Dominion Resources, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. The filing covers Dominion Resources, Inc. and its wholly owned regulated utility subsidiary, Virginia Electric and Power Company (Virginia Power). Dominion produces and transports energy through regulated electric, merchant generation, gas transmission and storage, gas distribution, LNG and related businesses.
Key Financial Metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenue | $2,980 million | $3,005 million | $6,503 million | $6,402 million |
| Income from operations | $548 million | $628 million | $1,478 million | $1,546 million |
| Operating margin | 18.4% | 20.9% | 22.7% | 24.1% |
| Income from continuing operations attributable to Dominion | $272 million | $290 million | $766 million | $794 million |
| Net income attributable to Dominion | $202 million | $258 million | $697 million | $752 million |
| Diluted EPS | $0.35 | $0.45 | $1.21 | $1.31 |
| Dividends declared per common share | $0.5625 | $0.5275 | $1.1250 | $1.0550 |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $1,791 million | $2,398 million |
| Capital expenditures and other property additions | Not separately provided | Not separately provided | $1,950 million | $1,960 million |
Dominion's continuing-operations net margin was approximately 9.1% in the second quarter and 11.8% year to date, compared with approximately 9.7% and 12.4%, respectively, in the comparable 2012 periods.
Balance Sheet, Debt and Liquidity
- At June 30, 2013, Dominion reported total assets of $48.4 billion, cash and cash equivalents of $190 million, total liabilities of $37.1 billion and total equity of $11.1 billion.
- Dominion's long-term debt was $18.0 billion, including $1.1 billion of remarketable subordinated notes; current securities due within one year were $1.9 billion and short-term debt was $2.1 billion.
- Dominion had $3.5 billion of revolving credit facilities, with $1.4 billion available after commercial paper and letters of credit. Virginia Power had $164 million of capacity available under its joint facilities.
- Cash declined by $58 million during the first six months, ending at $190 million. Operating cash flow of $1.8 billion was largely offset by $1.9 billion of investing outflows and $650 million of common dividends.
- Dominion issued $1.1 billion of equity units in June 2013 and used proceeds for general corporate purposes, debt repayment and growth projects, including Cove Point liquefaction.
Material Changes Versus the Prior Comparable Period
- Second-quarter net income attributable to Dominion declined 22% to $202 million, and diluted EPS fell $0.10 to $0.35. Six-month net income declined 7% to $697 million.
- Revenue was nearly flat in the second quarter and increased 2% year to date. Net revenue declined $77 million in the quarter and $20 million year to date, reflecting weaker retail energy marketing, producer services and merchant generation results.
- Merchant generation output fell 19% in the quarter and 11% year to date, primarily due to the Millstone refueling outage and the May 2013 closure of Kewaunee. Regulated electric results benefited from more favorable weather and rate-adjustment-clause revenue.
- Dominion Energy benefited from higher gas transmission revenue from the Appalachian Gateway and Northeast Expansion projects. Dominion Energy's net income contribution increased $15 million in the quarter and $45 million year to date.
- Virginia Power's net income increased 54% to $265 million in the quarter and 33% to $552 million year to date. Lower storm restoration costs, favorable weather, rate-adjustment clauses and lower fuel and purchased-capacity costs more than offset higher depreciation and taxes.
- Operating cash flow declined $607 million for Dominion and $236 million for Virginia Power, primarily because of lower deferred fuel cost recoveries, working-capital changes, lower energy marketing and merchant-generation margins, and higher margin collateral requirements.
Guidance, Outlook, Commentary and Unusual Items
- The filing does not provide a clear numerical full-year earnings or EPS guidance figure. Management states that operations are expected to provide a stable cash source for planned capital expenditures and dividends.
- Planned Dominion capital expenditures were approximately $5.1 billion for 2013, $5.1 billion for 2014 and $4.3 billion for 2015, with increases primarily related to the Cove Point liquefaction project.
- Dominion commenced a restructuring of producer services expected to be completed by year-end 2013. Natural gas trading and certain energy marketing activities are being terminated to reduce earnings volatility; management does not expect a material business impact.
- Dominion agreed to sell Brayton Point, Kincaid and its 50% interest in Elwood for approximately $472 million, subject to adjustments. The transaction was expected to close in the third quarter of 2013 pending FERC approval. Brayton Point and Kincaid generated a $70 million second-quarter discontinued-operations loss, including a $6 million after-tax impairment charge and $38 million after-tax debt-extinguishment costs during the first six months.
- Dominion completed the sale of Illinois Gas Contracts for approximately $32 million, recording a $29 million pretax gain, or $18 million after tax.
- Dominion recorded a $49 million pretax impairment charge, or $29 million after tax, on certain natural gas infrastructure facilities purchased from third parties.
- Dominion remeasured pension and other postretirement plans in the second quarter. The remeasurement reduced benefit obligations by approximately $432 million and is expected to reduce 2013 net periodic benefit cost by approximately $36 million, excluding one-time curtailment effects.
- Key risks include weather, commodity-price volatility, merchant-generation margins, counterparty credit, interest rates, capital-market access, nuclear operations, environmental compliance, regulatory decisions, construction execution, litigation and cybersecurity.
- Potentially material future costs may arise from cooling-water intake and steam-electric wastewater rules, greenhouse-gas regulation, nuclear safety enhancements, environmental remediation and other regulatory proceedings. The filing states that certain impacts cannot yet be estimated.
Most Important Facts to Verify
- Whether the Brayton Point and Kincaid sale closed as expected and the final proceeds, adjustments and retained liabilities.
- Actual full-year earnings guidance, if provided subsequently, and the effect of the producer-services restructuring on recurring earnings.
- Progress, cost and regulatory status of the Cove Point liquefaction project and related capital spending.
- Changes in Dominion's debt, equity-unit settlement obligations, credit-facility availability and collateral requirements.
- Final outcomes and financial impacts of FERC, Virginia Commission and environmental proceedings, including cooling-water, wastewater and greenhouse-gas requirements.
- Merchant-generation availability and margins following the Millstone outage, Kewaunee closure and other facility dispositions.
- Whether cash flow remains sufficient to fund capital expenditures and the dividend without materially increasing leverage.