Sempra Energy Reports Higher Net Income in First Quarter 2008
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-- Commodities Joint Venture Launched
-- $1 Billion Share-Repurchase Program Initiated
-- Baja California Terminal Receives First LNG Cargo
Sempra Energy
"This is a milestone year for Sempra Energy, our 10th anniversary," said Donald E. Felsinger, chairman and chief executive officer of Sempra Energy. "Since Sempra Energy's inception, our average annual total return to shareholders has been 12 percent, more than twice the returns of the major market indices.
"We will continue to produce strong results in the future, based on the significant progress we have made on our key operational initiatives. We have completed our new Baja California liquefied natural gas (LNG) terminal, started flowing gas on the western half of the Rockies Express Pipeline and launched our global commodities joint venture. By year-end, several other projects will be online, including our new Louisiana LNG terminal. We also have begun a major share-repurchase program and are committed to increasing our dividend at an accelerated rate going forward."
On April 1, Sempra Energy and The Royal Bank of Scotland completed the transaction to form a global commodities joint venture, RBS Sempra Commodities. The operations of Sempra Commodities now have been acquired by the joint venture. Last month, Sempra Energy initiated a $1 billion share-repurchase program to be completed in the fourth quarter 2008. The $1 billion program is part of a planned repurchase program expected to total $1.5 billion to $2 billion. Sempra Energy's board of directors also expects to increase the company's dividend by 9 percent, to $1.40 per share on an annualized basis from the current annualized rate of $1.28 per share, beginning with the quarterly payout in July.
SUBSIDIARY OPERATING RESULTS
Sempra Utilities
Net income for Sempra Utilities -- San Diego Gas & Electric (SDG&E) and Southern California Gas Co. (SoCalGas) -- rose 12 percent to $131 million in the first quarter 2008 from $117 million in the prior-year's quarter.
SDG&E's first-quarter net income rose to $74 million in 2008 from $62 million in 2007, due primarily to a favorable resolution of prior-years' income-tax issues in 2008.
SoCalGas' first-quarter 2008 net income was $57 million, compared with $55 million in the first quarter 2007.
Sempra Commodities
Sempra Commodities earned $59 million in first quarter 2008, compared with first-quarter 2007 earnings of $71 million. In last year's first quarter, Sempra Commodities benefited from an $18 million net gain on the sale of an equity investment. This year, the company has generated improved operating margins in power trading and natural gas, offset by a $17 million write-down related to a credit issue with a mining counterparty.
Sempra Generation
First-quarter net income for Sempra Generation was $45 million in 2008, compared with $54 million in 2007, due primarily to $6 million in mark-to-market earnings and higher net interest income, both last year.
Sempra Pipelines & Storage
Sempra Pipelines & Storage's net income increased to $26 million in the first quarter 2008 from $16 million in last year's first quarter, due primarily to the start-up of the western half of the Rockies Express Pipeline and the beneficial impact of currency-exchange rates on the company's South American operations.
The first half of the 1,600-mile Rockies Express natural gas pipeline is in service, and Sempra Pipelines & Storage and its project partners expect it to be completed later this month. The eastern half of the pipeline is being permitted and is expected to begin operating by year-end.
Sempra LNG
Sempra LNG recorded a net loss of $9 million, compared with a net loss of $10 million in the first quarter 2007.
Sempra LNG's new Energía Costa Azul LNG receipt terminal in Baja California, Mexico, has received its first LNG cargo and is in the final testing phase before commencing commercial operations in the second quarter.
INTERNET BROADCAST
Sempra Energy will broadcast a live discussion of its earnings results over the Internet today at 1 p.m. EDT with senior management of the company. Access is available by logging onto the Web site at www.sempra.com. For those unable to log onto the live webcast, the teleconference will be available on replay a few hours after its conclusion by dialing (888) 203-1112 and entering passcode 5475510.
Sempra Energy, based in San Diego, is a Fortune 500 energy services holding company with 2007 revenues of more than $11 billion. The Sempra Energy companies' 13,500 employees serve more than 29 million consumers worldwide.
Income-statement information by business unit is available on Sempra Energy's Web site at http://www.sempra.com/downloads/1Q2008.pdf.
This press release contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When the company uses words like "believes," "expects," "anticipates," "intends," "plans," "estimates," "may," "would," "could," "should," or similar expressions, or when the company discusses its strategy or plans, the company is making forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future results may differ materially from those expressed in the forward-looking statements. Forward-looking statements are necessarily based upon various assumptions involving judgments with respect to the future and other risks, including, among others: local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments; actions by the California Public Utilities Commission, California State Legislature, California Department of Water Resources, Federal Energy Regulatory Commission, Federal Reserve Board, U.K. Financial Services Authority and other regulatory bodies in the United States and other countries; capital market conditions, inflation rates, interest rates and exchange rates; energy and trading markets, including the timing and extent of changes in commodity prices; the availability of electric power, natural gas and liquefied natural gas; weather conditions and conservation efforts; war and terrorist attacks; business, regulatory, environmental, and legal decisions and requirements; the status of deregulation of retail natural gas and electricity delivery; the timing and success of business development efforts; the resolution of litigation; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the company. These risks and uncertainties are further discussed in the company's reports filed with the Securities and Exchange Commission that are available through the EDGAR system without charge at its Web site, www.sec.gov, and on the company's Web site, www.sempra.com.
Sempra LNG and Sempra Pipelines & Storage are not the same companies as the utilities, SDG&E or SoCalGas, and are not regulated by the California Public Utilities Commission. Sempra Energy Trading, doing business as Sempra Commodities, and Sempra Generation are not the same companies as the utilities, SDG&E or SoCalGas, and the California Public Utilities Commission does not regulate the terms of their products and services.
SEMPRA ENERGY
Table A
STATEMENTS OF CONSOLIDATED INCOME
Three months
ended
March 31,
----------------
(Dollars in millions, except per share amounts) 2008 2007
------- -------
(unaudited)
Operating revenues
Sempra Utilities $ 2,290 $ 2,059
Sempra Global and parent 980 945
------- -------
Total operating revenues 3,270 3,004
------- -------
Operating expenses
Sempra Utilities:
Cost of natural gas 1,235 1,050
Cost of electric fuel and purchased power 163 149
Sempra Global and parent:
Cost of natural gas, electric fuel and purchased power 409 336
Other cost of sales 136 319
Other operating expenses 698 633
Depreciation and amortization 175 169
Franchise fees and other taxes 83 81
------- -------
Total operating expenses 2,899 2,737
------- -------
Operating income 371 267
Other income, net 25 11
Interest income 14 26
Interest expense (60) (70)
Preferred dividends of subsidiaries (2) (2)
------- -------
Income from continuing operations before income taxes and
equity in earnings of certain unconsolidated
subsidiaries 348 232
Income tax expense 127 63
Equity in earnings of certain unconsolidated subsidiaries 21 58
------- -------
Income from continuing operations 242 227
Discontinued operations, net of income tax - 1
------- -------
Net income $ 242 $ 228
======= =======
Basic earnings per share:
Income from continuing operations $ 0.94 $ 0.88
Discontinued operations, net of income tax - -
------- -------
Net income $ 0.94 $ 0.88
======= =======
Weighted-average number of shares outstanding (thousands) 258,624 259,459
======= =======
Diluted earnings per share:
Income from continuing operations $ 0.92 $ 0.86
Discontinued operations, net of income tax - -
------- -------
Net income $ 0.92 $ 0.86
======= =======
Weighted-average number of shares outstanding (thousands) 262,671 263,996
======= =======
Dividends declared per share of common stock $ 0.32 $ 0.31
======= =======
SEMPRA ENERGY
Table B
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
(Dollars in millions) 2008 2007
---------- ----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 806 $ 668
Restricted cash - 1
Short-term investments 413 -
Accounts receivable, net 1,135 1,074
Income taxes receivable - 99
Deferred income taxes 301 247
Trading-related receivables and deposits, net 2,843 2,719*
Derivative trading instruments 2,870 2,170*
Commodities owned 1,621 2,231
Inventories 103 224
Regulatory assets 55 106
Other 323 425*
---------- ----------
Total current assets 10,470 9,964
---------- ----------
Investments and other assets:
Regulatory assets arising from fixed-price
contracts and other derivatives 295 309
Regulatory assets arising from pension and other
postretirement benefit obligations 167 162
Other regulatory assets 474 460
Nuclear decommissioning trusts 701 739
Investments 1,494 1,243
Sundry 965 956
---------- ----------
Total investments and other assets 4,096 3,869
---------- ----------
Property, plant and equipment, net 15,288 14,884
---------- ----------
Total assets $ 29,854 $ 28,717
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 1,630 $ 1,064
Accounts payable 1,241 1,563
Due to unconsolidated affiliate 60 60
Income taxes payable 78 -
Trading-related payables 1,977 2,265*
Derivative trading instruments 2,189 1,672*
Commodities sold with agreement to repurchase 502 500
Dividends and interest payable 155 145
Regulatory balancing accounts, net 585 481
Current portion of long-term debt 23 7
Other 1,484 1,263*
---------- ----------
Total current liabilities 9,924 9,020
---------- ----------
Long-term debt 4,589 4,553
---------- ----------
Deferred credits and other liabilities:
Due to unconsolidated affiliate 102 102
Customer advances for construction 154 153
Pension and other postretirement benefit
obligations, net of plan assets 439 434
Deferred income taxes 510 531
Deferred investment tax credits 60 61
Regulatory liabilities arising from removal
obligations 2,519 2,522
Asset retirement obligations 1,134 1,129
Other regulatory liabilities 261 265
Fixed-price contracts and other derivatives 345 332
Deferred credits and other 910 949
---------- ----------
Total deferred credits and other liabilities 6,434 6,478
---------- ----------
Preferred stock of subsidiaries 179 179
---------- ----------
Minority interests 151 148
---------- ----------
Shareholders' equity 8,577 8,339
---------- ----------
Total liabilities and shareholders' equity $ 29,854 $ 28,717
========== ==========
* December 31, 2007 amounts have been reclassified due to the adoption of
FASB Staff Position FIN 39-1.
SEMPRA ENERGY
Table C
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Three months
ended
March 31,
----------------
(Dollars in millions) 2008 2007
------- -------
(unaudited)
Cash Flows from Operating Activities:
Net income $ 242 $ 228
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations - (1)
Depreciation and amortization 175 169
Deferred income taxes and investment tax credits (58) (104)
Equity in income of unconsolidated subsidiaries (27) (52)
Other 32 20
Net changes in other working capital components 390 1,115
Changes in other assets (3) 16
Changes in other liabilities (22) (7)
------- -------
Net cash provided by continuing operations 729 1,384
Net cash used in discontinued operations - (1)
------- -------
Net cash provided by operating activities 729 1,383
------- -------
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment (544) (423)
Proceeds from sale of assets 10 32
Expenditures for investments (579) (5)
Distributions from investments 4 -
Purchases of nuclear decommissioning and other trust
assets (134) (211)
Proceeds from sales by nuclear decommissioning and other
trusts 135 213
Other (1) (6)
------- -------
Net cash used in investing activities (1,109) (400)
------- -------
Cash Flows from Financing Activities:
Common dividends paid (82) (79)
Issuances of common stock 4 16
Repurchases of common stock (2) -
Increase (decrease) in short-term debt, net 566 (151)
Issuance of long-term debt 52 2
Payments on long-term debt (10) (35)
Other (10) 2
------- -------
Net cash provided by (used in) financing activities 518 (245)
------- -------
Increase in cash and cash equivalents 138 738
Cash and cash equivalents, January 1 668 920
------- -------
Cash and cash equivalents, March 31 $ 806 $ 1,658
======= =======
SEMPRA ENERGY
Table D
BUSINESS UNIT EARNINGS AND CAPITAL EXPENDITURES & INVESTMENTS (Unaudited)
Three months ended
March 31,
------------------
(Dollars in millions) 2008 2007
-------- --------
Net Income
Sempra Utilities:
San Diego Gas & Electric $ 74 $ 62
Southern California Gas 57 55
-------- --------
Total Sempra Utilities 131 117
-------- --------
Sempra Global:
Sempra Commodities 59 71
Sempra Generation 45 54
Sempra Pipelines & Storage 26 16
Sempra LNG (9) (10)
-------- --------
Total Sempra Global 121 131
-------- --------
Parent & Other (10) (21)
-------- --------
Continuing Operations 242 227
Discontinued Operations, Net of Income Tax - 1
-------- --------
Consolidated Net Income $ 242 $ 228
======== ========
Three months ended
March 31,
------------------
(Dollars in millions) 2008 2007
-------- --------
Capital Expenditures and Investments
Sempra Utilities:
San Diego Gas & Electric $ 471* $ 157
Southern California Gas 116 86
-------- --------
Total Sempra Utilities 587 243
-------- --------
Sempra Global:
Sempra Commodities 37 13
Sempra Generation 11 1
Sempra Pipelines & Storage 209 79
Sempra LNG 97 86
-------- --------
Total Sempra Global 354 179
-------- --------
Parent & Other 182* 6
-------- --------
Consolidated Capital Expenditures and Investments $ 1,123 $ 428
======== ========
* Amounts for SDG&E and Parent & Other include the purchase of $236 and
$177, respectively, of industrial development bonds.
SEMPRA ENERGY
Table E
OTHER OPERATING STATISTICS (Unaudited)
Three months ended
March 31,
-------------------
SEMPRA UTILITIES 2008 2007
--------- ---------
Revenues (Dollars in millions)
SDG&E (excludes intercompany sales) $ 742 $ 705
SoCalGas (excludes intercompany sales) $ 1,548 $ 1,354
Gas Sales (bcf) 144 141
Transportation and Exchange (bcf) 138 120
--------- ---------
Total Deliveries (bcf) 282 261
--------- ---------
Total Gas Customers (Thousands) 6,543 6,487
Electric Sales (Millions of kWhs) 4,275 4,190
Direct Access (Millions of kWhs) 765 778
--------- ---------
Total Deliveries (Millions of kWhs) 5,040 4,968
--------- ---------
Total Electric Customers (Thousands) 1,366 1,357
SEMPRA GENERATION
--------- ---------
Power Sold (Millions of kWhs) 5,612 5,377
SEMPRA PIPELINES & STORAGE
(Represents 100% of these subsidiaries, although only the Mexican
subsidiaries are 100% owned by Sempra Energy).
--------- ---------
Natural Gas Sales (bcf)
Argentina 71 63
Mexico 12 11
Chile - -
Natural Gas Customers (Thousands)
Argentina 1,613 1,552
Mexico 95 101
Chile 39 39
Electric Sales (Millions of kWhs)
Peru 1,362 1,269
Chile 664 665
Electric Customers (Thousands)
Peru 815 793
Chile 553 538
SEMPRA ENERGY
Table E (Continued)
SEMPRA COMMODITIES
Three months ended
March 31,
------------------
Margin* (Dollars in
millions) 2008 2007
-------- --------
Geographical:
North America $ 241 $ 104
Europe/Asia 48 63
-------- --------
Total $ 289 $ 167
-------- --------
Product Line:
Natural Gas $ (2) $ (56)
Power 163 82
Oil - Crude & Products 50 57
Metals 48 60
Other 30 24
-------- --------
Total $ 289 $ 167
-------- --------
* Margin is a non-GAAP financial measure, consisting of operating revenues
less cost of sales (primarily transportation and storage costs), both
GAAP financial measures, reduced by certain transaction-related execution
costs (primarily brokerage and other fees) and net interest
income/expense, as follows:
Three months ended
March 31,
------------------
(Dollars in millions) 2008 2007
-------- --------
Revenues $ 457 $ 512
Cost of sales (136) (319)
-------- --------
321 193
Other related costs (32) (26)
-------- --------
Margin $ 289 $ 167
-------- --------
Three months ended
March 31,
------------------
Effect of EITF 02-3
(Dollars in millions) 2008 2007
-------- --------
Mark-to-Market Earnings* $ 86 $ 157
Effect of EITF 02-3 ** (27) (86)
-------- --------
GAAP Net Income $ 59 $ 71
-------- --------
* Represents earnings from the fair market value of all commodities
transactions. This metric is a useful measurement of profitability
because it simultaneously recognizes changes in the various components
of transactions and reflects how the business is managed.
** Consists of the income statement effect of not recognizing changes in
the fair market value of certain physical inventories, capacity
contracts for transportation and storage, and derivative hedging
activities related to synthetic fuels tax credits.
Fair
Market Value Scheduled Maturity (in months)
Net Unrealized Revenue March 31, --------------------------------------
(Dollars in millions) 2008 0 - 12 13 - 24 25 - 36 > 36
-------- -------- -------- -------- --------
OTC Fair Value of
forwards, swaps and
options (1) $ 1,218 $ 958 $ 57 $ 60 $ 143
-------- -------- -------- -------- --------
Maturity of OTC Fair
Value - Cumulative
Percentages 78.7% 83.3% 88.3% 100.0%
-------- -------- -------- --------
Exchange Contracts (2) (79) (191) 146 (20) (14)
-------- -------- -------- -------- --------
Total Net Unrealized
Revenue at March 31,
2008 $ 1,139 $ 767 $ 203 $ 40 $ 129
-------- -------- -------- -------- --------
Net Unrealized Revenue
- Cumulative
Percentages 67.3% 85.2% 88.7% 100.0%
-------- -------- -------- --------
(1) The present value of unrealized revenue to be received or (paid) from
outstanding OTC contracts. Under FSP FIN 39-1, this net unrealized
revenue is offset on the balance sheet by collateral of $515 pursuant
to master netting arrangements.
(2) Cash received or (paid) associated with open Exchange Contracts.
Credit Quality of March December
Unrealized Trading 31, 31,
Assets (net of margin) 2008 2007
-------- --------
Commodity Exchanges 17% 9%
Investment Grade 56% 54%
Below Investment Grade 27% 37%
Three months ended
March 31,
------------------
Risk Adjusted Performance
Indicators
(Mark-to-Market Basis) 2008 2007
-------- --------
VaR at 95% (Dollars in
millions) (1) $ 16.2 $ 10.3
VaR at 99% (Dollars in
millions) (2) $ 22.8 $ 14.5
(1) Average Daily Value-at-Risk for the period using a 95% confidence level
(2) Average Daily Value-at-Risk for the period using a 99% confidence level
Three months ended
March 31,
------------------
Physical Statistics 2008 2007
-------- --------
Natural Gas (Bcf/Day) 14.2 12.4
Electric (Billions of
kWhs) 150.1 122.9
Oil & Liquid Products
(Millions Bbls/Day) 0.6 0.6
