01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Entergy Corporation's FY2017 Form 10-K (filed February 26, 2018) reports a year shaped by a strategic exit from merchant nuclear generation and the enactment of the Tax Cuts and Jobs Act.
Consolidated revenue was $11.07 billiona (up from $10.85 billion), and consolidated net income attributable to Entergy was $411.6 million, or $2.28 diluted EPS, compared with a 2016 loss of $583.6 million. The swing reflects the absence of 2016's $2.8 billion of impairments, partially offset by 2017's own $538 million of impairment charges at Entergy Wholesale Commodities (EWC) and a $526 million charge tied to the tax law change. The effective tax rate was 56.1%, distorted by the one-time effects of the tax reform and a $373 million tax benefit from reclassifying EWC nuclear entities.
The Utility segment, which generates about 85% of revenue and 92% of assets, remains the core earnings driver, with net income of $773 millionb. Its net revenue rose on retail price increases and the Union Power Station purchase, though weather was unfavorable. EWC's net loss widened to $172 million as the merchant fleet shrinks: FitzPatrick was sold to Exelon in March 2017, and Pilgrim, Indian Point 2 and 3, and Palisades are scheduled to shut by mid-2022.
Entergy's capital plan calls for $4.2 billionc in 2018 and about $3.3 billion by 2020, with the Utility funding new generation such as St. Charles and Lake Charles. Leverage is elevated, with debt to capital at 67.1% (66.3% excluding securitization bonds), up from 64.8%, driven largely by commercial paper. For investors, the central questions are the pace of EWC's wind-down and the regulatory treatment of roughly $3.7 billion of excess deferred taxes returned to customers, which management expects to reduce operating cash flow.
Operating cash flow fell to $2.62 billiond from $3.00 billion. The dividend was raised to $0.89 per quarter, and the company retains a $350 million buyback authorization.
02—Key points
Key Highlights
- Consolidated net income attributable to Entergy of $411.6 million ($2.28 diluted EPS) in 2017, a sharp improvement from a $583.6 million loss in 2016 that included $2.8 billion of impairments.
- Utility segment net income of $773 million drives results, supported by retail price increases and the March 2016 Union Power Station acquisition, partly offset by weather and higher costs.
- Entergy Wholesale Commodities posted a $172 million net loss, including $538 million of impairment charges as the nuclear fleet is retired; FitzPatrick was sold to Exelon in March 2017 for $110 million.
- The Tax Cuts and Jobs Act (corporate rate cut to 21%) produced a $526 million charge and a $2.9 billion regulatory liability, with excess deferred taxes expected to be returned to customers and reduce future operating cash flow.
- Operating cash flow declined to $2.62 billion from $3.00 billion, reflecting higher nuclear refueling and severance costs, a $71 million Waterford 3 refund, and lower EWC net revenue.
- Debt to capital rose to 67.1% from 64.8%, largely from $1.1 billion of added commercial paper; Entergy expects to issue about $1 billion of equity before the end of 2019 to fund tax-reform-related needs.
- Planned capital investment of $4.2 billion in 2018 (about $3.9 billion Utility) includes the St. Charles, Lake Charles, and Montgomery County gas plants, and the dividend was raised to $0.89 per quarter.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $11.07B$10.85B | +2.1% |
| Operating Expenses | $9.83B$11.73B | −16.2% |
| Operating Income | $1.36B-$815.23M | +266.9% |
| Interest Expense | $707.21M$700.54M | +1.0% |
| Net Income | $425.35M-$564.50M | +175.3% |
| EPS (Basic) | $1.15$-1.63 | +170.2% |
| EPS (Diluted) | $1.14$-1.63 | +169.9% |
| Shares Outstanding (Basic) | 359.34M357.77M | +0.4% |
| Shares Outstanding (Diluted) | 361.07M357.77M | +0.9% |
05—Questions
Frequently Asked Questions
Why did Entergy swing from a large loss in 2016 to positive earnings in 2017?
The 2016 loss of $583.6 million was driven by roughly $2.8 billion of impairments at Entergy Wholesale Commodities. In 2017, impairments were much smaller at $538 million, and the company recorded a $373 million tax benefit from reclassifying certain nuclear-owning entities. These gains were partly offset by the one-time $526 million tax-reform charge, leaving net income attributable to Entergy at $411.6 million.
How exposed is Entergy to the exit from merchant nuclear power?
EWC represented about 15% of 2017 revenue and 12% of total assets, but it generated a net loss of $172 million. The remaining plants will close or sell by mid-2022 (Pilgrim in 2019, Indian Point 2 and 3 in 2020 and 2021, Palisades in 2022), and Vermont Yankee is planned for sale in 2018. Further impairments or higher decommissioning costs remain a risk, and the company's decommissioning trust fund value was about $7.2 billion at year-end.
What does the Tax Cuts and Jobs Act mean for Entergy's cash flow and customers?
Entergy recorded a regulatory liability of about $2.9 billion because it expects most of the reduction in deferred tax liabilities to be returned to customers over time. Management expects this to lower operating cash flows and push some credit metrics down, and it plans to finance the shortfall with a mix of subsidiary debt, parent debt, and roughly $1 billion of equity. The exact timing depends on state regulators, several of whom had not yet decided by the filing date.
Is Entergy's balance sheet getting more leveraged?
Yes. Debt to capital rose to 67.1% at year-end 2017 from 64.8% in 2016, and net debt to net capital excluding securitization bonds rose to 65.2% from 61.8%. Most of the increase reflects $1.5 billion of commercial paper outstanding at December 31, 2017. The parent's credit facility covenant caps the consolidated debt ratio at 65%, and the company stated it was in compliance but gave no further headroom detail.
What are the main growth and capital spending priorities for 2018 to 2020?
Entergy plans capital spending of $4.2 billion in 2018, falling to $3.3 billion by 2020, with the Utility accounting for most of it. Major projects include the St. Charles Power Station (about $869 million, mid-2019), the Lake Charles Power Station (about $872 million, mid-2020), and the Montgomery County Power Station (about $937 million, mid-2021). Advanced metering infrastructure rollouts and transmission upgrades also contribute to rate base growth, which supports the Utility's earnings outlook.
06—Continue