CenterPoint Energy, Inc. — FY 2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013; quarterly figures below identify the fourth quarter. CenterPoint is a utility holding company operating electric transmission and distribution in the Houston area, regulated natural gas distribution in six states, Energy Services, and an equity investment in Enable Midstream Partners, LP. It does not generate electricity or sell it directly to end users.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $8.106 billion | $7.452 billion |
| Operating income | $1.010 billion | $1.038 billion |
| Net income | $311 million | $417 million |
| Diluted EPS | $0.72 | $0.97 |
| Cash from operating activities | $1.613 billion | $1.860 billion |
| Capital expenditures | $1.272 billion | $1.188 billion |
- Operating margin was approximately 12.5%, down from approximately 13.9% in 2012.
- Fourth-quarter revenue was $2.184 billion, operating income $211 million, net income $113 million, and diluted EPS $0.26. The comparable 2012 quarter reported revenue of $2.138 billion, operating income of $310 million, net income of $134 million, and diluted EPS of $0.31.
- Year-end assets were $21.870 billion, shareholders’ equity $4.329 billion, and cash and cash equivalents $208 million. Current assets of $2.658 billion were below current liabilities of $3.019 billion.
- Consolidated debt was approximately $8.4 billion, including $3.4 billion of transition and system-restoration bonds. Debt-to-capitalization was 66% including those bonds and 53% excluding them. The filing reports $2.1 billion of revolving facilities, with only letters of credit utilizing $10 million at year-end; CERC also had $118 million of commercial paper outstanding.
- Quarterly dividends declared during 2013 totaled $0.83 per share; the January 2014 announcement raised the quarterly dividend to $0.2375 per share.
Material changes versus the prior comparable period
- Revenue rose 8.8%, but operating income declined $28 million and net income fell $106 million. The 2013 effective tax rate was 60.2%, versus 44.9% in 2012; excluding specified formation-related and other tax effects, management said the 2013 rate was approximately 36.2%.
- Management attributed the net-income decline principally to the absence of the $136 million non-cash 2012 Waskom step-acquisition gain, a $130 million increase in income tax expense, and a larger loss on indexed debt securities. Higher equity earnings, lower interest expense, and increased marketable-securities gains partly offset these items.
- In May 2013, CenterPoint contributed substantially all of its former Interstate Pipelines and Field Services businesses to Enable. CenterPoint retained approximately 58.3% of Enable’s limited-partner interests, with shared control alongside OGE, and accounts for Enable on the equity method. CenterPoint recorded $173 million of Enable equity earnings for the eight months after formation and received approximately $106 million in distributions.
- Natural Gas Distribution operating income increased to $263 million from $226 million, largely on colder weather and rate increases. Electric Transmission & Distribution operating income declined to $607 million from $639 million, reflecting usage and cost pressures partly offset by customer growth. Energy Services reported $13 million of operating income, versus a $250 million loss in 2012 that included a $252 million goodwill impairment.
- Operating cash flow decreased $247 million. Investing cash outflow was $1.300 billion and financing cash outflow was $751 million; year-end cash declined from $646 million to $208 million.
Outlook, commentary, risks, and unusual items
- Management estimated 2014 capital expenditures of approximately $1.374 billion, including $781 million for electric transmission and distribution and $521 million for natural gas distribution. It expected 2014 cash needs to be funded through operating cash flow, Enable distributions, credit facilities, commercial paper, and potential debt issuance; financing on acceptable terms is not assured.
- Expected 2014 requirements included $354 million of transition and system-restoration bond principal payments, approximately $100 million of pollution-control bond purchases/redemptions, and pension contributions of about $87 million to the qualified plan, plus $9 million and $17 million to non-qualified pension and postretirement plans, respectively.
- Key risks include weather variability and seasonality, regulated-rate recovery, concentrated electric receivables from retail providers, financing access and credit downgrades, pension funding, severe weather and uninsured infrastructure damage, cybersecurity and operational interruptions, environmental and pipeline-safety requirements, and Enable’s performance, debt, customer contracts, production volumes, and distributions.
- CenterPoint Houston’s $172 million billed REP receivables included 38% due from NRG affiliates; the filing also highlights Energy Future Holdings’ disclosed creditor discussions. CenterPoint may face indirect exposure if customers or former affiliates fail to meet obligations.
- Contingencies include up to $100 million of CenterPoint guarantees for certain Enable contracts, a subordinated CERC guarantee of Enable’s $1.05 billion term loan, and a potential $58 million payout under legacy gas-transportation guarantees; no amounts were recorded for these guarantees at year-end. The filing recorded a $14 million liability for Minnesota manufactured-gas-plant remediation, with estimated possible costs of $6 million to $41 million.
- Unusual accounting and market items include the $225 million deferred tax expense associated with Enable formation, partly offset by a $29 million state-tax benefit; a $193 million loss on the indexed ZENS derivative, largely offset economically by a $236 million gain on related marketable securities; and no goodwill impairment in 2013. The 2012 results included the $252 million Energy Services impairment.
- No specific earnings guidance was provided in the supplied filing text. Management described expected continued investment in utility infrastructure and stated that weather, regulation, customer growth, cost control, and Enable’s operating performance will influence results.
Important facts for investors to verify
- Review Enable’s full-year financial statements and distribution capacity, and distinguish CenterPoint’s equity earnings from cash distributions received.
- Assess the sustainability of earnings excluding formation-related tax effects, indexed-debt valuation changes, and other non-cash or unusual items.
- Track liquidity, debt maturities, covenant headroom, credit ratings, and the funding plan for capital expenditures and pension contributions.
- Monitor REP receivable concentration and the financial condition of major retail-provider affiliates, as well as the renewal and replacement of Enable’s significant customer contracts.
- Check outcomes of pending rate matters, including the Minnesota rate case, advanced-meter surcharge reconciliation, and Minneapolis gas-franchise renewal.
Filing assurance: Deloitte & Touche issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2013.