Dominion Resources, Inc. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2014, compared with the same periods in 2013. The combined filing covers Dominion Resources, Inc., Virginia Electric and Power Company, and Dominion Gas Holdings, LLC. Dominion operated regulated electric generation, transmission and distribution, natural gas transmission, storage and distribution, gas gathering and processing, LNG and merchant generation businesses.
Key Financial Metrics
| Dominion consolidated | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Operating revenue | $2,813 million | $2,980 million | $6,443 million | $6,503 million |
| Income from operations | $394 million | $548 million | $1,162 million | $1,478 million |
| Net income attributable to Dominion | $159 million | $202 million | $538 million | $697 million |
| Diluted EPS | $0.27 | $0.35 | $0.92 | $1.21 |
| Operating margin | 14.0% | 18.4% | 18.0% | 22.7% |
| Net margin | 5.7% | 6.8% | 8.4% | 10.7% |
| Dividends declared per share | $0.6000 | $0.5625 | $1.2000 | $1.1250 |
Cash flow and balance sheet: Six-month operating cash flow was $1,447 million, down from $1,791 million. Capital expenditures and other property additions were $2,389 million, producing negative operating cash flow less capital additions of approximately $942 million. Cash increased to $419 million from $316 million at December 31, 2013.
- Total assets were $51.5 billion, compared with $50.1 billion at year-end 2013.
- Total liabilities were $39.8 billion, compared with $38.2 billion.
- Reported debt, including current securities, short-term debt, long-term debt, junior subordinated notes and remarketable subordinated notes, totaled approximately $24.4 billion.
- Dominion had $1.305 billion of available capacity under its revolving credit facilities at June 30, 2014.
- Dominion's six-month common dividend payments were $698 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter net income declined 21% and diluted EPS declined $0.08. Six-month net income declined 23% and diluted EPS declined $0.29.
- Results were materially reduced by a $287 million pre-tax, $191 million after-tax charge associated with Virginia legislation concerning previously deferred or capitalized costs for a potential third North Anna nuclear unit and offshore wind facilities. Approximately $87 million pre-tax of additional charges was expected during the remainder of 2014.
- Revenue declined modestly, but second-quarter net revenue increased 3% as lower energy-related purchases and the absence of certain producer-services losses more than offset lower retail energy marketing and merchant-generation revenue.
- Six-month net revenue decreased 8%, primarily because of the repositioning of producer services and lower retail energy marketing activity.
- Dominion completed the sale of its electric retail energy marketing business in March 2014 for approximately $187 million, recording an approximately $100 million pre-tax gain, net of a $31 million goodwill write-off.
- Dominion Gas net income increased to $93 million from $53 million in the second quarter and to $257 million from $191 million for the six-month period, primarily because 2013 included impairment charges and 2014 included higher gains on pipeline asset sales.
- Virginia Power net income declined to $69 million from $265 million in the second quarter and to $393 million from $552 million for six months, primarily because of the Virginia legislation charge.
- The filing states that Dominion completed the repositioning of its producer services business in the first quarter of 2014, including termination of natural gas trading and certain energy marketing activities.
Outlook, Commentary, Risks and Unusual Items
- No specific consolidated earnings guidance is provided in the filing text.
- Dominion began or pursued multiple solar projects expected to cost approximately $595 million in aggregate once constructed, with approximately 191 MW of expected capacity from the projects described.
- Dominion issued $400 million of 1.25% senior notes in March 2014. Virginia Power issued $350 million of 3.45% senior notes and $400 million of 4.45% senior notes in February 2014.
- In July 2014, after the reporting date, Dominion issued $1 billion of 2014 Series A Equity Units. The transaction is expected to result in the issuance of approximately 11.5 million to 14.3 million common shares in July 2017, subject to adjustments.
- Virginia Power's short-term facility sub-limit was exceeded at June 30, 2014, although it retained access to a Dominion demand note and remained in compliance with debt covenants. The sub-limit was increased effective July 10, 2014.
- The Cove Point LNG liquefaction project remained subject to FERC approval, regulatory conditions, financing requirements and litigation risk. Management stated that delays, cost overruns, counterparty issues or inability to obtain approvals could materially affect results and liquidity.
- Proposed and evolving environmental and climate rules, including the EPA's Clean Power Plan and methane initiatives, could require material compliance expenditures, although the ultimate financial impact was not determinable.
- Cooling-water, nuclear safety, spent nuclear fuel, environmental remediation, pipeline integrity and other regulatory matters could create material future costs. Several matters had no estimable loss range.
- Dominion recorded receivables for expected spent nuclear fuel-related recoveries from the Department of Energy. The filing also described expected settlement receipts of approximately $27 million, $17 million and potentially $5 million for specified periods and facilities.
- Dominion reported $69 million of guarantees primarily supporting equity-method investees, with approximately $54 million of exposure, and additional maximum cumulative equity funding exposure of approximately $80 million through 2019.
- Dominion's credit exposure was $122 million at June 30, 2014. Credit-related derivative provisions could have required an additional $79 million of collateral if fully triggered.
Important Facts for Investors to Verify
- Whether the $287 million North Anna and offshore wind charge, plus expected additional charges, is fully reflected in forecasts and adjusted earnings analyses.
- The sustainability of cash generation relative to capital spending and dividends, given six-month operating cash flow of $1.447 billion versus $2.389 billion of capital additions.
- Debt maturity requirements, short-term borrowing levels and the effect of the July 2014 Equity Units on leverage, interest expense and future share dilution.
- Regulatory outcomes and rate recovery for Virginia fuel costs, rate adjustment clauses, North Anna, offshore wind and transmission matters.
- FERC approval, construction cost, financing, customer commitments and litigation exposure associated with the Cove Point liquefaction project.
- Potential costs from climate, air, water, nuclear, pipeline and environmental regulations that the filing states could be material but cannot yet be quantified.
- Changes in merchant generation margins, commodity prices, derivative valuations and counterparty credit exposure.
- The filing's statement that disclosure controls were effective and that there were no material changes to internal control over financial reporting.