01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
Entergy's FY2012 10-K (combined filing with its six utility registrant subsidiaries and System Energy) reports a sharp earnings decline driven primarily by a $355.5 milliona ($223.5 million after-tax) impairment of Vermont Yankee and related assets, plus large swings in income tax items.
Consolidated net income fell to $868.4 millionb from $1,367.4 million in 2011, and diluted EPS from continuing operations dropped to $4.76 from $7.55. Operating revenues declined about 8% to $10.3 billion, with lower fuel and purchased power pass-throughs, lower Entergy Wholesale Commodities realized nuclear prices ($50.29/MWh vs. $54.73), and weather-driven volume declines. The effective tax rate was only 3.4%, reflecting IRS settlements and the reversal of uncertain tax positions, which flattered 2012 results but are non-recurring in nature.
For investors, the most important forward-looking items are the planned spin-off and merger of the Utility's transmission business with ITC Holdings (targeted for completion in 2013, subject to regulatory and shareholder approvals), the planned move of the Utility operating companies into the MISO RTO by December 2013, and the outlook for the nuclear fleet, where 85% of 2013 planned output is sold forward at about $46c/MWh and 73% of 2014 output at about $45/MWh. Liquidity remained adequate, with $2.7 billion of undrawn capacity on the $3.5 billion credit facility and cash of $533 million, while total debt to capital rose to 58.7%.
Dividends were held at $0.83d per quarter ($3.32 annually), and the board retained a $350 million remaining repurchase authority. Key risks include Indian Point license renewal and cooling-water litigation, the Vermont Yankee regulatory and legal challenges, uncertainties in System Agreement cost allocation and FERC proceedings, Hurricane Isaac restoration cost recovery (estimated at about $370 million, with roughly $120 million recorded as regulatory assets), and continued pressure on nuclear realized prices and capacity factors.
02—Key points
Key Highlights
- Consolidated net income fell 36.5% to $868.4 million (2011: $1,367.4 million); EPS diluted $4.76 versus $7.55.
- $355.5 million pre-tax ($223.5 million after-tax) impairment charge on Vermont Yankee and related assets, recognized in Q1 2012 and reported within Entergy Wholesale Commodities.
- Effective tax rate of 3.4% (2011: 17.3%), driven by an IRS settlement on Louisiana Act 55 storm financing and a $155 million benefit from a nuclear decommissioning settlement.
- Operating revenues declined to $10.3 billion from $11.2 billion; Entergy Wholesale Commodities nuclear realized revenue per MWh fell to $50.29 from $54.73, with capacity factor down to 89% from 93%.
- Planned spin-off and merger of the transmission business with ITC Holdings (approximately $1.775 billion of TransCo financing) and Utility move into MISO RTO targeted for December 2013.
- Total long-term debt maturities and interest were $1.29 billion in 2013 and $19.4 billion in total contractual debt obligations; the $0.83 quarterly dividend was maintained.
- Hurricane Isaac restoration costs estimated at about $370 million across the Utility operating companies, with approximately $120 million recorded as regulatory assets pending recovery.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $10.30B$11.23B | −8.3% |
| Operating Expenses | $9.00B$9.22B | −2.3% |
| Operating Income | $1.30B$2.01B | −35.4% |
| Interest Expense | $606.60M$551.52M | +10.0% |
| Net Income | $868.36M$1.37B | −36.5% |
| EPS (Basic) | $2.38$3.79 | −37.2% |
| EPS (Diluted) | $2.38$3.77 | −37.0% |
| Shares Outstanding (Basic) | 354.65M354.86M | −0.1% |
| Shares Outstanding (Diluted) | 355.48M356.74M | −0.4% |
05—Questions
Frequently Asked Questions
Why did Entergy's 2012 earnings decline so sharply?
The primary driver was the $223.5 million after-tax Vermont Yankee impairment, which is a non-cash charge tied to the plant's probability-weighted future cash flows. Lower nuclear realized prices and more outage days at Entergy Wholesale Commodities, plus milder weather reducing Utility volumes, also reduced net revenue. Partially offsetting these were favorable IRS settlements that reduced income tax expense, though some of those benefits were shared with customers through regulatory charges.
Is the dividend safe, and how is Entergy funding its capital program?
The Board declared $0.83 per quarter, unchanged since Q2 2010, and paid $589 million in common dividends in 2012. Entergy is funding planned 2013 construction and capital investments of about $2.4 billion through operating cash flow ($2.9 billion in 2012), its $3.5 billion credit facility with $2.7 billion available, $665 million of commercial paper, and securities issuances. Debt to capital rose to 58.7%, so leverage bears watching.
What are the biggest pending regulatory events for investors?
The ITC transmission spin-off and merger requires approvals from the LPSC, City Council, APSC, MPSC, PUCT, FERC, and the NRC, with completion targeted in 2013. The MISO RTO integration is targeted for December 2013. Indian Point 2 and 3 license renewals remain before the NRC and face state water-quality and coastal-zone challenges in New York, and Indian Point 2's operating license expires in September 2013.
How exposed is Entergy Wholesale Commodities to power prices?
The nuclear fleet is largely hedged for 2013 and 2014: 85% of planned 2013 energy is sold forward at an expected $46/MWh and 73% of 2014 output at $45/MWh based on December 31, 2012 market prices. A $10/MWh change in annual energy prices would affect pre-tax income by about $125 million in 2013. Five of six nuclear plants are in the New York and New England markets, where prices have weakened.
What is the outlook for Hurricane Isaac costs and System Agreement exposure?
Hurricane Isaac restoration is estimated at about $370 million, and the Utility companies are pursuing storm reserve draws, securitization, and retail recovery; recovery is not assured and timing is uncertain. On the System Agreement, the FERC's remedy created payments and receipts among the operating companies, and Entergy Arkansas's exit from the agreement is scheduled for December 2013, with several rate and allocation proceedings still pending.
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