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EX-99.2 - EXHIBIT 99.2 - CENTERPOINT ENERGY RESOURCES CORP | exhibit992pressrelease.htm |
8-K - 8-K - CENTERPOINT ENERGY RESOURCES CORP | cercreorg8-k.htm |
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Financial Statements (pro forma financial statements) have been derived from the historical consolidated financial statements of CenterPoint Energy Resources Corp. (CERC). The following pro forma financial statements should be read in conjunction with:
• | the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements; |
• | the consolidated financial statements of CERC as of and for the year ended December 31, 2017, included in CERC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (SEC) on February 22, 2018; and |
• | the unaudited consolidated financial statements of CERC as of and for the six months ended June 30, 2018, included in CERC’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the SEC on August 3, 2018. |
On September 4, 2018, CERC contributed its equity investment in Enable Midstream Partners, LP (Enable) consisting of approximately 54% of the common units representing limited partner interests in Enable (common units) and CERC’s 50% management interest and 40% economic interest in Enable’s general partner, Enable GP, LLC (GP interests), to CenterPoint Energy Midstream, Inc. (CenterPoint Midstream). CERC then distributed all of its equity interest in CenterPoint Midstream to Utility Holding, LLC, which then distributed all of its equity interest in CenterPoint Midstream to CenterPoint Energy, Inc. (CenterPoint Energy), hereafter collectively referred to as the Internal Spin. In connection with the Internal Spin, CenterPoint Energy made a $600 million capital contribution to CERC, which was used by CERC to repay outstanding indebtedness that historically supported CERC’s midstream assets.
The Internal Spin constituted a significant disposition and, as a result, CERC prepared the accompanying pro forma financial statements in accordance with Article 11 of Regulation S-X. Based on its magnitude, the Internal Spin represents a significant strategic shift that has a material effect on CERC’s operations and financial results. Accordingly, CERC’s equity earnings on its investment in Enable, for current and prior periods, is expected to be presented as discontinued operations for financial reporting purposes beginning with CERC’s Quarterly Report on Form 10-Q for the nine months ending September 30, 2018 (Midstream Discontinued Operations).
Additionally, CERC’s Internal Spin has been accounted for under guidance for Transactions between Entities Under Common Control subsections of ASC 805-50. Accordingly, CERC did not recognize a gain or loss upon the contribution or distribution involved in the Internal Spin discussed above.
The Unaudited Pro Forma Condensed Statements of Consolidated Income (pro forma statements of income) for the six months ended June 30, 2018, and the years ended December 31, 2017, 2016 and 2015, give effect to the Midstream Discontinued Operations as if the Internal Spin were completed on January 1, 2015. The pro forma adjustments related to the Internal Spin are only reflected in the pro forma statements of income for the six months ended June 30, 2018, and the year ended December 31, 2017. The Unaudited Pro Forma Condensed Consolidated Balance Sheet (pro forma balance sheet) as of June 30, 2018, gives effect to the Internal Spin as if it were completed on June 30, 2018.
The historical financial information has been adjusted in the pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Internal Spin, (ii) factually supportable and (iii) with respect to the statements of income, expected to have a continuing impact on CERC’s results following the Internal Spin.
The accompanying pro forma financial statements are based on the adjustments described in the accompanying Notes to Unaudited Pro Forma Condensed Financial Statements and do not purport to present CERC’s actual financial position or results of operations as if the Internal Spin described above had occurred as of the dates indicated, nor are they necessarily indicative of CERC’s financial position or results of operations that may be achieved in the future.
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2018
CERC Historical | Midstream Internal Spin (Note 2) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | |||||||||||||
(In Millions) | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||
Accounts receivable, net | 566 | — | — | 566 | ||||||||||||
Accrued unbilled revenues | 85 | — | — | 85 | ||||||||||||
Accounts receivable - affiliated companies | 15 | — | — | 15 | ||||||||||||
Materials and supplies | 67 | — | — | 67 | ||||||||||||
Natural gas inventory | 152 | — | — | 152 | ||||||||||||
Non-trading derivative assets | 74 | — | — | 74 | ||||||||||||
Prepaid expenses and other current assets | 80 | — | — | 80 | ||||||||||||
Total current assets | 1,040 | — | — | 1,040 | ||||||||||||
Property, Plant and Equipment, net | 4,968 | — | — | 4,968 | ||||||||||||
Other Assets: | ||||||||||||||||
Goodwill | 867 | — | — | 867 | ||||||||||||
Regulatory assets | 173 | — | — | 173 | ||||||||||||
Non-trading derivative assets | 46 | — | — | 46 | ||||||||||||
Investment in unconsolidated affiliate | 2,451 | (2,451 | ) | — | — | |||||||||||
Other | 97 | — | — | 97 | ||||||||||||
Total other assets | 3,634 | (2,451 | ) | — | 1,183 | |||||||||||
Total Assets | $ | 9,642 | $ | (2,451 | ) | $ | — | $ | 7,191 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET — (continued)
June 30, 2018
CERC Historical | Midstream Internal Spin (Note 2) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | |||||||||||||
(In Millions) | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Short-term borrowings | $ | — | $ | — | $ | — | $ | — | ||||||||
Accounts payable | 434 | — | — | 434 | ||||||||||||
Accounts payable - affiliated companies | 36 | — | — | 36 | ||||||||||||
Taxes accrued | 48 | — | — | 48 | ||||||||||||
Interest accrued | 38 | — | — | 38 | ||||||||||||
Customer deposits | 75 | — | — | 75 | ||||||||||||
Non-trading derivative liabilities | 26 | — | — | 26 | ||||||||||||
Other | 152 | — | — | 152 | ||||||||||||
Total current liabilities | 809 | — | — | 809 | ||||||||||||
Other Liabilities: | ||||||||||||||||
Deferred income taxes, net | 1,330 | (994 | ) | 10 | (b) | 346 | ||||||||||
Non-trading derivative liabilities | 12 | — | — | 12 | ||||||||||||
Benefit obligations | 98 | — | — | 98 | ||||||||||||
Regulatory liabilities | 1,256 | — | — | 1,256 | ||||||||||||
Other | 352 | — | — | 352 | ||||||||||||
Total other liabilities | 3,048 | (994 | ) | 10 | 2,064 | |||||||||||
Long-term Debt | 2,722 | — | (600 | ) | (a) | 2,122 | ||||||||||
Stockholder’s Equity: | ||||||||||||||||
Common stock | — | — | — | — | ||||||||||||
Paid-in capital | 2,528 | — | 600 | (a) | 3,128 | |||||||||||
Retained earnings (accumulated deficit) | 529 | (1,457 | ) | (10 | ) | (b) | (938 | ) | ||||||||
Accumulated other comprehensive income | 6 | — | — | 6 | ||||||||||||
Total stockholder’s equity | 3,063 | (1,457 | ) | 590 | (a) | 2,196 | ||||||||||
Total Liabilities and Stockholders’ Equity | $ | 9,642 | $ | (2,451 | ) | $ | — | $ | 7,191 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Six Months Ended June 30, 2018
CERC Historical | Midstream Discontinued Operations (Note 3) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | ||||||||||||
(In Millions) | |||||||||||||||
Revenues: | |||||||||||||||
Utility revenues | $ | 1,630 | $ | — | $ | — | $ | 1,630 | |||||||
Non-utility revenues | 2,098 | — | — | 2,098 | |||||||||||
Total | 3,728 | — | — | 3,728 | |||||||||||
Expenses: | |||||||||||||||
Utility natural gas | 825 | — | — | 825 | |||||||||||
Non-utility natural gas | 2,063 | — | — | 2,063 | |||||||||||
Operation and maintenance | 455 | — | — | 455 | |||||||||||
Depreciation and amortization | 145 | — | — | 145 | |||||||||||
Taxes other than income taxes | 87 | — | — | 87 | |||||||||||
Total | 3,575 | — | — | 3,575 | |||||||||||
Operating Income | 153 | — | — | 153 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest and other finance charges | (62 | ) | — | 14 | (c) | (48 | ) | ||||||||
Equity in earnings of unconsolidated affiliate, net | 127 | (127 | ) | — | — | ||||||||||
Other, net | (5 | ) | — | — | (5 | ) | |||||||||
Total | 60 | (127 | ) | 14 | (53 | ) | |||||||||
Income Before Income Taxes | 213 | (127 | ) | 14 | 100 | ||||||||||
Income tax expense | 47 | (31 | ) | 3 | (d) | 19 | |||||||||
Net Income | $ | 166 | $ | (96 | ) | $ | 11 | $ | 81 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31, 2017
CERC Historical | Midstream Discontinued Operations (Note 3) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | ||||||||||||
(In Millions) | |||||||||||||||
Revenues: | |||||||||||||||
Utility revenues | $ | 2,606 | $ | — | $ | — | $ | 2,606 | |||||||
Non-utility revenues | 3,997 | — | — | 3,997 | |||||||||||
Total | 6,603 | — | — | 6,603 | |||||||||||
Expenses: | |||||||||||||||
Utility natural gas | 1,109 | — | — | 1,109 | |||||||||||
Non-utility natural gas | 3,785 | — | — | 3,785 | |||||||||||
Operation and maintenance | 839 | — | — | 839 | |||||||||||
Depreciation and amortization | 279 | — | — | 279 | |||||||||||
Taxes other than income taxes | 147 | — | — | 147 | |||||||||||
Total | 6,159 | — | — | 6,159 | |||||||||||
Operating Income | 444 | — | — | 444 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest and other finance charges | (123 | ) | — | 35 | (c) | (88 | ) | ||||||||
Equity in earnings of unconsolidated affiliate, net | 265 | (265 | ) | — | — | ||||||||||
Other, net | (2 | ) | — | — | (2 | ) | |||||||||
Total | 140 | (265 | ) | 35 | (90 | ) | |||||||||
Income Before Income Taxes | 584 | (265 | ) | 35 | 354 | ||||||||||
Income tax expense (benefit) | (161 | ) | 410 | 13 | (d) | 262 | |||||||||
Net Income | $ | 745 | $ | (675 | ) | $ | 22 | $ | 92 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31, 2016
CERC Historical | Midstream Discontinued Operations (Note 3) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | ||||||||||||
(In Millions) | |||||||||||||||
Revenues: | |||||||||||||||
Utility revenues | $ | 2,380 | $ | — | $ | — | $ | 2,380 | |||||||
Non-utility revenues | 2,074 | — | — | 2,074 | |||||||||||
Total | 4,454 | — | — | 4,454 | |||||||||||
Expenses: | |||||||||||||||
Utility natural gas | 983 | — | — | 983 | |||||||||||
Non-utility natural gas | 1,983 | — | — | 1,983 | |||||||||||
Operation and maintenance | 777 | — | — | 777 | |||||||||||
Depreciation and amortization | 249 | — | — | 249 | |||||||||||
Taxes other than income taxes | 144 | — | — | 144 | |||||||||||
Total | 4,136 | — | — | 4,136 | |||||||||||
Operating Income | 318 | — | — | 318 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest and other finance charges | (122 | ) | — | — | (122 | ) | |||||||||
Equity in earnings of unconsolidated affiliate, net | 208 | (208 | ) | — | — | ||||||||||
Other, net | 3 | — | — | 3 | |||||||||||
Total | 89 | (208 | ) | — | (119 | ) | |||||||||
Income Before Income Taxes | 407 | (208 | ) | — | 199 | ||||||||||
Income tax expense (benefit) | 162 | (87 | ) | — | 75 | ||||||||||
Net Income | $ | 245 | $ | (121 | ) | $ | — | $ | 124 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31, 2015
CERC Historical | Midstream Discontinued Operations (Note 3) | Pro Forma Adjustments (Note 4) | CERC Pro Forma | ||||||||||||
(In Millions) | |||||||||||||||
Revenues: | |||||||||||||||
Utility revenues | $ | 2,603 | $ | — | $ | — | $ | 2,603 | |||||||
Non-utility revenues | 1,924 | — | — | 1,924 | |||||||||||
Total | 4,527 | — | — | 4,527 | |||||||||||
Expenses: | |||||||||||||||
Utility natural gas | 1,264 | — | — | 1,264 | |||||||||||
Non-utility natural gas | 1,838 | — | — | 1,838 | |||||||||||
Operation and maintenance | 741 | — | — | 741 | |||||||||||
Depreciation and amortization | 227 | — | — | 227 | |||||||||||
Taxes other than income taxes | 144 | — | — | 144 | |||||||||||
Total | 4,214 | — | — | 4,214 | |||||||||||
Operating Income | 313 | — | — | 313 | |||||||||||
Other Income (Expense): | |||||||||||||||
Interest and other finance charges | (137 | ) | — | — | (137 | ) | |||||||||
Equity in losses of unconsolidated affiliate, net | (1,633 | ) | 1,633 | — | — | ||||||||||
Other, net | 6 | — | — | 6 | |||||||||||
Total | (1,764 | ) | 1,633 | — | (131 | ) | |||||||||
Income (Loss) Before Income Taxes | (1,451 | ) | 1,633 | — | 182 | ||||||||||
Income tax expense (benefit) | (539 | ) | 610 | — | 71 | ||||||||||
Net Income (Loss) | $ | (912 | ) | $ | 1,023 | $ | — | $ | 111 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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CENTERPOINT ENERGY RESOURCES CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) | Basis of presentation |
The pro forma statements of income for the six months ended June 30, 2018, and the years ended December 31, 2017, 2016 and 2015, give effect to the Midstream Discontinued Operations as if the Internal Spin were completed on January 1, 2015. The pro forma adjustments related to the Internal Spin are only reflected in the pro forma statements of income for the six months ended June 30, 2018, and the year ended December 31, 2017. The pro forma balance sheet as of June 30, 2018, gives effect to the Internal Spin as if it were completed on June 30, 2018.
The pro forma financial statements have been derived from the historical consolidated financial statements of CERC. The historical consolidated financial statements have been adjusted in the pro forma financial statements to give effect to pro forma events that are (i) directly attributable to the Internal Spin, (ii) factually supportable and (iii) with respect to the pro forma statements of income, expected to have a continuing impact on CERC’s results following the Internal Spin.
CERC’s Internal Spin has been accounted for under guidance for Transactions between Entities Under Common Control subsections of ASC 805-50. Accordingly, CERC did not recognize a gain or loss upon the contribution or distribution involved in the Internal Spin.
The pro forma financial statements do not necessarily reflect what CERC’s financial condition or results of operations would have been had the Internal Spin occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of CERC. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
(2) | Midstream Internal Spin |
On September 4, 2018, CERC contributed its equity investment in Enable consisting of Enable common units and GP interests to CenterPoint Midstream. CERC then distributed all of its equity interest in CenterPoint Midstream to Utility Holding, LLC, which then distributed all of its equity interest in CenterPoint Midstream to CenterPoint Energy, completing the Internal Spin. The result of the Internal Spin is reflected in the Midstream Internal Spin column on the pro forma balance sheet.
(3) | Midstream Discontinued Operations |
The pro forma statements of income related to the Internal Spin have been prepared in accordance with the discontinued operations guidance in ASC 205, Financial Statement Presentation and therefore do not reflect what CERC’s or CenterPoint Midstream’s results of operations would have been on a stand-alone basis and are not necessarily indicative of CERC’s or CenterPoint Midstream’s future results of operations. The amounts included in the Midstream Discontinued Operations column do not include any allocation of general corporate overhead expenses of CERC to CenterPoint Midstream. The information in the Midstream Discontinued Operations column in the pro forma statements of income was prepared based on CERC’s interim unaudited and annual audited financial statements and only includes earnings and costs that are directly attributable to CenterPoint Midstream. CERC believes that the adjustments included within the Midstream Discontinued Operations column of the pro forma statements of income are consistent with the accounting guidance for discontinued operations.
(4) | Pro Forma Adjustments |
The following adjustments have been reflected in the pro forma statements of income for the six months ended June 30, 2018, and for the year ended December 31, 2017, and on the pro forma balance sheet as of June 30, 2018:
(a) | Contribution from CenterPoint Energy. In connection with the Internal Spin, CenterPoint Energy contributed cash of $600 million to CERC. CERC used the contributed capital to repay outstanding indebtedness that historically supported CERC’s midstream assets. |
(b) | Deferred tax asset valuation allowance. Reflects the adjustment to the valuation allowance on state net operating losses as a result of the Internal Spin. The adjustment has not been reflected on the pro forma income statements as it does not have a factually supportable continuing impact on CERC’s results following the Internal Spin. In each subsequent reporting |
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period, CERC will continue to evaluate the recoverability of its state net operating loss deferred tax assets and will record additional valuation allowances as deemed necessary.
(c) | Interest Expense. Reflects the reduction in interest expense as a result of the utilization of the capital contribution from CenterPoint Energy to repay outstanding indebtedness that historically supported CERC’s midstream assets. The reduction in interest expense was calculated by applying the weighted average interest rate for the periods presented to the $600 million reduction of outstanding indebtedness that historically supported CERC’s midstream assets. Interest expense reduction for the repayment of $600 million for the years ending December 2016 and 2015 at the weighted average interest rates for the period approximates $36 million and $39 million, respectively. No such adjustment was recorded to the pro forma income statement for the years ending December 2016 and 2015. |
(d) | Income Taxes. Represents the tax impact associated with pro forma adjustments at the applicable combined federal and state income tax statutory rates in effect for the periods presented. Additional income tax expense associated with the interest expense reduction in Note 4(c) for the years ending December 2016 and 2015 approximates $14 million and $15 million, respectively. No such adjustment was recorded to the pro forma income statement for the years ending December 2016 and 2015. |
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