Entergy Reports Third Quarter Earnings and Issues Forward-Looking Financial Update

NEW ORLEANS, Nov. 5, 2012 /PRNewswire/ -- Entergy Corporation (NYSE: ETR) today reported third quarter 2012 as-reported earnings of $337.1 million, or $1.89 per share, compared with $628.1 million, or $3.53 per share, for third quarter 2011. On an operational basis, Entergy's third quarter 2012 earnings were $347.7 million, or $1.95 per share, compared with $628.1 million, or $3.53 per share, in third quarter 2011.

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*GAAP refers to United States generally accepted accounting principles.

Operational Earnings Highlights for Third Quarter 2012

• Utility earnings were lower due largely to the absence of the net earnings benefit associated with an August 2011 Internal Revenue Service settlement and higher non-fuel operation and maintenance expense.
• Entergy Wholesale Commodities earnings decreased due primarily to lower net revenue and higher non-fuel operation and maintenance expense, partially offset by a lower effective income tax rate.
• Parent & Other results declined due primarily to higher income tax expense on Parent & Other activities.

"While our near-term financial results and outlook continue to reflect the current low commodity price environment, we remained focused on managing all aspects of our business that we can control day-to-day in a safe and efficient manner," said J. Wayne Leonard, Entergy's chairman and chief executive officer. "We've made substantial progress on our initiative to join the Midwest Independent Transmission System Operator, a regional transmission organization. Most recently, the Arkansas Public Service Commission and the Public Utility Commission of Texas conditionally approved proposals put forth by their respective companies. These milestones move our customers significantly closer to achieving up to $1.4 billion in projected savings over the next decade.

"We continue to focus on the future by managing risk and executing on all initiatives intended to create value for all stakeholders, such as the proposal to spin off and merge the transmission business with ITC Holdings Corp. The new management team's transition will be seamless as they take over responsibility to complete the initiatives underway, as well as identify new ideas and opportunities."

Other Business Highlights

• Entergy initiated the approval process for the spin-off and merger of the transmission business with ITC, including filings in four retail jurisdictions and at the Federal Energy Regulatory Commission.
• The New York Independent System Operator finalized the 2012 Reliability Needs Assessment, which reiterated reliability benefits of Indian Point. Two other independent reports also presented findings supporting the importance of Indian Point.
• The U.S. Department of Energy gave Entergy's response to Hurricane Isaac an "A+" noting, "This is one of the best restorations we've seen in recent memory and Entergy should be commended."
• Entergy was named to the Dow Jones North America and World Sustainability Indexes, marking the 11th consecutive year of membership in the World or North America Index, or both.

A teleconference will be held at noon CT on Monday, Nov. 5, 2012, to discuss Entergy's third quarter 2012 earnings announcement, and may be accessed by dialing (719) 457-2080, confirmation code 5414008, no more than 15 minutes prior to the start of the call. The call and presentation slides can also be accessed via Entergy's website at www.entergy.com. A replay of the teleconference will be available by telephone and on Entergy's website at www.entergy.com as soon as practical after the transcript is filed with the U.S. Securities and Exchange Commission due to filing requirements associated with the proposed spin-off and merger of Entergy's transmission business with ITC. The telephone replay will be available through Nov. 12, 2012, by dialing (719) 457-0820, confirmation code 5414008.

Utility

In third quarter 2012, Utility earnings were $296.2 million, or $1.66 per share, on an as-reported basis and $306.8 million, or $1.72 per share, on an operational basis, compared to $524.1 million, or $2.95 per share, on both as-reported and operational bases in third quarter 2011.  The quarter-over-quarter decrease was due largely to the absence of the net earnings benefit from a 2011 IRS settlement that resulted in a significant reduction in income tax expense, the majority of which was recorded at the Utility, and the regulatory charge recorded to reflect the agreement to share the benefits resulting from the settlement with Entergy Louisiana's customers, which decreased net revenue.

Third quarter 2012 Utility net revenue increased. However, excluding the prior year regulatory charge, Utility net revenue decreased slightly due to several factors. Billed retail sales volume was down quarter over quarter driven primarily by the effects of weather and Hurricane Isaac. Overall, weather was warmer than normal for the current quarter, but fell short of the significantly above-normal temperatures experienced in the third quarter of 2011. The decreases were largely offset by the net effect of regulatory actions in several jurisdictions and increased net revenue attributable to weather-adjusted volume. Although total weather-adjusted retail sales growth was essentially flat, net revenue increased from sales growth due to growth in the higher-margin residential and commercial segments.

Higher non-fuel operation and maintenance expense and higher depreciation expense also contributed to the quarter-over-quarter decline. The non-fuel operation and maintenance expense increase was attributable to several factors, including the absence of a deferral of previously expensed outage costs at Entergy New Orleans recorded in the third quarter of 2011, a temporary increase in Entergy Mississippi's storm damage reserve and higher costs related to Entergy Arkansas' energy efficiency program (both offset in net revenue), and higher compensation and benefits costs (largely pension). Those factors were partially offset by deferral or capitalization of Isaac storm restoration costs.

Current quarter results included adjustments recorded in several income statement categories following the PUCT's final order in Entergy Texas' rate case issued in September 2012. The net effect of approximately $21 million pre-tax was driven primarily by a reduction in Entergy Texas' regulatory asset associated with estimated Hurricane Rita insurance recoveries and the expected amortization period of that asset.

Residential sales in third quarter 2012, on a weather-adjusted basis, increased 1.4 percent compared to third quarter 2011. Commercial and governmental sales, on a weather-adjusted basis, increased 0.9 percent quarter over quarter. Industrial sales in the third quarter decreased 2.5 percent compared to the same quarter of 2011. Billed retail sales growth on a weather-adjusted basis was essentially flat quarter over quarter. Growth in residential and commercial and governmental sales was offset by a decline in industrial sales. The industrial sales decrease was due partly to an outage at a large industrial customer.

Entergy Wholesale Commodities

Entergy Wholesale Commodities as-reported and operational earnings were $118.8 million, or 67 cents per share, for third quarter 2012, compared to $130.2 million, or 73 cents per share, for third quarter 2011. The decline was largely attributable to the operational EBITDA drivers noted below. These items were partially offset by lower depreciation expense and a lower effective income tax rate. The depreciation expense decrease was due primarily to the receipt of proceeds by Indian Point 2 for the resolution of litigation related to the DOE's failure to provide timely spent fuel storage. The lower effective income tax rate reflected a portion of Entergy Nuclear Power Marketing income tax expense being recorded at Parent & Other due to an ownership restructuring.

Entergy Wholesale Commodities operational adjusted EBITDA was $185 million in the third quarter of 2012, compared to $241 million in the same period a year ago. The decline was due largely to lower net revenue from the nuclear portfolio primarily on lower energy pricing. The average realized revenue per megawatt hour for the nuclear fleet was approximately $52, down from approximately $56 in the same period last year. While nuclear generation declined due to an increase in refueling and unplanned outage days, the effect of outage days was partially offset by the exercise of resupply options provided for in power purchase agreements whereby, under these options, Entergy Wholesale Commodities may elect to supply power from another source when the plant is not running. Lower net revenue from Entergy Wholesale Commodities' nuclear fleet was partially offset by net revenue from the 583-megawatt Rhode Island State Energy Center, which was acquired in December 2011. Higher non-fuel operation and maintenance expense also contributed to the operational adjusted EBITDA decline, driven by higher compensation and benefits costs (largely pension) and the Rhode Island State Energy Center acquisition.

Parent & Other

Parent & Other reported a loss of $77.9 million, or 44 cents per share, on an as-reported basis and an operational basis for third quarter 2012. This compares to a loss of $26.3 million, or 15 cents per share, on both as-reported and operational bases in third quarter 2011. Higher income tax expense on Parent & Other activities was the primary factor driving the decrease. The major drivers were the absence of favorable income tax adjustments associated with the prior year IRS settlement and the 2012 Entergy Nuclear Power Marketing income tax expense noted earlier. Higher interest expense also contributed to the decrease.

Earnings Guidance

Entergy updated its 2012 earnings guidance range to be $3.44 to $4.24 per share on an as-reported basis and affirmed operational guidance of $4.85 to $5.65 per share. Entergy noted that indications continue to point to the upper end of the guidance ranges. The revised as-reported guidance range reflects special items recorded in the current quarter for expenses in connection with the proposed spin-off and merger of Entergy's transmission business with ITC. As-reported earnings guidance for 2012 does not reflect any potential future expenses for the proposed spin-merge.

Entergy is initiating 2013 earnings guidance in the range of $4.60 to $5.40 per share on both an as-reported basis and an operational basis. As-reported earnings guidance for 2013 does not reflect potential future expenses for the proposed spin-merge of the transmission business with ITC. The as-reported 2013 guidance will be updated throughout the year as these transaction-related expenses are incurred.

Long-term Financial Outlook

Entergy believes it offers a long-term, competitive utility investment opportunity combined with a valuable option represented by a unique, clean, non-utility generation business located in attractive power markets. The updated long-term outlook for 2010 through 2014 reflects Entergy's expectations of economic, business and commodity market conditions through 2014.

The current long-term financial outlook for 2010 through 2014, excluding the effects of the proposed spin-merge of the transmission business discussed below, includes the following:

Earnings:

• Utility net income:  Around 6 percent compound annual net income growth rate over the 2010 – 2014 horizon (2009 base year).
• Entergy Wholesale Commodities results:  Revenue projections through 2014 will experience increased volatility due to commodity market activities – one of the most important fundamental drivers for this business. At current sold and forward prices with its existing asset portfolio and contracts, Entergy Wholesale Commodities is expected to deliver declining adjusted EBITDA for the period through 2014 compared to 2010. However, Entergy Wholesale Commodities offers a valuable long-term option from the potential positive effects of economic growth (driving increased load, market heat rates, capacity prices and natural gas prices), aging and unprofitable unit retirements (driving market heat rate expansion and capacity price increases), rationalization of supply and growth of demand in natural gas markets, new environmental legislation and/or enforcement of additional environmental regulations.
• Corporate results:  Results will vary depending upon factors including future effective income tax and interest rates and the amount/timing of share repurchases, if any.

Capital deployment:

• A balanced capital investment/return program:  Entergy continues to see value-added investment opportunities at the Utility in the coming years, as well as an investment outlook at Entergy Wholesale Commodities that supports continued safe, secure and reliable operations and opportunistic investments. Entergy aspires to fund this capital program without issuing traditional common equity, while maintaining a competitive capital return program. Given the company's financial profile with a mix of utility and non-utility businesses, return of capital is expected to be provided similar to the past through a combination of common stock dividends and share repurchases. Capital deployment through dividends and share repurchases is projected to total around $4 billion from 2010 – 2014 under the current long-term business outlook. The amount of share repurchases may vary as a result of material changes in business results, capital spending or new investment opportunities.

Credit quality:

• Strong liquidity.
• Solid credit metrics that support ready access to capital on reasonable terms.

Spin-Merge of Transmission Business

In December 2011, the Entergy and ITC boards of directors approved a definitive agreement under which Entergy will spin off and then merge its electric transmission business with a subsidiary of ITC. The transaction is targeted to close in 2013 and is subject to the satisfaction of certain closing conditions. Primary filings required include the Entergy Utility operating companies' retail regulators as well as several federal agencies. ITC shareholders must also approve the transaction.

Additional Information and Where to Find It

On Sept. 25, 2012, ITC filed a registration statement on Form S-4 with the Securities and Exchange Commission (SEC) registering shares of ITC common stock to be issued to Entergy shareholders in connection with the proposed transactions, but this registration statement has not become effective. This registration statement includes a proxy statement of ITC that also constitutes a prospectus of ITC, and will be sent to ITC shareholders. In addition, Mid South TransCo LLC (TransCo) will file a registration statement with the SEC registering TransCo common units to be issued to Entergy shareholders in connection with the proposed transactions. Entergy shareholders are urged to read the proxy statement/prospectus included in the ITC registration statement and the proxy statement/prospectus to be included in the TransCo registration statement (when available) and any other relevant documents, because they contain important information about ITC, TransCo and the proposed transactions. ITC shareholders are urged to read the proxy statement/prospectus and any other relevant documents because they contain important information about TransCo and the proposed transactions. The proxy statement/prospectus and other documents relating to the proposed transactions (when they are available) can be obtained free of charge from the SEC's website at www.sec.gov. The documents, when available, can also be obtained free of charge from Entergy upon written request to Entergy Corporation, Investor Relations, P.O. Box 61000, New Orleans, LA 70161 or by calling Entergy's Investor Relations information line at 1-888-ENTERGY (368-3749), or from ITC upon written request to ITC Holdings Corp., Investor Relations, 27175 Energy Way, Novi, MI 48377 or by calling 248-946-3000.

Entergy Corporation is an integrated energy company engaged primarily in electric power production and retail distribution operations. Entergy owns and operates power plants with approximately 30,000 megawatts of electric generating capacity, including more than 10,000 megawatts of nuclear power, making it one of the nation's leading nuclear generators. Entergy delivers electricity to 2.8 million utility customers in Arkansas, Louisiana, Mississippi and Texas. Entergy has annual revenues of more than $11 billion and approximately 15,000 employees.

Additional information regarding Entergy's quarterly results of operations, regulatory proceedings and other operations is available in Entergy's investor news release dated Nov. 5, 2012, a copy of which has been filed today with the Securities and Exchange Commission on Form 8-K and is available on Entergy's investor relations website at www.entergy.com/investor_relations.

In this news release, and from time to time, Entergy makes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Except to the extent required by the federal securities laws, Entergy undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Forward-looking statements involve a number of risks and uncertainties. There are factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including (a) those factors discussed in: (i) Entergy's Form 10-K for the year ended Dec. 31, 2011; (ii) Entergy's Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012 and (iii) Entergy's other reports and filings made under the Securities Exchange Act of 1934; (b) uncertainties associated with rate proceedings, formula rate plans and other cost recovery mechanisms; (c) uncertainties associated with efforts to remediate the effects of major storms and recover related restoration costs; (d) nuclear plant relicensing, operating and regulatory risks, including any changes resulting from the nuclear crisis in Japan following its catastrophic earthquake and tsunami; (e) legislative and regulatory actions and risks and uncertainties associated with claims or litigation by or against Entergy and its subsidiaries; (f) conditions in commodity and capital markets during the periods covered by the forward-looking statements, in addition to other factors described elsewhere in this release and subsequent securities filings and (g) risks inherent in the proposed spin-off and subsequent merger of Entergy's electric transmission business with a subsidiary of ITC Holdings Corp. Entergy cannot provide any assurances that the spin-off and merger transaction will be completed and cannot give any assurance as to the terms on which such transaction will be consummated. The spin-off and merger transaction is subject to certain conditions precedent, including regulatory approvals and approval by ITC Holdings Corp. shareholders.

Appendix A provides a reconciliation of GAAP consolidated as-reported earnings to non-GAAP consolidated operational earnings.

Appendix B provides a reconciliation of Entergy Wholesale Commodities GAAP net income to non-GAAP operational adjusted EBITDA.

SOURCE Entergy Corporation

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