NextEra Energy, Inc. Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for NextEra Energy, Inc. (NEE) and wholly owned Florida Power & Light Company (FPL) for the three and six months ended June 30, 2014. NEE operates primarily through FPL, a rate-regulated Florida electric utility serving approximately 4.7 million customer accounts, and NextEra Energy Resources (NEER), a competitive energy business focused on renewable generation and other power and gas activities.
Key financial metrics
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| NEE operating revenue | $4,029 million | $3,833 million | $7,703 million | $7,112 million |
| NEE net income | $492 million | $610 million | $921 million | $883 million |
| NEE diluted EPS | $1.12 | $1.44 | $2.10 | $2.08 |
| FPL operating revenue | $2,889 million | $2,696 million | $5,424 million | $4,885 million |
| FPL net income | $423 million | $391 million | $770 million | $679 million |
- NEE operating income was $951 million in the quarter and $1,690 million year to date. Approximate operating margins were 23.6% and 21.9%, respectively.
- NEE net margins were approximately 12.2% in the quarter and 12.0% year to date. The filing does not present a consolidated EBITDA measure.
- NEE operating cash flow was $2,448 million for the first six months, compared with $2,250 million in the prior-year period. Investing cash outflow was $3,105 million, including $3,239 million of capital expenditures, independent power investments and nuclear fuel purchases.
- NEE had $622 million of cash at June 30, 2014, total capitalization of $43,478 million and long-term debt of $25,049 million. Current liabilities included $1,116 million of commercial paper, $500 million of short-term debt and $3,285 million of current maturities of long-term debt.
- NEE reported approximately $6.2 billion of net available liquidity, including approximately $2.8 billion attributable to FPL. This included $603 million of cash and $1.616 billion of commercial paper and short-term debt deducted from available facilities.
- FPL operating margins were approximately 27.1% in the quarter and 26.1% year to date. FPL’s net margins were approximately 14.6% and 14.2%, respectively.
- FPL operating cash flow was $1,723 million for the first six months, versus $1,546 million in 2013. FPL capital expenditures were $1,568 million. FPL had $58 million of cash, $8,942 million of long-term debt and $451 million of commercial paper at June 30, 2014.
- NEE paid $0.725 per common share in quarterly dividends, compared with $0.66 in Q2 2013. Six-month dividends were $1.45 per share versus $1.32.
Material changes versus the prior comparable period
- NEE quarterly net income declined $118 million, or 19%, primarily because NEER results fell to $81 million from $229 million. The decline was largely attributable to substantially higher unrealized mark-to-market losses on non-qualifying hedges.
- NEE six-month net income increased $38 million, or 4%, primarily because FPL net income rose $91 million, partly offset by lower NEER and Corporate and Other results.
- FPL net income increased $32 million in Q2 and $91 million year to date. Drivers included earnings from a larger plant-in-service base, customer and wholesale growth, and the increase in the targeted regulatory return on equity from 11.25% to 11.50%.
- FPL’s regulatory return on equity for the twelve months ended June 30, 2014 was 11.28%; excluding approximately $25 million of after-tax cost-savings initiative charges, it would have been 11.50%.
- NEE’s effective tax rate was approximately 37% in Q2 and 33% for the first six months, compared with 26% and 35% in the respective 2013 periods. The 2014 results included a $45 million noncash tax charge related to structuring Canadian assets.
- The prior-year six-month results included a $231 million after-tax gain from the sale of hydro assets and $342 million of after-tax charges related to the Spain solar project impairment. These items were absent in 2014. NEE also recorded a $12 million after-tax gain from deciding not to pursue the sale of Maine fossil assets.
- NEE’s net derivative fair value shifted to a net asset position of approximately $224 million at June 30, 2014, compared with a net asset position of approximately $350 million at December 31, 2013. Six-month unrealized losses from non-qualifying hedges were approximately $273 million after tax.
Guidance, outlook, commentary and unusual items
- No specific consolidated earnings guidance is provided in the filing. Management expects to fund requirements through operating cash flow, debt and equity markets, short-term borrowings and other financing sources while maintaining a strong investment-grade capital structure.
- Estimated capital expenditures for the remainder of 2014 through 2018 total $10.2 billion for FPL, $5.3 billion for NEER and $1.7 billion for Corporate and Other. FPL also identified $1.5 billion to $2.5 billion of potential incremental capital expenditures through 2016.
- On July 1, 2014, after quarter-end, NextEra Energy Partners completed its initial public offering, raising approximately $438 million. NEER contributed projects totaling approximately 990 MW of wind and solar capacity; NEE retained an approximately 79.9% interest in NEP OpCo and began consolidating the entity.
- FPL placed an approximately 1,200 MW modernized natural-gas combined-cycle unit at Riviera Beach into service in April 2014 and began construction of the Port Everglades modernization project.
- FPL requested regulatory approval for an investment in long-term natural gas supplies and expected an FPSC decision by the end of 2014 or early 2015. The proposed natural gas pipeline system remained subject to FERC approval.
- The Spain solar projects had project-level debt and related interest-rate swap liabilities of approximately $751 million and $119 million, respectively, classified as current. Management stated that June 2014 Spanish regulatory pronouncements did not indicate further impairment, but financing restructuring remained uncertain.
- Key risks include extensive regulatory oversight and cost-recovery risk, commodity and derivative volatility, counterparty and collateral requirements, interest-rate and equity-market exposure, nuclear operating and insurance risks, environmental and greenhouse-gas regulation, construction and permitting risk, severe weather, cybersecurity, litigation and access to capital markets.
- Potential derivative collateral requirements could reach approximately $2.3 billion for NEE subsidiaries if relevant credit ratings fell below investment grade, plus up to approximately $700 million under certain other financial or cross-default triggers. The filing states that no liabilities were recorded for NEE’s approximately $11.7 billion of guarantees and indemnifications because management considered payment unlikely.
- The filing reports no material changes to the risk factors in the 2013 Form 10-K. Disclosure controls and procedures were effective as of June 30, 2014.
Most important facts to verify
- Reconcile GAAP EPS with adjusted earnings, particularly the effect of non-qualifying hedge mark-to-market losses, tax credits, the Maine fossil gain and Spain solar project results.
- Review NEE’s debt maturities, credit facilities, collateral triggers and guarantees against the reported $6.2 billion of net available liquidity.
- Monitor regulatory outcomes for FPL’s natural gas supply proposal, the pipeline system and FPL’s allowed return on equity.
- Assess execution risk and funding needs for the stated $17.0 billion of planned capital expenditures through 2018, including potential incremental FPL spending.
- Evaluate the effect of the post-quarter-end NEP transaction on NEE’s consolidated debt, noncontrolling interest, cash flows and future earnings.
- Track the Spain solar financing restructuring, nuclear operating matters, environmental rules and unresolved legal proceedings, including the Adelphia bankruptcy litigation and Scherer environmental case.