01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Entergy Corporation's 2013 Form 10-K, filed February 27, 2014, covers a combined report for the parent and its seven Registrant Subsidiaries.
Consolidated 2013 net income was $730.6 milliona, with net income attributable to Entergy of $711.9 million, or $3.99 per diluted share, down from $4.76 in 2012. Revenue rose to $11.39 billion from $10.30 billion. The decline in earnings was driven mainly by $321.5 million ($202.2 million after tax) of impairment and related charges tied to the planned shutdown of Vermont Yankee, and by roughly $110 million of human capital management restructuring costs.
Operating cash flow improved to $3.19 billionb from $2.94 billion. The Utility segment generated about 80% of revenue and 116% of net income, while Entergy Wholesale Commodities (EWC), the merchant nuclear business, contributed 20% of revenue and only 6% of net income. EWC faces structural pressure from low natural gas and wholesale power prices, with realized nuclear revenue of $50.15 per MWh and 74% of 2014 planned output sold forward at an expected $50 per MWh.
Management has signaled that unfavorable economics could trigger further impairments at other plants. The 2013 MISO RTO integration was completed on December 19, 2013, and the proposed ITC transmission spin-merge was terminated after the Mississippi PSC denied the joint application. Balance sheet metrics were stable.
Debt to capital (excluding securitization bonds) was 56.3%, and net debt to net capital was 54.8%. Liquidity included $739 millionc of cash and a $3.5 billion revolving credit facility with $3.2 billion available.
The board declared a $0.83d quarterly dividend, and $350 million remained on the $500 million buyback authorization. Management expects 2014 pension contributions of about $400 million, and planned capital spending is $2.3 billion for 2014.
02—Key points
Key Highlights
- Consolidated net income attributable to Entergy fell to $711.9 million ($3.99 diluted EPS) from $846.7 million ($4.76) in 2012, weighed down by Vermont Yankee impairment charges and restructuring costs.
- Revenue grew 10.6% to $11.39 billion, driven by higher retail electric prices (about $236 million net revenue benefit) and Louisiana Act 55 items; Utility net revenue rose to $5.52 billion.
- Entergy Wholesale Commodities faces pressure: realized nuclear revenue fell to $50.15/MWh, 2014 contracted nuclear output is priced near $50/MWh, and the segment contributed only 6% of net income.
- Vermont Yankee closure announced for Q4 2014, with $321.5 million of 2013 impairment and related charges; additional closure costs of $50–55 million are expected through 2014.
- Human capital management initiative eliminated about 800 positions and cost roughly $110 million in 2013, of which $45 million was deferred for future recovery in Arkansas and Louisiana.
- Operating cash flow increased to $3.19 billion, and debt to capital (ex-securitization) was 56.3%, with $3.2 billion of undrawn revolver capacity and $739 million of cash on hand.
- Entergy Louisiana and Entergy Gulf States Louisiana gave notice to terminate their System Agreement participation in February 2014, while Entergy Arkansas exited in December 2013; Entergy Mississippi's exit is effective November 2015.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Operating Expenses | $10.08B$9.00B | +12.0% |
| Operating Income | $1.35B$1.30B | +4.1% |
| Interest Expense | $629.54M$606.60M | +3.8% |
| Net Income | $730.57M$868.36M | −15.9% |
| EPS (Basic) | $2.00$2.38 | −16.4% |
| EPS (Diluted) | $2.00$2.38 | −16.2% |
| Shares Outstanding (Basic) | 356.42M354.65M | +0.5% |
| Shares Outstanding (Diluted) | 357.14M355.48M | +0.5% |
05—Questions
Frequently Asked Questions
Why did Entergy's earnings per share drop so sharply in 2013?
Diluted EPS fell to $3.99 from $4.76. The main drivers were $202.2 million after tax of Vermont Yankee impairment and related charges, roughly $70 million after tax of human capital management restructuring costs, and lower EWC nuclear revenues. These effects were partly offset by higher Utility net revenue from retail rate increases and Louisiana Act 55 items.
How exposed is Entergy to continued weakness in merchant nuclear power prices?
Significant exposure remains. Five of the six EWC nuclear plants are in New York and New England, where lower prices have been driven by low natural gas prices and market structure. Entergy had sold forward 74% of planned 2014 and 2015 nuclear output, but at expected prices near $49–50/MWh. The filing notes that a $10/MWh change in market prices would move 2014 pre-tax income by about $240 million, and that a continued economic decline could lead to impairments, higher depreciation, or accelerated decommissioning.
Is Entergy's dividend and capital return sustainable?
The company paid $593 million in common dividends in 2013 and declared $0.83 per quarter ($3.32 annual), unchanged since 2010. Dividends are not covered by free cash flow after heavy capital spending, so the company relies on debt and asset sales for the gap. The board retains discretion over dividends, and $350 million remains authorized for repurchases.
What regulatory developments could most affect the Utility's earnings outlook?
Key items include the 2014 formula rate plan settlements in Louisiana (with a $30 million cap on cost-of-service increases at Entergy Louisiana), the APSC's 9.3% ROE in Arkansas, which is subject to rehearing, and the pending FERC proceedings on System Agreement cost equalization and bandwidth payments. The end of the System Agreement arrangement and the transition to MISO add uncertainty to future cost allocation.
What are the main risks around Indian Point and other nuclear licenses?
Indian Point 2 has entered extended operation under timely renewal, while Indian Point 3's license expires in December 2015. Renewal is contested before the NRC's Atomic Safety and Licensing Board, and New York has separately contested water quality certification and coastal zone consistency. Adverse outcomes could shorten plant lives, reduce cash flow, and trigger impairments of the affected assets.
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