CenterPoint Energy, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports fourth-quarter results. CenterPoint is a utility holding company with regulated electric transmission and distribution and natural gas distribution businesses, alongside competitive gas sales, interstate pipelines and field services.
Key financial results
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $7.452 billion | $8.450 billion |
| Operating income | $1.038 billion | $1.298 billion |
| Net income | $417 million | $1.357 billion |
| Diluted EPS | $0.97 | $3.17 |
| Operating cash flow | $1.860 billion | $1.888 billion |
| Capital expenditures | $1.188 billion | $1.191 billion |
Operating margin was approximately 13.9%, compared with 15.4% in 2011 (calculated as operating income divided by revenue). The 2012 effective tax rate was 44.9%, versus 34.4% in 2011.
Fourth-quarter 2012 revenue was $2.138 billion, operating income $310 million, net income $134 million and diluted EPS $0.31. Fourth-quarter 2011 figures were $2.145 billion, $274 million, $117 million and $0.27, respectively.
Balance sheet, debt and liquidity
- Total assets were $22.871 billion and shareholders’ equity was $4.301 billion at year-end.
- Consolidated indebtedness was approximately $9.8 billion, including $3.847 billion of transition and system restoration bonds. Cash and cash equivalents were $646 million; marketable securities were $540 million.
- Operating cash flow of $1.860 billion was below investing cash outflow of $1.603 billion, which included $360 million of acquisition spending. Financing activities provided $169 million.
- Credit facilities totaled $2.45 billion, with $11 million of letters of credit utilized as of February 14, 2013; no commercial paper was outstanding at year-end. Management expected cash, operating cash flow and available facilities to cover anticipated 2013 needs.
- 2012 dividends declared were $0.81 per share. A quarterly dividend of $0.2075 per share was declared in January 2013.
Material changes and unusual items
- Net income fell $940 million year over year. The principal comparison was 2011’s $587 million after-tax extraordinary gain and $352 million pre-tax return on the electric true-up balance; these were not repeated in 2012.
- 2012 operating income included a $252 million non-cash goodwill impairment in Competitive Natural Gas Sales and Services, reflecting weak wholesale-market conditions and low geographic and seasonal gas price differentials. That segment reported a $250 million operating loss, compared with $6 million income in 2011.
- CenterPoint acquired the remaining 50% of Waskom and other gathering assets for approximately $273 million. The staged acquisition generated a $136 million pre-tax gain from remeasuring its existing interest.
- Marketable-securities gains increased to $154 million from $19 million; the indexed-debt-securities loss increased to $71 million from a $35 million gain.
- Segment operating income: Electric Transmission & Distribution $639 million (up from $623 million); Natural Gas Distribution $226 million (unchanged); Interstate Pipelines $207 million (down from $248 million); Field Services $214 million (up from $189 million).
Outlook, management commentary and risks
- Management estimated 2013 capital expenditures of approximately $1.7 billion (the detailed project schedule totals $1.666 billion), $815 million of CenterPoint Houston and CERC long-term debt retirements, $447 million of transition and system restoration bond principal payments, and approximately $83 million of qualified pension contributions.
- Management cited unusually warm winter weather in 2012 as a headwind to gas throughput and more normal summer weather as a drag on electric usage versus 2011. Customer growth and rate increases helped offset pressures in regulated businesses.
- Field Services benefited from gathering growth, throughput guarantees and acquisitions, while lower natural gas prices reduced revenues from retained gas. Interstate Pipelines faced lower throughput and the expiration of a backhaul contract.
- Key exposures include rate-case outcomes and cost recovery, weather and energy demand, gas prices and production volumes, pipeline competition and contract renewals, counterparty/REP payment risk, access to capital and credit downgrades, pension funding, severe weather, cyber or operational disruptions, and environmental and pipeline-safety requirements.
- Contingencies include a $14 million recorded liability for Minnesota manufactured-gas-plant remediation, with estimated possible costs of $6 million to $41 million, and a maximum potential payout of approximately $73 million under specified legacy gas-transportation guarantees. Management did not expect the disclosed legal and environmental matters to have a material adverse effect, while noting outcomes remain uncertain.
Most important facts for investors to verify
- Underlying earnings and cash generation excluding the 2011 true-up benefits, 2012 goodwill impairment, Waskom acquisition gain and volatile securities-related gains or losses.
- Whether the gas-services business can recover profitability if geographic and seasonal gas price differentials remain weak.
- Rate-case results, especially the pending MRT FERC proceeding and future recovery of regulated infrastructure and compliance costs.
- Debt maturities, refinancing access, credit-rating headroom and the distinction between recourse debt and customer-charge-backed transition bonds.
- Actual 2013 capital spending, pension contributions, and realization of gathering-volume commitments and expected acquisition returns.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2012.