10-QPeriod: Q3 FY2011

SEMPRA Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 3, 2011For Securities:SRESREA

Summary

Sempra Energy (SRE) reported solid financial results for the nine months ending September 30, 2011, demonstrating strong growth compared to the same period in the prior year. Net income attributable to common shareholders more than doubled, reaching $1.065 billion ($4.44 basic EPS) from $459 million ($1.86 basic EPS) in the prior year. This significant improvement was driven by a substantial non-taxable gain of $277 million from the remeasurement of equity method investments following the acquisition of energy utilities in Chile and Peru, alongside improved operating results across several segments, particularly Sempra Pipelines & Storage. The company also benefited from the absence of a significant investment write-down in the prior year. Capital expenditures remain a focus, with significant investments planned in utility infrastructure, including the Sunrise Powerlink transmission line for SDG&E, and renewable energy projects. While Sempra Utilities are expected to fund a substantial portion of these through operational cash flows and debt, the company's liquidity remains adequate with substantial available credit lines. Investors should note the ongoing wildfire litigation impact, which, while largely covered by regulatory recovery mechanisms and insurance, continues to affect cash flows due to timing differences.

Financial Highlights

47 data points
Beta

Revenue

$2.58B

Net Income

$289.00M

11.2% Net Margin

EPS (Diluted)

$0.60

Total Assets

$32.62B

Cash & Equivalents

$657.00M

Free Cash Flow

$504.00M

Financial Statements
Beta
Revenue$2.58B
Interest Expense$118.00M
Net Income$289.00M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)479.00M
Shares Outstanding (Diluted)483.80M

Key Highlights

  • 1Net income for the nine months increased significantly to $1.065 billion, up from $459 million in the prior year, largely due to a $277 million gain from remeasuring equity investments in acquired South American utilities.
  • 2Basic earnings per share (EPS) for the nine months rose to $4.44, a substantial increase from $1.86 in the prior year.
  • 3Sempra Pipelines & Storage saw a significant boost in earnings due to the acquisition of interests in Chilquinta Energía and Luz del Sur, contributing to a 53% increase in quarterly earnings.
  • 4Capital expenditures for the full year are expected to be around $3.9 billion, with significant investments in utility infrastructure and renewable energy projects, including the Sunrise Powerlink.
  • 5The company completed a $500 million share repurchase program, contributing to a reduction in weighted-average shares outstanding and a positive impact on EPS.
  • 6SDG&E recorded a significant regulatory asset of $584 million related to wildfire litigation costs, which are expected to be recovered from utility customers.
  • 7Liquidity remains strong, with $2.7 billion in available unused credit lines at Sempra Energy Consolidated as of September 30, 2011.

Frequently Asked Questions

The primary driver was a $277 million non-taxable gain recognized from the remeasurement of equity method investments in Chilquinta Energía (Chile) and Luz del Sur (Peru) following their acquisition. Additionally, improved operating results across several business segments, particularly Sempra Pipelines & Storage, and the absence of a significant investment write-down recorded in the prior year at the former Sempra Commodities segment also contributed to the increase.

Sempra Energy expects to fund a substantial portion of its capital expenditures, estimated at $3.9 billion for the full year, through operating cash flows, debt issuances, and distributions from equity method investments. The company maintains strong liquidity, with $2.7 billion in available unused credit lines at Sempra Energy Consolidated as of September 30, 2011, supporting its operations, dividends, and potential acquisitions.

SDG&E has incurred significant costs related to the 2007 wildfires, which have exceeded its insurance coverage and proceeds from a settlement with Cox Communications. However, SDG&E has concluded that it is probable that these costs will be recovered from its utility customers through regulatory mechanisms, resulting in a regulatory asset of $584 million recorded on the balance sheet. While this is expected to minimize the earnings impact, SDG&E's cash flow may be adversely affected by timing differences in these recoveries.

Yes, Sempra Pipelines & Storage completed the acquisition of AEI's interests in Chilquinta Energía in Chile and Luz del Sur in Peru on April 6, 2011. This acquisition led to the consolidation of these entities and contributed $335 million in electric revenues and $442 million in cost of electric fuel and purchased power for the nine months ended September 30, 2011. The acquisition also resulted in a $277 million gain from remeasuring equity investments and added $970 million in goodwill.