10-QPeriod: Q3 FY2010

CENTERPOINT ENERGY INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 28, 2010For Securities:CNP

Summary

CenterPoint Energy, Inc. (CNP) reported solid financial performance for the nine months ended September 30, 2010, with net income increasing to $318 million from $267 million in the prior year period. This growth was driven by a significant increase in operating income, partly due to higher revenues and improved operational efficiencies across its various segments, particularly in Natural Gas Distribution and Field Services. The company also benefited from a decrease in interest expense. Despite the positive net income trend, the company experienced a substantial increase in cash used in investing activities, largely due to higher capital expenditures, particularly in Field Services projects. Furthermore, the company's effective tax rate increased significantly, primarily influenced by changes in tax law and the settlement of prior federal income tax return examinations. Investors should monitor the ongoing regulatory proceedings, especially the "true-up" proceedings in Texas, which could still have a material impact, and the company's significant investments in infrastructure, such as the Magnolia and Olympia Gathering Systems and the Advanced Metering System.

Financial Highlights

44 data points
Beta

Revenue

$1.91B

Net Income

$123.00M

6.4% Net Margin

EPS (Diluted)

$0.29

Total Assets

$19.40B

Cash & Equivalents

$99.00M

Free Cash Flow

$165.00M

Financial Statements
Beta
Revenue$1.91B
Operating Expenses$1.58B
Operating Income$327.00M
Net Income$123.00M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)422.18M
Shares Outstanding (Diluted)424.97M

Key Highlights

  • 1Consolidated net income increased by $51 million to $318 million for the nine months ended September 30, 2010, compared to the same period in 2009.
  • 2Operating income saw a significant increase of $122 million for the nine months ended September 30, 2010, driven by improvements in Natural Gas Distribution and Field Services segments.
  • 3Capital expenditures increased by $432 million in the first nine months of 2010, primarily due to investments in Field Services projects.
  • 4The effective tax rate rose from 33% to 41% for the nine-month period, impacted by a prior year tax settlement and new healthcare legislation.
  • 5CenterPoint Energy is making substantial investments in infrastructure, including the expansion of the Magnolia and Olympia Gathering Systems and the Advanced Metering System (AMS) project.
  • 6The company is actively engaged in various regulatory proceedings, including the ongoing "true-up" proceedings in Texas, which remain a key area of focus.
  • 7CenterPoint Energy strengthened its balance sheet through a significant equity offering, raising approximately $315 million in June 2010.

Frequently Asked Questions

The "true-up" proceedings related to CenterPoint Energy Houston Electric, LLC's stranded costs are ongoing, with appeals reaching the Texas Supreme Court. While the company believes its request is consistent with statutes, the ultimate outcome is uncertain and could potentially result in an additional pre-tax loss of $180 million to $410 million, plus interest, if the court of appeals decision is not reversed or modified.

CenterPoint Energy is undertaking significant capital expenditures, particularly in its Field Services segment for the expansion of the Magnolia and Olympia Gathering Systems, and in its Electric Transmission & Distribution segment for the Advanced Metering System (AMS). These investments are aimed at enhancing capacity and modernizing infrastructure, with some being partially funded by a $200 million Department of Energy grant for the AMS project.

Profitability is influenced by several factors, including operating income from its various segments (Electric Transmission & Distribution, Natural Gas Distribution, etc.), interest expenses, income tax rates, and regulatory decisions. The company saw increased net income driven by higher operating income and lower interest expenses, but a higher effective tax rate and increased capital expenditures are important considerations.

CenterPoint Energy uses derivative instruments, such as physical forward contracts and swaps, to mitigate the impact of changes in commodity prices and weather. The company's Risk Oversight Committee oversees these activities. For interest rate risk, the company has a significant portion of fixed-rate debt, limiting direct exposure, but changes in fair value of these instruments could impact earnings if reacquired before maturity.