Entergy Corporation 2014 Form 10-K Summary
Business context and reporting period
Entergy Corporation’s combined annual report covers the fiscal year ended December 31, 2014, with 2013 and 2012 comparisons. The filing also includes separate financial statements for seven utility and generation subsidiaries. Entergy operates a regulated Utility business in Arkansas, Louisiana, Mississippi, and Texas, and Entergy Wholesale Commodities (EWC), which owns and operates merchant nuclear and other generation assets. Vermont Yankee stopped producing power on December 29, 2014 and entered decommissioning.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Operating revenue | $12.495 billion | $11.391 billion |
| Operating income | $2.007 billion | $1.355 billion |
| Consolidated net income | $960.3 million | $730.6 million |
| Net income attributable to Entergy Corporation | $940.7 million | $711.9 million |
| Diluted EPS | $5.22 | $3.99 |
| Operating cash flow | $3.890 billion | $3.189 billion |
| Cash and cash equivalents at year-end | $1.422 billion | $739 million |
- Revenue rose about 9.7%; consolidated net income rose about 31.4%. Operating margin was approximately 16.1%, versus 11.9% in 2013; net margin was approximately 7.7%, versus 6.4%.
- Operating cash flow increased about $701 million. Investing activities used $2.954 billion, including $2.119 billion in construction and capital expenditures; financing activities used $252 million. Cash increased by $683 million during the year.
- The Utility generated 78% of consolidated revenue and 88% of segment net income; EWC generated 22% of revenue. EWC net revenue increased $422 million, to $2.224 billion, primarily on improved realized prices, mark-to-market results, and fewer unplanned nuclear outage days. EWC segment net income was $294.5 million, versus $43.0 million.
- Utility net revenue increased $211 million, to $5.735 billion, with higher retail prices and 3% greater billed usage among the main factors. Utility segment net income was essentially unchanged at $846.5 million.
- Debt to capital was 57.6% (57.9% in 2013); excluding non-recourse securitization bonds, it was 56.2%. Net debt to net capital, excluding those bonds, was 53.4%, down from 54.8%. Long-term debt, including current maturities, was $13.399 billion; notes payable and commercial paper were $598 million.
- Entergy had a $3.5 billion revolving credit facility, with $2.796 billion available at year-end, and $484 million of commercial paper outstanding. The company reported compliance with its credit-facility debt covenant.
Material changes versus the prior comparable period
- Consolidated net income improved, but the increase was concentrated in EWC and included market-sensitive mark-to-market results. EWC’s average realized nuclear revenue per MWh rose to $60.35 from $50.15; 86% of planned nuclear output was contracted for 2015 at an expected average $48/MWh, based on year-end market prices.
- 2014 included approximately $154 million of Vermont Yankee-related charges, about $100 million after tax, including impairment and employee severance and retention costs. In 2013, Entergy recorded approximately $322 million of Vermont Yankee impairment and related charges, about $202 million after tax.
- Entergy Mississippi wrote off $56.2 million of deferred new-nuclear development costs, about $36.7 million after tax. Entergy Louisiana also recorded a $16 million write-off related to uncertainty over the Waterford 3 steam-generator project prudence review.
- The effective tax rate rose to 38.0% from 23.6% in 2013. The filing cites state taxes, utility plant book-tax differences, and uncertain tax positions; 2013 benefited from IRS settlements and a tax benefit associated with a terminated transmission-business transaction.
- Entergy’s utility companies completed integration into MISO in December 2013. Entergy Arkansas had left the System Agreement; Entergy Mississippi was scheduled to exit in November 2015, while other utility companies had filed notices to terminate subject to FERC proceedings.
Outlook, management commentary, risks and contingencies
- Planned construction and capital investments total $3.760 billion for 2015, $2.460 billion for 2016, and $2.785 billion for 2017. The utility expects owned generation to meet near-term MISO reserve requirements, but anticipates needing additional supply resources over the longer term.
- Entergy agreed to acquire the 1,980 MW Union Power Station for an expected base price of approximately $948 million, subject to regulatory approvals and cost recovery. Closing was targeted for late 2015. Ninemile 6, a 560 MW gas-fired unit, entered service in December 2014.
- The Board declared a quarterly dividend of $0.83 per share in January 2015, unchanged from the prior rate. Entergy paid $596 million in common dividends in 2014 and had $350 million remaining under its $500 million repurchase authorization at year-end.
- Management expects approximately $396.2 million of pension contributions and $66.9 million of other postretirement contributions in 2015. New mortality assumptions increased the qualified pension obligation by approximately $504 million and the other postretirement obligation by approximately $94 million; the filing estimates higher 2015 benefit costs as a result.
- Key risks include regulatory rate and cost-recovery outcomes; MISO market and transmission-cost changes; commodity prices and hedging exposure at EWC; nuclear reliability, license renewals, decommissioning and spent-fuel storage; environmental compliance and potential emissions rules; severe weather; pension funding; litigation; and access to capital.
- At Arkansas Nuclear One, the 2013 stator incident caused approximately $95 million in restoration and related property costs, apart from replacement power costs. Entergy collected $50 million in insurance proceeds and is pursuing additional recovery. The NRC classified multiple findings as “yellow with substantial safety significance”; further oversight could increase operating costs.
- Significant pending matters include Indian Point license-renewal and environmental proceedings; FERC/System Agreement cost-allocation proceedings; the Waterford 3 prudence review, where parties proposed potential disallowances of up to $71 million and $141 million; and the planned Louisiana utility combination. Management says it cannot predict all outcomes. The financial statements received an unqualified audit opinion, and management reported effective internal control over financial reporting.
Important facts investors should verify
- How much of 2014’s EWC earnings improvement reflects recurring operating economics versus mark-to-market movements, and how 2015–2016 realized prices compare with contracted levels.
- The final amount and timing of any Waterford 3 project disallowance, and the status of ANO’s NRC oversight and remaining insurance or legal recoveries.
- Regulatory approval, purchase price adjustments, financing, and customer cost recovery for the Union Power Station acquisition; and approval and expected benefits of the Louisiana combination.
- Whether Entergy can recover deferred storm, fuel, MISO, and System Agreement costs on the expected timetable, including amounts subject to refund or further review.
- Whether planned capital spending, pension contributions, decommissioning obligations, and potential nuclear or environmental requirements remain manageable alongside dividends and debt maturities.