Sempra Energy's Second-Quarter 2017 Earnings Rise

 Three months 

 ended June 30, 

 Six months ended June 30, 

2017

2016

2017

(Unaudited; Dollars, except EPS, and shares, in millions)

As Recast

Adjustmentfor Share-BasedComp.(1)

AsOriginallyReported

GAAP Earnings

$ 259

$    16

$    700

$       369

$        (34)

$     335

Losses Related to Termoeléctrica de Mexicali (TdM) Held For Sale

45

2

42

26

-

26

(Recoveries) Losses Related to Permanent Releases of Pipeline Capacity

(28)

123

(28)

123

-

123

Tax Repairs Adjustments Related to General Rate Case (GRC)

-

80

-

80

-

80

Retroactive Q1-16 GRC Benefit

-

(21)

-

-

-

-

Loss Related to Rockies Express Pipeline

-

-

-

27

-

27

Adjusted Earnings(2)

$ 276

$ 200

$    714

$       625

$        (34)

$     591

Diluted weighted-average shares outstanding

253

252

253

252

252

252

GAAP EPS

$1.03

$0.06

$   2.77

$      1.47

$     (0.14)

$    1.33

Adjusted EPS(2)

$1.10

$0.79

$   2.83

$      2.48

$     (0.14)

$    2.35

(1) Reflects adoption of Accounting Standards Update 2016-09 as of Jan. 1, 2016. For more information, refer to Sempra Energy's Form 10-Q.

(2) Sempra Energy adjusted earnings and adjusted EPS are non-GAAP financial measures. See Table A in the appendix for information regarding non-GAAP financial measures and descriptions of adjustments above.

SEMPRA ENERGY

Table A

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months endedJune 30,

Six months endedJune 30,

(Dollars in millions, except per share amounts)

2017

2016(1)

2017

2016(1)

(unaudited)

REVENUES

Utilities

$

2,197

$

1,994

$

4,895

$

4,436

Energy-related businesses

336

162

669

342

Total revenues

2,533

2,156

5,564

4,778

EXPENSES AND OTHER INCOME

Utilities:

Cost of electric fuel and purchased power

(553)

(561)

(1,080)

(1,076)

Cost of natural gas

(228)

(183)

(713)

(494)

Energy-related businesses:

Cost of natural gas, electric fuel and purchased power

(62)

(62)

(129)

(118)

Other cost of sales

38

(226)

16

(261)

Operation and maintenance

(731)

(706)

(1,445)

(1,406)

Depreciation and amortization

(368)

(314)

(728)

(642)

Franchise fees and other taxes

(101)

(96)

(211)

(207)

Impairment losses

(71)

(21)

(71)

(22)

Equity earnings (losses), before income tax

18

14

21

(8)

Other income, net

91

23

260

72

Interest income

8

6

14

12

Interest expense

(159)

(142)

(328)

(285)

Income (loss) before income taxes and equity earnings (losses) of certain unconsolidated subsidiaries

415

(112)

1,170

343

Income tax (expense) benefit

(167)

106

(462)

(2)

Equity earnings (losses), net of income tax

—

33

(8)

50

Net income

248

27

700

391

Losses (earnings) attributable to noncontrolling interests

12

(10)

1

(21)

Preferred dividends of subsidiary

(1)

(1)

(1)

(1)

Earnings

$

259

$

16

$

700

$

369

Basic earnings per common share

$

1.03

$

0.06

$

2.79

$

1.48

Weighted-average number of shares outstanding, basic (thousands)

251,447

250,096

251,290

249,915

Diluted earnings per common share

$

1.03

$

0.06

$

2.77

$

1.47

Weighted-average number of shares outstanding, diluted (thousands)

252,822

252,036

252,609

251,775

Dividends declared per share of common stock

$

0.83

$

0.75

$

1.65

$

1.51

(1)

As adjusted for the adoption of ASU 2016-09 as of January 1, 2016.

SEMPRA ENERGY

Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY ADJUSTED EARNINGS TO SEMPRA ENERGY GAAP EARNINGS (Unaudited)

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Share exclude items (after the effects of taxes and, if applicable, noncontrolling interests) in 2017 and 2016 as follows:

Three months ended June 30, 2017:

▪

$(47) million impairment of Sempra Mexico's Termoeléctrica de Mexicali (TdM) assets held for sale

▪

$2 million deferred income tax benefit on the TdM assets held for sale

▪

$28 million of recoveries related to 2016 permanent release of pipeline capacity

Three months ended June 30, 2016:

▪

$(123) million losses from the permanent release of pipeline capacity at Sempra LNG & Midstream

▪

$(80) million adjustments related to tax repairs deductions reallocated to ratepayers as a result of the 2016 General Rate Case Final Decision (2016 GRC FD) at the California Utilities

▪

$21 million incremental revenue increases for the first quarter of 2016 from the retroactive application of the 2016 GRC FD at the California Utilities

▪

$(2) million deferred income tax expense on the TdM assets held for sale

Six months ended June 30, 2017:

▪

$(47) million impairment of TdM assets held for sale

▪

$5 million deferred income tax benefit on the TdM assets held for sale

▪

$28 million of recoveries related to 2016 permanent release of pipeline capacity

Six months ended June 30, 2016:

▪

$(123) million losses from the permanent release of pipeline capacity at Sempra LNG & Midstream

▪

$(80) million adjustments related to tax repairs deductions reallocated to ratepayers as a result of the 2016 GRC FD at the California Utilities

▪

$(27) million impairment charge related to Sempra LNG & Midstream's investment in Rockies Express Pipeline LLC (Rockies Express)

▪

$(26) million deferred income tax expense on the TdM assets held for sale

Sempra Energy Adjusted Earnings and Adjusted Earnings Per Share are non-GAAP financial measures (GAAP represents accounting principles generally accepted in the United States of America). Because of the significance and/or nature of the excluded items, management believes that these non-GAAP financial measures provide a meaningful comparison of the performance of Sempra Energy's business operations from 2017 to 2016 and to future periods. Non-GAAP financial measures are supplementary information that should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. The table below reconciles for historical periods these non-GAAP financial measures to Sempra Energy Earnings and Diluted Earnings Per Common Share, which we consider to be the most directly comparable financial measures calculated in accordance with GAAP.

Pretaxamount

Income tax(benefit)expense(1)

Non-controllinginterests

Earnings

Pretaxamount

Income taxexpense(benefit)(1)

Non-controllinginterests

Earnings

(Dollars in millions, except per share amounts)

Three months ended June 30, 2017

Three months ended June 30, 2016(2)

Sempra Energy GAAP Earnings

$

259

$

16

Excluded items:

Impairment of TdM assets held for sale

$

71

$

—

$

(24)

47

$

—

$

—

$

—

—

Deferred income tax (benefit) expense associated with TdM

—

(3)

1

(2)

—

3

(1)

2

Recoveries related to 2016 permanent release of pipeline capacity

(47)

19

—

(28)

—

—

—

—

Permanent release of pipeline capacity

—

—

—

—

206

(83)

—

123

SDG&E tax repairs adjustments related to 2016 GRC FD

—

—

—

—

52

(21)

—

31

SoCalGas tax repairs adjustments related to 2016 GRC FD

—

—

—

—

83

(34)

—

49

SDG&E retroactive impact of 2016 GRC FD for Q1 2016

—

—

—

—

(15)

6

—

(9)

SoCalGas retroactive impact of 2016 GRC FD for Q1 2016

—

—

—

—

(20)

8

—

(12)

Sempra Energy Adjusted Earnings

$

276

$

200

Diluted earnings per common share:

Sempra Energy GAAP Earnings

$

1.03

$

0.06

Sempra Energy Adjusted Earnings

$

1.10

$

0.79

Weighted-average number of shares outstanding, diluted (thousands)

252,822

252,036

Six months ended June 30, 2017

Six months ended June 30, 2016(2)

Sempra Energy GAAP Earnings

$

700

$

369

Excluded items:

Impairment of TdM assets held for sale

$

71

$

—

$

(24)

47

$

—

$

—

$

—

—

Deferred income tax (benefit) expense associated with TdM

—

(8)

3

(5)

—

32

(6)

26

Recoveries related to 2016 permanent release of pipeline capacity

(47)

19

—

(28)

—

—

—

—

Permanent release of pipeline capacity

—

—

—

—

206

(83)

—

123

SDG&E tax repairs adjustments related to 2016 GRC FD

—

—

—

—

52

(21)

—

31

SoCalGas tax repairs adjustments related to 2016 GRC FD

—

—

—

—

83

(34)

—

49

Impairment of investment in Rockies Express

—

—

—

—

44

(17)

—

27

Sempra Energy Adjusted Earnings

$

714

$

625

Diluted earnings per common share:

   Sempra Energy GAAP Earnings

$

2.77

$

1.47

   Sempra Energy Adjusted Earnings

$

2.83

$

2.48

Weighted-average number of shares outstanding, diluted (thousands)

252,609

251,775

(1)

Income taxes were calculated based on applicable statutory tax rates, except for adjustments that are solely income tax. Income taxes associated with TdM were calculated based on the applicable statutory tax rate, including translation from historic to current exchange rates. An income tax benefit of $12 million associated with the 2017 TdM impairment has been fully reserved.

(2)

Reflects the adoption of ASU 2016-09 as of January 1, 2016.

SEMPRA ENERGY

Table A (Continued)

RECONCILIATION OF SEMPRA ENERGY 2017 ADJUSTED EARNINGS-PER-SHARE GUIDANCE RANGE TO SEMPRA ENERGY 2017 GAAP EARNINGS-PER-SHARE GUIDANCE RANGE (Unaudited)

Sempra Energy 2017 Adjusted Earnings-Per-Share Guidance Range of $5.00 to $5.30 excludes items (after the effects of taxes and, if applicable, noncontrolling interests) as follows:

▪ $(47) million impairment of Sempra Mexico's TdM assets held for sale

▪ $5 million deferred income tax benefit on the TdM assets held for sale

▪ $28 million of recoveries related to 2016 permanent release of pipeline capacity

Sempra Energy 2017 Adjusted Earnings-Per-Share Guidance is a non-GAAP financial measure. Because of the significance and/or nature of the excluded items, management believes this non-GAAP financial measure provides additional clarity into the ongoing results of the business and the comparability of such results to prior and future periods and also as a base for projected earnings-per-share compound annual growth rate. Sempra Energy 2017 Adjusted Earnings-Per-Share Guidance should not be considered an alternative to Earnings-Per-Share Guidance determined in accordance with GAAP. The table below reconciles Sempra Energy 2017 Adjusted Earnings-Per-Share Guidance Range to Sempra Energy 2017 GAAP Earnings-Per-Share Guidance Range, which we consider to be the most directly comparable financial measure calculated in accordance with GAAP.

Full-Year 2017

Sempra Energy GAAP Earnings-Per-Share Guidance Range

$

4.95

to

$

5.25

Excluded items(1):

Impairment of TdM assets held for sale

0.18

0.18

Deferred income tax benefit associated with TdM

(0.02)

(0.02)

Recoveries related to 2016 permanent release of pipeline capacity

(0.11)

(0.11)

Sempra Energy Adjusted Earnings-Per-Share Guidance Range

$

5.00

to

$

5.30

Weighted-average number of shares outstanding, diluted (thousands)

254,000

The effects of taxes and noncontrolling interests for excluded items are provided above in the reconciliation of Sempra Energy GAAP Earnings to Sempra Energy Adjusted Earnings.

SEMPRA ENERGY

Table B

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

June 30,2017

December 31,2016(1)

(unaudited)

Assets

Current assets:

  Cash and cash equivalents

$

223

$

349

  Restricted cash

70

66

  Accounts receivable, net

1,304

1,554

  Due from unconsolidated affiliates

26

26

  Income taxes receivable

110

43

  Inventories

239

258

  Regulatory balancing accounts – undercollected

261

259

  Fixed-price contracts and other derivatives

186

83

  Assets held for sale

109

201

Other

239

271

Total current assets

2,767

3,110

Other assets:

  Restricted cash

17

10

  Due from unconsolidated affiliates

373

201

  Regulatory assets

3,569

3,414

  Nuclear decommissioning trusts

1,029

1,026

  Investments

2,134

2,097

  Goodwill

2,379

2,364

  Other intangible assets

541

548

  Dedicated assets in support of certain benefit plans

427

430

  Insurance receivable for Aliso Canyon costs

554

606

  Deferred income taxes

166

234

  Sundry

859

815

Total other assets

12,048

11,745

Property, plant and equipment, net

34,561

32,931

Total assets

$

49,376

$

47,786

Liabilities and Equity

Current liabilities:

  Short-term debt

$

1,826

$

1,779

  Accounts payable

1,167

1,476

  Due to unconsolidated affiliates

11

11

  Dividends and interest payable

339

319

  Accrued compensation and benefits

314

409

  Regulatory balancing accounts – overcollected

204

122

  Current portion of long-term debt

1,287

913

  Fixed-price contracts and other derivatives

109

83

  Customer deposits

158

158

  Reserve for Aliso Canyon costs

63

53

  Liabilities held for sale

47

47

  Other

538

557

  Total current liabilities

6,063

5,927

Long-term debt

15,000

14,429

Deferred credits and other liabilities:

  Customer advances for construction

146

152

  Pension and other postretirement benefit plan obligations, net of plan assets

1,240

1,208

  Deferred income taxes

4,191

3,745

  Deferred investment tax credits

27

28

  Regulatory liabilities arising from removal obligations

2,746

2,697

  Asset retirement obligations

2,469

2,431

  Fixed-price contracts and other derivatives

330

405

  Deferred credits and other

1,559

1,523

 Total deferred credits and other liabilities

12,708

12,189

Equity:

  Total Sempra Energy shareholders' equity

13,332

12,951

  Preferred stock of subsidiary

20

20

  Other noncontrolling interests

2,253

2,270

 Total equity

15,605

15,241

Total liabilities and equity

$

49,376

$

47,786

(1)

Derived from audited financial statements.

SEMPRA ENERGY

Table C

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

(Dollars in millions)

2017

2016(1)

(unaudited)

Cash Flows from Operating Activities

Net income

$

700

$

391

Adjustments to reconcile net income to net cash provided by operating activities:

  Depreciation and amortization

728

642

  Deferred income taxes and investment tax credits

411

(76)

  Impairment losses

71

22

  Equity earnings, net

(13)

(42)

  Fixed-price contracts and other derivatives

(142)

41

  Other

(19)

45

Net change in other working capital components

138

167

Insurance receivable for Aliso Canyon costs

52

(354)

Changes in other assets

(88)

(67)

Changes in other liabilities

51

147

  Net cash provided by operating activities

1,889

916

Cash Flows from Investing Activities

Expenditures for property, plant and equipment

(1,802)

(2,006)

Expenditures for investments

(97)

(46)

Proceeds from sale of assets

4

443

Distributions from investments

18

12

Purchases of nuclear decommissioning and other trust assets

(823)

(206)

Proceeds from sales by nuclear decommissioning and other trusts

823

204

Increases in restricted cash

(194)

(32)

Decreases in restricted cash

185

44

Advances to unconsolidated affiliates

(183)

(9)

Repayments of advances to unconsolidated affiliates

2

9

Other

—

(6)

Net cash used in investing activities

(2,067)

(1,593)

Cash Flows from Financing Activities

Common dividends paid

(368)

(335)

Preferred dividends paid by subsidiary

(1)

(1)

Issuances of common stock

28

29

Repurchases of common stock

(14)

(54)

Issuances of debt (maturities greater than 90 days)

1,932

1,384

Payments on debt (maturities greater than 90 days)

(1,006)

(986)

(Decrease) increase in short-term debt, net

(493)

865

Net distributions to noncontrolling interests

(25)

(10)

Other

(9)

(10)

  Net cash provided by financing activities

44

882

Effect of exchange rate changes on cash and cash equivalents

8

8

(Decrease) increase in cash and cash equivalents

(126)

213

Cash and cash equivalents, January 1

349

403

Cash and cash equivalents, June 30

$

223

$

616

(1)

As adjusted for the adoption of ASU 2016-09 as of January 1, 2016.

SEMPRA ENERGY

Table D

SEGMENT EARNINGS (LOSSES) AND CAPITAL EXPENDITURES AND INVESTMENTS

Three months endedJune 30,

Six months endedJune 30,

(Dollars in millions)

2017

2016

2017

2016(1)

(unaudited)

Earnings (Losses)

Sempra Utilities:

  San Diego Gas & Electric

$

149

$

100

$

304

$

236

  Southern California Gas

58

(1)

261

198

  Sempra South American Utilities

45

43

92

81

Sempra Infrastructure:

  Sempra Mexico

(9)

57

39

75

  Sempra Renewables

23

12

34

26

  Sempra LNG & Midstream

27

(149)

28

(181)

Parent and other

(34)

(46)

(58)

(66)

Earnings

$

259

$

16

$

700

$

369

Three months endedJune 30,

Six months endedJune 30,

(Dollars in millions)

2017

2016

2017

2016

(unaudited)

Capital Expenditures and Investments

Sempra Utilities:

  San Diego Gas & Electric

$

345

$

273

$

763

$

602

  Southern California Gas

325

310

682

650

  Sempra South American Utilities

34

39

77

82

Sempra Infrastructure:

  Sempra Mexico

87

100

227

140

  Sempra Renewables

31

279

100

478

  Sempra LNG & Midstream

22

45

37

92

Parent and other

4

5

13

8

Consolidated Capital Expenditures and Investments

$

848

$

1,051

$

1,899

$

2,052

(1)

As adjusted for the adoption of ASU 2016-09 as of January 1, 2016.

SEMPRA ENERGY

Table E

OTHER OPERATING STATISTICS (Unaudited)

Three months endedJune 30,

Six months endedJune 30,

UTILITIES

2017

2016

2017

2016

SDG&E and SoCalGas

Gas Sales (Bcf)(1)

71

73

197

186

Transportation (Bcf)(1)

148

144

304

292

Total Deliveries (Bcf)(1)

219

217

501

478

Total Gas Customers (Thousands)

6,825

6,789

Electric Sales (Millions of kWhs)(1)

3,565

3,512

7,329

7,285

Direct Access (Millions of kWhs)

786

772

1,573

1,606

Total Deliveries (Millions of kWhs)(1)

4,351

4,284

8,902

8,891

Total Electric Customers (Thousands)

1,438

1,429

Other Utilities

Natural Gas Sales (Bcf)

Sempra Mexico

7

7

15

15

Mobile Gas(2) (3)

—

11

—

24

Willmut Gas(3)

—

1

—

2

Natural Gas Customers (Thousands)

Sempra Mexico

120

116

Mobile Gas(2) (3)

—

85

Willmut Gas(3)

—

19

Electric Sales (Millions of kWhs)

Peru

1,780

1,887

3,674

3,836

Chile

691

682

1,502

1,481

Electric Customers (Thousands)

Peru

1,086

1,065

Chile

696

679

ENERGY-RELATED BUSINESSES

Sempra Infrastructure

Power Sold (Millions of kWhs)

Sempra Mexico(4)

650

665

1,705

1,245

Sempra Renewables(5)

1,192

725

2,206

1,492

Sempra LNG & Midstream

229

243

494

464

(1)

Includes intercompany sales.

(2)

Includes transportation.

(3)

On September 12, 2016, Sempra LNG & Midstream completed the sale of the parent company of Mobile Gas and Willmut Gas.

(4)

Includes power sold at the Termoeléctrica de Mexicali natural gas-fired power plant and in 2017, at the Ventika wind power generation facilities acquired in December 2016. Also includes 50 percent of total power sold at the Energía Sierra Juárez wind power generation facility, in which Sempra Energy has a 50-percent ownership interest. Energía Sierra Juárez is not consolidated within Sempra Energy, and the related investment is accounted for under the equity method.

(5)

Includes 50 percent of total power sold related to solar and wind projects in which Sempra Energy has a 50-percent ownership. These subsidiaries are not consolidated within Sempra Energy, and the related investments are accounted for under the equity method.

SEMPRA ENERGY

 Table F (Unaudited)

STATEMENTS OF OPERATIONS DATA BY SEGMENT

Three months ended June 30, 2017

(Dollars in millions)

SDG&E

SoCalGas

SempraSouthAmericanUtilities

SempraMexico

SempraRenewables

SempraLNG &Midstream

ConsolidatingAdjustments,Parent &Other

Total

Revenues

$

1,058

$

770

$

381

$

273

$

26

$

122

$

(97)

$

2,533

Cost of sales and other expenses

(651)

(549)

(294)

(130)

(20)

(71)

78

(1,637)

Depreciation and amortization

(166)

(126)

(13)

(37)

(10)

(11)

(5)

(368)

Impairment loss

—

—

—

(71)

—

—

—

(71)

Equity earnings, before income tax

—

—

—

—

16

2

—

18

Other income, net

15

9

2

60

1

—

4

91

Income (loss) before interest and tax (1)

256

104

76

95

13

42

(20)

566

Net interest (expense) income (2)

(49)

(27)

(5)

(17)

(2)

3

(55)

(152)

Income tax (expense) benefit

(54)

(19)

(20)

(102)

5

(18)

41

(167)

(Earnings) losses attributable to noncontrolling interests

(4)

—

(6)

15

7

—

—

12

Earnings (losses)

$

149

$

58

$

45

$

(9)

$

23

$

27

$

(34)

$

259

Three months ended June 30, 2016

(Dollars in millions)

SDG&E

SoCalGas

SempraSouthAmericanUtilities

SempraMexico

SempraRenewables

SempraLNG &Midstream

ConsolidatingAdjustments,Parent &Other

Total

Revenues

$

992

$

617

$

385

$

147

$

6

$

90

$

(81)

$

2,156

Cost of sales and other expenses

(664)

(495)

(306)

(86)

(13)

(336)

66

(1,834)

Depreciation and amortization

(158)

(112)

(14)

(15)

(2)

(12)

(1)

(314)

Impairment loss

—

(21)

—

—

—

—

—

(21)

Equity earnings, before income tax

—

—

—

—

11

3

—

14

Other income (expense), net

13

6

5

(15)

1

1

12

23

Income (loss) before interest and tax (1)

183

(5)

70

31

3

(254)

(4)

24

Net interest (expense) income (2)

(48)

(25)

(6)

(3)

—

7

(62)

(137)

Income tax (expense) benefit

(48)

29

(15)

12

9

99

20

106

Equity earnings, net of income tax

—

—

—

33

—

—

—

33

Losses (earnings) attributable to noncontrolling interests

13

—

(6)

(16)

—

(1)

—

(10)

Earnings (losses)

$

100

$

(1)

$

43

$

57

$

12

$

(149)

$

(46)

$

16

(1)

Management believes Income (Loss) Before Interest and Tax is a useful measurement of our segments' performance because it can be used to evaluate the effectiveness of our operations exclusive of interest and income tax, neither of which is directly relevant to the efficiency of those operations.

(2)

Includes interest income, interest expense and preferred dividends of subsidiary.

SEMPRA ENERGY

Table F (Unaudited)

STATEMENTS OF OPERATIONS DATA BY SEGMENT

Six months ended June 30, 2017

(Dollars in millions)

SDG&E

SoCalGas

SempraSouthAmericanUtilities

SempraMexico

SempraRenewables

SempraLNG &Midstream

ConsolidatingAdjustments,Parent &Other

Total

Revenues

$

2,115

$

2,011

$

793

$

537

$

48

$

254

$

(194)

$

5,564

Cost of sales and other expenses

(1,267)

(1,349)

(620)

(251)

(35)

(199)

159

(3,562)

Depreciation and amortization

(329)

(252)

(26)

(73)

(19)

(21)

(8)

(728)

Impairment loss

—

—

—

(71)

—

—

—

(71)

Equity earnings, before income tax

—

—

—

—

18

3

—

21

Other income, net

33

20

5

187

1

1

13

260

Income (loss) before interest and tax (1)

552

430

152

329

13

38

(30)

1,484

Net interest (expense) income (2)

(98)

(52)

(9)

(47)

(5)

9

(113)

(315)

Income tax (expense) benefit

(144)

(117)

(39)

(244)

16

(19)

85

(462)