Skip to content
AnalystLens

Sempra Annual Report, Year Ended Dec 31, 1998

Filing Date
Filed March 9, 1999
Period End
December 31, 1998
Securities
SRESREA
In the record · 2016–202610-K1110-Q338-K215

SRE filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 215 current reports (8-K) between 2016 and 2026.

  1. Impairment8-K · Sep ’16Sep ’16
  2. Leadership change8-K · Dec ’18Dec ’18
  3. FY2020 annual report10-K · Feb ’21Feb ’21
  4. Leadership change8-K · Jun ’25Jun ’25

01—Abstract

Summary

Summary of the 10-K filed March 9, 1999. Cited figures are marked; the original filing is the authoritative source.

Sempra Energy's 1998 10-K describes a company formed on June 26, 1998 from the merger of Pacific Enterprises (SoCalGas parent) and Enova Corporation (SDG&E parent).

Reported results were weaker than 1997: net income fell to $294 milliona ($1.24 diluted EPS) from $432 million ($1.82), driven mainly by $85 million after-tax of business-combination costs, a lower base margin under SoCalGas' Performance-Based Regulation decision, and start-up losses at Sempra Energy Solutions ($27 million) and Sempra Energy Trading (net loss of $13 million after acquisition-cost amortization). Total revenues rose to $5.5 billion, helped by $500 million of PX/ISO power sales, while operating income fell to $639 million from $939 million, with depreciation and amortization up sharply to $929 million due to recovery of stranded costs. Book value per share declined to $12.29 and the debt-to-capitalization ratio improved to 50% from 54%.

The core utility businesses remain the foundation of the company. SoCalGas is the nation's largest gas distribution utility, and SDG&E is in the middle of California's electric restructuring. SDG&E has agreed to sell its South Bay and Encina plants and 17 combustion turbines for roughly $466 millionb combined, with closings expected in the first half of 1999, and its rate freeze and stranded-cost recovery remain key uncertainties.

Capital expenditures are estimated at $419 millionc for the utilities in 1999, and dividends were raised to $1.56 per share in 1998 on the Enova-equivalent basis. The most significant forward-looking item is the February 22, 1999 agreement to acquire KN Energy for about $1.7 billion, payable in stock (1.115 Sempra shares per KN share) or $25 in cash, with cash capped at 30% of consideration.

The deal requires shareholder and regulatory approval and is expected to close in six to eight months. Investors should weigh the earnings pressure in 1998, the Year 2000 budget of $48 milliond, and the regulatory and integration risks of the KN transaction.

02—Key points

Key Highlights

  1. Net income fell 32% to $294 million ($1.24 diluted EPS) from $432 million ($1.82), largely due to $85 million after-tax of merger costs and a lower SoCalGas PBR base margin.
  2. Total revenues and other income rose to $5.525 billion from $5.127 billion, including $500 million of new PX/ISO power revenue following the April 1998 start of the California power market.
  3. Operating income dropped to $639 million from $939 million, while depreciation and amortization jumped to $929 million from $604 million, reflecting accelerated recovery of electric generation assets.
  4. SDG&E agreed in December 1998 to sell its South Bay and Encina plants and 17 combustion turbines, for $110 million and $356 million respectively, with closings expected in the first half of 1999.
  5. Operating cash flow improved to $1.323 billion from $918 million, and debt-to-capitalization fell to 50% from 54%, with $424 million of cash on hand at year-end.
  6. Sempra agreed on February 22, 1999 to acquire KN Energy for about $1.7 billion in stock or cash, a transaction expected to close in six to eight months, subject to shareholder and regulatory approval.
  7. Energy trading and marketing ventures produced losses in 1998, with Sempra Energy Trading posting a $13 million net loss and Sempra Energy Solutions a $27 million operating loss.

03—Questions

Frequently Asked Questions

  1. Why did Sempra's 1998 earnings decline so sharply?

    Net income fell to $294 million from $432 million. The main drivers were $85 million after-tax of business-combination costs from the Pacific Enterprises and Enova merger, a lower base margin set in SoCalGas' Performance-Based Regulation decision effective August 1997, and start-up losses at Sempra Energy Solutions and Sempra Energy Trading.

  2. What is the status of the power plant sales and electric restructuring?

    SDG&E signed contracts in December 1998 to sell its South Bay plant ($110 million) and Encina plant plus 17 combustion turbines ($356 million). Closings require regulatory approval and are expected in the first half of 1999. Proceeds are applied to transition-cost recovery, and the company expects its transition costs to be recovered by December 31, 2001, though fuel-price volatility during the rate freeze is a risk.

  3. What does the KN Energy acquisition mean for shareholders?

    KN Energy holders may receive 1.115 Sempra shares or $25 in cash per KN share, with cash limited to 30% of the roughly $1.7 billion total. The deal will be accounted for as a purchase. It requires approval from both shareholder bases and federal and state regulators, and the companies expect closing in six to eight months.

  4. Is the dividend secure and what are the capital spending plans?

    Common dividends paid rose to $325 million in 1998, and declared dividends per share were $1.56, though this reflects the Enova rate paid on an equivalent-share basis. Management states dividend amounts remain at board discretion. Utility capital expenditures are estimated at $419 million for 1999, to be funded mainly from internally generated cash.

04—Continue

← View all 10-K filings