CenterPoint Energy, Inc. — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009; filed February 26, 2010. The filing also provides fourth-quarter results. CenterPoint is a regulated energy-delivery holding company with electric transmission and distribution operations in the Houston area and natural-gas distribution, marketing, pipeline and field-services businesses.
Financial results and position
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue | $8.281 billion | $11.322 billion |
| Operating income | $1.124 billion | $1.273 billion |
| Net income | $372 million | $446 million |
| Diluted EPS | $1.01 | $1.30 |
| Cash from operating activities | $1.841 billion | $851 million |
| Capital expenditures | $1.148 billion | $1.053 billion |
| Cash and cash equivalents at year-end | $740 million | $167 million |
| Total assets | $19.773 billion | $19.676 billion |
Operating margin was approximately 13.6% and net margin approximately 4.5% in 2009, versus about 11.2% and 3.9% in 2008, respectively; these are calculated from reported revenue and income. The current ratio was approximately 0.96 at year-end, based on current assets of $2.904 billion and current liabilities of $3.038 billion.
Consolidated debt was approximately $10.1 billion at December 31, including $3.046 billion of transition and system-restoration bonds. CenterPoint reported $55 million in short-term borrowings and $9.119 billion in long-term debt. The filing states that approximately $1.2 billion of principal was due through 2012, excluding transition and system-restoration bonds with dedicated customer-charge revenues. Dividends declared were $0.76 per share for 2009, up from $0.73 in 2008; a $0.195 quarterly dividend was announced for payment in March 2010.
Fourth-quarter 2009 revenue was $2.299 billion, operating income $299 million, net income $105 million and diluted EPS $0.27. In fourth-quarter 2008, the corresponding figures were $2.774 billion, $303 million, $87 million and $0.25.
Material changes versus prior periods
- Revenue fell 27% year over year, principally reflecting lower natural-gas prices and reduced commodity-related sales values. Net income declined $74 million; operating income declined $149 million.
- Operating income was flat at $545 million in Electric Transmission & Distribution. Natural Gas Distribution declined to $204 million from $215 million; Competitive Natural Gas Sales and Services fell to $21 million from $62 million; Interstate Pipelines declined to $256 million from $293 million; and Field Services fell to $94 million from $147 million.
- Cash from operations rose $990 million. Management attributed the increase largely to working-capital movements, including lower cash use for regulatory assets and liabilities, margin deposits and gas-storage inventory; it should not be read as a comparable increase in underlying earnings.
- Interest and other finance charges increased to $513 million from $468 million, primarily due to higher rates and debt levels. The effective tax rate decreased to 32.1% from 38.4%, mainly reflecting settlement of federal tax examinations and adjustments to prior state tax estimates.
- Weighted-average basic shares increased to 365.2 million from 336.4 million. The company raised approximately $504 million from common-stock issuances during 2009.
Outlook, management commentary and significant risks
- Management expected 2010 capital requirements of approximately $1.2 billion and said operating cash flows and credit facilities were expected to meet anticipated 2010 cash needs. Estimated capital requirements were $1.208 billion for 2010 and $1.218 billion for 2011.
- CenterPoint Houston issued approximately $665 million of Hurricane Ike system-restoration bonds in November 2009. The filing reports $663 million of approved recovery costs; the bonds are repaid through customer charges. A related customer credit is expected to reduce 2010 operating income by approximately $24 million.
- A Texas Supreme Court appeal over electric-market “true-up” recovery remained unresolved. If the appellate decision stands, the company estimated a possible additional pre-tax loss of $180 million to $410 million, plus interest. The related tax-normalization issue could also expose the company to tax payments and loss of accelerated depreciation benefits; the ultimate outcome was uncertain.
- The DOE selected CenterPoint Houston for a proposed $200 million grant for advanced meters and intelligent-grid projects, subject to successful negotiations. The company’s planned metering and grid investment depends in part on the grant’s final terms.
- CEFS’s Haynesville/Bossier gathering project was expected to cost up to $325 million for capacity of 700 MMcf per day; up to a further $300 million could be needed if expanded. Approximately $176 million had been spent by year-end.
- Management cited sensitivity to weather, energy use and commodity prices; regulatory decisions and cost recovery; construction costs; capital-market access and credit ratings; pension costs; counterparty performance; and severe weather. The company had $3.7 billion of regulatory assets, whose recovery depends on regulatory treatment.
- Pension expense was $111 million in 2009 versus $1 million in 2008. Management estimated 2010 pension cost of $86 million, of which $44 million was expected to affect pre-tax earnings; the qualified plan was underfunded by $434 million at year-end.
- Other contingencies include environmental remediation, litigation and guarantees related to former businesses. CenterPoint reported no material adverse effect expected from most identified matters, but outcomes are not assured. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Progress and final outcome of the Texas true-up appeal, including the potential $180–$410 million pre-tax charge and tax-normalization exposure.
- Underlying cash generation after separating working-capital changes from recurring operating performance.
- Debt maturities, refinancing access, covenant headroom, credit ratings and the company’s ability to fund planned capital spending while sustaining dividends.
- Regulatory recovery and timing for Hurricane Ike costs, the 2010 customer credit, and other large regulatory assets.
- Execution, cost and volume commitments for the Haynesville/Bossier project and terms of any DOE grant.
- Effects of lower commodity prices, pension assumptions and weather on segment earnings and cash requirements.