01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
Entergy Corporation's 2014 Form 10-K (filed February 26, 2015) reports a year of strong earnings recovery.
Consolidated net income rose to $960.3 milliona from $730.6 million in 2013, and earnings per diluted share reached $5.22 versus $3.99. Operating revenues grew 9.7% to $12.5 billion, with the Utility segment producing $846.5 million of net income and Entergy Wholesale Commodities (EWC) contributing $294.5 million, up from $43.0 million, driven mainly by higher realized nuclear prices in the Northeast, mark-to-market gains, and fewer unplanned outage days. The filing also highlights meaningful risks.
EWC's nuclear fleet faces a challenging long-term price environment: Entergy has sold forward 86% of 2015 planned nuclear output at about $48b/MWh, but only 39% of 2017 output, and four of five operating plants sit in low-priced New York and New England markets. Vermont Yankee ceased operations in December 2014, and the Indian Point 2 and 3 license renewals remain contested. The Utility faces regulatory uncertainty around the System Agreement exit, the pending Entergy Louisiana/Entergy Gulf States Louisiana business combination, and ANO stator-related NRC findings, including multiple 'yellow' findings that could increase operating costs.
Balance sheet metrics are stable. Debt to capital was 57.6% (53.4% net of cash and excluding securitization bonds), cash on hand rose to $1.42 billionc, and a $3.5 billion credit facility had $2.8 billion of capacity available. The company maintained its $0.83 quarterly dividend ($3.32 annually), and planned 2015-2017 capital expenditures total about $9.0 billion, led by the Union Power Station acquisition and Ninemile 6, which entered service in December 2014.
02—Key points
Key Highlights
- Consolidated net income of $960.3 million (EPS $5.22 diluted), up from $730.6 million (EPS $3.99) in 2013, with 2013 also burdened by $322 million of Vermont Yankee impairments.
- Operating revenues of $12.5 billion, up 9.7%; Utility net revenue rose to $5.7 billion, and EWC net revenue rose to $2.2 billion on higher realized nuclear prices ($60.35/MWh vs. $50.15).
- EWC's nuclear forward sales cover 86% of planned 2015 output at about $48/MWh, but only 39% of 2017 output, leaving significant exposure to Northeast power prices.
- Vermont Yankee ceased power production on December 29, 2014 after $154 million of 2014 charges (about $100 million after-tax) tied to decommissioning cost revisions and impairment.
- Entergy Mississippi wrote off $56.2 million of new nuclear development costs, and Entergy Louisiana wrote off $16 million tied to the Waterford 3 steam generator prudence review.
- ANO stator-drop aftermath: NRC classified findings as 'yellow' and a January 2015 flood-barrier finding could move the plant to a 'multiple/repetitive degraded cornerstone column', likely raising operating costs.
- Debt to capital ratio of 57.6% (53.4% net debt to net capital excluding securitization bonds); $1.42 billion cash on hand and $2.8 billion of undrawn credit capacity.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Operating Expenses | $10.49B$10.08B | +4.1% |
| Operating Income | $2.01B$1.35B | +48.1% |
| Interest Expense | $661.08M$629.54M | +5.0% |
| Net Income | $960.26M$730.57M | +31.4% |
| EPS (Basic) | $2.62$2.00 | +31.3% |
| EPS (Diluted) | $2.61$2.00 | +30.8% |
| Shares Outstanding (Basic) | 359.01M356.42M | +0.7% |
| Shares Outstanding (Diluted) | 360.59M357.14M | +1.0% |
05—Questions
Frequently Asked Questions
How much did Entergy's earnings improve in 2014, and what drove it?
Consolidated net income attributable to Entergy rose to about $940.7 million, or $5.22 per diluted share, from $711.9 million, or $3.99 per share, in 2013. The improvement was driven mainly by EWC, where net income rose to $294.5 million from $43.0 million on higher realized nuclear prices, favorable mark-to-market results, and fewer unplanned outage days. The 2013 comparison was also depressed by about $322 million of Vermont Yankee impairment charges.
What are the main risks to EWC's nuclear business?
EWC's plants sell into low-priced New York and New England markets, and most of its 2016-2019 output is largely unhedged. Forward sales cover 86% of 2015 output at about $48/MWh but only 17% of 2018 output. Other risks include license renewal uncertainty for Indian Point 2 and 3, the planned Vermont Yankee shutdown, potential impairments if plants operate for shorter lives, and sensitivity of pre-tax income to market prices (a $10/MWh decline would reduce 2015 pre-tax income by about $73 million).
Is the dividend safe, and how much capital is the company spending?
Entergy paid $596 million in common dividends in 2014 and declared $0.83 per quarter, unchanged since 2010, with the January 2015 declaration maintained. Planned construction and capital investments total about $3.76 billion in 2015, $2.46 billion in 2016 and $2.79 billion in 2017. The company repurchased $183 million of stock in 2014 and had $350 million of authority remaining under its $500 million program.
What regulatory or legal developments could affect results in 2015?
Key items include the proposed Entergy Louisiana and Entergy Gulf States Louisiana business combination (decision requested by August 2015), the Algiers asset transfer to Entergy New Orleans, the FERC System Agreement proceedings (including bandwidth payments and Entergy Mississippi's exit effective November 2015), the pending Union Power Station acquisition ($948 million, targeted for late 2015), and the Waterford 3 prudence review, where the LPSC staff sought disallowances of up to $71 million.
How strong is the balance sheet and liquidity position?
Entergy ended 2014 with $1.42 billion of cash, up from $739 million, after $3.9 billion of operating cash flow. Its $3.5 billion revolving credit facility, expiring March 2019, had $695 million of borrowings and $2.8 billion of capacity available. Commercial paper outstanding was $484 million. Debt to capital was 57.6%, and the company stated it was in compliance with its 65% consolidated debt covenant.
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