Sempra Energy/SDG&E/SoCalGas 9/30/2011 10-Q



  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 2011
   
 
or
   
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from
   
to
 
     
 
Commission File No.
Exact Name of Registrants as Specified in their Charters, Address and Telephone Number
States of Incorporation
I.R.S. Employer
Identification Nos.
Former name, former address and former fiscal year, if changed since last report
1-14201
SEMPRA ENERGY
California
33-0732627
No change
 
101 Ash Street
     
 
San Diego, California 92101
     
 
(619)696-2000
     
         
1-3779
SAN DIEGO GAS & ELECTRIC COMPANY
California
95-1184800
No change
 
8326 Century Park Court
     
 
San Diego, California 92123
     
 
(619)696-2000
     
         
1-1402
SOUTHERN CALIFORNIA GAS COMPANY
California
95-1240705
No change
 
555 West Fifth Street
     
 
Los Angeles, California 90013
     
 
(213)244-1200
     
         
 
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
           
 
Yes
X
 
No
 



 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
           
Sempra Energy
Yes
X
 
No
 
San Diego Gas & Electric Company
Yes
X
 
No
 
Southern California Gas Company
Yes
X
 
No
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
 
Large
accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Sempra Energy
[  X  ]
[      ]
[       ]
[      ]
San Diego Gas & Electric Company
[       ]
[      ]
[  X  ]
[      ]
Southern California Gas Company
[       ]
[      ]
[  X  ]
[      ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
           
Sempra Energy
Yes
   
No
X
San Diego Gas & Electric Company
Yes
   
No
X
Southern California Gas Company
Yes
   
No
X
           
Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date.
           
Common stock outstanding on October 31, 2011:
         
           
Sempra Energy
239,818,620 shares
San Diego Gas & Electric Company
Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy
Southern California Gas Company
Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy
 
 
 



SEMPRA ENERGY FORM 10-Q
SAN DIEGO GAS & ELECTRIC COMPANY FORM 10-Q
SOUTHERN CALIFORNIA GAS COMPANY FORM 10-Q
TABLE OF CONTENTS
 
 
Page
Information Regarding Forward-Looking Statements
4
   
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements
5
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
67
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
98
Item 4.
Controls and Procedures
99
     
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings
100
Item 1A.
Risk Factors
100
Item 6.
Exhibits
101
     
Signatures
103
     

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I - Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.




 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
 

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are necessarily based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors.
 
In this report, when we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "contemplates," "intends," "depends," "should," "could," "would," "will," "may," "potential," "target," "goals," or similar expressions, or when we discuss our strategy, plans or intentions, we are making forward-looking statements.
 
Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include
 
§  
local, regional, national and international economic, competitive, political, legislative and regulatory conditions and developments;
 
§  
actions by the California Public Utilities Commission, California State Legislature, Federal Energy Regulatory Commission, Nuclear Regulatory Commission, California Energy Commission, California Air Resources Board, and other regulatory, governmental and environmental bodies in the United States and other countries in which we operate;
 
§  
capital markets conditions, including the availability of credit and the liquidity of our investments;
 
§  
inflation, interest and exchange rates;
 
§  
energy markets, including the timing and extent of changes and volatility in commodity prices;
 
§  
the availability of electric power, natural gas and liquefied natural gas;
 
§  
weather conditions, natural disasters, catastrophic accidents, and conservation efforts;
 
§  
wars, terrorist attacks and cybersecurity threats;
 
§  
business, regulatory, environmental and legal decisions and requirements;
 
§  
the status of deregulation of retail natural gas and electricity delivery;
 
§  
the timing and success of business development efforts and construction, maintenance and capital projects;
 
§  
the inability or determination not to enter into long-term supply and sales agreements or long-term firm capacity agreements;
 
§  
the resolution of litigation; and
 
§  
other uncertainties, all of which are difficult to predict and many of which are beyond our control.
 
We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described in this report and in our Annual Report on Form 10-K and other reports that we file with the Securities and Exchange Commission.
 




PART I – FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 

SEMPRA ENERGY
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
(Dollars in millions, except per share amounts)
 
 
 
 
 
 
 
 
Three months ended September 30,
Nine months ended September 30,
 
2011 
2010 
2011 
2010 
 
(unaudited)
REVENUES
 
 
 
 
 
 
 
 
Utilities
$
 2,065 
$
 1,609 
$
 5,933 
$
 5,150 
Energy-related businesses
 
 511 
 
 507 
 
 1,499 
 
 1,508 
    Total revenues
 
 2,576 
 
 2,116 
 
 7,432 
 
 6,658 
EXPENSES AND OTHER INCOME
 
 
 
 
 
 
 
 
Utilities:
 
 
 
 
 
 
 
 
    Cost of natural gas
 
 (322)
 
 (305)
 
 (1,367)
 
 (1,489)
    Cost of electric fuel and purchased power
 
 (408)
 
 (203)
 
 (976)
 
 (480)
Energy-related businesses:
 
 
 
 
 
 
 
 
    Cost of natural gas, electric fuel and purchased power
 
 (252)
 
 (273)
 
 (694)
 
 (801)
    Other cost of sales
 
 (68)
 
 (22)
 
 (123)
 
 (67)
Litigation expense
 
 (17)
 
 (17)
 
 (30)
 
 (184)
Other operation and maintenance
 
 (674)
 
 (590)
 
 (1,973)
 
 (1,782)
Depreciation and amortization
 
 (251)
 
 (218)
 
 (730)
 
 (643)
Franchise fees and other taxes
 
 (84)
 
 (76)
 
 (259)
 
 (243)
Equity losses, before income tax
 
 (12)
 
 (273)
 
 (4)
 
 (266)
Remeasurement of equity method investments
 
 ― 
 
 ― 
 
 277 
 
 ― 
Other income, net
 
 12 
 
 66 
 
 86 
 
 82 
Interest income
 
 6 
 
 5 
 
 21 
 
 13 
Interest expense
 
 (118)
 
 (111)
 
 (344)
 
 (323)
Income before income taxes and equity earnings (losses)
 
 
 
 
 
 
 
 
    of certain unconsolidated subsidiaries
 
 388 
 
 99 
 
 1,316 
 
 475 
Income tax (expense) benefit
 
 (68)
 
 32 
 
 (269)
 
 (85)
Equity earnings (losses), net of income tax
 
 6 
 
 (4)
 
 45 
 
 42 
Net income
 
 326 
 
 127 
 
 1,092 
 
 432 
(Earnings) losses attributable to noncontrolling interests
 
 (29)
 
 6 
 
 (21)
 
 34 
Preferred dividends of subsidiaries
 
 (1)
 
 (2)
 
 (6)
 
 (7)
Earnings
$
 296 
$
 131 
$
 1,065 
$
 459 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
 1.23 
$
 0.53 
$
 4.44 
$
 1.86 
Weighted-average number of shares outstanding, basic (thousands)
 
 239,545 
 
 246,668 
 
 239,693 
 
 246,513 
 
 
 
 
 
 
 
 
 
Diluted earnings per common share
$
 1.22 
$
 0.53 
$
 4.40 
$
 1.84 
Weighted-average number of shares outstanding, diluted (thousands)
 
 241,880 
 
 249,811 
 
 241,955 
 
 249,773 
Dividends declared per share of common stock
$
 0.48 
$
 0.39 
$
 1.44 
$
 1.17 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
2011 
2010(1)
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
    Cash and cash equivalents
$
 657 
$
 912 
    Restricted cash
 
 133 
 
 131 
    Trade accounts receivable
 
 951 
 
 891 
    Other accounts and notes receivable
 
 146 
 
 141 
    Due from unconsolidated affiliates
 
 ― 
 
 34 
    Income taxes receivable
 
 301 
 
 248 
    Deferred income taxes
 
 ― 
 
 75 
    Inventories
 
 369 
 
 258 
    Regulatory assets
 
 83 
 
 90 
    Fixed-price contracts and other derivatives
 
 77 
 
 81 
    Settlement receivable related to wildfire litigation
 
 ― 
 
 300 
    Other
 
 221 
 
 192 
        Total current assets
 
 2,938 
 
 3,353 
 
 
 
 
 
 
Investments and other assets:
 
 
 
 
    Restricted cash
 
 2 
 
 27 
    Regulatory assets arising from pension and other postretirement
 
 
 
 
        benefit obligations
 
 824 
 
 869 
    Regulatory assets arising from wildfire litigation costs
 
 500 
 
 364 
    Other regulatory assets
 
 952 
 
 934 
    Nuclear decommissioning trusts
 
 760 
 
 769 
    Investment in RBS Sempra Commodities LLP
 
 322 
 
 787 
    Other investments
 
 1,485 
 
 2,164 
    Goodwill
 
 1,013 
 
 87 
    Other intangible assets
 
 448 
 
 453 
    Sundry
 
 669 
 
 600 
        Total investments and other assets
 
 6,975 
 
 7,054 
 
 
 
 
 
 
Property, plant and equipment:
 
 
 
 
    Property, plant and equipment
 
 30,130 
 
 27,087 
    Less accumulated depreciation and amortization
 
 (7,427)
 
 (7,211)
        Property, plant and equipment, net ($496 and $516 at September 30, 2011 and
            December 31, 2010, respectively, related to VIE)
 
 22,703 
 
 19,876 
Total assets
$
 32,616 
$
 30,283 
(1)
Derived from audited financial statements.
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SEMPRA ENERGY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
2011 
2010(1)
 
 
(unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
    Short-term debt
$
 641 
$
 158 
    Accounts payable - trade
 
 891 
 
 755 
    Accounts payable - other
 
 117 
 
 109 
    Due to unconsolidated affiliates
 
 ― 
 
 36 
    Deferred income taxes
 
 94 
 
 ― 
    Dividends and interest payable
 
 261 
 
 188 
    Accrued compensation and benefits
 
 266 
 
 311 
    Regulatory balancing accounts, net
 
 226 
 
 241 
    Current portion of long-term debt
 
 137 
 
 349 
    Fixed-price contracts and other derivatives
 
 86 
 
 106 
    Customer deposits
 
 137 
 
 129 
    Reserve for wildfire litigation
 
 507 
 
 639 
    Other
 
 632 
 
 765 
        Total current liabilities
 
 3,995 
 
 3,786 
Long-term debt ($347 and $355 at September 30, 2011 and December 31, 2010, respectively,
        related to VIE)
 
 10,033 
 
 8,980 
 
 
 
 
 
 
Deferred credits and other liabilities:
 
 
 
 
    Customer advances for construction
 
 142 
 
 154 
    Pension and other postretirement benefit obligations, net of plan assets
 
 1,085 
 
 1,105 
    Deferred income taxes
 
 1,852 
 
 1,561 
    Deferred investment tax credits
 
 47 
 
 50 
    Regulatory liabilities arising from removal obligations
 
 2,658 
 
 2,630 
    Asset retirement obligations
 
 1,510 
 
 1,449 
    Other regulatory liabilities
 
 103 
 
 138 
    Fixed-price contracts and other derivatives
 
 310 
 
 290 
    Deferred credits and other
 
 818 
 
 823 
        Total deferred credits and other liabilities
 
 8,525 
 
 8,200 
Contingently redeemable preferred stock of subsidiary
 
 79 
 
 79 
 
 
 
 
 
 
Commitments and contingencies (Note 10)
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
    Preferred stock (50 million shares authorized; none issued)
 
 ― 
 
 ― 
    Common stock (750 million shares authorized; 240 million shares
 
 
 
 
        outstanding at both September 30, 2011 and December 31, 2010, no par value)
 
 2,089 
 
 2,036 
    Retained earnings
 
 8,048 
 
 7,329 
    Deferred compensation
 
 (4)
 
 (8)
    Accumulated other comprehensive income (loss)
 
 (503)
 
 (330)
        Total Sempra Energy shareholders' equity
 
 9,630 
 
 9,027 
    Preferred stock of subsidiaries
 
 20 
 
 100 
    Other noncontrolling interests
 
 334 
 
 111 
        Total equity
 
 9,984 
 
 9,238 
Total liabilities and equity
$
 32,616 
$
 30,283 
(1)
Derived from audited financial statements.
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2011 
2010 
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
    Net income
$
 1,092 
$
 432 
    Adjustments to reconcile net income to net cash provided
 
 
 
 
        by operating activities:
 
 
 
 
            Depreciation and amortization
 
 730 
 
 643 
            Deferred income taxes and investment tax credits
 
 224 
 
 133 
            Equity (earnings) losses
 
 (41)
 
 224 
            Remeasurement of equity method investments
 
 (277)
 
 ― 
            Fixed-price contracts and other derivatives
 
 (7)
 
 19 
            Other
 
 (43)
 
 (24)
    Net change in other working capital components
 
 (108)
 
 (77)
    Distributions from RBS Sempra Commodities LLP
 
 53 
 
 198 
    Changes in other assets
 
 31 
 
 76 
    Changes in other liabilities
 
 (11)
 
 (22)
        Net cash provided by operating activities
 
 1,643 
 
 1,602 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
    Expenditures for property, plant and equipment
 
 (2,031)
 
 (1,354)
    Expenditures for investments and acquisition of businesses, net of cash acquired
 
 (696)
 
 (385)
    Distributions from RBS Sempra Commodities LLP
 
 374 
 
 849 
    Distributions from other investments
 
 47 
 
 259 
    Purchases of nuclear decommissioning and other trust assets
 
 (399)
 
 (261)
    Proceeds from sales by nuclear decommissioning and other trusts
 
 398 
 
 261 
    Decrease in restricted cash
 
 473 
 
 55 
    Increase in restricted cash
 
 (450)
 
 (51)
    Other
 
 (20)
 
 (6)
        Net cash used in investing activities
 
 (2,304)
 
 (633)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
    Common dividends paid
 
 (325)
 
 (269)
    Redemption of subsidiary preferred stock
 
 (80)
 
 ― 
    Preferred dividends paid by subsidiaries
 
 (6)
 
 (7)
    Issuances of common stock
 
 22 
 
 29 
    Repurchases of common stock
 
 (18)
 
 (502)
    Issuances of debt (maturities greater than 90 days)
 
 1,525 
 
 771 
    Payments on debt (maturities greater than 90 days)
 
 (366)
 
 (727)
    (Decrease) increase in short-term debt, net
 
 (300)
 
 184 
    Purchase of noncontrolling interests
 
 (43)
 
 ― 
    Other
 
 (5)
 
 (11)
        Net cash provided by (used in) financing activities
 
 404 
 
 (532)
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
 2 
 
 ― 
 
 
 
 
 
(Decrease) increase in cash and cash equivalents
 
 (255)
 
 437 
Cash and cash equivalents, January 1
 
 912 
 
 110 
Cash and cash equivalents, September 30
$
 657 
$
 547 
See Notes to Condensed Consolidated Financial Statements.



SEMPRA ENERGY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2011 
2010 
 
(unaudited)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
 
    Interest payments, net of amounts capitalized
$
 281 
$
 264 
    Income tax payments, net
 
 106 
 
 32 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
 
 
 
 
    Acquisition of businesses:
 
 
 
 
       Assets acquired
$
 2,831 
$
 303 
       Cash paid, net of cash acquired
 
 (611)
 
 (292)
       Fair value of equity method investments immediately prior to the acquisition
 
 (882)
 
 ― 
       Fair value of noncontrolling interests
 
 (279)
 
 ― 
       Additional consideration accrued
 
 (32)
 
 ― 
       Liabilities assumed
$
 1,027 
$
 11 
 
 
 
 
 
    Increase in capital lease obligations for investments in property, plant and equipment
$
 ― 
$
 183 
    Accrued capital expenditures
 
 306 
 
 294 
    Dividends declared but not paid
 
 119 
 
 97 
See Notes to Condensed Consolidated Financial Statements.


SAN DIEGO GAS & ELECTRIC COMPANY
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
(Dollars in millions)
 
 
 
 
 
 
 
 
Three months ended September 30,
Nine months ended September 30,
 
2011 
2010 
2011 
2010 
 
(unaudited)
Operating revenues
 
 
 
 
 
 
 
 
    Electric
$
 763 
$
 718 
$
 2,011 
$
 1,870 
    Natural gas
 
 105 
 
 93 
 
 394 
 
 375 
        Total operating revenues
 
 868 
 
 811 
 
 2,405 
 
 2,245 
Operating expenses
 
 
 
 
 
 
 
 
    Cost of electric fuel and purchased power
 
 207 
 
 203 
 
 534 
 
 480 
    Cost of natural gas
 
 40 
 
 37 
 
 175 
 
 170 
    Operation and maintenance
 
 255 
 
 235 
 
 756 
 
 704 
    Depreciation and amortization
 
 108 
 
 96 
 
 316 
 
 283 
    Franchise fees and other taxes
 
 48 
 
 42 
 
 138 
 
 126 
        Total operating expenses
 
 658 
 
 613 
 
 1,919 
 
 1,763 
Operating income
 
 210 
 
 198 
 
 486 
 
 482 
Other income (expense), net
 
 26 
 
 (2)
 
 55 
 
 (18)
Interest expense
 
 (37)
 
 (37)
 
 (104)
 
 (99)
Income before income taxes
 
 199 
 
 159 
 
 437 
 
 365 
Income tax expense
 
 (63)
 
 (56)
 
 (154)
 
 (131)
Net income
 
 136 
 
 103 
 
 283 
 
 234 
(Earnings) losses attributable to noncontrolling interests
 
 (21)
 
 5 
 
 (6)
 
 34 
Earnings
 
 115 
 
 108 
 
 277 
 
 268 
Preferred dividend requirements
 
 (2)
 
 (2)
 
 (4)
 
 (4)
Earnings attributable to common shares
$
 113 
$
 106 
$
 273 
$
 264 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
 
2011 
2010(1)
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
    Cash and cash equivalents
$
 303 
$
 127 
    Restricted cash
 
 129 
 
 116 
    Accounts receivable - trade
 
 274 
 
 248 
    Accounts receivable - other
 
 22 
 
 59 
    Due from unconsolidated affiliates
 
 11 
 
 12 
    Income taxes receivable
 
 100 
 
 37 
    Deferred income taxes
 
 ― 
 
 129 
    Inventories
 
 69 
 
 71 
    Regulatory assets arising from fixed-price contracts and other derivatives
 
 64 
 
 66 
    Other regulatory assets
 
 7 
 
 5 
    Fixed-price contracts and other derivatives
 
 14 
 
 28 
    Settlement receivable related to wildfire litigation
 
 ― 
 
 300 
    Other
 
 66 
 
 50 
        Total current assets
 
 1,059 
 
 1,248 
 
 
 
 
 
 
Other assets:
 
 
 
 
    Restricted cash
 
 2 
 
 ― 
    Deferred taxes recoverable in rates
 
 550 
 
 502 
    Regulatory assets arising from fixed-price contracts and other derivatives
 
 203 
 
 233 
    Regulatory assets arising from pension and other postretirement
 
 
 
 
        benefit obligations
 
 255 
 
 279 
    Regulatory assets arising from wildfire litigation costs
 
 500 
 
 364 
    Other regulatory assets
 
 72 
 
 73 
    Nuclear decommissioning trusts
 
 760 
 
 769 
    Sundry
 
 127 
 
 56 
        Total other assets
 
 2,469 
 
 2,276 
 
 
 
 
 
 
Property, plant and equipment:
 
 
 
 
    Property, plant and equipment
 
 12,205 
 
 11,247 
    Less accumulated depreciation and amortization
 
 (2,717)
 
 (2,694)
        Property, plant and equipment, net ($496 and $516 at September 30, 2011 and
            December 31, 2010, respectively, related to VIE)
 
 9,488 
 
 8,553 
Total assets
$
 13,016 
$
 12,077 
(1)
Derived from audited financial statements.
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
 
2011 
2010(1)
 
 
(unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
    Accounts payable
$
 346 
$
 292 
    Due to unconsolidated affiliate
 
 23 
 
 16 
    Deferred income taxes
 
 12 
 
 ― 
    Accrued compensation and benefits
 
 90 
 
 115 
    Regulatory balancing accounts, net
 
 142 
 
 61 
    Current portion of long-term debt
 
 19 
 
 19 
    Fixed-price contracts and other derivatives
 
 51 
 
 51 
    Customer deposits
 
 61 
 
 54 
    Reserve for wildfire litigation
 
 507 
 
 639 
    Other
 
 172 
 
 136 
        Total current liabilities
 
 1,423 
 
 1,383 
Long-term debt ($347 and $355 at September 30, 2011 and December 31, 2010,
    respectively, related to VIE)
 
 3,813 
 
 3,479 
 
 
 
 
 
 
Deferred credits and other liabilities:
 
 
 
 
    Customer advances for construction
 
 20 
 
 21 
    Pension and other postretirement benefit obligations, net of plan assets
 
 288 
 
 309 
    Deferred income taxes
 
 1,137 
 
 1,001 
    Deferred investment tax credits
 
 23 
 
 25 
    Regulatory liabilities arising from removal obligations
 
 1,420 
 
 1,409 
    Asset retirement obligations
 
 648 
 
 619 
    Fixed-price contracts and other derivatives
 
 247 
 
 248 
    Deferred credits and other
 
 245 
 
 283 
        Total deferred credits and other liabilities
 
 4,028 
 
 3,915 
Contingently redeemable preferred stock
 
 79 
 
 79 
 
 
 
 
 
 
Commitments and contingencies (Note 10)
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
    Common stock (255 million shares authorized; 117 million shares outstanding;
 
 
 
 
        no par value)
 
 1,338 
 
 1,138 
    Retained earnings
 
 2,253 
 
 1,980 
    Accumulated other comprehensive income (loss)
 
 (9)
 
 (10)
        Total SDG&E shareholder's equity
 
 3,582 
 
 3,108 
    Noncontrolling interest
 
 91 
 
 113 
        Total equity
 
 3,673 
 
 3,221 
Total liabilities and equity
$
 13,016 
$
 12,077 
(1)
Derived from audited financial statements.
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SAN DIEGO GAS & ELECTRIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
 
 
 
 
 
Nine months ended
September 30,
 
2011 
2010
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
    Net income
$
 283 
$
 234 
    Adjustments to reconcile net income to net cash provided by
 
 
 
 
        operating activities:
 
 
 
 
            Depreciation and amortization
 
 316 
 
 283 
            Deferred income taxes and investment tax credits
 
 226 
 
 125 
            Fixed price contracts and other derivatives
 
 (13)
 
 42 
            Other
 
 (43)
 
 (24)
    Net change in other working capital components
 
 18 
 
 (247)
    Changes in other assets
 
 32 
 
 15 
    Changes in other liabilities
 
 ― 
 
 (12)
        Net cash provided by operating activities
 
 819 
 
 416 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
    Expenditures for property, plant and equipment
 
 (1,162)
 
 (822)
    Purchases of nuclear decommissioning trust assets
 
 (395)
 
 (256)
    Proceeds from sales by nuclear decommissioning trusts
 
 389 
 
 248 
    Decrease in loans to affiliates, net
 
 ― 
 
 13 
    Decrease in restricted cash
 
 340 
 
 55 
    Increase in restricted cash
 
 (355)
 
 (51)
        Net cash used in investing activities
 
 (1,183)
 
 (813)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
    Capital contribution
 
 200 
 
 ― 
    Capital contribution (distribution) at Otay Mesa VIE
 
 5 
 
 (10)
    Preferred dividends paid
 
 (4)
 
 (4)
    Issuances of long-term debt
 
 348 
 
 744 
    Payments on long-term debt
 
 (7)
 
 (7)
    Other
 
 (2)
 
 (7)
        Net cash provided by financing activities
 
 540 
 
 716 
 
 
 
 
 
Increase in cash and cash equivalents
 
 176 
 
 319 
Cash and cash equivalents, January 1
 
 127 
 
 13 
Cash and cash equivalents, September 30
$
 303 
$
 332 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
 
    Interest payments, net of amounts capitalized
$
 80 
$
 67 
    Income tax payments, net
 
 59 
 
 61 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
 
 
 
 
    Increase in capital lease obligations for investments in property, plant, and equipment
$
 ― 
$
 183 
    Accrued capital expenditures
 
 161 
 
 102 
    Dividends declared but not paid
 
 1 
 
 1 
See Notes to Condensed Consolidated Financial Statements.


SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
(Dollars in millions)
 
 
 
 
 
 
 
 
Three months ended September 30,
Nine months ended September 30,
 
2011 
2010 
2011 
2010 
 
(unaudited)
 
 
 
 
 
 
 
 
 
Operating revenues
$
 844 
$
 776 
$
 2,776 
$
 2,792 
Operating expenses
 
 
 
 
 
 
 
 
    Cost of natural gas
 
 267 
 
 252 
 
 1,133 
 
 1,244 
    Operation and maintenance
 
 331 
 
 285 
 
 946 
 
 840 
    Depreciation
 
 83 
 
 78 
 
 246 
 
 230 
    Franchise fees and other taxes
 
 28 
 
 27 
 
 94 
 
 92 
        Total operating expenses
 
 709 
 
 642 
 
 2,419 
 
 2,406 
Operating income
 
 135 
 
 134 
 
 357 
 
 386 
Other income, net
 
 3 
 
 2 
 
 9 
 
 8 
Interest income
 
 1 
 
 1 
 
 1 
 
 1 
Interest expense
 
 (17)
 
 (17)
 
 (52)
 
 (50)
Income before income taxes
 
 122 
 
 120 
 
 315 
 
 345 
Income tax expense
 
 (41)
 
 (42)
 
 (106)
 
 (132)
Net income
 
 81 
 
 78 
 
 209 
 
 213 
Preferred dividend requirements
 
 ― 
 
 ― 
 
 (1)
 
 (1)
Earnings attributable to common shares
$
 81 
$
 78 
$
 208 
$
 212 
See Notes to Condensed Consolidated Financial Statements.
 
 
 
 



SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
 
2011 
2010(1)
 
 
(unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
    Cash and cash equivalents
$
 16 
$
 417 
    Accounts receivable - trade
 
 287 
 
 534 
    Accounts receivable - other
 
 77 
 
 49 
    Due from unconsolidated affiliates
 
 168 
 
 63 
    Income taxes receivable
 
 14 
 
 28 
    Inventories
 
 185 
 
 105 
    Regulatory assets
 
 8 
 
 12 
    Other
 
 38 
 
 39 
        Total current assets
 
 793 
 
 1,247 
 
 
 
 
 
Other assets:
 
 
 
 
    Regulatory assets arising from pension and other postretirement
 
 
 
 
        benefit obligations
 
 565 
 
 586 
    Other regulatory assets
 
 126 
 
 123 
    Sundry
 
 9 
 
 8 
        Total other assets
 
 700 
 
 717 
 
 
 
 
 
Property, plant and equipment:
 
 
 
 
    Property, plant and equipment
 
 10,132 
 
 9,824 
    Less accumulated depreciation and amortization
 
 (3,844)
 
 (3,802)
        Property, plant and equipment, net
 
 6,288 
 
 6,022 
Total assets
$
 7,781 
$
 7,986 
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.



SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
 
 
September 30,
December 31,
 
 
2011 
2010(1)
 
 
(unaudited)
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
    Accounts payable - trade
$
 225 
$
 327 
    Accounts payable - other
 
 76 
 
 79 
    Due to unconsolidated affiliate
 
 10 
 
 11 
    Deferred income taxes
 
 16 
 
 17 
    Accrued compensation and benefits
 
 96 
 
 98 
    Regulatory balancing accounts, net
 
 84 
 
 180 
    Current portion of long-term debt
 
 8 
 
 262 
    Customer deposits
 
 71 
 
 73 
    Other
 
 162 
 
 163 
        Total current liabilities
 
 748 
 
 1,210 
Long-term debt
 
 1,315 
 
 1,320 
Deferred credits and other liabilities:
 
 
 
 
    Customer advances for construction
 
 112 
 
 133 
    Pension and other postretirement benefit obligations, net of plan assets
 
 591 
 
 613 
    Deferred income taxes
 
 535 
 
 418 
    Deferred investment tax credits
 
 23 
 
 25 
    Regulatory liabilities arising from removal obligations
 
 1,224 
 
 1,208 
    Asset retirement obligations
 
 819 
 
 788 
    Deferred taxes refundable in rates
 
 103 
 
 138 
    Deferred credits and other
 
 196 
 
 178 
        Total deferred credits and other liabilities
 
 3,603 
 
 3,501 
 
 
 
 
 
Commitments and contingencies (Note 10)
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
    Preferred stock
 
 22 
 
 22 
    Common stock (100 million shares authorized; 91 million shares outstanding;
 
 
 
 
        no par value)
 
 866 
 
 866 
    Retained earnings
 
 1,247 
 
 1,089 
    Accumulated other comprehensive income (loss)
 
 (20)
 
 (22)
        Total shareholders' equity
 
 2,115 
 
 1,955 
Total liabilities and shareholders' equity
$
 7,781 
$
 7,986 
(1)
Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.



SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
 
Nine months ended September 30,
 
2011 
2010 
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
    Net income
$
 209 
$
 213 
    Adjustments to reconcile net income to net cash provided by
 
 
 
 
        operating activities:
 
 
 
 
            Depreciation
 
 246 
 
 230 
            Deferred income taxes and investment tax credits
 
 79 
 
 62 
            Other
 
 (4)
 
 2 
    Net change in other working capital components
 
 (46)
 
 62 
    Changes in other assets
 
 17 
 
 6 
    Changes in other liabilities
 
 (6)
 
 (6)
        Net cash provided by operating activities
 
 495 
 
 569 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
    Expenditures for property, plant and equipment
 
 (499)
 
 (337)
    Increase in loans to affiliates, net
 
 (96)
 
 (108)
        Net cash used in investing activities
 
 (595)
 
 (445)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
    Common dividends paid
 
 (50)
 
 (100)
    Payment of long-term debt
 
 (250)
 
 ― 
    Preferred dividends paid
 
 (1)
 
 (1)
        Net cash used in financing activities
 
 (301)
 
 (101)
 
 
 
 
 
(Decrease) increase in cash and cash equivalents
 
 (401)
 
 23 
Cash and cash equivalents, January 1
 
 417 
 
 49 
Cash and cash equivalents, September 30
$
 16 
$
 72 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
 
 
 
    Interest payments, net of amounts capitalized
$
 39 
$
 37 
    Income tax payments, net
 
 17 
 
 63 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
 
 
 
 
    Accrued capital expenditures
$
 81 
$
 63 
See Notes to Condensed Consolidated Financial Statements.




SEMPRA ENERGY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 1. GENERAL
 

 
PRINCIPLES OF CONSOLIDATION
 
 
Sempra Energy
 
Sempra Energy's Condensed Consolidated Financial Statements include the accounts of Sempra Energy, a California-based Fortune 500 holding company, and its consolidated subsidiaries and variable interest entities (VIEs). Sempra Energy’s principal subsidiaries are
 
§  
San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas), which we collectively refer to as the Sempra Utilities; and
 
§  
Sempra Global, the holding company for our energy-related businesses, which are Sempra Generation, Sempra Pipelines & Storage and Sempra LNG. Sempra Pipelines & Storage also owns utilities in the U.S., Mexico, and South America.
 
Sempra Energy uses the equity method to account for investments in affiliated companies over which we have the ability to exercise significant influence, but not control. We discuss our investments in unconsolidated subsidiaries in Note 4 below and Note 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
 
SDG&E
 
SDG&E's Condensed Consolidated Financial Statements include its accounts and the accounts of a VIE of which SDG&E is the primary beneficiary, as we discuss in Note 5 under "Variable Interest Entities." SDG&E’s common stock is wholly owned by Enova Corporation, which is a wholly owned subsidiary of Sempra Energy.
 
 
SoCalGas
 
SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations. SoCalGas’ common stock is wholly owned by Pacific Enterprises (PE), which is a wholly owned subsidiary of Sempra Energy.
 
 
BASIS OF PRESENTATION
 
This is a combined report of Sempra Energy, SDG&E and SoCalGas. We provide separate information for SDG&E and SoCalGas as required. References in this report to "we," "our" and "Sempra Energy Consolidated" are to Sempra Energy and its consolidated entities, unless otherwise indicated by the context. We have eliminated intercompany accounts and transactions within the consolidated financial statements of each reporting entity.
 
We have prepared the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with the interim-period-reporting requirements of Form 10-Q. Results of operations for interim periods are not necessarily indicative of results for the entire year. We evaluated events and transactions that occurred after September 30, 2011 through the date the financial statements were issued and, in the opinion of management, the accompanying statements reflect all adjustments necessary for a fair presentation.  These adjustments are only of a normal, recurring nature.
 
As we discuss in Note 3, in April 2011, Sempra Pipelines & Storage acquired two electric distribution utilities in South America. Sempra Pipelines & Storage also owns Mobile Gas Service Corporation (Mobile Gas) in southwest Alabama and Ecogas Mexico, S de RL de CV (Ecogas) in Northern Mexico, both natural gas distribution utilities. Previous to the quarterly report for the quarter ended June 30, 2011, we provided separate revenue and cost of revenue information on our consolidated statements of operations for the Sempra Utilities only, as the amounts for Mobile Gas and Ecogas were immaterial. Due to the addition of the South American utilities, beginning with the quarterly report for the quarter ended June 30, 2011, we are providing separate revenue and cost of revenue information on the Condensed Consolidated Statements of Operations on a combined basis for all of our utilities. Accordingly, amounts in the prior periods have been reclassified to conform with the current year presentation.
 
All December 31, 2010 balance sheet information in the Condensed Consolidated Financial Statements has been derived from our audited 2010 consolidated financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the interim-period-reporting provisions of GAAP and the Securities and Exchange Commission.
 
You should read the information in this Quarterly Report in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 (the Annual Report) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 which are combined reports for Sempra Energy, SDG&E, PE and SoCalGas, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, which is a combined report of Sempra Energy, SDG&E and SoCalGas. PE is no longer obligated to file such annual or quarterly reports due to the redemption of its preferred stock on June 30, 2011 as we discuss in Note 5.
 
We describe our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. We follow the same accounting policies for interim reporting purposes, except for the adoption of new accounting standards as we discuss in Note 2.
 
The Sempra Utilities and Sempra Pipelines & Storage's Mobile Gas and Ecogas prepare their financial statements in accordance with GAAP provisions governing regulated operations, as we discuss in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
 

 

NOTE 2. NEW ACCOUNTING STANDARDS
 

We describe below recent pronouncements that have had or may have a significant effect on our financial statements. We do not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to our financial condition, results of operations, or disclosures.
 
 
SEMPRA ENERGY, SDG&E AND SOCALGAS
 
Accounting Standards Update (ASU) 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs)" (ASU 2011-04): ASU 2011-04 amends Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, and provides changes in the wording used to describe the requirements for measuring fair value and disclosing information about fair value measurement.  ASU 2011-04 results in common fair value measurement and disclosure requirements under both GAAP and IFRSs.
 
ASU 2011-04 expands fair value measurement disclosures for Level 3 instruments to require
 
§  
quantitative information about the unobservable inputs
 
§  
a description of the valuation process
 
§  
a qualitative discussion about the sensitivity of the measurements
 
We will adopt ASU 2011-04 on January 1, 2012 as required and do not expect it to affect our financial position or results of operations.  We will provide the additional disclosure in our 2012 interim financial statements.
 
ASU 2011-05, "Presentation of Comprehensive Income" (ASU 2011-05): ASU 2011-05 amends ASC Topic 220, Comprehensive Income, and eliminates the option to report other comprehensive income and its components in the statement of changes in equity.  The ASU allows an entity an option to present the components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.
 
ASU 2011-05 does not change the items that must be reported in other comprehensive income, when an item of other comprehensive income must be reclassified to net income, or the earnings per share computation.
 
We will adopt ASU 2011-05 on January 1, 2012 and present our 2012 interim financial statements as required by the ASU.
 
ASU 2011-08, "Testing Goodwill for Impairment" (ASU 2011-08): ASU 2011-08 amends ASC Topic 350, Intangibles—Goodwill and Other, to provide an option to first make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step, quantitative goodwill impairment test.  An entity is required to perform the two-step, quantitative impairment test only if it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
 
We will adopt ASU 2011-08 for our annual goodwill impairment testing as of October 1, 2011.  We do not expect it to significantly affect our testing of goodwill.
 


 

NOTE 3. ACQUISITION AND INVESTMENT ACTIVITY
 

 
SEMPRA PIPELINES & STORAGE
 
 
Chilquinta Energía S.A. (Chilquinta Energía) and Luz del Sur S.A.A. (Luz del Sur)
 
On April 6, 2011, Sempra Pipelines & Storage acquired from AEI its interests in Chilquinta Energía in Chile and Luz del Sur in Peru, and their subsidiaries. Prior to the acquisition, Sempra Pipelines & Storage and AEI each owned 50 percent of Chilquinta Energía and approximately 38 percent of Luz del Sur. Upon completion of the acquisition, Sempra Pipelines & Storage owned 100 percent of Chilquinta Energía and approximately 76 percent of Luz del Sur, with the remaining shares of Luz del Sur held by institutional investors and the general public. As part of the transaction, Sempra Pipelines & Storage also acquired AEI’s interests in two energy-services companies, Tecnored S.A. and Tecsur S.A. The adjusted purchase price of $888 million resulted from valuing the net assets in Chile, Peru and other holding companies at $495 million, $385 million and $8 million, respectively. We paid $611 million in cash ($888 million less $245 million of cash acquired and $32 million of consideration withheld for a liability related to the purchase).
 
As part of our acquisition of AEI’s interest in Luz del Sur, we were required to launch a tender offer to the minority shareholders of Luz del Sur to purchase their shares (up to a maximum 14.73 percent interest in Luz del Sur). On August 8, 2011, we initiated a public tender offer for up to 14.73 percent of Luz del Sur’s stock that began on August 9, 2011 and concluded on September 6, 2011 at a price of $2.29 per share. The per share value, computed according to procedures established by the local securities regulatory agency, was based on an independent appraiser’s valuation of $2.22 per share as of April 6, 2011, the date of acquisition, adjusted by an interest rate factor to the value as of August 1, 2011. The interest rate factor is published daily by the Central Bank of Peru. On September 13, 2011, we purchased 18,918,954 additional Luz del Sur shares for $43 million in settlement of the mandatory public tender offer, bringing Sempra Pipelines & Storage’s ownership to 79.82 percent.  This equity transaction is presented as Purchase of Noncontrolling Interests on our Condensed Consolidated Statement of Cash Flows.
 
We expect the acquisition to be accretive to our earnings per share in 2011 and beyond, based on historically strong operating performance of the companies and assuming the continuation of sound regulatory environments within stable, growing countries. We provide additional information about Sempra Pipelines & Storage’s investments in Chilquinta Energía and Luz Del Sur in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
 
We allocated the purchase price on a preliminary basis in the second quarter of 2011.  In the third quarter of 2011, we adjusted the preliminary allocation for additional assets and liabilities identified, including an $11 million premium related to long-term debt at Chilquinta Energía.  The retrospective application of these adjustments to the prior quarter was de minimus.  During the measurement period, up to one year from the acquisition date, we may obtain additional information that allows us to more accurately allocate the purchase price.  We will make appropriate adjustments to the purchase price allocation during the measurement period as required.  At this time, we do not expect material changes to the value of the assets acquired or liabilities assumed in conjunction with this transaction as presented below.  The following table summarizes the consideration paid in the acquisition and the recognized amounts of the assets acquired and liabilities assumed, as well as the fair value at the acquisition date of the noncontrolling interests:
 




PURCHASE PRICE ALLOCATION
(Dollars in millions)
 
 
 
At April 6, 2011
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
 
Chilean
 
Peruvian
 
holding
 
Preliminary
 
Adjust-
 
Adjusted
 
 
 entities
 
entities
 
companies
 
Allocation
 
ments
 
Allocation
Fair value of businesses acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash consideration (fair value of total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    consideration)
$
 495 
$
 385 
$
 8 
$
 888 
$
 ― 
$
 888 
 
 
Fair value of equity method
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    investments immediately prior to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    the acquisition
 
 495 
 
 385 
 
 2 
 
 882 
 
 ― 
 
 882 
 
 
Fair value of noncontrolling interests
 
 37 
 
 242 
 
 ― 
 
 279 
 
 ― 
 
 279 
Total fair value of businesses acquired
 
 1,027 
 
 1,012 
 
 10 
 
 2,049 
 
 ― 
 
 2,049 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recognized amounts of identifiable assets
 
 
 
 
 
 
 
 
 
 
 
 
 
acquired and liabilities assumed:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash
 
 219 
 
 22 
 
 4 
 
 245 
 
 ― 
 
 245 
 
 
Accounts receivable(1)
 
 159 
 
 101 
 
 6 
 
 266 
 
 2 
 
 268 
 
 
Other current assets
 
 20 
 
 19 
 
 ― 
 
 39 
 
 ― 
 
 39 
 
 
Property, plant and equipment
 
 554 
 
 931 
 
 ― 
 
 1,485 
 
 1 
 
 1,486 
 
 
Other noncurrent assets
 
 66 
 
 ― 
 
 ― 
 
 66 
 
 2 
 
 68 
 
 
Accounts payable
 
 (79)
 
 (59)
 
 ― 
 
 (138)
 
 ― 
 
 (138)
 
 
Short-term debt and current portion
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    of long-term debt
 
 ― 
 
 (47)
 
 ― 
 
 (47)
 
 ― 
 
 (47)
 
 
Other current liabilities
 
 (29)
 
 (56)
 
 ― 
 
 (85)
 
 (5)
 
 (90)
 
 
Long-term debt
 
 (294)
 
 (179)
 
 ― 
 
 (473)
 
 (11)
 
 (484)
 
 
Other noncurrent liabilities
 
 (90)
 
 (178)
 
 ― 
 
 (268)
 
 ― 
 
 (268)
Total identifiable net assets
 
 526 
 
 554 
 
 10 
 
 1,090 
 
 (11)
 
 1,079 
Goodwill
$
 501 
$
 458 
$
 ― 
$
 959 
$
 11 
$
 970 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related costs (included in Other
 
 
 
 
 
 
 
 
 
 
 
 
 
Operation and Maintenance expense on
 
 
 
 
 
 
 
 
 
 
 
 
 
the Condensed Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
Statements of Operations for the nine
 
 
 
 
 
 
 
 
 
 
 
 
 
months ended September 30, 2011)
$
 1 
$
 1 
$
 ― 
$
 2 
$
 ― 
$
 2 
(1)
We expect acquired accounts receivable to be substantially realizable in cash. Accounts receivable are net of collection allowances of $6 million for Chile and $1 million for Peru.

Our results for the nine months ended September 30, 2011 include a $277 million gain (both pretax and after-tax) related to the remeasurement of equity method investments, included as Remeasurement of Equity Method Investments on our Condensed Consolidated Statement of Operations. We calculated the gain as the difference between the acquisition-date fair value ($882 million) and the book value ($605 million) of our equity interests in Chilquinta Energía and Luz del Sur immediately prior to the acquisition date. This book value of our equity interests included currency translation adjustment balances in Accumulated Other Comprehensive Income (Loss). The valuation techniques we used to allocate the purchase price to the businesses included discounted cash flow analysis and the market multiple approach (enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA)). Our assumptions for these measures included estimated future cash flows, use of appropriate discount rates, market trading multiples and market transaction multiples. Discount rates used reflect consideration of risk free rates, as well as country and company risk. Methodologies used to determine fair values of material assets as of the date of the acquisition included

 
§  
the replacement cost approach for property, plant and equipment; and
 
§  
goodwill associated primarily with the value