CenterPoint Energy, Inc. (CNP)

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CenterPoint Energy (CNP)

Q3 2012 Earnings Call

November 07, 2012 11:30 am ET

Executives

Carla Kneipp

David M. McClanahan - Chief Executive Officer, President and Director

Gary L. Whitlock - Chief Financial Officer and Executive Vice President

Scott Prochazka - Chief Operating Officer and Executive Vice President

C. Gregory Harper - Senior Vice President and Group President of Pipelines & Field Services

Analysts

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Faisel Khan - Citigroup Inc, Research Division

Presentation

Operator

Good morning, and welcome to CenterPoint Energy Third Quarter 2012 Earnings Conference Call with Senior Management. [Operator Instructions] .

I will now turn the call over to Carla Kneipp, Vice President of Investor Relations. Ms. Kneipp?

Carla Kneipp

Thank you very much, Sarah. Good morning, everyone. This is Carla Kneipp, Vice President of Investor Relations for CenterPoint Energy. I'd like to welcome you to our Third Quarter 2012 Earnings Conference Call. Thank you for joining us today.

David McClanahan, President and CEO; Gary Whitlock, Executive Vice President and CFO; Scott Prochazka, Executive Vice President and Chief Operating Officer; and Greg Harper, Senior Vice President and Group President of Pipelines and Field Services, will discuss our third quarter 2012 results. We also have other members of management with us who may assist in answering questions following the prepared remarks.

Our earnings press release and Form 10-Q filed earlier today are posted on our website, centerpointenergy.com, under the Investors section. I remind you that any projections or forward-looking statements made during this call are subject to the cautionary statements on forward-looking information in the company's filings with the SEC.

Before David begins, I'd like to mention that a replay of this call will be available through Thursday, November 14, 6:00 p.m. Central Time. To access the replay, please call (855) 859-2056 or (404) 537-3406 and enter the conference ID number 30496727. You can also listen to an online replay on our website and we will archive the call for at least one year.

And with that, I will now turn the call over to David.

David M. McClanahan

Thank you, Carla. Good morning, ladies and gentlemen. Thank you for joining us today and thank you for your interest in CenterPoint Energy. This morning, I will discuss our consolidated results for the third quarter of 2012. Gary will discuss 2 unusual amount cash items recorded this quarter, as well as some recent financing activities. Scott will comment on the performance of each business unit. And finally, Greg will discuss certain aspects of our Field Services business.

This morning, we reported net income of $10 million or $0.02 per diluted share. The results for the third quarter of 2012 include 2 unusual items. First, a $252 million noncash goodwill impairment charge associated with our competitive Energy Services business. And second, a $136 million noncash pretax gain associated with our purchase of the remaining 50% interest in the Waskom gathering and processing joint venture. Excluding these unusual items, net income for the third quarter of 2012 would have been $174 million or $0.40 per diluted share.

Net income for the third quarter of 2011 was $973 million or $2.27 per diluted share. As you may recall, last year, we also recorded an unusual item. Net income of $811 million associated with the final resolution of the true-up appeal. Excluding this unusual item, net income would have been $162 million or $0.38 per diluted share.

Operating income for the third quarter was $88 million. Excluding unusual items, operating income for the third quarter would have been $340 million compared to $357 million for the same period last year.

As you will hear in a few minutes from Scott, our businesses delivered solid performances this quarter, in line with our expectations. Our regulated electric and gas distribution utilities produced strong results and despite the low natural gas prices and the lack of basis differentials, our midstream and competitive Energy Services businesses performed well.

I will now turn the call over to Gary.

Gary L. Whitlock

Thank you, David, and good morning to everyone. Today, I would first like to discuss the 2 unusual items that are included in our results for the third quarter. Then, I will review our debt refinancing, earnings guidance and dividend declaration.

The $252 million noncash impairment charge relates to the goodwill resulting from the 1997 merger between Houston Industries and NorAm Energy. $335 million of that goodwill was associated with our competitive Energy Services business.

In the third quarter of each year, we perform a goodwill impairment test. The adverse wholesale market conditions facing our Energy Services business, specifically the prospects for continued low geographic and seasonal price differentials, led to a reduction in our estimate of the fair value of goodwill associated with this business. No other business unit required a goodwill impairment charge.

We also recorded a $136 million noncash gain as a result of our acquisition of the remaining 50% interest in the Waskom joint venture. This acquisition is classified as a business combination achieved in stages requiring a writeup of our original 50% interest to fair value.

Turning to our financing activities during the quarter. We took advantage of very low interest rates and refinanced some of our debt. Specifically, Houston Electric issued $800 million of general mortgage bonds at attractive rates and redeemed $800 million of Houston Electric general mortgage bonds scheduled to mature in 2014. The redemption premium on the 2 series was approximately $69 million, and this refinancing will reduce our annual interest payments by approximately $28 million.

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