01—Abstract
Summary
Summary of the 10-K filed February 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Entergy's 2011 combined Form 10-K (filed February 28, 2012, covering Entergy Corporation and six Registrant Subsidiaries) reports consolidated net income of $1.37 billiona and earnings per diluted share from continuing operations of $7.55, up from $6.66 in 2010, on operating revenues of $11.23 billion, down slightly from $11.49 billion.
The improvement was driven largely by a $422 millionb income tax benefit from a 2011 IRS settlement on the mark-to-market tax treatment of power purchase contracts, of which a $199 million regulatory charge at Entergy Louisiana will be shared with customers. Excluding that one-time item, earnings were weaker: Entergy Wholesale Commodities net revenue fell 7% to $2.04 billion on lower realized nuclear power prices ($54.73/MWh versus $59.16), and the company's effective tax rate was 17.3% against the 35% statutory rate. The Utility segment remains the core business, serving about 2.8 million customers in Arkansas, Louisiana, Mississippi and Texas, with a 2012 to 2014 capital plan of roughly $2.9 billion, $2.1 billion and $2.1 billion.
Major projects include the Ninemile 6 gas plant, acquisitions of the Hinds and Hot Spring facilities, the Waterford 3 steam generator replacement (about $687 millionc), and the Grand Gulf uprate (about $754 million). The company also plans to transfer transmission assets to MISO and to spin off its transmission business into a merger with ITC Holdings, targeted for completion in 2013. Entergy's pending exit from the System Agreement and ongoing FERC cost-allocation litigation add regulatory uncertainty.
Balance-sheet leverage is high, with debt to capital at 57.3% (about 55% excluding securitization bonds), and the company repurchased $236 milliond of stock in 2011 while paying $590 million in dividends. Key risks include nuclear license renewal challenges at Indian Point, Pilgrim and Vermont Yankee, the Entergy Wholesale Commodities price exposure from forward contracts at declining prices, and litigation in Texas and Mississippi.
02—Key points
Key Highlights
- Net income rose to $1,367 million ($7.55 diluted EPS) from $1,270 million ($6.66), but the increase was driven mainly by a one-time $422 million tax benefit from an IRS settlement.
- Operating revenues declined 2% to $11.23 billion, with Utility revenues slightly lower and Entergy Wholesale Commodities revenues down about 6%.
- Entergy Wholesale Commodities net revenue fell 7% to $2.04 billion as realized nuclear prices dropped to $54.73/MWh from $59.16/MWh, with 2012 nuclear output 88% sold forward at about $49/MWh.
- Utility segment capital plan of roughly $2.9 billion (2012), $2.1 billion (2013) and $2.1 billion (2014) includes Ninemile 6, Hinds and Hot Spring acquisitions, and the Waterford 3 steam generator replacement.
- Planned spin-off of the transmission business into a merger with ITC Holdings (target 2013) and transfer of Utility transmission control to MISO RTO (target December 2013) are major structural changes.
- Leverage remains elevated, with debt to capital at 57.3%; Entergy repurchased $236 million of common stock and paid $590 million in common dividends in 2011.
- Nuclear license renewal uncertainty (Indian Point 2 and 3, Pilgrim) and litigation exposure, including a Texas power-price class action, pose downside risks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 28, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $11.23B$11.49B | −2.3% |
| Operating Expenses | $9.22B$9.26B | −0.5% |
| Operating Income | $2.01B$2.27B | −11.2% |
| Interest Expense | $551.52M$610.15M | −9.6% |
| Net Income | $1.37B$1.27B | +7.6% |
| EPS (Basic) | $3.79$3.36 | +12.9% |
| EPS (Diluted) | $3.77$3.33 | +13.4% |
| Shares Outstanding (Basic) | 354.86M372.02M | −4.6% |
| Shares Outstanding (Diluted) | 356.74M375.63M | −5.0% |
05—Questions
Frequently Asked Questions
Why did Entergy's net income increase in 2011 despite lower revenues?
The main driver was a $422 million income tax benefit from a 2011 IRS settlement on the mark-to-market tax treatment of certain power purchase contracts. That benefit was partly offset by a $199 million regulatory charge at Entergy Louisiana, because a portion must be shared with customers over 15 years. Operating earnings excluding these items were weaker, particularly at Entergy Wholesale Commodities.
How exposed is Entergy Wholesale Commodities to falling power prices?
Entergy Wholesale Commodities has sold forward 88% of planned 2012 nuclear output at about $49/MWh and 81% of 2013 output at $45 to $50/MWh. Realized prices have been falling because natural gas prices are low and five of its six nuclear plants are in the New York and New England markets. Each $10/MWh change in energy prices affects pre-tax income by about $48 million in 2012.
What are the main capital spending commitments for 2012 through 2014?
Planned construction and capital investment totals about $2.9 billion in 2012, $2.1 billion in 2013 and $2.1 billion in 2014. Major commitments include the Ninemile 6 combined-cycle plant (about $721 million), the Waterford 3 steam generator replacement (about $687 million including carrying costs), the Grand Gulf uprate (about $754 million), and acquisitions of the Hot Spring (about $277 million) and Hinds (about $246 million) gas plants, plus ongoing maintenance capital.
What is the status of the transmission spin-off and MISO transition?
In December 2011 Entergy agreed to spin off its transmission business and merge it with a subsidiary of ITC Holdings, with completion planned for 2013 and subject to regulatory and shareholder approvals. Separately, the Utility operating companies have applied to join the MISO RTO, targeting December 2013. Both transactions face regulatory proceedings and possible conditions, and the filing states there are no assurances of completion on the current timeline.
06—Continue