01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Entergy's FY2009 Form 10-K (filed February 26, 2010) reports consolidated revenues of $10.7 billiona, net income attributable to Entergy of $1.23 billion (diluted EPS $6.30), and approximately 30,000 MW of generating capacity, making it the second-largest U.S. nuclear generator.
The company operates through two reportable segments: a rate-regulated Utility business serving 2.7 million customers across four states, and a Non-Utility Nuclear business owning six nuclear plants. Utility net income rose to $709 millionb while Non-Utility Nuclear earned $631 million, down from $797 million in 2008 as realized prices gains were offset by lower volume and a planned spin-off process. The central strategic event is the proposed tax-free spin-off of Non-Utility Nuclear to shareholders through a new company, Enexus Energy Corporation, which would carry up to $4.0 billion of debt.
Approval is far from assured: the New York Public Service Commission staff concluded in February 2010 that the transaction was not in the public interest and recommended a $550 millionc reduction in Enexus debt, and the Vermont approval is pending amid a stay request tied to tritium leaks at Vermont Yankee. Investors should weigh the spin-off's uncertain timing and conditions against the Utility's regulatory and capital-spending exposures.
Other material risks include the FERC-mandated System Agreement cost reallocation (Entergy Arkansas expects roughly $70 milliond in 2010 payments), a Waterford 3 steam generator replacement costing about $511 million, a possible $465 million scrubber project at White Bluff, and approximately $1.5 billion in planned Utility construction capital for 2010. Liquidity appears solid, with $1.71 billion of cash on hand and $906 million of available credit under the $3.5 billion revolver.
02—Key points
Key Highlights
- Consolidated 2009 operating revenues of $10.7 billion, down from $13.1 billion in 2008, with consolidated net income of $1.25 billion (attributable to Entergy $1.23 billion, diluted EPS $6.30 versus $6.20 in 2008).
- Utility segment net income of $709 million (up from $605 million) generated 75% of revenue; Non-Utility Nuclear net income of $631 million (down from $797 million) generated 24% of revenue.
- Proposed spin-off of Non-Utility Nuclear to Enexus Energy Corporation faces a February 2010 New York PSC staff recommendation against approval, and a pending Vermont decision with a state stay request.
- Non-Utility Nuclear had sold forward 88% of planned 2010 output at an average contracted price of $57/MWh; capacity factor fell to 93% from 95% due to more refueling outage days.
- Planned 2010-2012 capital expenditures total about $7.0 billion, including $2.2 billion for 2010 with Utility capital commitments such as the Acadia Unit 2 purchase (~$300 million) and Waterford 3 steam generator replacement (~$511 million).
- Entergy repurchased $613 million of common stock in 2009 and completed its $1.5 billion and $500 million buyback programs, with a new $750 million authorization in October 2009; the quarterly dividend remains $0.75.
- Debt-to-capital ratio improved to 57.3% at year-end 2009 from 59.7% in 2008, and cash on hand was $1.71 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $10.75B— | — |
| Operating Expenses | $8.46B$10.81B | −21.7% |
| Operating Income | $2.28B$2.28B | +0.1% |
| Interest Expense | $603.68M$608.92M | −0.9% |
| Net Income | $1.25B$1.24B | +0.8% |
| EPS (Basic) | $3.19$3.19 | 0.0% |
| EPS (Diluted) | $3.15$3.10 | +1.6% |
| Shares Outstanding (Basic) | 385.54M381.85M | +1.0% |
| Shares Outstanding (Diluted) | 391.68M402.02M | −2.6% |
05—Questions
Frequently Asked Questions
What is the status of the planned Non-Utility Nuclear spin-off, and what could derail it?
The spin-off to Enexus Energy Corporation requires regulatory approvals in New York, Vermont, and at the FERC, plus final Board approval. The FERC approved the amended application in September 2009. In New York, the PSC staff concluded in February 2010 that the transaction as proposed was not in the public interest, with the NYPSC scheduled to consider it again in March 2010. In Vermont, the state's Department of Public Service sought a stay pending a tritium investigation at Vermont Yankee. Entergy states it cannot assure the transaction will be completed or on what terms.
How exposed is Entergy's Utility to the System Agreement cost reallocation?
The FERC's bandwidth remedy reallocates production costs among the Utility operating companies. Entergy Arkansas, which receives payments, recorded a 2010 estimate of about $70 million in payments, while Entergy Gulf States Louisiana and Entergy Texas are net receivers. Entergy Arkansas and Entergy Mississippi also gave notice to withdraw from the System Agreement effective in 2013 and 2015, and the FERC accepted these notices in November 2009 without withdrawal fees, though the LPSC and New Orleans City Council sought rehearing.
What are the main nuclear risks for investors?
Non-Utility Nuclear's license renewals for Vermont Yankee, Pilgrim, Indian Point 2 and 3 are pending, with Vermont legislative approval uncertain after a 26-4 Senate defeat of a continuation bill in February 2010. The NRC identified decommissioning funding shortfalls at several plants, with a $40 million Vermont Yankee shortfall covered by a corporate guarantee. Spent fuel storage costs rise because the DOE has not begun accepting fuel at Yucca Mountain, and Indian Point cooling tower retrofits could cost at least $1.19 billion.
Is Entergy's liquidity adequate for its capital program and storm exposure?
At December 31, 2009, Entergy held $1.71 billion of cash and had $906 million of capacity available under its $3.5 billion revolving credit facility, which expires in August 2012 and was $2.57 billion drawn. It was in compliance with its 65% debt-to-capitalization covenant. Storm-related financings, including Act 55 bonds and Texas securitization bonds issued in 2009, help fund restoration costs. Credit ratings remain important because a downgrade below investment grade could require roughly $73 million of additional collateral under Non-Utility Nuclear contracts.
What drove the decline in Non-Utility Nuclear earnings in 2009?
Non-Utility Nuclear net income fell to $631 million from $797 million. Net revenue slipped $11 million as higher realized prices ($67 million favorable) were offset by lower volume ($53 million) and a $23 million Palisades purchased power amortization. Operating expenses rose on $46 million of spin-off-related outside services, higher nuclear labor and regulatory costs, and $86 million of other-than-temporary impairments on decommissioning trust equity securities, compared with $50 million in 2008.
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