Business context and reporting period
Entergy Corporation’s combined Form 10-Q covers the quarter ended March 31, 2010, with unaudited results compared with the first quarter of 2009. Entergy operates regulated electric and gas utilities and a competitive Non-Utility Nuclear business; the filing also includes separate reports for its utility subsidiaries.
Key financial metrics
Amounts below are consolidated Entergy Corporation figures unless otherwise noted; dollars are in millions except per-share data.
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Operating revenue | $2,759.3 | $2,789.1 | Down 1.1% |
| Operating income | $476.7 | $506.5 | Down 5.9% |
| Consolidated net income | $218.8 | $240.3 | Down 9.0% |
| Net income attributable to Entergy | $213.8 | $235.3 | Down 9.2% |
| Diluted EPS | $1.12 | $1.20 | Down 6.7% |
| Operating margin | 17.3% | 18.2% | Down 0.9 percentage points |
| Cash from operating activities | $674.3 | $374.6 | Up $299.6 |
| Capital expenditures | $447.5 | $455.7 | Down $8.3 |
At March 31, cash and cash equivalents were $1.657 billion, down from $1.710 billion at year-end 2009. Entergy reported net debt to net capital of 53.4% and debt to capital of 57.0%, compared with 53.6% and 57.4%, respectively, at December 31, 2009. Long-term debt was $11.137 billion, with $800 million of currently maturing long-term debt and $175 million of notes payable. The $3.5 billion parent credit facility had $860 million available after $2.615 billion of borrowings and $25 million of letters of credit; Entergy was in compliance with its debt-ratio covenant.
Material changes versus the prior comparable period
- Utility net revenue rose $93 million to $1.130 billion, primarily from 12% higher billed usage, including colder-than-normal weather, and rate increases.
- Non-Utility Nuclear net revenue fell $48 million, or 8%, to $555 million, mainly because realized power prices declined. Average realized price fell to $58.72/MWh from $63.84/MWh; billed generation increased 2% and capacity factor improved to 94% from 92%.
- Utility segment net income increased to $143 million from $116 million, while Non-Utility Nuclear net income declined to $94 million from $181 million. Parent and other results improved from a $56.5 million loss to an $18.4 million loss.
- Operating cash flow improved substantially, primarily because 2009 included hurricane and Arkansas ice-storm restoration spending. The 2010 result was partly offset by weaker fuel-cost collections and an $87.8 million fuel refund paid by Entergy Texas.
- Interest on long-term debt increased to $166.9 million from $128.0 million. Consolidated interest and other charges rose to $171.2 million from $137.4 million.
Outlook, management commentary, risks and unusual items
- Non-Utility Nuclear separation: The NYPSC voted on March 25, 2010 to reject the proposed spin-off. On April 5, Entergy announced plans to unwind the separation infrastructure while evaluating its legal rights. First-quarter charges included $32 million of capital-cost write-offs and $37 million of debt-financing-cost write-offs. Entergy expects about $50 million of additional unwind expenses during the remainder of 2010.
- Capital returns: After quarter-end, Entergy announced a quarterly dividend increase from $0.75 to $0.83 per share and said it expected to execute the Board-authorized $750 million share-repurchase program. No shares were repurchased in Q1; execution and amount may change with business results, capital spending or investment opportunities.
- Power-price exposure: Non-Utility Nuclear had sold forward 91% of planned generation for the remainder of 2010 at an average contracted energy price of $57/MWh. Management indicated realized prices were likely to decline in 2010. For the output contracted through 2014, 99.7% was with publicly rated investment-grade counterparties.
- Regulatory and capital matters: Louisiana regulators approved settlements covering recovery of specified Gustav and Ike storm costs and financing orders, subject to state bond commission approval. Entergy Arkansas’s requested rate increase was reduced to $168.6 million; the APSC staff proposed $49 million, and hearings were scheduled to begin in May 2010. The Acadia Unit 2 acquisition remained subject to approvals, with closing expected in first-quarter 2011.
- Nuclear and environmental risks: Vermont Yankee tritium leakage was identified and stopped, with remediation underway; the company expected about $11 million of related expenses, including about $5 million incurred through March. Vermont Yankee operating approvals and multiple nuclear license renewals remain important. New York staff denied Indian Point’s water-quality certification, which Entergy challenged; the decision did not restrict operation under current licenses. The White Bluff coal-plant scrubber project was suspended pending regulatory developments; Entergy Arkansas’s share was estimated at about $465 million, with the compliance timeline uncertain.
- Other items: New federal healthcare legislation resulted in a $16 million first-quarter tax charge at the consolidated level; the Utility recorded the corresponding amount as a regulatory asset. The effective consolidated tax rate was 40.3%, versus 40.4% in Q1 2009. Management stated interim results are seasonal and should not be used as a basis for estimating full-year results. The filing reports no material change in risk factors from the 2009 Form 10-K and states disclosure controls were effective.
Important facts for investors to verify
- Whether the Non-Utility Nuclear separation unwind costs exceed the approximately $50 million additional expense estimate, and what legal or strategic outcome follows the NYPSC rejection.
- How much of the operating-cash-flow improvement reflects sustainable utility performance versus weather, storm-restoration timing, fuel collections and refunds.
- Actual Non-Utility Nuclear realized prices and generation performance compared with contracted prices and forward-sale coverage.
- Outcomes and timing of key rate cases, System Agreement proceedings, storm-cost financing approvals and the Acadia Unit 2 acquisition review.
- Potential costs and operating effects from nuclear license and environmental proceedings, including Vermont Yankee remediation, Indian Point certification and White Bluff emissions controls.
- Availability of liquidity and compliance with debt covenants as maturities, planned capital investment, dividends and any share repurchases proceed.