ML20205P963
| ML20205P963 | |
| Person / Time | |
|---|---|
| Site: | Pilgrim |
| Issue date: | 04/15/1999 |
| From: | Silberg J BOSTON EDISON CO., SHAW, PITTMAN, POTTS & TROWBRIDGE |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| CON-#299-20273 LT, NUDOCS 9904210046 | |
| Download: ML20205P963 (31) | |
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REDACTED VERSION April 15,1999 U.S. Nuclear Regulatory Conw.13sion Attention: Document Control Desk Washington, D.C. 20555-0001 Docket. No. 50-293 -4T License No. DPR-35
Subject:
Boston Edison Comoany and Enterny Nuclear Generation Company Additional Information Provided in Support of the Request for Transfer of the
~ Pilgrim Nuclear Power Station Facility Operating License and Materials License
References:
- 1. BECo Ltr. 2.98163 (ENGC Ltr. 98-01) dated December 21,1998
- 2. BECo Ltr. 2.99.009 (ENGC Ltr. 99-0l) dated January 28,1999 Ladies and Gentlemen:
Attachments A and B are hereby provided in support of the request for transfer of the Pilgrim Station Facility Operating License and NRC Material License from Boston Edison Company (BECo) to Entergy Nuclear Generation Company (Entergy Nuclear) as submitted in Reference 1. This information is provided in response to a request by the NRC Staff at a meeting held on April 13,1999.
Attachment A are the consolidated statements of financial position for Entergy
~ International Ltd. LLC for the years 1997 and 1998. Attachment A contains information that expands on previous information provided in Reference 1 of which portions were requested to be withheld from public disclosure pursuant to 10 CFR 2.790(a)(4) and 10 CFR 9.17(a)(4). The Affidavit in support of this request was included in Reference 1. Therefore, there are redacted and non-redacted versions of Attachment A of this submittal.
9904210046 PDR 990415 -
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- ADOCK 05000293 PDR
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S:* SHAW PITTMAN POTTSeTROWBFJDGE m--, _ ,,_ m-o, U.S. Nuclear Regulatory Commission April 15,1999 Page 2 1
L Anachment B is the report on audit of financial statements for the year ended December
. 31,1997 for Entergy International Ltd. LLC.
l Please feel free to contact Mr. Jack Alexander at Pilgrim (508)830-8269 or Ms. Connie l 4
l Wells at Entergy Nuclear (601)368-5345 if you have any questions or require any additional information.
i Sincerely, Hb rm E. Silberg b Counsel for Boston Edison Company Document # 748%$ v.I I
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A' l ,, Boston Edison Company Docket No. 50/293 Entergy Nuclear Generation Company Licensee No. OPR 35 cc:
Mr. Alan B. Wang, Project Manager Mr. Hubert J. Miller Project Directorate 1-3 Region i Administrator Office of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Mail Stop: OWFN 14820 Region i 1 White Flint North 475 Allendale Road
! 11555 Rockville Pike King of Prussia. PA 19406 l Rockville, MD 20852 (10 copies) l l U.S. Nuclear Regulatory Commission Senior Resident inspector l Attention: Document Control Desk Pilgrim Nuclear Power Station Washington, DC 20555-0001 l
l l Secretary J
! U.S. Nuclear Regulatory Commission - General Counsel i
! Washington, D.C. 20555-0001 U.S. Nuclear Regulatory Commission 1 l ATTN: Rulemaking and Adjudications Staff Washington, DC 20555-0001 l
- (fax: 301-415-1101) (fax: 301-415-3725)
John M. Fulton, Esq.
Asst. General Counsel Boston Edison Co.
800 Boyiston Street Boston, MA 02199-8003 l
(fax: 617-414-2733) l Douglas Levanway, esq.
l (counsel for Entergy)
- j. Wise, Carter, Chilos and Caraway l PO Box 651 Jackson, Mississippi 39205-0651 l (fax: 601-968-5519) l Mr. Robert Hallisey Mr. Peter LaPorte, Director i _ Radiation Control Program Mass. Energy Management Agency l Center for Communicable Diseases 400 Worcester Road l Mass. Dept. of Public Health P.O. Box 1496 ,
305 South Street Framingham, MA 01701-0313 Jamaica Plain, MA 02130 L
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- 4 i REDACTED VERSION ORAFT
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ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS December JI, j 1996 1997 (la Thousands)
Current Assets:
Cash and cash equivalents: f Cash $ 13,561 j' Temporary cash investments at cost, which approumates market 49.517 Total cash and cash equivalents 63,078 Notes receivable 7,363 )
I Accounts receivabic:
Customer (less allowance for doutuut accounts of $22.6 million as of Dec. 31,1997) 155,555 Associated companies 1,278 Other 44,698 Accrued unbilled revenues 287,803 Accumulated deferred income taxes 12,401 Inventory 15,705 Prepayments and other 17,367 Total 605.248 Property, Plant and Equipment Property, plant and equipment 2,899,931 Less accumulated depreciation and amortization i19.760 Property, plant and equipment net 2.780.171 Other Property, Investments and Aasets:
Investments,lonC te'm 69,797 Cit: Power license s f accumulated amortizanon of $25.6 million as of Dec. 31,1997) 486,153 London Electncity licerae (net of accumulated amortizanon of $31.1 mdhoe as of Dec. 31,1997) 1,327,312 Long-terrn receivables 17,172 241,216 Prepaul penseon asset 28,757 Other _
2,170,407 Total _
$ 5,555.826 TOTAL See Notes to Consohdated financial Statements.
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- ClilMT ENTEF GY INTERNATIONAL LTD LLC CONSOLIDATED i'TATEMENTS OF FtNANCIAL POSITION LIABi! RIES AND MEMBER'S CAPITAL December 3 t, 1998 1997 (la Thousands)
Cunent Liabilities:
Cunently matunns long-tenn debt 5 33,814 Notes payable 240,794 Accounts payable:
Associated companies 7,225 Other 378,774 Customer deposits 28,016 Taxes accrued 114,449 Interest accrued 40,580 Other 1.651 Total 845.303 Other Liabihties:
Accumulated defened income taxes 1,010,024 Other 312.397 1.322,421 Total ,
Longtin debt 2,512,950 Company obligated redeemable prefened secunties of subadaary partnership holding solely junior subordinated defenable debootures 300,000 Member's capital 621,271 Curnulative forman currency translation adjustment (46.119) 575,152 Total 5 5,555.826 TOTAL See Noems to Consolidated Financial senesensets.
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t d a. DRAFT ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) i For the Years Ended December 31, 1998 1997 (in Thousands)
$ 2,191,682 Operatmg Revenues Operating Expenses:
Operation and maintenance: 1,351,778 Purchased power 365,001 Other operation and maintenance 154,067 Depreciation and amortization 35,653 Taxes other than income taxes 1,906,499 Total 285,183 Operating Income Other income (Deductions): 26,736 Interest income 8,613 Gain on sales of subsidianes and property (9,416)
Miscellaneous net 25,933 Total Interest Expense: 3,019 Distribution on preferred securities of subsidiary 245,996 Other interest net 249,015 Total 62,101 Income Before Income Taxes 182,109 Income Taxes (120,008)
Net Income (less)
Other ComprehensiveIncome (67,844)
Foreign Currency Translation Adjustments S (187,852)
Comprehensive Net income (Loss)
See Notes to Consolidated Financial Statements.
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UN 3- ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998 1997 (In Thousands)
Operatmg Activities (120,008) s Net mcome (loss)
Noncash items included m net mcome (loss): 154,067 Depreciation ar.d amortizadon (40,152)
Deferred mcome tae (8,613) )
Gam on the sale of subsidianes and property l
Changesin workmg capital: (21,480)
Receivables 103,469 f Accounts payable 75,192 Taxes accrued 4,772 Interest accrued (24,523) l Other workmg capital accounts I (439)
Provision forliabilities 38,433 Other 160,718 Net cash flow provided by operanng activities Investag Activities: (209,659)
Construction / capital expenditures (1,951,701)
Acquisition of London, net of cash acquired -
Proceeds from the sale of subsidianes .
Purchase of notes receivable 1,322 Investment in nonregulated/nonutility properties (2,160.038)
Net cash flow provided by (used in) investing activities Financing Activities:
Proceeds from the issuance of: 1,731,229 Bank notes and other long-term debt 300,000 Preferred securities of subsidiary 391,953 Capital contnbution (327,918)
Retirement oflong-term debt (25,455)
Changesinshort-tennborrowings net 2,069.809 Net cash flow provided by (used in) financing activities (10,245)
Effect of exchange rates on cash and cash equivalents 60,244 Net increase in cash and cash equivalents 2,834 Cash and cash equivalents at begmnmg of period
$ 63.078 Cash and cash equivalents at end of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid duringthe penod for 212,513 Inscrest 119,335 Income Taxes See Notes to Consolidated Fmancial Statements.
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AITACHMDTr B I
I ENTERGY INTERNATIONAL LTD LLC (A WHOLLY-OWNED SUBSIDIARY OF ENTERGY CORPORATION) l REPORT ON AUDIT OF FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,1997 l
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ENTERGY INTERNATIONAL LTD LLC (a wholly owned subsidiary of Entergy Corporation)
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TABLE OF CONTENTS l l
l DESCRIPTION PAGE Report of T '=p='== Accountants 1 Consolidated Statement of Financial Position 23 l
Consolidated Statement of Operations 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6 - 22 1
, Cooaers
&_yaranc a .,0...,_ a, .._ . s,m REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Entergy International Ltd LLC: (
1 We have audited the accompanying consolidated statement of financial position of Entergy Intemational Ltd LLC, (a wholly-owned subsidiary of Entergy Corporation) and Subsidiaries ("the i Company") as of December 31,1997, and the related consolidated statements of operations and cash )
flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our ,
audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis ,
for our opinion.
In our opinion, the consolidated financial statements referred to above represent fairly, in all material respects, the financial position of Entergy Intemational Ltd LLC and Subsidiaries as of December 31,1997, and the results of their operations and cash flows for the year then ended, in conformity with generally accepted accounting principles.
New Orleans, Louisiana March 4,1998 l
Coopers & Lybrand L L P s a memoor of Coopers & Lycrand intomatonat a Imted haDMy associabon ecorporated m Sentreriand
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ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS December 31, 1997 (In Thousands)
Current Assets:
Cash and cash equivalents:
S 13,561 Cash Temporary cash investments - at cost, which approximates market J9.517 Total cash and cash equivalents 63,078 7,363 Notes receivable Accounts receivable:
155,555 Customer (less allowance for doubtful accounts of $22.6 million)
Associated companies 1,278 44,698 Other 287,803 l Accrued unbilled revenues 12,401 Accumulated deferred income taxes 15,705 Inventory 17,367 Prepayments and other 605,248 Total Property, Plant and Equipment 2,809,977 Electric 89,954 Construction workin progress 2,899,931
, Total 119,760 Less - accumulated depreciation and amortization 2,780,171 Property, plant and equipment - net l Other Property, Investments and Assets:
69,797 Investments,long-term 486,153 CitiPower license (not of accumulated amortization of $25.6 million)
London Electricity hconse (not of accumulated amortization of $31.1 million) I,327,312 l 17,172 l Long-term receivables 241,216 Prepaid pension asset 28,757 Other 2,170,407 Total l
S 5,555,826 TOTAL See Notes to Consolidated Financial Statements Page 2
i ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND MEMBER'S CAPITAL December 31, 1997 (In Thousands)
Current Liabilities:
S 33,814 Currently maturing long-term debt 240,794 Notes payable Accounts payable 7,225 Associated companies 378,774 Other 28,016 Customer deposits 114,449 I Taxes accmed 40,580 Interest accrued 1,651 Other 845,303 Total Other Liabilities:
1,010,024 Accumulated deferred income taxes 312,397 Other 1,322,421 Total .
2,512,950 Long-term debt Company-obligated redeemable preferred securities of subsidiary 300,000 partnership holding solely junior subordinated deferrable debentures 621,271 Member's capital (46,119)
Cumulative foreign currency translation adjustment 575,152 Total
$ 5,555,826 J TOTAL See Notes to Consolidated Financial Statements Page 3
i ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENT OF OPERATIONS .
For the Year Ended December 31.1997 (In Thousands)
Operating Revenues $ 2,191,682 Operating Expenses:
Operation and maintenance:
Purchased power 1,351,778 Other operation and maintenance 365,001 154, % 7 Depreciation and amortization 35,653 Taxes other than income taxes Total 1,906,499 285,183 Operating Income I Other Income (Deductions):
Interest and dividend income 26,736 Gain on disposition of property 8,613 Miscellaneous - net (9,416) 25,933 Total Interest Expense:
Distribution on preferred securities of subsidiary 3,019 245,996 Other interest-net 249,015 Total 62,101 Income Before Income Taxes 182,109 Income Taxes -
l S (120,008) l Net Loss See Notes to Consolidated Financial Statements Page 4
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ENTERGY INTERNATIONAL LTD LLC CONSOLIDATED STATEMENT OF CASH FLOWS For the Year Eeded )
December 31.1997 (In nousands)
Operating Activities:
Net loss 5 (120,008)
Noncash items included in net loss:
Depreciation and amortization 154,067 Deferred income taxes (40,152)
Gain on disposition of property (8,613)
Changes in workmg capital:
Receivables (21,480)
Accounts payable 103,469 75,192 Taxes accrued 4,772 Interest eccrued Other working capital accounts (24,523)
Provision for liabilities (439).
38,433 Other Net cash flow provided by operating activities 160,718 Investing Activities:
Construction / capital expenditures (209,659)
Acquisition of i miaa Electricity, net of cash acquired (1,951,701)
Investment in nonregulated/nonutility properties 1,322 Net cash flow used in investing activities (2,160,038)
Financing Activities:
Proceeds from the issuance of:
Bank notes and otherlong term debt 1,731,229 Preferred securities of subsidiary 300,000 391,953 Capitalcontribution Retirement oflong-term debt (327,918)
Changes in short term to....ir,gs - not (25,455)
Net cash flow provided by financing activities 2,069,809 Effect of exchange rases on cash and cash equivalents (10,245)
Not increase in cash and cash equivalents 60,244 l
2,834 Cash and cash equivalents at besmmns of period S 63,078 Cash and cash equivalents at end of period SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid dunns the period for:
5 212,513 Interest
$ 119,335 Income Taxes See Notes to Consolidated Financial Statements Page 5
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ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS Entergy International Ltd LLC (formerly Entergy Power Development International Corporation and referred to herein as "the Company" or "Entergy IL") is a wholly-owned subsidiary of Entergy Corporation (Entergy) which was formed for the purpose of holding other subsidiaries involved in foreign electric utility businesses. De principal subsidiaries of the Company include Entergy London Investments plc ("Entergy London"), CitiPower Pty. ("CitiPower"), and Entergy Power Edesur Holding, Ltd ("Edesur"). London Electricity, Entergy Imdon's sole asset, distnbutes and supplies electricity to customers in the London metropolitan area.
CitiPower supplies and distnbutes electricity to customers in Melboume, Australia. Edesur owns a 5% interest in Distnlec, a consortium which owns a 51% interest in distribution facilities serving almost 2 million customers in Buenos Aires, Argentma ne shareholder's equity of CitiPower as of January 1,1997 represented the initial Member's Capital of Entergy IL. During 1997, Entergy Corporation made additional capital contributions to Member's Capital, consisting of its investments in Entergy London and Edesur. De companies combined were under common control prior to the combination and therefore the consolidated statement of operations includes all mcome (loss) for 1997.
NOTE 2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation ne consohdated fmancial statements of Entergy IL are presented in United States ("U.S.") dollars (5) and in conformity with accountmg principles generally WM in the United States ("US GAAP"). De consolidated fmancial statements include the ac-nee of the Company and its consolidated subsidianes Significant intercompany accounts and transactens are elimmated in c#aian The Company is not subject to rate regulaten, but rather is subject to price cap regulation in certain mstances and to competitive market forces in other mstances, uvi, therefore, the provisions of Statement of Financial AE= 1 Standards No. 71, " Accounting for the Effects of Certain Types of Regulation", do not apply.
Une of F d-- "-- in the P. -- -- =+ of F:-ial Se'-- ^=
De preparation of the Company's fmancial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and Aacla-o of contagent assets and liabilities and the reported amounts of revenues and expenses Adjustments to the reported amounts of assets and liabilities may be necessary in the future to the extent that future estimates or actual resuits are different from the estimates used.
Revenue Recoenition Entergy London and CitiPower distribute electricity to commercial, residential and industrial customers within the T-taa and Melboume firanchise areas, respectively. Additionally, both compamos supply electncity to customers both inside and outside their franchise areas. Entergy London and CitiPower accrue estimated revenue for energy delivered since the latest billings and Entergy London remrds revenue net of value added tax. Both Page 6
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ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) companies purchase power pnmarily from the wholesale trading market for electricity in their respective countnes.
'Ihe wholesale tradmg markets monitor supply and demand between generators and suppliers, set prices for generation and provide centralized settlement of amounts due between generators and suppliers.
Rendation and Prjs119Atr.9}
'Ihe Company is a subsidiary of Entergy, which is a registered public utility holding company under the Public Utility Holding Company Act of 1935, as amended ("PUHCA"), and is subject to the broad regulatory provisions of PUHCA, which requires, among other things, Securities and Exchange Commission ("SEC")
approval for certain transactions, except as exempted under the provisions of the Energy Policy Act of 1992.
Certain supply customers of Entergy London and CitiPower are subject to price control formulas through December 1998 and December 2000, respectively, which allow a maximum charge per unit of electricity.
Distribution customers are subject to price control formulas which allow a maximum charge per unit of electricity.
Differences in the charges, or in the purchase cost of electricity, can result in the under or over recovery of ;
l revenues in a puticular year.
For Entergy tendon, whe e there is an over recovery of supply or distribution business revenues agamst the regulated maxamum allowable amount, revenues are deferred in an amount equivalent to the over-recovered amount. The deferred amount is deducted from operatmg revenues and included in other liabilities. Where there is an under-recovery, no asset is recorded in anticipation of any potential future recovery. At December 31,1997, Entergy London had balname of $12.5 million and S32.9 million related to distnbution revenue and supply revenue overrecovenes, respectively.
Pronerty. Plant and Eouipment Property, plant and equipment is stated at original cost and includes materials, labor and appropriate overhead costs. The Company is entitled, under certain conditions, to collect cash contributions from consumers to fund improvements to the Company's distnbution networks. Consumer contnbutions are credited against the histoncal cost of the asset.
Depreciation as computed on the' straight-line basis at rates based on the **i=*M service lives (which range from five to forty years) and costs of removal of the various classes of proputy. Consumer contnbutions are amortized into income at a rate of 2.5% for Entergy London and, for CitiPower, reduce t!w depreciation for the associated assets.
Gams or losses on disposal of property, plant and equipment are recorded in the period in which the '
property is disposed.
l Inconne Taxes For U.S. tax purposes, the Company is an affiliate of Entergy, and as such, its operations are included in 1
the filing of Entergy's U.S. consohdated federal income tax return. U.S. mcome taxes are allocated to certain of the Company's U.S. subsidianes in proportion to their contnbution to consolidated taxable mcome SEC regulations require that no Entergy subsidiary pay more taxes than it would have paid if a separate income tax return had besa filed. The company's United Kingdom ("UK) subsidiaries are members of an affiliated group in Page 7 l
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ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) the UK and are eligible for group relief. Group relief enables current losses to be surrendered by one affiliated company to another affiliated company. It is the policy of the Company's UK affiliated group to apply the group relief provisions in order to numnuze the UK corporation income tax of the group. In accordance with Statement of Financial Accounting Standards No.109, " Accounting for income Taxes" ("SFAS 109"), deferred mcome taxes are recorded for all temporary differences between the book and tax basis of assets and liabilities and for certain credits available for carryforward.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Distribution Licenses Distribution licenses represent the identifiable intangible assets related to London Electricity and CitiPower wiuch exclusively permit distribution services to be provided within defined territories. These licenses are being amortized over forty years using the straight line method Entergy IL's future net cash flows are nW to be sufficient to recover the amortization of the cost of the CitiPower and London Electricity licenses !
London Electricity's Public Electricity Supply (" PES") license will continue in effect until at least 2025 unless revoked. Under ordmary circumstances, the license may not be revoked except on 25 years' prior notice, widch notice may not be given until 2000. Otherwise, the Secretary of State may revoke a PES license by not less than 30 days' nonce in writing to the license in certain specified circumstances including any failure to comply i with a final order of the Regulator requiring the license holder to comply with its license conditions or requuements, or the insolvency of the licensee CitiPower's license will continue in eff'o ct unicas revoked. The Office of the Pe=*- General ("ORG")
may at any time give at least 20 business days notice of revocation to the licensee if the licensee does not comply with an enforcement order or an undertaking, and the ORG decides that it is necessary or desirable to revoke the license in order to actueve the ORG's policy objectives.
Deferred Loan Costs The Company capitaliass ducct costs associated with loan originations and amortizes such costs over the expected life of the loan facilities, rangmg from four to seven years.
Cash and Cash Eauivalents The Company considers all unrestricted highly liquid debt instruments purchased with an original matunty l i
of three months or less to be cash and cash equivalents.
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Investments
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j The Company accounts for investments whose fair market values are readily detenninable in accordance with Statement of Financial A~~"*% Standards No.115, " Accounting for Investments in Certain Debt and Equity Securities"("SFAS 115"). These securities are considered available-for-sale seccatics under SFAS 11 Page 8 l
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t ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued) and their fair values approxunate cost. Other securities whose fair market values are not readily deternunable and j in which the Company does not have a significant interest are recorded at cost.
Investments in which the Company's ownership interest ranges from 20% to 50%, or which are less than 20% owned but over which the Company exercises significant influence over operating and fmancial policies, are accounted for using the equity method The following are the Company's principal equity method investments as of December 31,1997:
Inyestment Percentw Ownershin Thames Valley Power Ltd 50 %
London Total Energy Ltd 50 %
Barkmg Power Limited 13.5 %
The Company uses the cost method to account for Edesur's investment in the distnbution facilities serving Buenos Aires, Argentina.
Foreien Currency Translation In accordance with Statement of Financial Accounting Standards No. 52, " Foreign Currency Translation"
("SFAS 52"), all assets and liabilities of Entergy IL's foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the end of the period, and revenues and expenses are translated at average exchange rates prevailing during the period. The resulting translation adjustments are reflected in a separate component of member's capital. Current exchange rates are used for U.S. dollar disclosures of future obliganons denommated in foreign currencies. No representation is made that the foreign currency haami ad amounts have been, could have been, or could be converted into U.S. dollars at the rates indicated or at any other rates.
Imnairment of Lonn-Lived Assets In av. wince with the provisions of Statement of Financial Acce-*ia: Standards No.121, " Accounting for the Impairment of Lons-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), the Company periodically reviews its long-lived assets whenever events or changes in circumstances indicate that ,
recoverability of these assets is uncertain. Generally, the detemunation of recoverability is based on the net cash l flows expected to result from such operations and assets. Projected net cash flows depend on the expected future i operstmg costs ==aciatad with the assets and expected future market prices over the remauung life of the assets. l I
Based on current asumatas of thture cash flows, management anticipates that future revenues from such assets and operations will fully tocover all related costs.
Derivative F sanciallastruments Entergy IL uses a vanety of derivative financial instruments, including interest rate and foreign currency swaps, energy tradmg swaps, and contracts for differences, as a part of its overall risk management strategy.
Entergy IL accounts for its derivative financial instruments in accordance with Statement of Financial Accounting i Standards No. 80, " Accounting for Futures Contracts", SFAS 52, and vanous Emergmg Issues Task Force pronouncements. If the interest rate swaps were to be sold or termip*M_ any gain or loss would be deferred and amomand over the rar.aming life of the debt instrument being hedged by the interest rate swap. If the debt Page 9
ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued) mstrument being hedged by the interest rate swaps were to be extinguished, any gain or loss attributable to the swap would be regiW in the period of the transaction.
Entergy IL uses energy tradmg swaps and contracts for differences prunanly to hedge its UK and Australian supply businesses agamst the price risk of electricity purchases. Use of these instruments is carried out within the framework of Entergy IL's purchasing strategy and hedgmg guidelines. Risk of loss is monitored through establishmert of approved counterparties and maximum counterparty limits and muumum credit ratings.
Entergy IL regi= gains or losses on these instruments when settlement is made on a basis consistent with the treatment of the underlying energy customer contract being hedged.
Fair Value Disclosures The estunated fair value of fmancial mstruments was determmed using bid prices reported by dealer markets and by intemationally recognized investment banking firms. The estimated fair value of derivative j fmancial instruments is based on market quotes of the applicable interest or foreign currency exchange rates, or a survey of foreign wholesale tradmg market (" Electricity Pool") forward prices. Considerable judgment is required in developing the estunates cf fair value. Therefore, estunates are not necessarily indicative of the amounts that .
Entergy IL could realize in a current market exchange. Entergy IL considers the carrymg value of fmancial instruments classified as current assets and current liabilities to be a reasonable estunate of their fair values because of the short maturities of these instruments.
NOTE 3. REGULATORY MATTERS London Electricity The distribution business of London Electricity is regulated under its PES license in the UK, pursuant to which revenue of the distnbution business is controlled by the Distribution Price Control Formula ("DPCF"). The DPCF determmes the maxunum average price per unit of electricity (expressed in kalowatt hours) that a Regional Electricity Ccmpany (" REC") may charge. The elements used in the DPCF are established for a five-year period and are subject to review by the Director General of Electncity Supply for the UK (" Regulator") at the end of each period and at other times at the discretion of the Regulator. At each review the Regulator can adjust the value of certain elements in the DPCF. Followmg a review by the Regulator in August 1994, a 14% price reduction was set for London Electncity, effective April 1,1995. In July 1995, a further review of distribution prices was concluded by the Regulator for fiscal years 1997 to 2000. As a result of this further review, London Electricity's distribution pnces were reduced an additional 11% effective April 1,19%; 3% effective April 1,1997, and will be reduced by a further 3% on both April 1,1998 and 1999.
The supplybni== of t-laa Electricity is also regulated by the Regulator, and prices are established based upon the Supply Price Control Formula ("SPCF") which is similar to the DPCF; however, the SPCF currently allows full pass-through for all properly incurred costs and is set for a four-year period by the Regulator.
At present, London Electricity has an exclusive right to supply electricity to residential and small mdustnal and commercial customers in its franchise area with demand of less than 100 KW. In late 1998, this j segment of the supply business will become open to competition, subject to a six-month transition period. This l i
means the market will be fully opened with all customers having access to competition by June 1999. Although the advent of competition for all customers will permit all RECS to compete on a national level, London Electncity Page 10
l ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) may be more sensitive to competition from its neighboring RECS due to its high concentration. London Electricity is in the process of developing its strategy to meet expanded competition in its supply business, which will focus on active marketing and customer service to defend its residential customer base and expanding product offerings to larger business customers. Such strategy may include the development of strategic alliances in the provision of i I
energy and related services and the increased use of hedging of electricity prices to mitigate the increased risk from the expansion of competition. There can be no assurance that this strategy will b: successful in avoiding a significant loss of customers of London Electricity's supply business.
On October 16,1997, the Regulator published fmal proposals for new supply price restramts to apply for two years beginning April 1,1998. The proposals were accepted on November 16, 1997. Among other tiungs, these proposals implement a price reduction for London Electricity's domestic and small business supply customers of 11.8% compared to the supply price tariffin effect in August 1997. A further 3% reduction is proposed to be effective on April 1,1999. The 11.8% price reduction to be effective on April 1,1998, would be decreased by the supply tariff reductions announced by London Electricity on September 29,1997, and effective from October 1, 1997, wluch will return over recoveries experienced under the current SPCF. The license modifications which j took effect December 31,1997, discontinued the automatic pass-through of all costs previously passed through to domestic and small business customers, including purchased power costs from the Electricity Pool.
London Electricity expects to incur approximately $49 million (a portion of which is expected to be capitala) in fiscal year 1998 for re engineering and technology costs to prepare mfrastructure services for full competition in supply from September 1998. London Electricity, along with the other PES license-holders, )
petitioned the Regulator to recover such costs from customers. In the Regulator's supply price restramt proposals published on October 16,1997, the Regulator proposed, within the SPCF, to provide for an annual allowance of
$7.6 million for each PES hcense-holder over the 5 years endmg March 31, 2003, to cover data management services set-up costs plus an annual allowance of $1.6 million plus 51.60 per customer to cover operating costs for l
the penod 1998 through 2000. London Electricity estunates that these proposals will result in an aggregate allowance for London Electncity of approximately $12E million per annum for the period 1998 through 2000. On November 16, 1997, London Electricity accepted the Regulator's new SPCF to be applied begmmng April 1, 1998. In its fiscal year 1998 (wtuch ended March 31,1998), London Electricity expects to also incur a total of 58.2 million to procure settlement software for the Electncity Pool designed to interface with RECS' data management software Dese costs are expected to be recouped through Electricity Pool settlement charges ne non-franchise supply market, which typically includes larger commercial and industrial customers, was opened to competman for all customers with usage above 1 MW upon privatization of the industry in 1990.
De non-franctuse supply markets of 100 KW or more were opened to full competition starting in April 1994.
CitiPower >
On July 1 in each of the years 1997 through 2000 certain adjustments to CitiPower's allowed distnbution revenues have been made by CitiPower's regulator. Such distnbution revenues have been and will be adjusted by 1% less than the change in the consumer price index for each of the respective years. CitiPower has implemented certam cost efficiency and marketing initiatives to mitigate the i npact of such revenue adjustments.
At present, CitiPower has an exclusive right in iu franchise area to supply electricity to customers with annual usage ofless than 750 MWH In July 1998 and January 2001, CitiPower customers with annual usage of Page11
ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued) between 160 MWH to 750 MWH and less than 160 MWH, respectively, will become open to supply business competition.
Retail prices for CitiPower non-franchise supply customers are subject to competitive market forces and are not regulated except for network tariffs, which are based on a maximum average charge incorporatmg annual price changes of 1.5% less than the change in the consumer price index plus full recovery of transmission charges.
These prices will apply through the sur 2000.
l The landon Electncity and CitiPower supply businesses generally involve enterms into fixed price l contracts to supply electncity to customers who have become subject to competition. The electricity is obtamed i pnmarily by purchases on a spot basis in which prices can be volatile. London Electncity and CitiPower are exposed to risks arising from differences between the fixed prices at which they sell electncity and the fluctuating l
prices at which electricity is purchased unless such exposure can be effectively hedged This risk will be atW to additional supply business customers as described above as they become subject to competition.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consists of the followmg at December 31,1997 (in timpada):
Transmission assets S 106,567 j Distribution network assets 2,625,917 Land and buildings 162,959 Vehicles and mobile plant 269,304 Furniture, fixtures and equipment, including computer hardware and software 40,808 Consumer contributions to construction (395,578)
Construction work in progress 89,954 2,899,931 Less accumulated depreciatior, and amortization 119,760 Total 5 2,780,171 Page 12
. ENTERGYINTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
NOTE 5. INCOME TAXES:
Tw Company's mcome tax expense for the year ended December 31,1997 consists of the following (in thousands):
C urrent:
Federal 5 (13,369)
~
Foreign 235,630 Total 222,261 Deferred -- net (40,152)
Recorded inc(,ne tax expense S 182,109 The Company's consolidated total mcome taxes differ f om the amounts computed by applying the statutory mcome tax rates to mcome before taxes. The principal reasons for the differences for 1997 are (in thousands):
Computed at statutory rate (35%) 5 21,736 Increases (reductions) in tax resulting from:
UK windfall profits tax 234,080 Change in UK statutory rate (64,670)
Difference between foreign and U.S. (2,852)
I statutory rate Foreign subsidiary basis difference (15,519)
Franchise fees 11,207 Interest on perpetual debentures 5,914 Other-net (7,787) 5 182.109 l Total income taxes Effective income tax rate 293.2 %
l l
Page 13
ENTERGY INTERNATIONAL LTD LLC 1 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Significant components of the Company's net deferred tax liability at December 31,1997 are as follows (in thousands):
l Deferred Tax Liabilities:
! Plant-related basis differences S (599,336)
Prepaid pension asset (74,777)
Distribution licenses (411,467)
Unbilled revenues (10,062) l (1,095,642) l Total t
i Deferred Tax Assets-Distribution licenses 9,234
! Foreign tax credits (including foreign tax on unremitted carnings) 235,615 Other 87,250 I
Valuation allowance (234,080)
Total 98,019 f
Net deferred tax liability 5 (997,623) l As a result of Parhamentary elections in the UK held on May 1,1997, the Labour Party gained control of l the UK Govemment. On July 31, 1997, the British somra.t enacted a one-tune "wmdfall pro 6ts tax" on l i
privatized industries, including regional electric utilities such as London Electricity. Landan Electricity's wmdfall proSts tax liability is appronunately British Pounds Storhng (" BPS") 140 million (approxunately $234 million), .
which will not be deductible for UK +. don tax purposes Payment of the tax is required in two equal l mstallments, the first of which was paid on December 1,1997, and the second of wiuch is due on December 1, l
1998.
De UK Government also decreased the UK corporation tax rate from 33% to 31%, effective Apnl 1, 1997. In accordance with SFAS 109, this Wia= resulted in a one-tune reduction in income tax expense of approxunately BPS 38 rudima (.,,,,.e -ly $65 million). The liability for the wmdfall profits tax (with a correspondag mcrease in acome tax expense) and the reduction in London electricity's deferred income tax l
liability (with a conospondag reducuan in income tax expense) were recorded in July 1997.
On August 27,1997, the Federal Court of Australia upheld a decision by the Austrahan Commissioner of taxation that franchise taxes paid by a resident electricity distnbution business were not deductible for Australian mcome tax purposes ne impact of this decision on CitiPower, wiuch also incurs such franchise taxes, is approxunately $26 million. De provision for deferred income taxes was increased in Des mber 1997 to refl the impact of this decision.
De valuanon allowance is provided pnmarily agamst foreign tax credit carryforwards and foreign tax credits on unremitted canungs which can be utilized agamst future taxable inconw in the United States.
Page 14
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ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6. LINES OF CREDIT AND RELATED SHORT-TERM BORROWINGS London Electricity currently has $452.5 million of shon-term commitments, of which $370.2 million was unused as of December 31,1997. The weighted average interest rate incurred ou London Electricity's shon term borrowmss was 7.64% for the period from February 1,1997 to December 31,1997. The comnutment fees for London Electricity's $452.5 million credit facility range from .03% to .125% of the undrawn balance.
CitiPower currently has $22.8 million of shon-term commitments, which had an outstandmg balance of
$11.2 nullion as of December 31, 1997. 'Ihe weighted average interest rate incurred on such shon-term borrowmss was 5.72% for the year ended December 31,1997. The commitment fee related to this credit facility is
.10% of the undrawn balance In addition, CitiPower has a bank guarantee of $22.8 million for the purpose of satisfyics the requirements of the Victorian Power Exchange. 'the fee related to this guarantee is .175% of the balance of $22.8 nullion.
NOTE 7. MEMBER'S CAPITAL Member's Capital at December 31,1997 is comprised of the following components (in thousands):
Member's capital at January 1,1997 5 290,129 Capital contribution -
Edesur 59,197 Entergy London 391,953 i
Net loss for 1997 (120,008)
Member's capital at December 31,1997 5 621,271 t
l NOTEg. COMPANY OBLIGATED REDEEMABLE PREFERRED SECURITIES Entergy London Capital, L.P. (Entergy London Capital), a limited partnership, was established as a fmancing subsidary of Entergy landon for the purpose of issuing preferred securities. On November 19, 1997, l i
the limimd partnerslup issued $300 mdhon in aggregate liquidation preference amount of 8.625% Cumulative Quarterly Income Prefened Securities in a public offenns All of the proceeds from the sale of these preferred securities were invested by Entergy I-lan Capital in the Perpetual Junior Subordmated Debentures issued by Entergy London to Entergy i-lan Capital. Entergy London used the not proceeds from such investment, together w;th other funds avadable to Entergy London, to repay a portion of indebtedness incurred in connection with the acquisition oflendon Electncity. Payment obligations with respect to these debentures will be payable in U.S.
dollars. Management's estunate of the fair value of these preferred securities at December 31,1997 was $303 million, based on the New York Stock Exchange closing price.
Entergy 14ndon has entered into currency exchange rate swap agreements to hedge the risk associated with erh== rate fluctuatens on the preferred securities. Thr exchange rate swap agreements which hedge this risk involve the eekaaaa of fixed rate U.S. dollars and BPS interest payments periodically over seven years for all Page 15
,SENT BY:SilAK PlTTMAN 4 3-99 2:41PM sliAn F1ITMAN-0114:0114:13104:10v1;: 4 r.
ENTERGYINTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENT of the imartet assocasted with the prefsrred secunties swaps outstandag at December 31, 1997, apprtremateJy 52.0 million. based on quoted mterest and currency ,
a of rate preferred secunties are redeemable at the option of y, Entergy b
19,2002 at 100% of their pnncipal amount, or carher under certam lunited circumstances, ,
including the as deduenas Capital and has a6 road to maintais ownership of 1% of E 1 NOTE 9. LONG-TERM DEBT W longerm debt of the Company at December 31,1997 is rumenariana as fo!
3% Eurobands repayable March 28,2003
$ 162,964 8 $/l% Eurobonds repspble October 26,2005 (62,976 i
Loan noess due March 31,2003 (a) 33,814 Revolving bank Debt facility-Facility A 1,332,774 Facility B 111,000 Other 715.330 Other bank debt 21,906 Total 2,546,764 IAes current maturities 33,114 Long-term debt, not ofcunent maturities g
Fair Value ofLong Term Debt (b) 32.395.597 (a)
Loan notes are included as current manumas oflong<erm debt based 6e the option such noise on Marsh 31 c(cash year until their 6 ant maturity on Marsh 31,2003.
(b) The fair vaine excludte other long anna debt and includes debt due wnhin o priens reported by dealer marisses and by insemationally recogmaad invcannant banknog
%s annual long tenu debt matunees for debt e-rt at December 31.1997, for the are a? foDows:
1998 5 33,814 1997 -
2000 715.330 2001 -
2002 1,332,774 Page 16
- i
.*. ,. j ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued) l Enterry Londos The 8% and 8 5/8% Eurobonds may become due prior to their stated maturity only upon the occurrence of l certam events includmg default, liquidation or bankruptcy of London Electricity. The Company does not l anticipate default under these agreements.
Entergy London executed a credit facility with several banks on C=M 17, 1996, to obtain credit facilities in the aggregate amount of approxunately BPSI.25 billion ($2.1 billion). Proceeds of this facility, which was in three tranches, were used, together with $392 million of cash provided by Entergy, to fund the acquisition ofinadaa Electricity and to provide working capital for London Electricity. The facilities were ref5anced in November 1997. New or restated borrowmg facilities were negouated and Cumulative Quarterly income Preferred Securities were issued to partially replace one of the tranches The restated credit facility is non recourse to Entergy and is collateralized by assets of Entergy i nadna, consisting of 65% of the shares of London Electricity.
The maturity dates of the vanous tranches of the credit facility range from December 17, 2001, to October 31, 2002. The interest rate on these facilities is the London Interbank Offered Rate plus up to 1.00% daaaaAag on the capitalizaten ratio of Entergy I nadaa and its subsidianos Entergy London entered into interest rate swaps to reduce the impact of interest rate changes on its debt j
related to the London Electncity acquisition. 'Ihe interest rate swap ayw s involve the avehaaga of flostmg l rate interest payments for fixed rate interest payments over the life of the agreements Entergy London recosmzes j mierest expense currently based on the fixed rate ofinterest resulting from use of these swap agreements. If the counterparues to an interest rate sway agreement were to default on contractual paymenta, Entergy London could i be exposed to increased costs related to replacing the original agreement. Ea, management does not l anticipate =--+h- - 3 by any counterparty to any interest rate swap in effect as of December 31,1997. As of !
December 31,1997, Entergy London was party to a noconal amount of BPS 600 million of interest rate swaps ;
e '
with maturity dates rangmg from March 1999 to -f V 2001, which effectively fixed the rate of interest at 7.48%. _1he estimated fair value of the interest rate swaps, which represents the estunated amount Entergy London would pay to termmate the swaps at December 31,1997, based on quoted interest rates, is a not liability of $11 million.
CitiFower CitiPower established a vanable rate revolving credit facility in the aggregate amount of 1.2 billion Austrahan dollars ($780 mdlion) on January 5,1996. The facility is fully collaterahand by all of CitiPower's assets and is non-recourse to Entergy. Borrowmss have maturities of 30 to 185 days, and are continuously n . .ble for 30 to 185 day penods at CitiPower's opuon until the facility matures on June 30,2000. As of December 31,1997, the facdity was drawn down to 1.1 billion Australian dollars ($715.3 million) at an average interest rate of 5.30%. Credit support is provided to facility banks in the form of a subordmated letter of credit supplied by the Commonwenkh Bank of Australia. The letter of credit facility matures on January 21,1999, and is for an amount of 70 mdhon Australian dollars (545.5 million). The letter of credit facility is fully collateralized by a second ranking security inscrest in all of CitiPower's assets and the facility is non-recourse to Entergy.
CitiPower entered into several interest rate swaps to reduce the impact of interest rate changes on the borrowmss under its vanable rate line of credit. The interest rate swap ay . s which hedge this debt involve the exchangs of fixed and flostas rate interest payments periodically over the life of the agreements. Interest is recognized currently based on the fixed rate ofinterest resulting from use of these swap agreements. Market nsks Page 17
1-23-99 2'42PM SilAn PITTVAN-0114:0114:13104:1001;: 36 SEM BJ:SliW PITTMAN ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . (Co ame imm the movasness in interest ratas. If the counterparacs to an interest rate swa on contractual paymenu, the subsedsary could be exposed to meressed costs rela agreernant in effect as !ksmr, CitiPower does not anticipase nonperfbrmance by any counterpa of fE ' 31,1997 a notional amount of 900 milifon Australian dallars (5585.3 m 1999 to December 2000, which effectively fired the rate of interest on the CitiPo CitiPower is alsodate a party to2009 an addstional swap with a nouonal amount of 32 m ralhas) and a maurity of D~.bu .
represents the estunated amount CitiPower would pay tobased quoted inmenst rares, i: a net liability of $28 million.
termmate on th NOTEle, COMMITMENTS AND CONTINGENCIES Camital Re % and FMan Construcuan expendmares for London Electricity fbr the years 1998.1999, and 2000 are esumated to total the period 1998 2000 to meet long term debt maturine prunardy with internally generated funds and cash on hand, supplemented by the obligased mandatorily redeemable prefterved securmes, and the use of outstanding credit &cditi Construction expenditures for CitiPower for the mes 1998,1999, and 2000 are estanated to total $30 mdhon,347 million, and $34 milboa, repectively. CitiPower will also require 5715 m 1998-2000 to reest long4erm debt maturities. CitiPower plans to mass the above re credit fheilities. gamerasad Aands and cash an hand, supplananted by the issuance of de meernally e 'As-
-- w Pawer M -- _
London Electristy uses contracts ihr ddresences (CFDs) and power purchase contracts w generasors 31, 1997 to &c the prics ofelectricity for a contractad quantity over a speci6e pened of time. As Landai Electricity had outstandes CFDs and power purchase coursets fbr approxa GWH of s!*cuncacy. These include a long term power purchase contract with an afBlism, w of theW---
were afRlists's capacity 9 tun its 1000 MW fhedity through the year 2010. Imedan Elsesncl 1'y 10,000 GWH la the year ended 1997. 58n _fs estunaas of the thir value of London !
Elecsricity's CFDs ainstandag at December 31,1997 is that thir value apprommaans contract value.
CitiPower umst heden as lanst 80% of its energy purchasesIn acconism ,
apptomimately 100% of its tresasted unstgy purchases through energy tradas swa goesmuots. As Deesmher 31,1997 CitiPower had outsamhag escrgy trading sways totahng a noonmal 38,372 MW of avereen daily load of sleisricity. Thsee scannets masure through the year 2000 asumaec million. of the fair value of such swaps outstanding at Iwa=he 31,19971s a aat liability of ap Pass 18
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ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other Anreenunts.andContracts I- Entergy London is subject to an agreement whereby the UK government is entitled to a proportion of certam property gains realized by London Electricity as a result of disposals or events treated as disposals occurring aAer March 31,1990, of properties held at that date. This commitment is effective until March 31, 2000.
Entergy London has recorded approximately BPS 100 million ($165 million) in reserves as of December 31,1997, related to unfavorable long-term contracts These reserves will be amortued over the remaining lives of the contracts which range from 14 to 18 years. The reserves recoided are based on the excess of estimated fair market value of these contracts over the present value of the future cash flows under the contracts at the applicable discount rate and prices.
Some of the Company's distribution activities produce waste but the Company believes that it has taken ,
l and contmuss to take measures to comply with the applicable laws and governmental regulations for~the protectma of the environment There are no matenallegal or adnunistrative pr"-= pendmg agamst the Company with respect to any environmental matter.
i
( NOTE 11. LEASES 1hc Company has entered into operstmg lease agreements for the use of buildmgs and vehicles with '
nununum future rental payments as of December 31,1997 as follows (in thonemada):
YkAT.
1998 5 12,001 l
1999 10,906 2000 10,497 2001 9,931 l
2002 9,812 l
Y ears thereafter 124,398 3 M inim um lease paym ents $ 171,545 Rental expense incurred under these lease agreements in 1997 was $13.0 million.
NOTE 12. PENSION BENEFITS London Electricity perncipates in a denned benefit pension plan wluch provides pension and other related defmod bene 6ts, bas ~ed on fled p===ia==hle pay, to substantially all employees throughout the electricity supply i mdustry in the UK. London Electncity uses the projected unit credit actuarial method for fundmg purposes.
Amounta funded to the pension plan are primarily invested in equity and fixed income securities.
CitiPower paracipates in the Victonan Electricity Superasmustion Fund ("the Plan"), along with other !
elet. city compamos in Victona. Most executives and employees hired aAer October 3,1994, are members Am "* plan, or Division D, a de6ned contnbution plan. All other employees are members of Division B or Division C of the Plan, wluch are denned benefit plans. Division B provides benents in the form of pensions while j Page 19 l
i
h ENTERGY INTERNATIONAL LTD LLC l NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued) l Didsion C provides baie6ts in the form of lump sum distnbutions upon retirement. CitiPower has no legal l-liability to fund deficiencies in the Plan, however, CitiPower ensures that the Plan has sufficient assets to meet l benefit payments ofits retirees as they become due. Investments incorporated in the Plan include: public and fixed-interest securities, convertible notes, and short term deposits. No significant non-benefit liabilities are associated with the Plan.
l Total pension income for 1997 included the following components (in thousands):
Service cost benefits earned during the period $ 19,247 Interest cost on projected benefit obligation 101,465 Actual return on plan assets (120,780)
Net pension income 5 (68)
The weighted-average dacount rate, weighted average rate of increase in future cw.i=='4aa levels used m determuung the actuanal present value of the projected benefit obligation, and the expected long-term rate of retum on plan assets for Entergy Imdon were 9.0%,6.5% and 9.0%, respectively, for 1997. These rates for l
CitiPower for 1997 were 6.5%,5.0% and 7.5%, respectively.
The followmg table sets forth the plans' funded status and amounts rviW in the Company's balance sheet at December 31,1997 (in thousands):
Actuarial present value of accumulated vested pension benefit $ 1,052,849 Plan assets at fair value 1,564,136 Projected benefit obligation (PBO) 1,163,298 i
Plan assets in excess of PBO 400,838 Unrecognized net gain (161,907) 5 238,931 l
Comprised of:
Prepaid pension asset - London S 241,216 i Accrued pension liability - CitiPower 5 (2,285)
TRANSACTIOF.S WITH AFFILIATES l
NOTE 13. 1 Entergy London and CitiPower receive technical, advisory, and admmistrative services from Entergy Services, Inc. and Entergy Enterprises, Inc., which are also wholly owned subsidiaries of Entergy. Entergy Imdon and CitiPower incurred approximately $5.3 million and $1.7 million, respectively, of expenses for such services in 1997.
Page 20
4 ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . (Continued)
NOTE 14. ACQUISITION OF LONDON ELECTRICITY Effective February 1,1997, Entergy IL, through a wholly owned subsidiary, acquired London Electricity in a transaction accounted for as a purchase. Accordingly, the results of operations for the Company reported in its consolidated statements of operations and cash flows do not reflect London Electricity's results of operations for any period prior to February 1,1997. Based on the purchase method of accounting, the Company has allocated the purchase price for landon Electricity to London Electricity's assets and liabilities based on their a *1==W fair market value with the remamder allocated to London Electricity's distnbution license which represents an other identifiable intangible asset.
he assets and liabilities acquired at February 1,1997 were as follows (in millions):
Current assets S 518.2 Network assets 2,134.3 Other long term assets 1,601.2 Curnat liabilities (614.8) lang term debt (333.9)
Other long termliabilities (1.285.9)
Total purchase price 5 2.019.1 Certain shareholders of London Electricity elected to receive Loan Notes issued by the Company in e-kaa-a for their shares as pennitted by the terms of the Company's tender offer. Such debt mstruments are 1 included in long-term debt in the above analysis.
in accordance with the purchase method of accounting, the results of operations for Entergy IL reported in its consolidated statements of Wicas and cash flows do not reflect London Electncity's results of operations l i
for any period prior to February 1,1997. De pro forma combined revenue and not mcome of the Company preson'ad below give effect to the acquisition as ifit had occurred on January 1,1997. He pro forma informal is not necessarily uubcative of the results of operations that would have occurred had the acquisition been consummated for the penod for wiuch it is being given effect For the Ye
- Ended DM d222 (In Millions of (J.S. Douars)
S 2,413 Operates revenues Netloss S (117)
NOTE 15. RESTRUCTURING CHARGES In 1995 and 1996, London Electricity implemented a restructuring program to reduce the number of employees in the Network Sernces, Customer Services, Corporate and Information Taehaalagy gro plan was approved by the Board of Directors in September 1994 and was based on a business pl subsequent to the 1994 Regulatory Rowew of Distribution (the Distributien Review).
Page 21
s ,s-c ENTERGY INTERNATIONAL LTD LLC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Following the reopenmg of the Distribution Review during 1995, a further plan was proposed leading to further reduction of employees in the same areas. This plan was approved by the Board of Directors in May 1996.
The balance as of December 31,1997 for restructuring charges is shown below along with the actual temunation benefits paid under the restructuring plan for the year ended December 31,1997 (in millions).
Provision for restructuring as of January 31,1997(date of acquisition) S 41.7 Adjustments to restructuring provision in 1997 13.3 Payments made in 1997 (29.7)
Cumulative translation adjustment 1.0 Balance as of December 31,1997 5 26.3 The restructuring charges shown above prunanly included employee severance costs related to the i
e ~8 ternunation of approximately 1,372 employees in various groups. As of December 31, 1997, 895 employees had either been termmated or accepted voluntary separation packages under the restructuring plan.
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