.2 128.8 4.4 3 --------------------------------- Total retail 4,473.3 4,592.2 (118.9) (3) Sales for resale 335.2 267.8 67.4 25 Other 46.4 92.7 (46.3) (50) --------------------------------- Total $ 4,854.9 $ 4,952.7 ($97.8) (2) ================================= Billed Electric Energy Sales (GWH): Residential 24,166 21,823 2,343 11 Commercial 17,446 16,410 1,036 6 Industrial 32,577 33,560 (983) (3) Governmental 2,042 1,886 156 8 --------------------------------- Total retail 76,231 73,679 2,552 3 Sales for resale 7,580 7,136 444 6 --------------------------------- Total 83,811 80,815 2,996 4 =================================
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and nine months ended September 30, 1998 primarily due to decreases in electric operating revenues, partially offset by decreases in operating expenses and interest expense. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($1.6) ($3.7) Rate riders (30.3) (77.8) Fuel cost recovery (11.1) (18.6) Sales volume/weather 27.7 50.2 Other revenue (including unbilled) 0.2 17.5 Sales for resale (3.7) (63.6) ------ ------ Total ($18.8) ($96.0) ====== ====== Electric operating revenues decreased for the three and nine months ended September 30, 1998, primarily due to a decrease in rate rider revenue and fuel cost recovery revenues, which do not affect net income, partially offset by an increase in sales volume. Electric operating revenues decreased for the nine months ended September 30, 1998, also due to a decrease in sales for resale, partially offset by an increase in other revenue (including unbilled). 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 and the Stipulation and Settlement Agreement with the APSC. See Note 2 for further discussion. Fuel cost recovery revenues decreased due to unfavorable pricing resulting from a change to a fixed fuel factor in January 1998, partially offset by an increase in generation. Sales volume increased as a result of significantly warmer weather in 1998. Sales for resale decreased for the nine months ended September 30, 1998, 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 during the second quarter of 1998. Unbilled revenue increased for the nine months ended September 30, 1998, primarily as a result of increased sales volume due to warmer weather.
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses decreased for the three and nine months ended September 30, 1998, primarily due to decreases in fuel expenses and the amortization of Grand Gulf 1 rate deferrals, partially offset by an increase in other regulatory charges. Fuel expenses decreased primarily due to the impact of the under-recovered deferred fuel cost in excess of the fixed fuel factor billed to retail customers. The decrease in the amortization of Grand Gulf 1 rate deferrals was 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. The increase in other regulatory charges was a result of additional accruals made in 1998 for the transition cost account. See Note 2 for further discussion of the Stipulation and Settlement Agreement with the APSC and the transition cost account. The increase in other regulatory charges was partially offset by an increase in the net under-recovery of Grand Gulf 1-related costs. Other Interest charges decreased for the three and nine months ended September 30, 1998 primarily due to the retirement of certain long-term debt in 1998. The effective income tax rate of 39.4% for the three months ended September 30, 1998 remained relatively unchanged from the rate of 38.5% for the three months ended September 30, 1997. For the nine months ended September 30, 1998 and 1997, the effective income tax rates were 39.2% and 37.3%, respectively. The increase in 1998 was 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 Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $527,059 $545,849 $1,248,205 $1,344,199 -------- -------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 63,469 72,147 138,834 201,494 Purchased power 116,085 123,871 326,397 327,725 Nuclear refueling outage expenses 8,128 7,639 23,947 19,905 Other operation and maintenance 79,706 80,280 256,002 252,081 Depreciation, amortization, and decommissioning 44,303 42,745 134,336 125,529 Taxes other than income taxes 8,481 9,114 28,681 27,643 Other regulatory charges 43,983 22,957 21,878 14,208 Amortization of rate deferrals 22,067 38,408 66,202 115,162 -------- -------- ---------- ---------- Total 386,222 397,161 996,277 1,083,747 -------- -------- ---------- ---------- Operating Income 140,837 148,688 251,928 260,452 -------- -------- ---------- ---------- Other Income (Deductions): Allowance for equity funds used during construction 1,934 (316) 4,266 2,572 Miscellaneous - net 2,092 4,573 10,640 14,987 -------- -------- ---------- ---------- Total 4,026 4,257 14,906 17,559 -------- -------- ---------- ---------- Interest Charges: Interest on long-term debt 20,974 23,368 66,095 71,595 Other interest - net 2,307 950 3,667 2,850 Distributions on preferred securities of subsidiary trust 1,275 1,275 3,825 3,825 Allowance for borrowed funds used during construction (1,383) 105 (3,034) (1,632) -------- -------- ---------- ---------- Total 23,173 25,698 70,553 76,638 -------- -------- ---------- ---------- Income Before Income Taxes 121,690 127,247 196,281 201,373 Income Taxes 47,959 48,996 76,960 75,189 -------- -------- ---------- ---------- Net Income 73,731 78,251 119,321 126,184 Preferred Stock Dividend Requirements and Other 2,526 2,733 7,745 8,363 -------- -------- ---------- ---------- Earnings Applicable to Common Stock $71,205 $75,518 $111,576 $117,821 ======== ======== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $119,321 $126,184 Noncash items included in net income: Amortization of rate deferrals 66,202 115,162 Other regulatory charges 21,878 14,208 Depreciation, amortization, and decommissioning 134,336 125,529 Deferred income taxes and investment tax credits (19,501) (58,694) Allowance for equity funds used during construction (4,266) (2,572) Changes in working capital: Receivables (78,001) (13,783) Fuel inventory 890 40,975 Accounts payable 41,397 (20,826) Taxes accrued 82,721 95,308 Interest accrued (2,566) 767 Deferred fuel costs (65,408) 7,688 Other working capital accounts (8,836) (34,326) Decommissioning trust contributions and realized change in trust assets (17,776) (18,255) Provision for estimated losses and reserves (3,800) 5,878 Other 5,816 17,262 --------- --------- Net cash flow provided by operating activities 272,407 400,505 --------- --------- Investing Activities: Construction expenditures (122,209) (101,796) Allowance for equity funds used during construction 4,266 2,572 Nuclear fuel purchases (38,354) (36,633) Proceeds from sale/leaseback of nuclear fuel 38,354 36,553 --------- --------- Net cash flow used in investing activities (117,943) (99,304) --------- --------- 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) (4,000) Dividends paid: Common stock (92,600) (97,200) Preferred stock (7,844) (8,462) --------- --------- Net cash flow used in financing activities (255,718) (143,185) --------- --------- Net increase (decrease) in cash and cash equivalents (101,254) 158,016 Cash and cash equivalents at beginning of period 203,391 43,857 --------- --------- Cash and cash equivalents at end of period $102,137 $201,873 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $64,367 $63,660 Income taxes $13,521 $29,011 Noncash investing and financing activities: Change in unrealized appreciation of decommissioning trust assets $35 $12,867 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $15,013 $6,076 Temporary cash investments - at cost, which approximates market: Associated companies 18,311 41,389 Other 68,813 110,877 Special deposits - 45,049 ---------- ---------- Total cash and cash equivalents 102,137 203,391 Accounts receivable: Customer (less allowance for doubtful accounts of $1.8 million in 1998 and 1997) 110,844 71,910 Associated companies 74,918 46,166 Other 7,742 10,282 Accrued unbilled revenues 102,471 89,616 Deferred fuel costs 49,164 - Fuel inventory - at average cost 27,279 28,169 Materials and supplies - at average cost 87,931 79,692 Rate deferrals 9,046 75,249 Deferred nuclear refueling outage costs 25,540 24,335 Prepayments and other 11,006 8,647 ---------- ---------- Total 608,078 637,457 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 11,213 11,213 Decommissioning trust fund 268,384 250,573 Other - at cost (less accumulated depreciation) 4,984 4,939 ---------- ---------- Total 284,581 266,725 ---------- ---------- Utility Plant: Electric 4,709,866 4,650,065 Property under capital leases 51,539 53,843 Construction work in progress 189,875 123,087 Nuclear fuel under capital lease 99,871 92,621 ---------- ---------- Total 5,051,151 4,919,616 Less - accumulated depreciation and amortization 2,252,355 2,116,826 ---------- ---------- Utility plant - net 2,798,796 2,802,790 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 252,407 252,712 Unamortized loss on reacquired debt 52,706 53,780 Other regulatory assets 102,328 79,461 Other 22,781 13,952 ---------- ---------- Total 430,222 399,905 ---------- ---------- TOTAL $4,121,677 $4,106,877 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. BALANCE SHEETS September 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 $865 $60,650 Notes payable 667 667 Accounts payable: Associated companies 84,450 59,438 Other 92,790 76,405 Customer deposits 25,318 23,437 Taxes accrued 160,048 77,327 Accumulated deferred income taxes 13,568 32,239 Interest accrued 26,260 28,826 Co-owner advances 11,443 7,666 Deferred fuel costs - 16,244 Obligations under capital leases 47,788 62,623 Other 19,005 21,696 ---------- ---------- Total 482,202 467,218 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 761,496 759,489 Accumulated deferred investment tax credits 100,050 103,899 Obligations under capital leases 103,621 83,841 Other 211,365 169,884 ---------- ---------- Total 1,176,532 1,117,113 ---------- ---------- Long-term debt 1,170,266 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 498,696 479,705 ---------- ---------- Total 1,201,650 1,186,659 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,121,677 $4,106,877 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY ARKANSAS, INC. SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 208.0 $ 194.1 $ 13.9 7 Commercial 91.7 105.5 (13.8) (13) Industrial 98.2 112.6 (14.4) (13) Governmental 4.2 5.2 (1.0) (19) ------------------------------ Total retail 402.1 417.4 (15.3) (4) Sales for resale: Associated companies 39.1 53.8 (14.7) (27) Non-associated companies 78.0 67.0 11.0 16 Other 7.8 7.6 0.2 3 ------------------------------ Total $ 527.0 $ 545.8 ($18.8) (3) ============================== Billed Electric Energy Sales (GWH): Residential 2,368 2,031 337 17 Commercial 1,510 1,391 119 9 Industrial 1,901 1,833 68 4 Governmental 67 67 - - ------------------------------ Total retail 5,846 5,322 524 10 Sales for resale: Associated companies 1,523 2,102 (579) (28) Non-associated companies 1,425 2,012 (587) (29) ------------------------------ Total 8,794 9,436 (642) (7) ============================== Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Electric Operating Revenues: Residential $ 447.2 $ 430.7 $ 16.5 4 Commercial 220.0 254.0 (34.0) (13) Industrial 248.9 278.4 (29.5) (11) Governmental 11.2 14.1 (2.9) (21) ------------------------------ Total retail 927.3 977.2 (49.9) (5) Sales for resale: Associated companies 98.7 176.2 (77.5) (44) Non-associated companies 176.1 162.2 13.9 9 Other 46.1 28.6 17.5 61 ------------------------------- Total $1,248.2 $ 1,344.2 ($96.0) (7) =============================== Billed Electric Energy Sales (GWH): Residential 5,229 4,640 589 13 Commercial 3,629 3,371 258 8 Industrial 5,109 4,944 165 3 Governmental 178 184 (6) (3) ------------------------------ Total retail 14,145 13,139 1,006 8 Sales for resale: Associated companies 4,022 7,982 (3,960) (50) Non-associated companies 3,835 5,023 (1,188) (24) ------------------------------ Total 22,002 26,144 (4,142) (16) ============================== </TABLE>
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three months ended September 30, 1998, primarily due to an increase in operating revenues and a decrease in interest charges, partially offset by higher income taxes. Net income decreased for the nine months ended September 30, 1998, primarily due to a decrease in operating revenues, partially offset by a decrease in interest charges and lower income taxes. The changes in operating revenues for the three and nine months ended September 30, 1998 reflected additional reserves recorded for rate reductions ordered by the PUCT with respect to Texas retail customers which totaled $13.3 million and $73.6 million net of tax, respectively. Excluding the effects of the additional reserves, net income for the three and nine months ended September 30, 1998 would have increased approximately $20.8 million and $31.1 million, respectively. See Note 2 for a discussion of the additional reserves recorded for rate reductions ordered by the PUCT with respect to Texas retail customers. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($58.4) ($183.2) Fuel cost recovery 28.3 28.6 Sales volume/weather 23.0 49.1 Other revenue (including unbilled) (1.4) (0.6) Sales for resale 17.5 46.5 ---- ------ Total $9.0 ($59.6) ==== ====== Electric operating revenues increased for the three months ended September 30, 1998 primarily due to increases in fuel cost recovery revenues, which do not impact net income, and higher sales volume and sales for resale, partially offset by a decrease in base revenues. Electric operating revenues decreased for the nine months ended September 30, 1998 primarily due to the decrease in base revenues exceeding the impact of higher sales volume and increases in fuel cost recovery revenues and sales for resale. Base revenues decreased primarily due to reserves recorded during the three and nine months ended September 30, 1998 for rate reductions ordered by the PUCT with respect to Texas retail customers, aggressive pricing strategies for targeted customer segments, and base rate reductions in Louisiana that became effective in March and July 1998. The increase in fuel cost recovery revenues, which do not affect net income, was due to higher fuel prices and increased generation in 1998. Sales volume increased due to significantly warmer weather in 1998. Sales for resale increased due to 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 and an increase in sales to non-associated utilities as a result of an increase in the average price of wholesale energy.
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Gas operating revenues decreased for the nine months ended September 30, 1998 due to a lower unit price for gas purchased for resale. Steam operating revenues decreased for the nine months ended September 30, 1998 primarily due to changes in the customer contract, which took effect in August 1997. Expenses Operating expenses for the three and nine months ended September 30, 1998 remained relatively unchanged reflecting increases in other operation and maintenance expenses, taxes other than income taxes, and a net increase in fuel and purchased power expenses, which were offset by a decrease in the amortization of rate deferrals. 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 nine months ended September 30, 1997. Taxes other than income taxes increased due to increased franchise, ad valorem, and payroll taxes. The net increase in fuel and purchased power expenses was 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 billed to Texas retail customers. The amortization of rate deferrals decreased due to the expiration of the Louisiana retail phase- in plan for River Bend in February 1998. Other Interest charges decreased for the three and nine months ended September 30, 1998 primarily due to the retirement, redemption, or refinancing of certain long-term debt in 1997 and 1998. For the three months ended September 30, 1998 and 1997, the effective income tax rates were 42.0% and 40.4%, respectively. The effective income tax rates for the nine months ended September 30, 1998 and 1997 were 43.9% and 37.4%, respectively. The changes in the effective income tax rates in 1998 were 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 For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $593,326 $584,357 $1,430,665 $1,490,234 Natural gas 4,410 4,476 27,710 32,387 Steam products 11,626 11,141 32,151 35,102 -------- -------- ---------- ---------- Total 609,362 599,974 1,490,526 1,557,723 -------- -------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 159,442 152,511 406,696 411,595 Purchased power 95,358 93,208 254,990 238,977 Nuclear refueling outage expenses 3,403 1,569 11,627 6,787 Other operation and maintenance 99,802 93,978 296,502 269,422 Depreciation, amortization, and decommissioning 50,865 53,768 157,902 160,569 Taxes other than income taxes 33,191 25,800 92,159 81,810 Other regulatory credits (1,373) (5,602) (10,424) (17,550) Amortization of rate deferrals 2,270 26,377 19,480 79,091 -------- -------- ---------- ---------- Total 442,958 441,609 1,228,932 1,230,701 -------- -------- ---------- ---------- Operating Income 166,404 158,365 261,594 327,022 -------- -------- ---------- ---------- Other Income: Allowance for equity funds used during construction 757 235 2,057 1,686 Miscellaneous - net 7,357 7,029 13,855 15,618 -------- -------- ---------- ---------- Total 8,114 7,264 15,912 17,304 -------- -------- ---------- ---------- Interest Charges: Interest on long-term debt 37,104 40,516 114,192 124,257 Other interest - net 1,132 4,704 2,847 8,420 Distributions on preferred securities of subsidiary trust 1,859 1,859 5,578 5,041 Allowance for borrowed funds used during construction (611) (156) (1,625) (1,395) -------- -------- ---------- ---------- Total 39,484 46,923 120,992 136,323 -------- -------- ---------- ---------- Income Before Income Taxes 135,034 118,706 156,514 208,003 Income Taxes 56,721 47,966 68,686 77,700 -------- -------- ---------- ---------- Net Income 78,313 70,740 87,828 130,303 Preferred and Preference Stock Dividend Requirements and Other 4,747 5,025 14,335 18,963 -------- -------- ---------- ---------- Earnings Applicable to Common Stock $73,566 $65,715 $73,493 $111,340 ======== ======== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) Nine Months Ended 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $87,828 $130,303 Noncash items included in net income: Amortization of rate deferrals 19,480 79,091 Other regulatory credits (10,424) (17,550) Depreciation, amortization, and decommissioning 157,902 160,569 Deferred income taxes and investment tax credits 4,456 22,299 Allowance for equity funds used during construction (2,057) (1,686) Changes in working capital: Receivables (16,460) (55,099) Fuel inventory 6,560 19,761 Accounts payable (9,621) 26,758 Taxes accrued 65,956 60,741 Interest accrued 8,189 6,211 Deferred fuel costs (43,391) (29,208) Other working capital accounts (323) (4,059) Decommissioning trust contributions and realized change in trust assets (10,024) (7,131) Provision for estimated losses and reserves (4,978) (16,811) Reserve for rate refund 76,883 - Other (7,798) 8,361 --------- --------- Net cash flow provided by operating activities 322,178 382,550 --------- --------- Investing Activities: Construction expenditures (77,904) (96,998) Allowance for equity funds used during construction 2,057 1,686 Nuclear fuel purchases (226) (11,580) Proceeds from sale/leaseback of nuclear fuel 219 11,580 --------- --------- Net cash flow used in investing activities (75,854) (95,312) --------- --------- 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) (57,240) Other long-term debt (72,090) (50,865) Redemption of preferred and preference stock (6,250) (93,367) Dividends paid: Common stock (109,400) (48,200) Preferred and preference stock (14,362) (16,960) --------- --------- Net cash flow used in financing activities (205,502) (184,309) --------- --------- Net increase in cash and cash equivalents 40,822 102,929 Cash and cash equivalents at beginning of period 165,164 122,406 --------- --------- Cash and cash equivalents at end of period $205,986 $225,335 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $101,855 $118,834 Income taxes $23,164 $2,631 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets ($4,907) $2,129 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $17,018 $10,549 Temporary cash investments - at cost, which approximates market: Associated companies 35,770 37,389 Other 153,198 117,226 ---------- ---------- Total cash and cash equivalents 205,986 165,164 Accounts receivable: Customer (less allowance for doubtful accounts of $1.8 million in 1998 and 1997) 103,075 99,762 Associated companies 7,395 9,024 Other 29,251 32,837 Accrued unbilled revenues 93,187 74,825 Deferred fuel costs 189,148 145,757 Accumulated deferred income taxes 29,656 22,093 Fuel inventory - at average cost 31,067 37,627 Materials and supplies - at average cost 107,326 104,690 Rate deferrals 9,077 21,749 Prepayments and other 28,116 21,680 ---------- ---------- Total 833,284 735,208 ---------- ---------- Other Property and Investments: Decommissioning trust fund 192,580 187,462 Other - at cost (less accumulated depreciation) 176,008 176,953 ---------- ---------- Total 368,588 364,415 ---------- ---------- Utility Plant: Electric 7,234,921 7,168,668 Natural gas 50,990 47,656 Steam products 83,037 82,289 Property under capital leases 56,319 67,946 Construction work in progress 95,158 90,333 Nuclear fuel under capital lease 37,738 54,390 Nuclear fuel 15,697 23,051 ---------- ---------- Total 7,573,860 7,534,333 Less - accumulated depreciation and amortization 3,138,741 2,996,147 ---------- ---------- Utility plant - net 4,435,119 4,538,186 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 91,602 98,410 SFAS 109 regulatory asset - net 379,332 376,275 Unamortized loss on reacquired debt 44,313 48,417 Other regulatory assets 83,175 86,819 Long-term receivables 35,163 36,984 Other 218,284 203,923 ---------- ---------- Total 851,869 850,828 ---------- ---------- TOTAL $6,488,860 $6,488,637 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. BALANCE SHEETS September 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 $140,515 $190,890 Accounts payable: Associated companies 59,801 48,726 Other 88,748 109,444 Customer deposits 31,440 30,311 Taxes accrued 114,274 48,318 Interest accrued 53,343 45,154 Nuclear refueling reserve 14,431 3,386 Obligations under capital leases 34,153 30,280 Other 14,221 17,646 ---------- ---------- Total 550,926 524,155 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,142,622 1,124,644 Accumulated deferred investment tax credits 211,638 215,438 Obligations under capital leases 59,904 92,055 Other 981,941 923,409 ---------- ---------- Total 2,396,105 2,355,546 ---------- ---------- Long-term debt 1,677,768 1,702,719 Preferred stock with sinking fund 62,729 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 248,258 284,165 ---------- ---------- Total 1,566,332 1,602,239 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $6,488,860 $6,488,637 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY GULF STATES, INC. SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollar In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 202.7 $ 210.7 ($ 8.0) (4) Commercial 113.8 125.3 (11.5) (9) Industrial 189.1 189.2 (0.1) - Governmental 7.7 8.6 (0.9) (10) ------------------------------ Total retail 513.3 533.8 (20.5) (4) Sales for resale: Associated companies 3.2 7.6 (4.4) (58) Non-associated companies 39.4 17.5 21.9 125 Other (1) 37.4 25.4 12.0 47 ------------------------------ Total $ 593.3 $ 584.3 $ 9.0 2 ============================== Billed Electric Energy Sales (GWH): Residential 3,210 2,845 365 13 Commercial 2,102 1,935 167 9 Industrial 4,631 4,739 (108) (2) Governmental 141 131 10 8 ------------------------------ Total retail 10,084 9,650 434 4 Sales for resale: Associated companies 85 181 (96) (53) Non-associated companies 1,162 438 724 165 ------------------------------ Total 11,331 10,269 1,062 10 ============================== Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollar In Millions) Electric Operating Revenues: Residential $ 470.5 $ 477.8 ($ 7.3) (2) Commercial 317.4 337.6 (20.2) (6) Industrial 539.3 544.1 (4.8) (1) Governmental 29.0 25.1 3.9 16 ------------------------------ Total retail 1,356.2 1,384.6 (28.4) (2) Sales for resale: Associated companies 13.3 13.1 0.2 2 Non-associated companies 88.1 41.8 46.3 111 Other (1) (27.0) 50.7 (77.7) (153) ------------------------------- Total $1,430.6 $ 1,490.2 ($ 59.6) (4) =============================== Billed Electric Energy Sales (GWH): Residential 6,878 6,282 596 9 Commercial 5,190 4,953 237 5 Industrial 13,594 13,459 135 1 Governmental 460 359 101 28 ------------------------------ Total retail 26,122 25,053 1,069 4 Sales for resale: Associated companies 347 380 (33) (9) Non-associated companies 2,609 1,077 1,532 142 ------------------------------ Total 29,078 26,510 2,568 10 ============================== (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 and nine months ended September 30, 1998 primarily due to a decrease in operating expenses, partially offset by a decrease in electric operating revenues and higher income taxes. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($1.7) ($34.9) Fuel cost recovery (26.9) (85.3) Sales volume/weather 18.4 25.7 Other revenue (including unbilled) (7.3) (0.2) Sales for resale 0.6 11.8 ------ ------ Total ($16.9) ($82.9) ====== ====== Electric operating revenues decreased for the three months ended September 30, 1998 primarily due to lower fuel cost recovery revenues, which do not affect net income, and a decrease in other revenue (primarily unbilled revenue), partially offset by an increase in sales volume. Electric operating revenues decreased for the nine months ended September 30, 1998 primarily due to a decrease in base revenues and lower fuel cost recovery revenues, which do not affect net income, partially offset by increases in sales volume and sales for resale. Fuel cost recovery revenues decreased due to lower pricing resulting from a change in generation mix. The decrease in unbilled revenue for the three months ended September 30, 1998 was primarily a result of decreased sales to three large industrial customers and a decrease in sales volume in late September 1998 due to distribution outages caused by major storms. Sales volume increased for the three and nine months ended September 30, 1998 due to significantly warmer weather in 1998. This increase in sales volume was partially offset by the loss of a large industrial customer as well as substantially lower sales to two other large industrial customers. For the nine months ended September 1998, base revenues decreased due to a base rate reduction that became effective in the third quarter of 1997. Sales for resale increased for the nine months ended September 1998 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.
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses decreased for the three and nine months ended September 30, 1998 primarily due to a decrease in fuel expenses, purchased power expenses, and other operation and maintenance expenses. Fuel expenses decreased due to lower gas prices and a shift in mix to nuclear fuel. 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 and to increased generation in the third quarter of 1998. Other operation and maintenance expenses decreased due to non-refueling outage related contract work and maintenance performed at Waterford 3 in 1997. Other For the three and nine months ended September 30, 1998 and 1997, the effective income tax rates were relatively unchanged at 39.8% versus 39.7% and 40.9% versus 40.3%, respectively.
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF INCOME For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $537,632 $554,486 $1,317,785 $1,400,732 -------- -------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 134,631 152,609 280,340 326,588 Purchased power 102,559 113,235 291,914 323,988 Nuclear refueling outage expenses 5,435 5,267 16,305 10,566 Other operation and maintenance 72,275 75,251 215,785 231,637 Depreciation, amortization, and decommissioning 40,102 42,877 127,332 128,343 Taxes other than income taxes 18,237 17,892 53,708 53,712 Other regulatory charges (credits) - (634) (1,754) 6,382 Amortization of rate deferrals - 13 - 5,749 -------- -------- ---------- ---------- Total 373,239 406,510 983,630 1,086,965 -------- -------- ---------- ---------- Operating Income 164,393 147,976 334,155 313,767 -------- -------- ---------- ---------- Other Income (Deductions): Allowance for equity funds used during construction 586 601 1,406 1,038 Miscellaneous - net 339 (789) 2,708 (1,706) -------- -------- ---------- ---------- Total 925 (188) 4,114 (668) -------- -------- ---------- ---------- Interest Charges: Interest on long-term debt 27,180 27,921 84,790 88,011 Other interest - net 1,665 1,635 4,682 4,846 Distributions on preferred securities of subsidiary trust 1,575 1,575 4,725 4,725 Allowance for borrowed funds used during construction (535) (555) (1,285) (1,311) -------- -------- ---------- ---------- Total 29,885 30,576 92,912 96,271 -------- -------- ---------- ---------- Income Before Income Taxes 135,433 117,212 245,357 216,828 Income Taxes 53,963 46,531 100,424 87,368 -------- -------- ---------- ---------- Net Income 81,470 70,681 144,933 129,460 Preferred Stock Dividend Requirements and Other 3,253 3,251 9,760 10,097 -------- -------- ---------- ---------- Earnings Applicable to Common Stock $78,217 $67,430 $135,173 $119,363 ======== ======== ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Nine Months ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $144,933 $129,460 Noncash items included in net income: Amortization of rate deferrals - 5,749 Other regulatory charges (credits) (1,754) 6,382 Depreciation, amortization, and decommissioning 127,332 128,343 Deferred income taxes and investment tax credits 4,842 (8,136) Allowance for equity funds used during construction (1,406) (1,038) Changes in working capital: Receivables (60,531) (48,067) Accounts payable (12,276) (15,502) Taxes accrued 108,558 100,900 Interest accrued 1,895 (23,166) Deferred fuel costs (18,217) 5,296 Other working capital accounts 14,826 (1,525) Other deferred credits (26,479) 4,164 Decommissioning trust contributions and realized change in trust assets (11,062) (8,363) Provision for estimated losses and reserves 1,251 5,046 Other (10,674) (7,898) --------- --------- Net cash flow provided by operating activities 261,238 271,645 --------- --------- Investing Activities: Construction expenditures (62,672) (60,071) Allowance for equity funds used during construction 1,406 1,038 Nuclear fuel purchases (22,293) (43,332) Proceeds from sale/leaseback of nuclear fuel 9,872 43,332 --------- --------- Net cash flow used in investing activities (73,687) (59,033) --------- --------- Financing Activities: Proceeds from the issuance of first mortgage bonds 112,556 - Retirement of: First mortgage bonds (150,561) (34,000) Other long-term debt (175) (262) Redemption of preferred stock - (7,500) Changes in short-term borrowings - net - (31,066) Dividends paid: Common stock (138,500) (111,200) Preferred stock (9,760) (9,997) --------- --------- Net cash flow used in financing activities (186,440) (194,025) --------- --------- Net increase in cash and cash equivalents 1,111 18,587 Cash and cash equivalents at beginning of period 49,749 23,746 --------- --------- Cash and cash equivalents at end of period $50,860 $42,333 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized 86,292 $101,334 Income taxes $21,150 ($1,754) Noncash investing and financing activities: Change in unrealized appreciation/(depreciation) of decommissioning trust assets ($138) $1,877 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $2,705 $5,148 Temporary cash investments - at cost, which approximates market 48,155 44,601 ---------- ---------- Total cash and cash equivalents 50,860 49,749 Accounts receivable: Customer (less allowance for doubtful accounts of $1.2 million in 1998 and 1997) 122,065 69,566 Associated companies 17,827 15,035 Other 8,785 7,441 Accrued unbilled revenues 65,770 61,874 Deferred fuel costs 14,949 - Accumulated deferred income taxes 8,727 10,994 Materials and supplies - at average cost 81,706 82,850 Deferred nuclear refueling outage costs 10,884 27,176 Prepayments and other 11,596 10,793 ---------- ---------- Total 393,169 335,478 ---------- ---------- Other Property and Investments: Nonutility property 22,525 22,525 Decommissioning trust fund 76,028 65,104 Investment in subsidiary companies - at equity 14,230 14,230 ---------- ---------- Total 112,783 101,859 ---------- ---------- Utility Plant: Electric 5,093,145 5,058,130 Property under capital leases 233,513 233,513 Construction work in progress 73,878 52,632 Nuclear fuel under capital lease 42,613 57,811 Nuclear fuel 13,982 1,560 ---------- ---------- Total 5,457,131 5,403,646 Less - accumulated depreciation and amortization 2,133,131 2,021,392 ---------- ---------- Utility plant - net 3,324,000 3,382,254 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 263,432 278,234 Unamortized loss on reacquired debt 31,668 33,468 Other regulatory assets 27,910 29,991 Other 16,209 14,116 ---------- ---------- Total 339,219 355,809 ---------- ---------- TOTAL $4,169,171 $4,175,400 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. BALANCE SHEETS September 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 $294 $35,300 Accounts payable: Associated companies 43,443 43,508 Other 83,675 95,886 Customer deposits 55,936 55,331 Taxes accrued 133,801 25,243 Interest accrued 36,466 34,571 Dividends declared 3,253 3,253 Deferred fuel costs - 3,268 Obligations under capital leases 16,932 29,232 Other 6,166 8,578 ---------- ---------- Total 379,966 334,170 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 804,914 813,748 Accumulated deferred investment tax credits 130,085 134,276 Obligations under capital leases 25,682 28,579 Deferred interest - Waterford 3 lease obligation 9,942 17,799 Other 94,291 119,519 ---------- ---------- Total 1,064,914 1,113,921 ---------- ---------- Long-term debt 1,338,758 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 43,454 46,766 ---------- ---------- Total 1,230,533 1,233,845 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,169,171 $4,175,400 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LOUISIANA, INC. SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 224.1 $ 222.6 $ 1.5 1 Commercial 112.1 116.8 (4.7) (4) Industrial 155.0 180.2 (25.2) (14) Governmental 8.8 9.1 (0.3) (3) ------------------------------ Total retail 500.0 528.7 (28.7) (5) Sales for resale: Associated companies 3.7 2.7 1.0 37 Non-associated companies 16.0 16.4 (0.4) (2) Other 17.9 6.7 11.2 167 ------------------------------ Total $ 537.6 $ 554.5 ($16.9) (3) ============================== Billed Electric Energy Sales (GWH): Residential 3,058 2,738 320 12 Commercial 1,615 1,502 113 8 Industrial 3,805 3,918 (113) (3) Governmental 125 119 6 5 ------------------------------ Total retail 8,603 8,277 326 4 Sales for resale: Associated companies 76 72 4 6 Non-associated companies 207 256 (49) (19) ------------------------------ Total 8,886 8,605 281 3 ============================== Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Electric Operating Revenues: Residential $ 465.1 $ 475.4 ($ 10.3) (2) Commercial 274.6 291.4 (16.8) (6) Industrial 441.0 538.0 (97.0) (18) Governmental 24.5 26.2 (1.7) (6) ------------------------------ Total retail 1,205.2 1,331.0 (125.8) (9) Sales for resale: Associated companies 14.0 3.5 10.5 300 Non-associated companies 42.8 41.5 1.3 3 Other 55.8 24.7 31.1 126 ------------------------------- Total $1,317.8 $ 1,400.7 ($82.9) (6) =============================== Billed Electric Energy Sales (GWH): Residential 6,620 6,042 578 10 Commercial 3,979 3,732 247 7 Industrial 11,120 12,511 (1,391) (11) Governmental 364 348 16 5 ------------------------------ Total retail 22,083 22,633 (550) (2) Sales for resale: Associated companies 311 98 213 217 Non-associated companies 619 616 3 - ------------------------------ Total 23,013 23,347 (334) (1) ============================== </TABLE>
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three and nine months ended September 30, 1998 primarily due to 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 nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($3.5) ($9.0) Grand Gulf rate rider 12.8 23.8 Fuel cost recovery 9.1 15.0 Sales volume/weather 10.9 21.2 Other revenue (including unbilled) (2.8) 14.0 Sales for resale 3.3 25.5 ----- ----- Total $29.8 $90.5 ===== ===== Electric operating revenues increased for the three and nine months ended September 30, 1998 primarily due to increases in Grand Gulf rate rider revenue, sales volume, and fuel cost recovery revenues. The increase in other revenues (primarily unbilled revenues) and sales for resale also contributed to the increase in electric operating revenues for the nine months ended September 30, 1998. The increase in the Grand Gulf rate rider revenue, which does not affect net income, and in sales volume was primarily due to significantly warmer weather in 1998. The increase in fuel costs recovery revenues, which do not affect net income, was due to increased generation in 1998 as well as, for the nine months ended September 30, 1998, an MPSC order, effective May 1, 1997, that changed fuel recovery pricing to a fixed fuel factor, subject to annual review. For the nine months ended September 30, 1998, unbilled revenue increased due to increased sales volume and favorable pricing attributable to the application of the fixed fuel factor in 1998. For the nine months ended September 30, 1998, sales for resale increased as a result of an increase in sales to associated companies primarily due to increased generation and availability among the domestic utility companies.
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Expenses Operating expenses increased for the three and nine months ended September 30, 1998 primarily due to an increase in fuel expenses and other regulatory charges (credits) which, for the nine months ended September 30, 1998, was partially offset by a decrease in purchased power expenses. The increase in fuel expenses was due to the impact of the under-recovery of deferred fuel costs in excess of the fixed fuel factor applied in 1997. In January 1998, Entergy Mississippi increased its fixed fuel factor to more accurately recover actual fuel expenses. The increase in other regulatory charges (credits), which do not materially affect net income, was a result of the over-recovery of Grand Gulf 1- related costs due to increased sales. The decrease in purchased power expense for the nine months ended September 30, 1998 was due to a shift from higher priced purchased power to lower priced fossil fuel. Other The effective income tax rate of 35.7% for the three months ended September 30, 1998 remained relatively unchanged from the rate of 35.4% for the three months ended September 30, 1997. For the nine months ended September 30, 1998 and 1997, the effective income tax rates were 34.8% and 33.6%, respectively. The increase in 1998 was 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 Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $324,784 $294,983 $798,709 $708,203 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 85,859 72,379 196,260 138,928 Purchased power 71,404 71,441 210,030 218,015 Other operation and maintenance 30,631 32,227 90,861 95,704 Depreciation and amortization 10,900 10,739 33,294 32,120 Taxes other than income taxes 12,061 12,058 34,259 33,471 Other regulatory charges (credits) 24,912 7,596 2,883 (33,090) Amortization of rate deferrals 34,989 35,711 104,968 107,134 -------- -------- -------- -------- Total 270,756 242,151 672,555 592,282 -------- -------- -------- -------- Operating Income 54,028 52,832 126,154 115,921 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 17 - 17 560 Miscellaneous - net 971 399 3,002 662 -------- -------- -------- -------- Total 988 399 3,019 1,222 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 9,153 9,798 28,614 31,211 Other interest - net 577 1,154 2,737 3,477 Allowance for borrowed funds used during construction (287) (20) (420) (482) -------- -------- -------- -------- Total 9,443 10,932 30,931 34,206 -------- -------- -------- -------- Income Before Income Taxes 45,573 42,299 98,242 82,937 Income Taxes 16,252 14,964 34,215 27,851 -------- -------- -------- -------- Net Income 29,321 27,335 64,027 55,086 Preferred Stock Dividend Requirements and Other 843 1,129 2,527 3,258 -------- -------- -------- -------- Earnings Applicable to Common Stock $28,478 $26,206 $61,500 $51,828 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $64,027 $55,086 Noncash items included in net income: Amortization of rate deferrals 104,968 107,134 Other regulatory charges (credits) 2,883 (33,090) Depreciation and amortization 33,294 32,120 Deferred income taxes and investment tax credits (35,446) (29,761) Allowance for equity funds used during construction (17) (560) Changes in working capital: Receivables (50,180) (18,818) Fuel inventory 809 5,011 Accounts payable 14,255 5,316 Taxes accrued 43,546 38,807 Interest accrued (1,212) (7,751) Other working capital accounts (7,703) (12,506) Other (17,740) 20 --------- --------- Net cash flow provided by operating activities 151,484 141,008 --------- --------- Investing Activities: Construction expenditures (31,391) (37,378) Allowance for equity funds used during construction 17 560 --------- --------- Net cash flow used in investing activities (31,374) (36,818) --------- --------- 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) (96,000) Other long-term debt (20) (15) Redemption of preferred stock - (14,500) Changes in short-term borrowings - net (47,162) (7,132) Dividends paid: Common stock (66,000) (53,400) Preferred stock (2,527) (3,156) --------- --------- Net cash flow used in financing activities (117,006) (109,376) --------- --------- Net increase (decrease) in cash and cash equivalents 3,104 (5,186) Cash and cash equivalents at beginning of period 6,816 9,498 --------- --------- Cash and cash equivalents at end of period $9,920 $4,312 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $31,165 $41,044 Income taxes $18,926 $11,670 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $8,999 $6,816 Temporary cash investments - at cost, which approximates market 921 - ---------- ---------- Total cash and cash equivalents 9,920 6,816 Accounts receivable: Customer (less allowance for doubtful accounts of $.9 million in 1998 and 1997) 67,280 36,636 Associated companies 10,792 6,842 Other 1,146 4,139 Accrued unbilled revenues 68,572 49,993 Deferred fuel costs 14,289 14,967 Fuel inventory - at average cost 2,577 3,386 Materials and supplies - at average cost 17,500 17,657 Rate deferrals - 104,969 Prepayments and other 4,790 24,896 ---------- ---------- Total 196,866 270,301 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 5,531 5,531 Other - at cost (less accumulated depreciation) 7,633 7,757 ---------- ---------- Total 13,164 13,288 ---------- ---------- Utility Plant: Electric 1,715,139 1,687,400 Construction work in progress 26,163 22,960 ---------- ---------- Total 1,741,302 1,710,360 Less - accumulated depreciation and amortization 684,605 656,828 ---------- ---------- Utility plant - net 1,056,697 1,053,532 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 27,702 22,993 Unamortized loss on reacquired debt 8,205 8,404 Other regulatory assets 88,261 64,827 Other 6,599 6,216 ---------- ---------- Total 130,767 102,440 ---------- ---------- TOTAL $1,397,494 $1,439,561 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. BALANCE SHEETS September 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 - 47,162 Accounts payable: Associated companies 43,067 36,057 Other 18,521 11,276 Customer deposits 17,389 24,084 Taxes accrued 75,860 32,314 Accumulated deferred income taxes 600 44,277 Interest accrued 13,097 14,309 Other 3,183 2,806 ---------- ---------- Total 171,737 212,305 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 258,147 244,464 Accumulated deferred investment tax credits 22,784 23,915 Other 6,950 15,892 ---------- ---------- Total 287,881 284,271 ---------- ---------- Long-term debt 463,547 464,156 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 224,681 229,181 ---------- ---------- Total 474,329 478,829 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $1,397,494 $1,439,561 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY MISSISSIPPI, INC. SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 139.2 $ 120.9 $ 18.3 15 Commercial 89.4 80.5 8.9 11 Industrial 46.0 44.3 1.7 4 Governmental 7.7 7.3 0.4 5 --------------------------- Total retail 282.3 253.0 29.3 12 Sales for resale: Associated companies 29.3 27.8 1.5 5 Non-associated companies 8.3 6.5 1.8 28 Other 4.9 7.7 (2.8) (36) --------------------------- Total $ 324.8 $ 295.0 $ 29.8 10 =========================== Billed Electric Energy Sales (GWH): Residential 1,750 1,517 233 15 Commercial 1,246 1,125 121 11 Industrial 830 806 24 3 Governmental 101 94 7 7 --------------------------- Total retail 3,927 3,542 385 11 Sales for resale: Associated companies 903 715 188 26 Non-associated companies 162 126 36 29 --------------------------- Total 4,992 4,383 609 14 =========================== Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Electric Operating Revenues: Residential $ 297.1 $ 264.8 $ 32.3 12 Commercial 221.9 206.9 15.0 7 Industrial 130.9 127.8 3.1 2 Governmental 21.0 20.4 0.6 3 --------------------------- Total retail 670.9 619.9 51.0 8 Sales for resale: Associated companies 71.2 49.5 21.7 44 Non-associated companies 19.7 15.9 3.8 24 Other 36.9 22.9 14.0 61 --------------------------- Total $ 798.7 $ 708.2 $ 90.5 13 =========================== Billed Electric Energy Sales (GWH): Residential 3,759 3,338 421 13 Commercial 3,021 2,778 243 9 Industrial 2,359 2,279 80 4 Governmental 260 251 9 4 --------------------------- Total retail 9,399 8,646 753 9 Sales for resale: Associated companies 2,136 1,145 991 87 Non-associated companies 373 309 64 21 --------------------------- Total 11,908 10,100 1,808 18 =========================== </TABLE>
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income increased for the three and nine months ended September 30, 1998 primarily due to an increase in electric operating revenues, partially offset by an increase in operating expenses. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 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 nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($1.3) ($7.7) Fuel cost recovery 17.6 21.2 Sales volume/weather 6.8 11.8 Other revenue (including unbilled) 2.1 5.2 Sales for resale 1.1 1.1 ----- ----- Total $26.3 $31.6 ===== ===== Electric operating revenues increased for the three and nine months ended September 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 primarily due to higher fuel prices and increased generation. The increase in sales volume was primarily due to significantly warmer weather in 1998. The increase in unbilled revenue was primarily due to the impact of a September 1997 price refund, which lowered unbilled revenue at September 30, 1997. Base revenues decreased primarily due to reductions in residential and commercial rates that went into effect in August 1997. Expenses Operating expenses increased for the three and nine months ended September 30, 1998 primarily due to increases in fuel expense and other regulatory charges and, for the nine months ended September 30, 1998, an increase in purchased power. Fuel expenses increased primarily due to an increase in deferred electric fuel costs for the three months ended September 30, 1998, resulting from a net over-recovery of fuel costs in the third quarter of 1998 as compared to a net under-recovery of fuel costs in the third quarter of 1997. The increase in deferred electric fuel costs for the nine months ended September 30, 1998 was partially offset by an under-recovery of fuel costs requirements in the first and second quarters of 1998 due to increased generation. Additionally, for the nine months ended September 30, 1998, fuel oil expenses increased due to increased generation requirements and increased usage of fossil fuel. Partially offsetting the increase in fuel expenses was decreased gas purchased for resale expense due to lower gas prices. The increase in other regulatory charges, which do not materially affect net income, was primarily due to the increased over-recovery of Grand Gulf 1-related costs for the three and nine months ended September 30, 1998 compared to the net under-recovery for the same periods in 1997. Purchased power expenses increased for the nine months ended
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS September 30, 1998 primarily due to increased generation requirements as a result of significantly warmer weather in the second and third quarters of 1998. Other For the three and nine months ended September 30, 1998 and 1997, the effective income tax rates were relatively unchanged at 39.5% versus 40.0% and 41.6% versus 42.5%, respectively.
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF INCOME For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues: Electric $153,215 $126,901 $340,672 $309,050 Natural gas 12,593 13,039 63,905 65,649 -------- -------- -------- -------- Total 165,808 139,940 404,577 374,699 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 47,512 28,146 103,196 96,586 Purchased power 44,058 46,958 130,886 119,922 Other operation and maintenance 20,677 19,443 57,763 52,125 Depreciation and amortization 5,224 5,477 16,303 16,068 Taxes other than income taxes 12,102 11,448 30,827 28,940 Other regulatory charges (credits) 4,020 (1,776) (824) (4,180) Amortization of rate deferrals 12,005 12,148 28,857 28,987 -------- -------- -------- -------- Total 145,598 121,844 367,008 338,448 -------- -------- -------- -------- Operating Income 20,210 18,096 37,569 36,251 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 125 99 214 259 Miscellaneous - net 376 (27) 498 (7) -------- -------- -------- -------- Total 501 72 712 252 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 3,547 3,429 10,406 10,488 Other interest - net 294 485 771 1,064 Allowance for borrowed funds used during construction (97) (68) (165) (194) -------- -------- -------- -------- Total 3,744 3,846 11,012 11,358 -------- -------- -------- -------- Income Before Income Taxes 16,967 14,322 27,269 25,145 Income Taxes 6,709 5,732 11,336 10,699 -------- -------- -------- -------- Net Income 10,258 8,590 15,933 14,446 Preferred Stock Dividend Requirements and Other 242 242 724 724 -------- -------- -------- -------- Earnings Applicable to Common Stock $10,016 $8,348 $15,209 $13,722 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $15,933 $14,446 Noncash items included in net income: Amortization of rate deferrals 28,857 28,987 Other regulatory charges (credits) (824) (4,180) Depreciation and amortization 16,303 16,068 Deferred income taxes and investment tax credits (12,696) (1,690) Allowance for equity funds used during construction (214) (259) Changes in working capital: Receivables (24,676) (801) Accounts payable 2,161 (1,323) Taxes accrued 19,638 12,233 Interest accrued (3,054) (2,426) Deferred fuel and resale gas costs 4,925 (4,586) Other working capital accounts 528 (12,288) Other (11,977) (7,390) --------- --------- Net cash flow provided by operating activities 34,904 36,791 --------- --------- Investing Activities: Construction expenditures (12,073) (7,652) Allowance for equity funds used during construction 214 259 --------- --------- Net cash flow used in investing activities (11,859) (7,393) --------- --------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds 29,438 - Retirement of: First mortgage bonds - (12,000) General and refunding mortgage bonds (30,000) - Dividends paid: Common stock (9,700) (26,000) Preferred stock (724) (965) --------- --------- Net cash flow used in financing activities (10,986) (38,965) --------- --------- Net increase (decrease) in cash and cash equivalents 12,059 (9,567) Cash and cash equivalents at beginning of period 11,376 17,510 --------- --------- Cash and cash equivalents at end of period $23,435 $7,943 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $13,259 $13,535 Income taxes - net $5,462 $4,309 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $6,823 $4,321 Temporary cash investments - at cost, which approximates market: Associated companies 3,492 1,918 Other 13,120 5,137 -------- -------- Total cash and cash equivalents 23,435 11,376 Accounts receivable: Customer (less allowance for doubtful accounts of $0.7 million in 1998 and 1997) 48,607 26,913 Associated companies 921 1,081 Other 3,465 4,155 Accrued unbilled revenues 19,915 16,083 Deferred electric fuel and resale gas costs 4,459 9,384 Materials and supplies - at average cost 8,615 9,389 Rate deferrals 28,587 35,336 Prepayments and other 4,800 6,087 -------- -------- Total 142,804 119,804 -------- -------- Other Property and Investments: Investment in subsidiary companies - at equity 3,259 3,259 -------- -------- Utility Plant: Electric 514,074 508,338 Natural gas 132,448 122,308 Construction work in progress 15,676 19,184 -------- -------- Total 662,198 649,830 Less - accumulated depreciation and amortization 369,374 355,854 -------- -------- Utility plant - net 292,824 293,976 -------- -------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 42,085 64,192 SFAS 109 regulatory asset - net - 1,202 Unamortized loss on reacquired debt 1,453 1,435 Other regulatory assets 18,966 13,392 Other 1,409 890 -------- -------- Total 63,913 81,111 -------- -------- TOTAL $502,800 $498,150 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY (In Thousands) <S> <C> <C> Current Liabilities: Accounts payable: Associated companies $17,164 $15,922 Other 18,424 17,505 Customer deposits 17,991 16,982 Taxes accrued 24,908 5,270 Accumulated deferred income taxes 6,015 11,544 Interest accrued 1,995 5,049 Provision for rate refund - 3,108 Other 2,797 2,231 -------- -------- Total 89,294 77,611 -------- -------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 51,725 61,000 Accumulated deferred investment tax credits 7,019 7,396 Accumulated provision for property insurance 15,322 15,487 SFAS 109 regulatory liability - net 1,001 Other 12,552 16,327 -------- -------- Total 87,619 100,210 -------- -------- Long-term debt 169,002 168,953 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 67,067 61,558 -------- -------- Total 156,885 151,376 -------- -------- Commitments and Contingencies (Notes 1 and 2) TOTAL $502,800 $498,150 ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY NEW ORLEANS, INC. SELECTED OPERATING RESULTS For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) <S> <C> <C> <C> <C> Electric Operating Revenues: Residential $ 70.4 $ 55.3 $ 15.1 27 Commercial 47.8 38.3 9.5 25 Industrial 8.1 6.3 1.8 29 Governmental 20.5 16.6 3.9 23 ---------------------------- Total retail 146.8 116.5 30.3 26 Sales for resale: Associated companies 1.5 0.8 0.7 88 Non-associated companies 3.2 2.8 0.4 14 Other (1) 1.7 6.8 (5.1) (75) ---------------------------- Total $ 153.2 $ 126.9 $ 26.3 21 ============================ Billed Electric Energy Sales (GWH): Residential 844 761 83 11 Commercial 648 610 38 6 Industrial 144 128 16 13 Governmental 311 285 26 9 ---------------------------- Total retail 1,947 1,784 163 9 Sales for resale: Associated companies 42 22 20 91 Non-associated companies 50 51 (1) (2) ---------------------------- Total 2,039 1,857 182 10 ============================ Nine Months Ended Increase/ Description 1998 1997 (Decrease) % (Dollars In Millions) Electric Operating Revenues: Residential $ 131.3 $ 111.2 $ 20.1 18 Commercial 114.5 107.2 7.3 7 Industrial 20.4 18.2 2.2 12 Governmental 47.4 43.1 4.3 10 ---------------------------- Total retail 313.6 279.7 33.9 12 Sales for resale: Associated companies 6.8 7.8 (1.0) (13) Non-associated companies 8.5 6.4 2.1 33 Other (1) 11.8 15.2 (3.4) (22) ---------------------------- Total $ 340.7 $ 309.1 $ 31.6 10 ============================ Billed Electric Energy Sales (GWH): Residential 1,680 1,521 159 10 Commercial 1,628 1,576 52 3 Industrial 395 367 28 8 Governmental 780 745 35 5 ---------------------------- Total retail 4,483 4,209 274 7 Sales for resale: Associated companies 222 247 (25) (10) Non-associated companies 145 112 33 29 ---------------------------- Total 4,850 4,568 282 6 ============================ (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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 1998 primarily due to lower other operation and maintenance expenses. The decrease in operating expenses for the nine months ended September 30, 1998, was also impacted by lower fuel expenses and depreciation, amortization, and decommissioning expenses. The decrease in other operation and maintenance expenses was due primarily to the impact of various materials and supplies refunds, an insurance refund, and a decrease in contract labor. Fuel expenses decreased because of lower generation due to a scheduled nuclear refueling outage in April and May of this year. Depreciation, amortization, and decommissioning expenses were lower as a result of the recognition of additional depreciation in the nine months ended September 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 nine months ended September 30, 1998 as a result of the redemption of a series of First Mortgage Bonds in April 1998. For the three and nine months ended September 30, 1998 and 1997 the effective income tax rates were relatively unchanged at 45.1% versus 46.0% and 45.2% versus 44.8%, respectively.
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF INCOME For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $152,083 $160,573 $445,025 $477,255 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 12,278 12,270 29,308 36,728 Nuclear refueling outage expenses 3,479 4,202 12,255 11,826 Other operation and maintenance 22,513 28,431 66,285 77,228 Depreciation, amortization, and decommissioning 38,477 36,238 104,067 110,951 Taxes other than income taxes 6,564 6,619 20,202 19,825 -------- -------- -------- -------- Total 83,311 87,760 232,117 256,558 -------- -------- -------- -------- Operating Income 68,772 72,813 212,908 220,697 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 608 1,169 1,689 1,730 Miscellaneous - net 3,058 2,323 8,670 5,564 -------- -------- -------- -------- Total 3,666 3,492 10,359 7,294 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 25,617 30,079 84,068 91,940 Other interest - net 1,560 1,720 4,827 5,331 Allowance for borrowed funds used during construction (542) (761) (1,488) (1,318) -------- -------- -------- -------- Total 26,635 31,038 87,407 95,953 -------- -------- -------- -------- Income Before Income Taxes 45,803 45,267 135,860 132,038 Income Taxes 20,664 20,818 61,355 59,151 -------- -------- -------- -------- Net Income $25,139 $24,449 $74,505 $72,887 ======== ======== ======== ======== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net income $74,505 $72,887 Noncash items included in net income: Depreciation, amortization, and decommissioning 104,067 110,951 Deferred income taxes and investment tax credits (28,736) (30,168) Allowance for equity funds used during construction (1,689) (1,730) Changes in working capital: Receivables 1,283 (8,110) Accounts payable (4,318) 5,380 Taxes accrued 21,590 6,146 Interest accrued (10,830) 169 Other working capital accounts (6,621) 14,423 Decommissioning trust contributions and realized change in trust assets (18,053) (17,202) FERC Settlement - refund obligation (3,795) (3,351) Provision for estimated losses and reserves 51,503 30,303 Other 6,016 21,298 --------- --------- Net cash flow provided by operating activities 184,922 200,996 --------- --------- Investing Activities: Construction expenditures (20,004) (25,403) Allowance for equity funds used during construction 1,689 1,730 Nuclear fuel purchases (30,523) (39) Proceeds from sale/leaseback of nuclear fuel 30,523 39 --------- --------- Net cash flow used in investing activities (18,315) (23,673) --------- --------- Financing Activities: Retirement of: First mortgage bonds (70,000) (10,000) Other long-term debt (7,861) (7,319) Common stock dividends paid (72,300) (84,000) --------- --------- Net cash flow used in financing activities (150,161) (101,319) --------- --------- Net increase in cash and cash equivalents 16,446 76,004 Cash and cash equivalents at beginning of period 206,410 92,315 --------- --------- Cash and cash equivalents at end of period $222,856 $168,319 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $87,298 $89,681 Income taxes $63,664 $77,016 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $314 ($564) See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $686 $792 Temporary cash investments - at cost, which approximates market: Associated companies 46,695 55,891 Other 175,475 149,727 ---------- ---------- Total cash and cash equivalents 222,856 206,410 Accounts receivable: Associated companies 77,827 79,262 Other 4,292 4,140 Materials and supplies - at average cost 62,332 63,782 Deferred nuclear refueling outage costs 16,331 7,777 Prepayments and other 3,357 3,658 ---------- ---------- Total 386,995 365,029 ---------- ---------- Other Property and Investments: Decommissioning trust fund 104,279 85,912 ---------- ---------- Utility Plant: Electric 3,029,956 3,025,389 Electric plant under leases 441,803 440,970 Construction work in progress 52,872 36,445 Nuclear fuel under capital lease 73,839 64,190 ---------- ---------- Total 3,598,470 3,566,994 Less - accumulated depreciation and amortization 1,169,371 1,086,820 ---------- ---------- Utility plant - net 2,429,099 2,480,174 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 227,011 243,027 Unamortized loss on reacquired debt 46,587 51,386 Other regulatory assets 193,775 192,290 Other 13,614 14,213 ---------- ---------- Total 480,987 500,916 ---------- ---------- TOTAL $3,401,360 $3,432,031 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS September 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 $160,000 $70,000 Accounts payable: Associated companies 25,637 29,131 Other 18,298 19,122 Taxes accrued 97,265 75,675 Interest accrued 31,492 42,322 Obligations under capital leases 36,156 41,977 Other 1,523 1,341 ---------- ---------- Total 370,371 279,568 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 516,858 562,051 Accumulated deferred investment tax credits 97,564 100,171 Obligations under capital leases 37,683 22,213 FERC Settlement - refund obligation 44,505 48,300 Other 307,877 227,847 ---------- ---------- Total 1,004,487 960,582 ---------- ---------- Long-term debt 1,174,350 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 62,802 60,583 ---------- ---------- Total 852,152 849,933 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $3,401,360 $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 nine months ended September 30, 1998 with the results of operations for the respective periods in 1997. The nine months ended September 30, 1997 includes eight 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 nine months ended September 30, 1998 primarily due to decreases in income tax expenses, and, for the nine months ended, an increase in operating revenues, partially offset by an increase in operating expenses. Excluding the effects of the windfall profits tax in 1997 and the corporation tax rate changes in 1998 and 1997, which are discussed under "Other" below, net income would have increased approximately $40 million and $50 million for the three and nine months ended September 30, 1998, respectively. Significant factors affecting the results of operations and causing variances between the three and nine months ended September 30, 1998 and 1997 are discussed under "Revenues", "Expenses", and "Other" below. Revenues The changes in operating revenues for the three and nine months ended September 30, 1998 are as follows: Three Months Ended Nine Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Electricity distribution $17.0 $68.3 Electricity supply 3.9 177.8 Other 7.9 40.4 Intra-business (8.0) (65.8) ----- ------ Total $20.8 $220.7 ===== ====== Two principal factors determine the amount of revenues produced by the main electricity distribution and supply businesses: (1) the unit prices of the electricity distributed and supplied (which are controlled by the Distribution Price Control Formula and, for franchise customers, the Supply Price Control Formula, respectively, which determine the maximum average price per unit (kilowatt hour) of electricity that may be charged) and (2) 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 will have the exclusive right to supply all franchise supply customers in its Franchise Area until late 1998. Revenues from the distribution business increased for the three and nine months ended September 30, 1998. The increase for the three month period was primarily due to an increase in the BPS to U.S. dollar exchange rate for the period, a change in the seasonal tariff structure to recover higher system costs in the summer months, and a one time recovery of meter installation costs. The increase for the nine month period was principally due to an increase in units distributed as a result of the additional month of activity in 1998. Partially offsetting these factors was a distribution price reduction effective April 1, 1997.
ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Franchise supply customers, who are generally residential and small commercial customers, comprised 56% and 59% of total supply sales volume for the three and nine months ended September 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 44% and 41% of total supply sales volume for the three and nine months ended September 30, 1998, respectively. Sales to non-franchise supply customers are determined primarily by the success of the supply business in contracting to supply 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 September 30, 1998, the number of electricity units supplied decreased by 6% compared to the same period in 1997, while total revenues produced by the supply business increased by 1%. The increase in revenue was due to an increase in the BPS to U.S. dollar exchange rate for the three months ended September 30, 1998 compared to the same period in 1997. Sales volume decreased by 1% for franchise customers and decreased by 12% for non-franchise customers for the three months ended September 30, 1998. The decrease in sales volume for non-franchise customers was due principally to a strategy of pursuing customers with higher profit margins. During the nine months ended September 30, 1998, the number of electricity units supplied increased by 9% due to the additional month included in 1998 results. Other revenues increased for the three and nine month periods ended September 30, 1998, primarily due to increased marketing of natural gas to retail customers. Expenses Operating expenses decreased for the three months ended September 30, 1998 primarily due to capitalization of costs related to information technology systems development, an adjustment to pension surplus based on actuarial studies, and a reduction of a provision for restructuring to more appropriately reflect the remaining liability. Operating expenses increased for the nine months ended September 30, 1998 due principally to one additional month of operations included in 1998 compared to 1997. Other Interest charges increased for the nine months ended September 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 that 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. Interest charges for the three months ended September 30, 1998 decreased primarily due to the transfer of the $114 million facility. Income tax expense for the three and nine months ended September 30, 1998 declined due to the one-time windfall profits tax of $234 million enacted by the UK government and recorded in July 1997, which was offset by the $65 million favorable impact of the reduction in the UK corporation tax rate from 33% to 31% in the same period. Income tax expense was also lower due to the $31 million favorable impact of the additional reduction in the UK corporation tax rate from 31% to 30% recorded in the third quarter of 1998.
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME For the Three and Nine Months Ended September 30, 1998 and 1997 (Unaudited) Three Months Ended Nine Months Ended 1998 1997 1998 1997 (In Thousands) (In Thousands) <S> <C> <C> <C> <C> Operating Revenues $464,760 $443,975 $1,494,552 $1,273,899 -------- -------- ----------- ----------- Operating Expenses: Purchased power 277,581 277,713 940,815 830,711 Depreciation and amortization 34,221 30,639 103,241 84,336 Other operation and maintenance costs 57,959 89,800 225,324 228,190 -------- -------- ----------- ----------- Total 369,761 398,152 1,269,380 1,143,237 -------- -------- ----------- ----------- Operating Income 94,999 45,823 225,172 130,662 -------- -------- ----------- ----------- Other Income (Deductions): Interest and dividend income 2,699 6,312 6,849 9,997 Gain (loss) on disposition of property 1,499 (4,759) 6,587 6,271 Miscellaneous - net 3,216 2,413 11,534 5,215 -------- -------- ----------- ----------- Total 7,414 3,966 24,970 21,483 -------- -------- ----------- ----------- Interest Charges: Distributions on preferred securities of subsidiary partnership 6,469 - 19,406 - Other interest - net 43,979 53,932 128,183 118,983 -------- -------- ----------- ----------- Total 50,448 53,932 147,589 118,983 -------- -------- ----------- ----------- Income (Loss) Before Income Taxes 51,965 (4,143) 102,553 33,162 Income Taxes (Benefit) (15,638) 168,127 22 180,470 -------- -------- ----------- ----------- Net Income (Loss) 67,603 (172,270) 102,531 (147,308) Other comprehensive income: Foreign currency translation adjustments 14,749 (7,023) 24,974 1,143 -------- -------- ----------- ----------- Comprehensive Income $82,352 ($179,293) $127,505 ($146,165) ======== ========= =========== =========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Unaudited) 1998 1997 (In Thousands) <S> <C> <C> Operating Activities: Net Income (Loss) $102,531 ($147,308) Noncash items included in net income: Depreciation and amortization 103,241 84,336 Deferred income taxes (15,145) (63,671) Imputed interest on parent company debt 84,369 - Changes in assets and liabilities: Inventory (3,704) 937 Accounts receivable and unbilled revenue 108,883 (7,406) Other receivables 23,023 38,818 Prepayments and other 543 (2,030) Long-term receivables and other (17,966) (573) Accounts payable 11,519 46,402 Income taxes accrued 14,582 223,738 Interest accrued 7,113 10,566 Deferred revenue and other current liabilities (4,312) 14,171 Other liabilities (87,006) 2,431 Other (1,192) - --------- ---------- Net cash flow provided by operating activities 326,479 200,411 --------- ---------- Investing Activities: Construction expenditures (151,367) (98,352) Acquisition of London Electricity, net of cash acquired - (1,951,701) Other investments (20,031) 6,656 --------- ---------- Net cash flow used in investing activities (171,398) (2,043,397) --------- ---------- Financing Activities: Proceeds from the issuance of: Bank notes and other long-term debt - 1,717,479 Common Stock - 391,953 Retirement of long-term debt (6,957) - Common stock dividends paid (110,688) - Changes in short-term borrowings - net (13,142) (184,571) --------- ---------- Net cash flow provided by (used in) financing activities (130,787) 1,924,861 --------- ---------- Effect of exchange rates on cash and cash equivalents 2,806 (1,279) --------- ---------- Net increase in cash and cash equivalents 27,100 80,596 Cash and cash equivalents at beginning of period 44,388 - --------- ---------- Cash and cash equivalents at end of period $71,488 $80,596 ========= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $142,233 $100,951 Income taxes - net $8,247 $9,927 See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 30, 1998 and December 31, 1997 (Unaudited) 1998 1997 ASSETS (In Thousands) <S> <C> <C> Current Assets: Cash and cash equivalents: Cash $4,049 $ - Temporary cash investments - at cost, which approximates market 67,439 44,388 ---------- ---------- Total cash and cash equivalents 71,488 44,388 Notes receivable 5,056 7,364 Accounts receivable: Customer (less allowance for doubtful accounts of $19.9 million in 1998 and $21.9 million in 1997) 121,512 139,265 Other 33,070 52,374 Accrued unbilled revenue 182,286 262,818 Accumulated deferred income taxes 43,833 12,401 Inventory 17,889 13,650 Prepayments and other 13,514 13,623 ---------- ---------- Total 488,648 545,883 ---------- ---------- Property, Plant, and Equipment: Property, plant and equipment 2,579,882 2,353,181 Less - accumulated depreciation 168,187 90,021 ---------- ---------- Property, plant, and equipment - net 2,411,695 2,263,160 ---------- ---------- Other Property, Investments, and Assets: Investments, long-term 32,296 11,413 Distribution license (net of accumulated amortization of $58.5 million in 1998 and $31.3 million in 1997) 1,344,518 1,327,312 Long-term receivables 17,735 17,172 Prepaid pension asset 266,655 241,216 Other 11,282 10,079 ---------- ---------- Total 1,672,486 1,607,192 ---------- ---------- TOTAL $4,572,829 $4,416,235 ========== ========== See Notes to Financial Statements. </TABLE>
<TABLE> <CAPTION> ENTERGY LONDON INVESTMENTS PLC AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS September 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 $22,299 $33,814 Notes payable 235,241 240,794 Accounts payable 373,096 349,821 Customer deposits 27,713 24,946 Taxes accrued 139,881 120,981 Interest accrued 21,950 14,201 Other 728 805 ---------- ---------- Total 820,908 785,362 ---------- ---------- Other Liabilities: Accumulated deferred income taxes 1,041,685 995,865 Other 214,268 299,775 ---------- ---------- Total 1,255,953 1,295,640 ---------- ---------- Long-term debt 1,729,691 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 $1,376.5 million in 1998 and $1,371.8 million in 1997) 114,000 114,000 Additional paid-in capital 391,981 391,981 Accumulated deficit (56,919) (132,390) Cumulative foreign currency translation 17,215 (7,759) ---------- ---------- Total 466,277 365,832 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,572,829 $4,416,235 ========== ========== See Notes to Financial Statements. </TABLE>
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. COMMITMENTS AND CONTINGENCIES 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, in 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 without merit and significantly exaggerated as to the damages alleged. While their position is not entirely clear, the coal suppliers and transporters apparently allege that Entergy Gulf States, as a joint venturer with Cajun in Big Cajun 2, should be responsible under Louisiana law for as much as 100% of their alleged claims against Cajun, despite Entergy Gulf States only owning 14% of the entire power station. Entergy Gulf States believes 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. Two competing plans of reorganization have been filed and are still pending in the bankruptcy case, one of which contains settlements with the coal suppliers and transporters that would satisfy their claims. The district judge disqualified the other plan of reorganization, which did not contain a settlement with the coal suppliers and transporters, but the United States Court of Appeals for the Fifth Circuit reversed the decision of the district judge in August 1998. A decision by the bankruptcy judge on whether to confirm one of the two competing plans of reorganization is now pending. No assurance can be given regarding the timing or outcome of this decision. 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. In August 1998, Entergy announced a new strategic direction that includes the expected sale of London Electricity. See Note 7 for further information. 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. In July 1998, Entergy Operations entered into a contract, with certain cancellation provisions, for the installation of the replacement steam generators. 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 September 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 September 30, 1998. A remaining recorded liability in the amount of $6.7 million existed at September 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 September 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. In May 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 predominantly 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, but no assurance can be given that additional future reserves or write-offs will not be required. 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 September 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 $244 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 (actual taxes paid). 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 herein. Retail Rate Proceedings Filings with the APSC (Entergy Corporation and Entergy Arkansas) See Note 2 to the Form 10-K for information regarding the settlement agreement filed with the APSC and the establishment of a transition cost account. The estimated reserve recorded in December 1997 was adjusted in September 1998 as a result of a mid-year streamlined earnings review procedure for a negative net income impact of $3.7 million. Entergy Arkansas also recorded an additional reserve of $27.9 million in September 1998 in the transition cost account to reflect the estimated 1998 accrual of excess earnings. The results of operations of Entergy Arkansas for the three and nine months ended September 30, 1998 reflect these charges in operating expenses. Additional reserves may also be required in 1999 based on earnings reviews, which will have similar net income effects. 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. The PUCT did not accept settlements filed in March and June by Entergy Gulf States and various intervenor groups. On July 22, 1998, the PUCT issued an order and after making modifications on rehearing, issued its second order on rehearing on October 14, 1998. The second order on rehearing reduces Entergy Gulf States' Texas rates by $111 million annually effective December 1, 1998, offset through May 1999 by accelerated recovery of accounting order deferrals, resulting in a net reduction of $69 million on an annual basis through that date. This order also required a refund of $76 million. This refund is calculated as a rate reduction and service quality refund retroactive to June 1, 1996, offset by the accelerated recovery of the accounting order deferrals, actual taxes paid, and a fuel surcharge. This refund amount was reduced by $32 million from the original refund ordered in the July 22, 1998 order, but was offset by the passage of time from the original rate reduction's assumed effective date of August 1998 to the new assumed effective date of December 1, 1998. 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 $123.5 million ($73.6 million net of taxes) in 1998 based on management's estimates which include $101.3 million ($60.3 million net of tax) for the retroactive rate actions for the nine months ended September 30, 1998, and $22.2 million ($13.3 million net of tax) for the prospective portion of the rate reduction for the three months ended September 30, 1998. The results of operations of Entergy Gulf States for the three and nine months ended September 30, 1998 reflect these corresponding charges in operating revenues. The PUCT's October 14, 1998 order on rehearing, if sustained, is expected to have a material adverse effect on Entergy Gulf States' revenues, cash flow, and net income. Entergy Gulf States has filed a motion for reconsideration with the PUCT. The PUCT has until November 28, 1998 to act on the motion or the motion is overruled by operation of law. 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. Subsequent to this, Entergy Gulf States entered an agreement with the PUCT that allowed for refunds pursuant to the PUCT's order to begin in August 1998 and delayed the implementation of the ordered rate decrease until 18 days following issuance by the PUCT of a final and appealable order. A component of the rulings discussed above was a disallowance by the PUCT of 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 and nuclear generating plants and transmission and distribution systems, as well as providing human resources, accounting, legal, and other necessary services to Entergy Gulf States and Entergy Corporation's other electric utility subsidiaries. The PUCT had previously issued proposed rules governing affiliate transactions of Texas utility companies, including Entergy Gulf States. Hearings concerning the proposed rules were conducted by the PUCT in July 1998. However, the PUCT has withdrawn these proposed rules pending the outcome of the 1999 legislative session. The rules, if adopted in their proposed form, could severely restrict the types and extent of services provided to Entergy Gulf States by Entergy Services and Entergy Operation, and will result in higher costs to Entergy Gulf States for equivalent services. It is not certain when or in what form the rules may be adopted. On September 8, 1998, Entergy Gulf States filed an application with the PUCT for an increase in its fixed fuel factor and a surcharge to Texas retail customers for the cumulative under-recovery of fuel and purchased power costs. The proposed increase in the fixed fuel factor would result in increased revenues of $55.6 million annually compared to the current fixed fuel factor. The proposed surcharge is designed to recover $128.1 million, including interest, for fuel under-recoveries incurred during the period July 1, 1996 through June 30, 1998. Hearings on the merits were held in October 1998, and the PUCT is required to rule on the application by December 7, 1998. All amounts at issue in this proceeding will be subject to review in a future fuel reconciliation proceeding before the PUCT, at which time the PUCT will consider the reasonableness of Entergy Gulf States' fuel and purchased power expenses extending back to July 1, 1996. Entergy Gulf States cannot predict the outcome of this proceeding. Filings with the LPSC (Entergy Corporation and Entergy Gulf States) On May 29, 1998, Entergy Gulf States filed its fifth required post- Merger earnings analysis with the LPSC. No rate reduction was shown to be required in this filing. Entergy Gulf States' filing will be subject to further review by the LPSC, which may result in a change in rates. Hearings are scheduled to begin in April 1999. In July 1998, Entergy Gulf States agreed to implement an $18 million rate reduction effective July 29, 1998 to reflect reductions that are expected to occur as a result of Entergy Gulf States' annual earnings reviews. Proceedings on issues in the second, third, and fourth post- Merger earnings analyses will continue. On September 10, 1998, the LPSC issued an order in the third required post-Merger earnings analysis that required a refund of $44.8 million for the period June 1, 1996 through May 31, 1997, and a prospective rate reduction of $54.6 million effective September 20, 1998. Due to the $18 million reduction that was implemented effective July 29, 1998, an additional prospective reduction of only $36.6 million would be required as a result of the third earnings analysis. Entergy Gulf States has not reserved for this reduction. Entergy Gulf States has appealed this order and has been granted injunctive relief pending a final decision on appeal. (Entergy Corporation and Entergy Louisiana) On April 15, 1996, Entergy Louisiana made its first annual performance-based formula rate plan filing based on the 1995 test year. On June 19, 1996, the LPSC approved a $12 million annual reduction in base rates effective July 1, 1996. Subsequently, additional issues were resolved by means of a settlement conference, increasing the base rate reduction to $16.5 million. On January 21, 1998, the LPSC approved an $8 million prospective annual rate reduction reflecting a change in Entergy Louisiana's allowed return on equity, together with a $4 million refund making this change effective July 1, 1997. On May 30, 1997, Entergy Louisiana made its annual formula rate plan filing with the LPSC for the 1996 test year. This filing resulted in a total rate reduction of approximately $54.5 million, which was implemented beginning in the first filing cycle of July 1997. Rates were reduced by an additional $0.7 million effective July 1, 1997, and by an additional $2.9 million effective March 1998. A final order is expected during the fourth quarter of 1998. The LPSC determined in July 1998 that the annual formula rate plan filings for Entergy Louisiana would be extended for an additional three years, through an April 2000 filing for the 1999 test year. In September 1998, Entergy Louisiana made its third annual formula rate plan filing with the LPSC for the 1997 test year. The filing indicated that earnings were such that no change in rates would be warranted with the exception of the elimination of a $3.7 million one-time credit that will result in a rate increase of this amount. Hearings will be conducted on this filing. 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) Entergy New Orleans made its cost of service and revenue requirement filing in conjunction with its transition to competition plan on September 17, 1997. Hearings on the ratemaking issues in the filing were held in July 1998. Entergy New Orleans filed a settlement agreement before the Council, which was approved on November 5, 1998. The settlement agreement required base rate reductions for Entergy New Orleans' electric customers of $7.1 million effective January 1, 1999; $3.2 million effective October 1, 1999; and $16.1 million effective October 1, 2000. The agreement also required a $1.9 million base rate reduction for Entergy New Orleans' gas customers effective January 1999. The settlement prohibited Entergy New Orleans from seeking any base rate increases prior to October 1, 2001. Grand Gulf Accelerated Recovery Tariff (Entergy Arkansas) In April 1998, FERC approved the Grand Gulf Accelerated Recovery Tariff that Entergy Arkansas filed as part of the settlement agreement that 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. (Entergy Mississippi) On September 29, 1998, FERC approved the Grand Gulf Accelerated Recovery Tariff for Entergy Mississippi's allocable portion of Grand Gulf that was filed with the FERC in August 1998. The tariff provides for the acceleration of Entergy Mississippi's Grand Gulf purchased power obligation in an amount totaling $221.3 million over the period October 1, 1998 through June 30, 2004 and is used to offset the rate reduction described below. 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. These accounting order deferrals have been given accelerated recovery in the July 22, 1998 PUCT order discussed above. Entergy Gulf States has not recorded such accelerated recovery pending the resolution of its motion for reconciliation of the order. For further discussion, see Retail Rate Proceedings above. Grand Gulf 1 Deferrals (Entergy Corporation and Entergy Mississippi) See Note 2 of the Form 10-K for information regarding Entergy Mississippi's plan with the MPSC for recovery of previously deferred Grand Gulf 1-related costs. The completion of the recovery of the deferred costs and associated carrying charges, offset by i) the accelerated recovery of Entergy Mississippi's Grand Gulf purchased power obligation and ii) the recovery of a portion of Entergy Mississippi's allocation of the proposed System Energy wholesale rate increase discussed herein, results in a $127.1 million annual rate reduction for Entergy Mississippi as of October 1, 1998. The reduction will not result in a decrease in Entergy Mississippi's income as the phase-in plan deferrals have now been fully amortized and no further expense associated with the phase-in plan will be recognized. Proposed Rate Increase (Entergy Mississippi) See Note 2 of the Form 10-K for information regarding System Energy's application with FERC for a rate increase and Entergy Mississippi's allocation of the proposed rate increase. On August 12, 1998, Entergy Mississippi filed a revised deferral plan with the MPSC that provides for recovery of a portion of the System Energy rate increase effective October 1, 1998. Under the revised plan, Entergy Mississippi will continue to defer until September 30, 2000, or until the issuance of a final order by the FERC, the difference between the System Energy rate increase and the amount of the increase approved by the ALJ's initial decision ("ALJ Decision Level") issued on July 11, 1996. This deferred amount will be amortized over 54 months beginning October 2000. Entergy Mississippi began recovery of its allocation at the ALJ Decision Level in October 1998. The previously deferred portion of the ALJ Decision Level, including carrying charges, will be recovered over 48 months. NOTE 3. COMMON STOCK (Entergy Corporation) During the nine months ended September 30, 1998, Entergy Corporation issued 284,498 shares of its previously repurchased common stock to satisfy stock options exercised and stock purchases under its Equity Ownership Plan. During the third quarter of 1998, Entergy Corporation repurchased 200,000 shares from the trust originally established to hold the shares expected to be awarded under the 1996-1998 Long-term Incentive Plan. In addition, Entergy Corporation received proceeds of $8.6 million from the issuance of 320,030 shares of common stock under its dividend reinvestment and stock purchase plan during the nine months ended September 30, 1998. NOTE 4. LONG-TERM DEBT (Entergy Gulf States) On October 1, 1998, Entergy Gulf States retired $40 million of 6.75% Series First Mortgage Bonds upon maturity. On November 1, 1998, Entergy Gulf States retired $75 million of 7.35% Series First Mortgage Bonds upon maturity. (System Energy Resources) On November 4, 1998, System Energy Resources issued $216 million of 5 7/8% Pollution Control Revenue Bonds due April 1, 2022. The proceeds will be used to redeem on December 1, 1998, $10.0 million of the $49.5 million of 9.5% Series Pollution Control Revenue Bonds due 2013 and $206 million of 9.875% Series C Pollution Control Revenue Bonds due 2014. (Entergy Corporation) See Note 7 in the Form 10-K for a discussion of the financing of EPDC's Damhead Creek project. In September 1998, a subsidiary of EPDC entered into a BPS75 million ($127.5 million) six-month bridge financing to fund certain construction and development costs related to the project. Contemporaneously with the bridge financing, EPDC obtained a commitment letter for the long-term financing requirements of the project, which is expected to be completed by the end of the term of the bridge financing. NOTE 5. RETAINED EARNINGS (Entergy Corporation) On October 30, 1998, Entergy Corporation's Board of Directors declared a common stock dividend of $.30 per share, payable on December 1, 1998, to holders of record on November 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. During 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. DISPOSITION OF SUBSIDIARY BUSINESSES (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 before the end of 1999. These businesses include London Electricity, CitiPower Pty., Entergy Security, Inc., Efficient Solutions, Inc., and certain portions of Entergy's telecommunications businesses. On September 30, 1998, Entergy sold its energy management subsidiary, Efficient Solutions, Inc. (formerly Entergy Integrated Solutions, Inc.) The loss on the sale of $68.6 million ($35.9 million net of tax) is reflected in other income in the accompanying Consolidated Statements of Income and Comprehensive Income. The remaining businesses expected to be sold collectively represent $5.7 billion of Entergy's total assets as of September 30, 1998 and generated $174 million of Entergy's net income for the nine months then ended. Management believes that the sale price of these businesses will exceed their net book value at September 30, 1998. Accordingly, no adjustment has been recorded at September 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. Oral argument on the plaintiff's appeal has been set for November 1998. Union Pacific Railroad Company (Entergy Corporation and Entergy Arkansas) See "Union Pacific Railroad Company" in Item 1 of Part II of the 1998 first and second quarter Entergy Forms 10-Q for a discussion of the civil suit filed by Entergy Arkansas and Entergy Services against Union Pacific Railroad Company. Aquila Power Corporation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) See "Aquila Power Corporation" in Item 1 of Part II of the 1998 second quarter Entergy Form 10-Q for a discussion of the complaint filed with the FERC by Aquila Power Corporation against Entergy Services, as agent for the domestic utility companies. Ratepayer Lawsuits (Entergy Corporation, Entergy Louisiana, and Entergy New Orleans) See "Ratepayer Lawsuits" in Item 1 of Part II of the 1998 second quarter Entergy Form 10-Q for a discussion of the lawsuits filed by ratepayers in Louisiana state courts in Orleans and East Baton Rouge Parishes, and with the LPSC. Asbestos Litigation (Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) See "Asbestos Litigation" in Item 1 of Part II of the 1998 second quarter Entergy Form 10-Q for a discussion of the numerous individual and class action lawsuits filed against Entergy's domestic utility subsidiaries, and in particular Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans on behalf of persons claiming injury as a result of exposure to asbestos. Panda Energy Corporation (Entergy Corporation) In 1994, Panda Energy Corporation (Panda) commenced litigation in Texas in the Dallas District Court against Entergy Corporation. Entergy Enterprises, Inc., EPI, Entergy Power Asia, Ltd., and Entergy Power Development Corporation, direct and indirect wholly owned subsidiaries of Entergy Corporation, are also named as defendants. The allegations include, among others, tortious interference with contractual relations, conspiracy, misappropriation of corporate opportunity, unfair competition and fraud, and constructive trust issues. Panda seeks damages of approximately $4.8 billion, of which $3.6 billion is claimed in punitive damages. The district court granted the defendants' motion for summary judgment and dismissed the lawsuit, finding that Panda is unable to show damages and that the facts alleged do not support a cause of action against the defendants. In August 1998, an appellate court reversed the dismissal and remanded the lawsuit to the trial court. The defendants petitioned the appellate court for rehearing, but that petition was denied in October 1998. Entergy Gulf States expects to petition the Texas Supreme Court for review of the appellate court decision. Franchise Fee Litigation (Entergy Gulf States) In September 1998, the City of Nederland filed a petition against Entergy Gulf States, and Entergy Services, Inc. in state court in Jefferson County, Texas purportedly on behalf of all Texas municipalities that have ordinances or agreements with Entergy Gulf States. The lawsuit alleges that Entergy Gulf States has been underpaying its franchise fees due to failure to properly calculate its gross receipts. Plaintiff seeks a judgment for the allegedly underpaid fees and punitive damages. Entergy will vigorously defend itself in the lawsuit. Fiber Optic Cable Litigation (Entergy Corporation) In May 1998, a group of property owners filed a petition against Entergy Corporation, Entergy Gulf States, Entergy Services, and ETHC in state court in Jefferson County, Texas purportedly on behalf of all property owners throughout the Entergy service area who have conveyed easements to the defendants. The lawsuit alleges that Entergy placed fiber optic cable across their property without obtaining appropriate easements. The plaintiffs seek actual damages for the use of the land and a share of the profits made through use of the fiber optic cables and punitive damages. Entergy will vigorously defend itself in the lawsuit. Item 4. Submission of Matters to a Vote of Security Holders During the third quarter of 1998, no matters were submitted to a vote of the security holders of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, System Energy, or Entergy London. 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, Sept 30, 1993 1994 1995 1996 1997 1998 Entergy Arkansas 3.11(b) 2.32 2.56 2.93 2.54 2.57 Entergy Gulf States 1.54 (c)- 1.86 1.47 1.42 1.17 Entergy Louisiana 3.06 2.91 3.18 3.16 2.74 2.98 Entergy Mississippi 3.79(b) 2.12 2.92 3.40 2.98 3.48 Entergy New Orleans 4.68(b) 1.91 3.93 3.51 2.70 2.87 System Energy 1.87 1.23 2.07 2.21 2.31 2.45 Entergy London N/A N/A N/A N/A 1.16 1.47 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Twelve Months Ended December 31, Sept 30, 1993 1994 1995 1996 1997 1998 Entergy Arkansas 2.54(b) 1.97 2.12 2.44 2.24 2.27 Entergy Gulf States (a) 1.21 (c)- 1.54 1.19 1.23 1.01 Entergy Louisiana 2.39 2.43 2.60 2.64 2.36 2.56 Entergy Mississippi 3.08(b) 1.81 2.51 2.95 2.69 3.14 Entergy New Orleans 4.12(b) 1.73 3.56 3.22 2.44 2.59 (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. 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, as amended and currently in effect. 3(b) - By-laws of Entergy Arkansas, as amended and currently in effect. 3(c) - By-laws of Entergy Gulf States, as amended and currently in effect. 3(d) - By-laws of Entergy Louisiana, as amended and currently in effect. 3(e) - By-laws of Entergy Mississippi, as amended and currently in effect. 3(f) - By-laws of Entergy New Orleans, as amended and currently in effect. 27(a) - Financial Data Schedule for Entergy Corporation and Subsidiaries as of September 30, 1998. 27(b) - Financial Data Schedule for Entergy Arkansas as of September 30, 1998. 27(c) - Financial Data Schedule for Entergy Gulf States as of September 30, 1998. 27(d) - Financial Data Schedule for Entergy Louisiana as of September 30, 1998. 27(e) - Financial Data Schedule for Entergy Mississippi as of September 30, 1998. 27(f) - Financial Data Schedule for Entergy New Orleans as of September 30, 1998. 27(g) - Financial Data Schedule for System Energy as of September 30, 1998. 27(h) - Financial Data Schedule for Entergy London as of September 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). ** 99(j) - 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 June 30, 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 September 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 September 30, 1998. ** Incorporated herein by reference as indicated. (b) Reports on Form 8-K Entergy Corporation and Entergy Gulf States A Current Report on Form 8-K, dated July 14, 1998, was filed with the SEC on July 24, 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. /s/ Nathan E. Langston Nathan E. Langston Vice President and Chief Accounting Officer (For each Registrant and for each as Principal Accounting Officer) ENTERGY LONDON INVESTMENTS PLC /s/ Nathan E. Langston Nathan E. Langston Director and Vice President and Audit Controller Date: November 6, 1998