Converted by EDGARwiz


  

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

June 30, 2009

 

 

 

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)696-2034

 

 

 

 

 

 

 

 

1-3779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

 

8326 Century Park Court

 

 

 

 

San Diego, California 92123

 

 

 

 

(619)696-2000

 

 

 

 

 

 

 

 

1-40

PACIFIC ENTERPRISES

California

94-0743670

No change

 

101 Ash Street

 

 

 

 

San Diego, California 92101

 

 

 

 

(619)696-2020

 

 

 

 

 

 

 

 

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 registrants have submitted electronically and posted on their 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

 

 

No

 

Pacific Enterprises

Yes

 

 

No

 

Southern California Gas Company

Yes

 

 

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  ]

[      ]

Pacific Enterprises

[       ]

[      ]

[  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

Pacific Enterprises

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 July 24, 2009:

 

 

 

 

 

 

 

 

 

 

 

Sempra Energy

245,337,795 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy

Pacific Enterprises

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
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

66

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

90

Item 4.

Controls and Procedures

91

 

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

92

Item 1A.

Risk Factors

92

Item 4.

Submission of Matters to a Vote of Security Holders

93

Item 6.

Exhibits

94

 

 

 

Signatures

96

 

 

 


This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company, Pacific Enterprises and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company provides information only as to itself and its consolidated entities and not 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.

In this report, when we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "contemplates," "intends," "depends," "should," "could," "would," "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, the California State Legislature, the California Department of Water Resources, the Federal Energy Regulatory Commission, the Federal Reserve Board, and other regulatory and governmental bodies in the United States, the United Kingdom and other countries;

§

capital markets conditions and inflation, interest and exchange rates;

§

energy and trading 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 and conservation efforts;

§

war and terrorist attacks;

§

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;

§

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 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 June 30,

Six months ended June 30,

 

2009 

2008*

2009 

2008*

 

(unaudited)

REVENUES

 

 

 

 

 

 

 

 

Sempra Utilities

$

 1,316 

$

 1,887 

$

 2,958 

$

 4,177 

Sempra Global and parent

 

 373 

 

 616 

 

 839 

 

 1,596 

    Total revenues

 

 1,689 

 

 2,503 

 

 3,797 

 

 5,773 

EXPENSES AND OTHER INCOME

 

 

 

 

 

 

 

 

Sempra Utilities:

 

 

 

 

 

 

 

 

    Cost of natural gas

 

 (249)

 

 (784)

 

 (789)

 

 (2,019)

    Cost of electric fuel and purchased power

 

 (129)

 

 (220)

 

 (300)

 

 (383)

Sempra Global and parent:

 

 

 

 

 

 

 

 

    Cost of natural gas, electric fuel and purchased power

 

 (187)

 

 (513)

 

 (455)

 

 (922)

    Other cost of sales

 

 (16)

 

 (17)

 

 (33)

 

 (153)

Operation and maintenance

 

 (589)

 

 (549)

 

 (1,105)

 

 (1,252)

Depreciation and amortization

 

 (189)

 

 (171)

 

 (372)

 

 (346)

Franchise fees and other taxes

 

 (69)

 

 (71)

 

 (151)

 

 (154)

Gains on sale of assets

 

 3 

 

 109 

 

 3 

 

 114 

Write-off of long-lived assets

 

 (132)

 

 - 

 

 (132)

 

 - 

Equity earnings:

 

 

 

 

 

 

 

 

    RBS Sempra Commodities LLP

 

 126 

 

 146 

 

 279 

 

 146 

    Other

 

 2 

 

 9 

 

 9 

 

 15 

Other income, net

 

 70 

 

 32 

 

 73 

 

 51 

Interest income

 

 5 

 

 10 

 

 11 

 

 24 

Interest expense

 

 (79)

 

 (38)

 

 (161)

 

 (98)

Income before income taxes and equity earnings

 

 

 

 

 

 

 

 

    of certain unconsolidated subsidiaries

 

 256 

 

 446 

 

 674 

 

 796 

Income tax expense

 

 (90)

 

 (202)

 

 (199)

 

 (329)

Equity earnings, net of income tax

 

 23 

 

 18 

 

 39 

 

 39 

Net income

 

 189 

 

 262 

 

 514 

 

 506 

(Earnings) losses attributable to noncontrolling interests

 

 12 

 

 (15)

 

 5 

 

 (15)

Preferred dividends of subsidiaries

 

 (3)

 

 (3)

 

 (5)

 

 (5)

Earnings

$

 198 

$

 244 

$

 514 

$

 486 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

 0.82 

$

 0.99 

$

 2.12 

$

 1.93 

Weighted-average number of shares outstanding,

 

 

 

 

 

 

 

 

    basic (thousands)

 

 242,718 

 

 245,576 

 

 242,245 

 

 252,100 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

 0.80 

$

 0.98 

$

 2.09 

$

 1.90 

Weighted-average number of shares outstanding,

 

 

 

 

 

 

 

 

    diluted (thousands)

 

 247,090 

 

 249,677 

 

 246,039 

 

 256,169 

Dividends declared per share of common stock

$

 0.39 

$

 0.35 

$

 0.78 

$

 0.67 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 818 

$

 331 

    Short-term investments

 

 - 

 

 176 

    Restricted cash

 

 27 

 

 27 

    Trade accounts receivable, net

 

 596 

 

 903 

    Other accounts and notes receivable, net

 

 119 

 

 78 

    Due from unconsolidated affiliates

 

 21 

 

 4 

    Income taxes receivable

 

 114 

 

 195 

    Deferred income taxes

 

 96 

 

 31 

    Inventories

 

 169 

 

 320 

    Regulatory assets

 

 88 

 

 121 

    Fixed-price contracts and other derivatives

 

 100 

 

 160 

    Insurance receivable related to wildfire litigation (Note 10)

 

 940 

 

 - 

    Other

 

 236 

 

 130 

        Total current assets

 

 3,324 

 

 2,476 

 

 

 

 

 

Investments and other assets:

 

 

 

 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 252 

 

 264 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 1,212 

 

 1,188 

    Other regulatory assets

 

 558 

 

 534 

    Nuclear decommissioning trusts

 

 580 

 

 577 

    Investment in RBS Sempra Commodities LLP

 

 2,019 

 

 2,082 

    Other investments

 

 1,470 

 

 1,166 

    Goodwill and other intangible assets

 

 529 

 

 539 

    Sundry

 

 565 

 

 709 

        Total investments and other assets

 

 7,185 

 

 7,059 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 23,889 

 

 23,153 

    Less accumulated depreciation and amortization

 

 (6,476)

 

 (6,288)

        Property, plant and equipment, net

 

 17,413 

 

 16,865 

Total assets

$

 27,922 

$

 26,400 

See Notes to Condensed Consolidated Financial Statements.




























    




SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Short-term debt

$

 291 

$

 503 

    Accounts payable - trade

 

 478 

 

 606 

    Accounts payable - other

 

 138 

 

 250 

    Due to unconsolidated affiliates

 

 31 

 

 38 

    Dividends and interest payable

 

 183 

 

 156 

    Accrued compensation and benefits

 

 186 

 

 280 

    Regulatory balancing accounts, net

 

 602 

 

 335 

    Current portion of long-term debt

 

 624 

 

 410 

    Fixed-price contracts and other derivatives

 

 115 

 

 180 

    Customer deposits

 

 149 

 

 170 

    Reserve for wildfire litigation (Note 10)

 

 940 

 

 - 

    Other

 

 616 

 

 684 

        Total current liabilities

 

 4,353 

 

 3,612 

Long-term debt

 

 6,723 

 

 6,544 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

    Due to unconsolidated affiliate

 

 102 

 

 102 

    Customer advances for construction

 

 154 

 

 155 

    Pension and other postretirement benefit obligations, net of plan assets

 

 1,512 

 

 1,487 

    Deferred income taxes

 

 1,152 

 

 946 

    Deferred investment tax credits

 

 54 

 

 57 

    Regulatory liabilities arising from removal obligations

 

 2,453 

 

 2,430 

    Asset retirement obligations

 

 1,210 

 

 1,159 

    Other regulatory liabilities

 

 209 

 

 219 

    Fixed-price contracts and other derivatives

 

 347 

 

 392 

    Deferred credits and other

 

 842 

 

 909 

        Total deferred credits and other liabilities

 

 8,035 

 

 7,856 

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; 245 million and 243 million

 

 

 

 

        shares outstanding at June 30, 2009 and December 31, 2008, respectively;

 

 

 

 

        no par value)

 

 2,328 

 

 2,265 

    Retained earnings

 

 6,559 

 

 6,235 

    Deferred compensation

 

 (15)

 

 (18)

    Accumulated other comprehensive income (loss)

 

 (395)

 

 (513)

        Total Sempra Energy shareholders' equity

 

 8,477 

 

 7,969 

    Preferred stock of subsidiaries

 

 100 

 

 100 

    Other noncontrolling interests

 

 155 

 

 240 

        Total equity

 

 8,732 

 

 8,309 

Total liabilities and equity

$

 27,922 

$

 26,400 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.




























    




SEMPRA ENERGY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Six months ended June 30,

 

2009 

2008*

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 514 

$

 506 

    Adjustments to reconcile net income to net cash provided

 

 

 

 

        by operating activities:

 

 

 

 

            Depreciation and amortization

 

 372 

 

 346 

            Deferred income taxes and investment tax credits

 

 90 

 

 51 

            Equity earnings

 

 (327)

 

 (200)

            Gains on sale of assets

 

 (3)

 

 (114)

            Write-off of long-lived assets

 

 132 

 

 - 

            Fixed-price contracts and other derivatives

 

 (38)

 

 47 

            Other

 

 51 

 

 40 

    Net change in other working capital components

 

 364 

 

 226 

    Distributions from RBS Sempra Commodities LLP

 

 375 

 

 - 

    Changes in other assets

 

 21 

 

 (10)

    Changes in other liabilities

 

 (26)

 

 (27)

        Net cash provided by operating activities

 

 1,525 

 

 865 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (938)

 

 (1,114)

    Proceeds from sale of assets, net of cash sold

 

 179 

 

 2,071 

    Expenditures for investments

 

 (217)

 

 (2,180)

    Distributions from investments

 

 9 

 

 16 

    Purchases of nuclear decommissioning and other trust assets

 

 (99)

 

 (173)

    Proceeds from sales by nuclear decommissioning and other trusts

 

 93 

 

 177 

    Decrease in notes receivable from unconsolidated affiliate

 

 - 

 

 60 

    Other

 

 (14)

 

 (15)

        Net cash used in investing activities

 

 (987)

 

 (1,158)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 (170)

 

 (166)

    Preferred dividends paid by subsidiaries

 

 (5)

 

 (5)

    Issuances of common stock

 

 28 

 

 11 

    Repurchases of common stock

 

 - 

 

 (1,002)

    (Decrease) increase in short-term debt, net

 

 (612)

 

 496 

    Issuances of long-term debt

 

 1,108 

 

 593 

    Payments on long-term debt

 

 (311)

 

 (73)

    Purchase of noncontrolling interest

 

 (94)

 

 - 

    Other

 

 5 

 

 1 

        Net cash used in financing activities

 

 (51)

 

 (145)

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 487 

 

 (438)

Cash and cash equivalents, January 1

 

 331 

 

 668 

Cash and cash equivalents, June 30

$

 818 

$

 230 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




SEMPRA ENERGY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Six months ended June 30,

 

2009 

2008

 

(unaudited)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 141 

$

 157 

 

 

 

 

 

    Income tax payments, net

$

 36 

$

 140 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (103)

$

 (62)

 

 

 

 

 

    Dividends declared but not paid

$

 98 

$

 89 

See Notes to Condensed Consolidated Financial Statements.



    






SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended June 30,

Six months ended June 30,

 

2009 

2008*

2009 

2008*

 

(unaudited)

Operating revenues

 

 

 

 

 

 

 

 

    Electric

$

 535 

$

 583 

$

 1,088 

$

 1,084 

    Natural gas

 

 96 

 

 171 

 

 275 

 

 416 

        Total operating revenues

 

 631 

 

 754 

 

 1,363 

 

 1,500 

Operating expenses

 

 

 

 

 

 

 

 

    Cost of electric fuel and purchased power

 

 129 

 

 220 

 

 300 

 

 383 

    Cost of natural gas

 

 37 

 

 113 

 

 124 

 

 265 

    Operation and maintenance

 

 232 

 

 195 

 

 413 

 

 382 

    Depreciation and amortization

 

 81 

 

 78 

 

 158 

 

 155 

    Franchise fees and other taxes

 

 39 

 

 36 

 

 80 

 

 74 

        Total operating expenses

 

 518 

 

 642 

 

 1,075 

 

 1,259 

Operating income

 

 113 

 

 112 

 

 288 

 

 241 

Other income, net

 

 27 

 

 20 

 

 44 

 

 23 

Interest income

 

 - 

 

 2 

 

 - 

 

 4 

Interest expense

 

 (21)

 

 (22)

 

 (46)

 

 (49)

Income before income taxes

 

 119 

 

 112 

 

 286 

 

 219 

Income tax expense

 

 (28)

 

 (35)

 

 (88)

 

 (67)

Net income

 

 91 

 

 77 

 

 198 

 

 152 

Earnings attributable to noncontrolling interest

 

 (20)

 

 (15)

 

 (27)

 

 (15)

Earnings

 

 71 

 

 62 

 

 171 

 

 137 

Preferred dividend requirements

 

 (1)

 

 (1)

 

 (2)

 

 (2)

Earnings attributable to common shares

$

 70 

$

 61 

$

 169 

$

 135 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008 

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 187 

$

 19 

    Short-term investments

 

 - 

 

 24 

    Accounts receivable - trade

 

 221 

 

 225 

    Accounts receivable - other

 

 69 

 

 30 

    Due from unconsolidated affiliates

 

 1 

 

 29 

    Income taxes receivable

 

 26 

 

 22 

    Deferred income taxes

 

 37 

 

 17 

    Inventories

 

 63 

 

 62 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 68 

 

 94 

    Other regulatory assets

 

 6 

 

 8 

    Fixed-price contracts and other derivatives

 

 35 

 

 39 

    Insurance receivable related to wildfire litigation (Note 10)

 

 940 

 

 - 

    Other

 

 62 

 

 15 

        Total current assets

 

 1,715 

 

 584 

 

 

 

 

 

Other assets:

 

 

 

 

    Due from unconsolidated affiliate

 

 3 

 

 4 

    Deferred taxes recoverable in rates

 

 388 

 

 369 

    Regulatory assets arising from fixed-price contracts and other derivatives

 

 252 

 

 264 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 397 

 

 393 

    Other regulatory assets

 

 56 

 

 59 

    Nuclear decommissioning trusts

 

 580 

 

 577 

    Sundry

 

 41 

 

 154 

        Total other assets

 

 1,717 

 

 1,820 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 9,526 

 

 9,095 

    Less accumulated depreciation and amortization

 

 (2,489)

 

 (2,420)

        Property, plant and equipment, net

 

 7,037 

 

 6,675 

Total assets

$

 10,469 

$

 9,079 

See Notes to Condensed Consolidated Financial Statements.




























    




SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Accounts payable

$

 196 

$

 261 

    Due to unconsolidated affiliates

 

 55 

 

 1 

    Regulatory balancing accounts, net

 

 232 

 

 114 

    Customer deposits

 

 54 

 

 53 

    Fixed-price contracts and other derivatives

 

 57 

 

 77 

    Accrued compensation and benefits

 

 67 

 

 105 

    Current portion of long-term debt

 

 7 

 

 2 

    Reserve for wildfire litigation (Note 10)

 

 940 

 

 - 

    Other

 

 152 

 

 163 

        Total current liabilities

 

 1,760 

 

 776 

Long-term debt

 

 2,495 

 

 2,142 

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 21 

 

 26 

    Pension and other postretirement benefit obligations, net of plan assets

 

 422 

 

 419 

    Deferred income taxes

 

 686 

 

 628 

    Deferred investment tax credits

 

 25 

 

 26 

    Regulatory liabilities arising from removal obligations

 

 1,222 

 

 1,212 

    Asset retirement obligations

 

 566 

 

 550 

    Fixed-price contracts and other derivatives

 

 291 

 

 347 

    Deferred credits and other

 

 180 

 

 204 

        Total deferred credits and other liabilities

 

 3,413 

 

 3,412 

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)

 

 1,138 

 

 1,138 

    Retained earnings

 

 1,436 

 

 1,417 

    Accumulated other comprehensive income (loss)

 

 (10)

 

 (13)

        Total SDG&E shareholders' equity

 

 2,564 

 

 2,542 

    Noncontrolling interest

 

 158 

 

 128 

        Total equity

 

 2,722 

 

 2,670 

Total liabilities and equity

$

 10,469 

$

 9,079 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.




























    




SAN DIEGO GAS & ELECTRIC COMPANY AND SUBSIDIARY

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Six months ended June 30,

 

2009 

2008*

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 198 

$

 152 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation and amortization

 

 158 

 

 155 

            Deferred income taxes and investment tax credits

 

 15 

 

 41 

            Fixed-price contracts and other derivatives

 

 (34)

 

 (15)

            Other

 

 (9)

 

 (3)

    Net change in other working capital components

 

 30 

 

 108 

    Changes in other assets

 

 13 

 

 (2)

    Changes in other liabilities

 

 (23)

 

 (15)

        Net cash provided by operating activities

 

 348 

 

 421 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (443)

 

 (428)

    Expenditures for short-term investments

 

 (152)

 

 (236)

    Proceeds from sale of short-term investments

 

 176 

 

 75 

    Purchases of nuclear decommissioning trust assets

 

 (95)

 

 (173)

    Proceeds from sales by nuclear decommissioning trusts

 

 93 

 

 175 

    Decrease (increase) in loans to affiliates, net

 

 33 

 

 (24)

    Other

 

 1 

 

 - 

        Net cash used in investing activities

 

 (387)

 

 (611)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 (150)

 

 - 

    Preferred dividends paid

 

 (2)

 

 (2)

    Redemptions of preferred stock

 

 - 

 

 (14)

    Issuances of long-term debt

 

 358 

 

 84 

    Other

 

 1 

 

 8 

        Net cash provided by financing activities

 

 207 

 

 76 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 168 

 

 (114)

Cash and cash equivalents, January 1

 

 19 

 

 158 

Cash and cash equivalents, June 30

$

 187 

$

 44 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 50 

$

 47 

 

 

 

 

 

    Income tax payments (refunds), net

$

 86 

$

 (17)

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (61)

$

 (35)

 

 

 

 

 

    Dividends declared but not paid

$

 1 

$

 1 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.



    






PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended June 30,

Six months ended June 30,

 

2009 

2008*

2009 

2008*

 

(unaudited)

 

 

 

 

 

 

 

 

 

Operating revenues

$

 694 

$

 1,143 

$

 1,614 

$

 2,699 

Operating expenses

 

 

 

 

 

 

 

 

    Cost of natural gas

 

 214 

 

 673 

 

 669 

 

 1,760 

    Operation and maintenance

 

 266 

 

 265 

 

 517 

 

 515 

    Depreciation

 

 75 

 

 71 

 

 147 

 

 142 

    Franchise fees and other taxes

 

 24 

 

 32 

 

 56 

 

 71 

        Total operating expenses

 

 579 

 

 1,041 

 

 1,389 

 

 2,488 

Operating income

 

 115 

 

 102 

 

 225 

 

 211 

Other income, net

 

 4 

 

 1 

 

 5 

 

 1 

Interest income

 

 2 

 

 6 

 

 3 

 

 13 

Interest expense

 

 (18)

 

 (15)

 

 (35)

 

 (32)

Income before income taxes

 

 103 

 

 94 

 

 198 

 

 193 

Income tax expense

 

 (40)

 

 (36)

 

 (76)

 

 (77)

Net income

 

 63 

 

 58 

 

 122 

 

 116 

Preferred dividends of subsidiary

 

 (1)

 

 (1)

 

 (1)

 

 (1)

Earnings

 

 62 

 

 57 

 

 121 

 

 115 

Preferred dividend requirements

 

 (1)

 

 (1)

 

 (2)

 

 (2)

Earnings attributable to common shares

$

 61 

$

 56 

$

 119 

$

 113 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008 

 

(unaudited)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 538 

$

 206 

    Accounts receivable - trade

 

 294 

 

 572 

    Accounts receivable - other

 

 13 

 

 20 

    Due from unconsolidated affiliates

 

 12 

 

 5 

    Income taxes receivable

 

 11 

 

 108 

    Deferred income taxes

 

 1 

 

 - 

    Inventories

 

 57 

 

 167 

    Other regulatory assets

 

 14 

 

 18 

    Other

 

 87 

 

 37 

        Total current assets

 

 1,027 

 

 1,133 

 

 

 

 

 

Other assets:

 

 

 

 

    Due from unconsolidated affiliate

 

 517 

 

 457 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 816 

 

 795 

    Other regulatory assets

 

 114 

 

 105 

    Sundry

 

 42 

 

 49 

        Total other assets

 

 1,489 

 

 1,406 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 8,975 

 

 8,816 

    Less accumulated depreciation and amortization

 

 (3,509)

 

 (3,448)

        Property, plant and equipment, net

 

 5,466 

 

 5,368 

Total assets

$

 7,982 

$

 7,907 

See Notes to Condensed Consolidated Financial Statements.




























    




PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008*

 

(unaudited)

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Accounts payable - trade

$

 142 

$

 257 

    Accounts payable - other

 

 91 

 

 163 

    Due to unconsolidated affiliates

 

 111 

 

 106 

    Deferred income taxes

 

 - 

 

 6 

    Regulatory balancing accounts, net

 

 370 

 

 221 

    Customer deposits

 

 94 

 

 114 

    Accrued compensation and benefits

 

 80 

 

 92 

    Current portion of long-term debt

 

 100 

 

 100 

    Other

 

 165 

 

 213 

        Total current liabilities

 

 1,153 

 

 1,272 

Long-term debt

 

 1,269 

 

 1,270 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 132 

 

 131 

    Pension and other postretirement benefit obligations, net of plan assets

 

 842 

 

 823 

    Deferred income taxes

 

 197 

 

 157 

    Deferred investment tax credits

 

 29 

 

 30 

    Regulatory liabilities arising from removal obligations

 

 1,230 

 

 1,218 

    Asset retirement obligations

 

 599 

 

 581 

    Deferred taxes refundable in rates

 

 203 

 

 214 

    Deferred credits and other

 

 247 

 

 251 

        Total deferred credits and other liabilities

 

 3,479 

 

 3,405 

 

 

 

 

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

    Preferred stock

 

 80 

 

 80 

    Common stock (600 million shares authorized; 84 million shares outstanding;

 

 

 

 

        no par value)

 

 1,462 

 

 1,462 

    Retained earnings

 

 545 

 

 426 

    Accumulated other comprehensive income (loss)

 

 (26)

 

 (28)

        Total Pacific Enterprises shareholders' equity

 

 2,061 

 

 1,940 

    Preferred stock of subsidiary

 

 20 

 

 20 

        Total equity

 

 2,081 

 

 1,960 

Total liabilities and equity

$

 7,982 

$

 7,907 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




PACIFIC ENTERPRISES AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Six months ended June 30,

 

2009 

2008*

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 122 

$

 116 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation

 

 147 

 

 142 

            Deferred income taxes and investment tax credits

 

 20 

 

 21 

            Other

 

 4 

 

 1 

    Net change in other working capital components

 

 266 

 

 315 

    Changes in other assets

 

 7 

 

 5 

    Changes in other liabilities

 

 (9)

 

 (20)

        Net cash provided by operating activities

 

 557 

 

 580 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (227)

 

 (242)

    Decrease (increase) in loans to affiliates, net

 

 5 

 

 (59)

        Net cash used in investing activities

 

 (222)

 

 (301)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 - 

 

 (200)

    Preferred dividends paid

 

 (2)

 

 (2)

    Preferred dividends paid by subsidiary

 

 (1)

 

 (1)

        Net cash used in financing activities

 

 (3)

 

 (203)

 

 

 

 

 

Increase in cash and cash equivalents

 

 332 

 

 76 

Cash and cash equivalents, January 1

 

 206 

 

 59 

Cash and cash equivalents, June 30

$

 538 

$

 135 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 30 

$

 31 

 

 

 

 

 

    Income tax payments, net

$

 29 

$

 104 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (16)

$

 (31)

 

 

 

 

 

    Dividends declared but not paid

$

 1 

$

 1 

* As adjusted for the retrospective adoption of SFAS 160 (ASC 810).

See Notes to Condensed Consolidated Financial Statements.




























    




SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

 

Three months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

 

(unaudited)

 

 

 

 

 

 

 

 

 

Operating revenues

$

 694 

$

 1,143 

$

 1,614 

$

 2,699 

Operating expenses

 

 

 

 

 

 

 

 

    Cost of natural gas

 

 214 

 

 673 

 

 669 

 

 1,760 

    Operation and maintenance

 

 265 

 

 266 

 

 516 

 

 515 

    Depreciation

 

 75 

 

 71 

 

 147 

 

 142 

    Franchise fees and other taxes

 

 24 

 

 32 

 

 56 

 

 71 

        Total operating expenses

 

 578 

 

 1,042 

 

 1,388 

 

 2,488 

Operating income

 

 116 

 

 101 

 

 226 

 

 211 

Other income, net

 

 4 

 

 2 

 

 5 

 

 2 

Interest income

 

 1 

 

 4 

 

 2 

 

 7 

Interest expense

 

 (18)

 

 (14)

 

 (35)

 

 (30)

Income before income taxes

 

 103 

 

 93 

 

 198 

 

 190 

Income tax expense

 

 (37)

 

 (36)

 

 (73)

 

 (76)

Net income

 

 66 

 

 57 

 

 125 

 

 114 

Preferred dividend requirements

 

 (1)

 

 (1)

 

 (1)

 

 (1)

Earnings attributable to common shares

$

 65 

$

 56 

$

 124 

$

 113 

See Notes to Condensed Consolidated Financial Statements.




























    




SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008 

 

(unaudited)

 

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

    Cash and cash equivalents

$

 538 

$

 206 

    Accounts receivable - trade

 

 294 

 

 572 

    Accounts receivable - other

 

 13 

 

 20 

    Due from unconsolidated affiliates

 

 7 

 

 - 

    Income taxes receivable

 

 11 

 

 41 

    Deferred income taxes

 

 1 

 

 - 

    Inventories

 

 57 

 

 167 

    Other regulatory assets

 

 14 

 

 18 

    Other

 

 87 

 

 37 

        Total current assets

 

 1,022 

 

 1,061 

 

 

 

 

 

Other assets:

 

 

 

 

    Regulatory assets arising from pension and other postretirement

 

 

 

 

        benefit obligations

 

 816 

 

 795 

    Other regulatory assets

 

 114 

 

 105 

    Sundry

 

 18 

 

 24 

        Total other assets

 

 948 

 

 924 

 

 

 

 

 

Property, plant and equipment:

 

 

 

 

    Property, plant and equipment

 

 8,973 

 

 8,814 

    Less accumulated depreciation and amortization

 

 (3,509)

 

 (3,448)

        Property, plant and equipment, net

 

 5,464 

 

 5,366 

Total assets

$

 7,434 

$

 7,351 

See Notes to Condensed Consolidated Financial Statements.




























    




SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

June 30,

December 31,

 

2009 

2008 

 

(unaudited)

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

    Accounts payable - trade

$

 142 

$

 257 

    Accounts payable - other

 

 91 

 

 163 

    Due to unconsolidated affiliates

 

 27 

 

 23 

    Deferred income taxes

 

 - 

 

 6 

    Regulatory balancing accounts, net

 

 370 

 

 221 

    Customer deposits

 

 94 

 

 114 

    Accrued compensation and benefits

 

 80 

 

 92 

    Current portion of long-term debt

 

 100 

 

 100 

    Other

 

 164 

 

 211 

        Total current liabilities

 

 1,068 

 

 1,187 

Long-term debt

 

 1,269 

 

 1,270 

Deferred credits and other liabilities:

 

 

 

 

    Customer advances for construction

 

 132 

 

 131 

    Pension and other postretirement benefit obligations, net of plan assets

 

 842 

 

 823 

    Deferred income taxes

 

 207 

 

 167 

    Deferred investment tax credits

 

 29 

 

 30 

    Regulatory liabilities arising from removal obligations

 

 1,230 

 

 1,218 

    Asset retirement obligations

 

 599 

 

 581 

    Deferred taxes refundable in rates

 

 203 

 

 214 

    Deferred credits and other

 

 239 

 

 240 

        Total deferred credits and other liabilities

 

 3,481 

 

 3,404 

 

 

 

 

 

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

 

 754 

 

 630 

    Accumulated other comprehensive income (loss)

 

 (26)

 

 (28)

        Total shareholders' equity

 

 1,616 

 

 1,490 

Total liabilities and shareholders' equity

$

 7,434 

$

 7,351 

See Notes to Condensed Consolidated Financial Statements.




























    




SOUTHERN CALIFORNIA GAS COMPANY AND SUBSIDIARIES

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

 

Six months ended June 30,

 

2009 

2008 

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

    Net income

$

 125 

$

 114 

    Adjustments to reconcile net income to net cash provided by

 

 

 

 

        operating activities:

 

 

 

 

            Depreciation

 

 147 

 

 142 

            Deferred income taxes and investment tax credits

 

 20 

 

 21 

            Other

 

 4 

 

 1 

    Net change in other working capital components

 

 263 

 

 313 

    Changes in other assets

 

 7 

 

 5 

    Changes in other liabilities

 

 (6)

 

 (20)

        Net cash provided by operating activities

 

 560 

 

 576 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

    Expenditures for property, plant and equipment

 

 (227)

 

 (242)

    Increase in loans to affiliates, net

 

 - 

 

 (57)

        Net cash used in investing activities

 

 (227)

 

 (299)

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

    Common dividends paid

 

 - 

 

 (200)

    Preferred dividends paid

 

 (1)

 

 (1)

        Net cash used in financing activities

 

 (1)

 

 (201)

 

 

 

 

 

Increase in cash and cash equivalents

 

 332 

 

 76 

Cash and cash equivalents, January 1

 

 206 

 

 59 

Cash and cash equivalents, June 30

$

 538 

$

 135 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

    Interest payments, net of amounts capitalized

$

 30 

$

 29 

 

 

 

 

 

    Income tax payments, net

$

 29 

$

 104 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES

 

 

 

 

    Decrease in accounts payable from investments in property, plant

 

 

 

 

        and equipment

$

 (16)

$

 (31)

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, its consolidated subsidiaries, and a variable interest entity. 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, which is the holding company for Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage, Sempra LNG and other, smaller businesses.  

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.

SDG&E

SDG&E's Condensed Consolidated Financial Statements include its accounts, the accounts of its sole subsidiary, SDG&E Funding LLC, and the accounts of Otay Mesa Energy Center LLC (Otay Mesa VIE), a variable interest entity of which SDG&E is the primary beneficiary, as discussed 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. The activities of SDG&E Funding LLC were substantially complete in 2007, and the entity was dissolved in 2008.  

Pacific Enterprises and SoCalGas

The Condensed Consolidated Financial Statements of Pacific Enterprises include the accounts of Pacific Enterprises (PE) and its subsidiary, SoCalGas.  Sempra Energy owns all of PE’s common stock and PE owns all of SoCalGas’ common stock. SoCalGas’ Condensed Consolidated Financial Statements include its subsidiaries, which comprise less than one percent of its consolidated financial position and results of operations.

PE's operations consist solely of those of SoCalGas and additional items (e.g., cash, intercompany accounts and equity) attributable to being a holding company for SoCalGas.

BASIS OF PRESENTATION

This is a combined report of Sempra Energy, SDG&E, PE and SoCalGas. We provide separate information for SDG&E, PE and SoCalGas as required. When only information for SoCalGas is provided, it is the same for PE. 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 each set of consolidated financial statements.

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 June 30, 2009 but before the issuance of these financial statements on July 31, 2009, 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, except as we discuss below in "Presentation of Preferred Securities" and in Note 2.

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, 2008 (the Annual Report) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, which are combined reports for Sempra Energy, SDG&E, PE and SoCalGas.

Our significant accounting policies are described 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 account for the economic effects of regulation on utility operations in accordance with Statement of Financial Accounting Standards (SFAS) 71, Accounting for the Effects of Certain Types of Regulation (ASC 980).

Presentation of Preferred Securities

In connection with the adoption of SFAS 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS 160) (ASC 810), as we discuss in Note 2, we evaluated the requirements of Emerging Issues Task Force (EITF) Topic No. 98, Classification and Measurement of Redeemable Securities (Topic D-98) (ASC 480), with respect to the presentation of preferred securities. In previously issued financial statements, SDG&E classified certain preferred securities within the shareholders' equity section of the balance sheet. These preferred securities contain a contingent redemption feature that allows the holder to elect a majority of SDG&E's board of directors if dividends are not paid for eight consecutive quarters. Because such a redemption triggering event is not solely within the control of SDG&E, SDG&E has concluded that these preferred securities should have been presented separate from and outside of shareholders' equity in a manner consistent with temporary equity defined in Topic D-98. Although SDG&E believes that the effects are not material to the previously issued balance sheets, SDG&E has corrected the classification of these amounts as of December 31, 2008 for comparability purposes. This change, which affects preferred securities totaling $79 million at both December 31, 2008 and June 30, 2009, affects only the balance sheet presentation of equity accounts and has no impact on earnings or on cash flows for any period presented.

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, PE AND SOCALGAS

SFAS 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162" (SFAS 168): The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) (the Codification) becomes the official source of GAAP on July 1, 2009, and its use is effective for periods ending after September 15, 2009. For convenience, we have provided references to the Codification throughout this Form 10-Q in addition to the current GAAP source reference.

SFAS 167, "Amendments to FASB Interpretation No. 46(R)" (SFAS 167): SFAS 167 (ASC 810) amends FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities – an interpretation of ARB No. 51 (FIN 46(R)) which provides consolidation guidance related to variable interest entities.  

SFAS 167 requires

§

a qualitative approach for identifying the primary beneficiary of a variable interest entity based on 1) the power to direct activities that most significantly impact the economic performance of




    



the entity, and 2) the obligation to absorb losses or right to receive benefits that could be significant to the entity

§

ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity

§

separate disclosure by the primary beneficiary on the face of the balance sheet to identify 1) assets that can only be used to settle obligations of the variable interest entity, and 2) liabilities for which creditors do not have recourse to the primary beneficiary.

FAS 167 applies to us prospectively for the first quarter of 2010. We are in the process of evaluating the effects of this statement on our financial position and results of operations.

SFAS 165, "Subsequent Events" (SFAS 165): SFAS 165 (ASC 855) requires management to evaluate events that occur after the balance sheet through the date that the financial statements are issued. The guidance is similar to current audit guidance and does not change the way we assess subsequent events. The statement requires that we disclose the date through which we evaluated subsequent events.  

We adopted SFAS 165 on April 1, 2009 and provide the required disclosure in Note 1.  

SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51" (SFAS 160): SFAS 160 (ASC 810) amends Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent.  

SFAS 160 provides guidance on the following:

§

how to report noncontrolling interests in a subsidiary in consolidated financial statements;

§

the amount of consolidated net income attributable to the parent and to the noncontrolling interest; and

§

changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.

We adopted SFAS 160 on January 1, 2009, and the presentation and disclosure requirements must be applied retrospectively. Accordingly, Sempra Energy’s, SDG&E’s and PE's condensed consolidated financial statements at December 31, 2008 and for the six months ended June 30, 2008 have been reclassified to conform to the new presentation. The adoption of SFAS 160 had no impact on SoCalGas’ financial statements. The pronouncement also requires disclosures that clearly identify and distinguish between the interest of the parent and the interests of the noncontrolling owners. We provide the required disclosure in Note 5.

SFAS 161, "Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133" (SFAS 161): SFAS 161 (ASC 815) expands the disclosure requirements in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133).

SFAS 161 requires disclosures about the following:

§

qualitative objectives and strategies for using derivatives;

§

quantitative disclosures of fair value amounts, and gains and losses on derivative instruments and related hedged items; and

§

credit-risk-related contingent features in derivative agreements.

We adopted SFAS 161 prospectively on January 1, 2009. We provide the required disclosure in Note 7.  

FASB Staff Position (FSP) FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly" (FSP FAS 157-4): FSP FAS 157-4 (ASC 820) concerns the determination of fair values for assets and liabilities when there is no active market or where the prices used might represent distressed sales. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The FSP also outlines factors to be used to determine whether there has been a significant




    



decrease in the volume and level of activity for the assets and liabilities when compared with normal market activity. We adopted FSP FAS 157-4 on April 1, 2009, and it did not affect our financial position or results of operations.

FSP FAS 107-1 and APB 28-1, "Interim Disclosures About Fair Value of Financial Instruments" (FSP FAS 107-1 and APB 28-1):  FSP FAS 107-1 and APB 28-1 (ASC 820) requires disclosure about the carrying amount and fair value of financial instruments for interim periods.  Prior to the issuance of this FSP, this disclosure was required only for annual periods. We adopted FSP FAS 107-1 and APB 28-1 on April 1, 2009 and provide the required disclosure in Note 8.

FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2):  FSP FAS 115-2 and FAS 124-2 (ASC 320) establishes a new model for determining and recording other-than-temporary impairment for debt securities. The pronouncement also requires disclosure about the fair value of investments for interim periods. Prior to the issue of this FSP, this disclosure was required only for annual periods. We adopted FSP FAS 115-2 and FAS 124-2 on April 1, 2009, and it did not affect our financial position or results of operations.  We provide the required disclosure in Note 8.

FSP FAS 132(R)-1, "Employers’ Disclosures about Postretirement Benefit Plan Assets" (FSP FAS 132(R)-1):  FSP FAS 132(R)-1 (ASC 715) requires annual disclosure about the assets held in postretirement benefit plans, including a breakdown by the level of the assets and a reconciliation of any change in Level 3 assets during the year. It requires disclosures about the following:

§

valuation inputs, with detailed disclosure required about Level 3 assets

§

asset categories, broken down to relevant detail

§

concentration of risk in plan assets

FSP FAS 132(R)-1 applies to us prospectively for fiscal years ending after December 15, 2009. Early application is permitted. We are in the process of evaluating the effect of this statement on our financial statement disclosures and will include the additional disclosure in our 2009 annual financial statements.

SEMPRA ENERGY

FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (FSP EITF 03-6-1): FSP EITF 03-6-1 (ASC 260) states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, they are required to be included when computing earnings per share (EPS) under the two-class method described in SFAS 128, Earnings per Share. All prior-period EPS data are to be adjusted retrospectively to conform with the provisions of this FSP. We adopted FSP EITF 03-6-1 on January 1, 2009, and it did not have a material effect on our EPS.

EITF Issue No. 08-6, "Equity Method Investment Accounting Considerations" (EITF 08-6): EITF 08-6 (ASC 323) clarifies accounting and impairment considerations involving equity method investments. We adopted EITF 08-6 on January 1, 2009, and it did not have a material effect on our financial position or results of operations.  

EITF Issue No. 08-5, "Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement" (EITF 08-5): EITF 08-5 (ASC 820) provides that an issuer of a liability with a third-party credit enhancement that is inseparable from the liability may not include the effect of the credit enhancement in the fair value measurement of the liability. We adopted EITF 08-5 on January 1, 2009, and it did not affect our financial position or results of operations.

NOTE 3. RECENT EQUITY TRANSACTION

SEMPRA PIPELINES & STORAGE

Sempra Midstream, owned by Sempra Pipelines & Storage, owned 60 percent of Mississippi Hub, LLC (Mississippi Hub) at December 31, 2008. On January 16, 2009, Sempra Midstream purchased the remaining 40-percent ownership interest of Mississippi Hub for $94 million in cash.

NOTE 4. INVESTMENTS IN UNCONSOLIDATED ENTITIES

SEMPRA ENERGY AND SDG&E

Available-for-Sale Securities

During the six months ended June 30, 2008, Sempra Energy and SDG&E purchased $252 million and $161 million, respectively, of SDG&E's industrial development bonds, net of purchases and sales between Sempra Energy and SDG&E as the cash flow needs of each entity changed. In December 2008, SDG&E remarketed $237 million of these industrial development bonds. In June 2009, SDG&E remarketed the remaining $176 million of these industrial development bonds at a fixed rate of 5.875 percent, maturing in 2034. At December 31, 2008, the $176 million of industrial development bonds, $24 million of which were held by SDG&E, were classified as available-for-sale securities and included in Short-Term Investments on the Condensed Consolidated Balance Sheets. In the first six months of 2009, SDG&E purchased $152 million of the bonds from Sempra Energy prior to their remarketing. We discuss these bonds further in Note 6 of the Notes to Consolidated Fin ancial Statements in the Annual Report.

SEMPRA COMMODITIES

On April 1, 2008, Sempra Energy and The Royal Bank of Scotland (RBS) completed the formation of RBS Sempra Commodities LLP (RBS Sempra Commodities), a limited liability partnership formed in the United Kingdom to own and operate the commodities-marketing businesses previously operated through wholly owned subsidiaries of Sempra Energy. We account for our investment in RBS Sempra Commodities under the equity method, and our share of partnership earnings is reported in the Sempra Commodities segment.

For the three months and six months ended June 30, 2009, we had $126 million and $279 million of pretax equity earnings, respectively, from RBS Sempra Commodities. Pretax equity earnings from RBS Sempra Commodities were $146 million for both the three and six months ended June 30, 2008. The partnership income that is distributable to us on an annual basis is computed on the partnership's basis of accounting, International Financial Reporting Standards (IFRS) as adopted by the European Union. For the three months and six months ended June 30, 2009, this distributable income, on an IFRS basis, was $102 million and $216 million, respectively. For both the three and six months ended June 30, 2008, the distributable income, on an IFRS basis, was $165 million. In the first quarter of 2009, we received the remaining distribution of 2008 partnership income of $305 million, and an additional $70 million in the second quarter of 2009 to fund estimated tax payments as pr ovided in the partnership agreement.

We have indemnified the partnership for certain litigation and tax liabilities related to the businesses purchased by the partnership. We recorded these obligations at a fair value of $5 million on April 1, 2008, the date we formed the partnership, and they are being amortized over 4 years.  

We provide information regarding the Sempra Commodities segment in Note 11.




    



The following table shows summarized financial information for RBS Sempra Commodities (on a GAAP basis):


 

Three months ended June 30,

Six months ended June 30,

(Dollars in millions)

2009 

2008 

2009 

2008 

Gross revenues and fee income

$

 367 

$

 538 

$

 876 

$

 538 

Gross profit

 

 342 

 

 517 

 

 828 

 

 517 

Income from continuing operations

 

 153 

 

 254 

 

 389 

 

 254 

Partnership net income

 

 153 

 

 254 

 

 389 

 

 254 

SEMPRA PIPELINES & STORAGE

In the three and six months ended June 30, 2009, Sempra Pipelines & Storage contributed $188 million and $213 million, respectively, to Rockies Express, a joint venture for the development of the Rockies Express Pipeline. Sempra Pipelines & Storage contributed $150 million in the first quarter of 2008. We discuss this investment in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Sempra Pipelines & Storage owns 43 percent of two Argentine natural gas utility holding companies, Sodigas Pampeana and Sodigas Sur. The Argentine economic decline and government responses (including Argentina’s unilateral, retroactive abrogation of utility agreements early in 2002) continue to adversely affect the operations of these Argentine utilities. In 2002, Sempra Pipelines & Storage initiated arbitration proceedings at the International Center for the Settlement of Investment Disputes (ICSID) under the 1994 Bilateral Investment Treaty between the United States and Argentina for recovery of the diminution of the value of its investments that has resulted from Argentine governmental actions. In September 2007, the tribunal officially closed the arbitration proceedings and awarded us compensation of $172 million, which includes interest up to the award date. In January 2008, Argentina filed an action at the ICSID seeking to annul the award. O n March 5, 2009, the ICSID ordered Argentina to place $75 million in escrow within 120 days, as tangible evidence of its preparedness to comply in good faith, as a condition of a continued stay in the annulment case. Argentina has not complied with the escrow order. Sempra Pipelines & Storage has requested the ICSID to remove the stay. We will not recognize the ICSID award until collectibility is assured.

NOTE 5. OTHER FINANCIAL DATA

VARIABLE INTEREST ENTITIES

FIN 46(R) (ASC 810) requires an enterprise to consolidate a variable interest entity (VIE), as defined in FIN 46(R), if the company is the primary beneficiary of the VIE’s activities. Our determination of whether we are the primary beneficiary is based upon qualitative and quantitative analyses, which assess

§

the purpose and design of the VIE;

§

the nature of the VIE's risks and the risks we absorb; and

§

whether the variable interest holders will absorb a majority of the VIE's expected losses or receive a majority of its expected residual returns (or both).  

SDG&E has a 10-year agreement to purchase power to be generated at the Otay Mesa Energy Center (OMEC), a 573-megawatt (MW) generating facility. Commissioning activities commenced in July 2009, and SDG&E expects the facility to be in commercial operation in the fourth quarter of 2009.

As defined in FIN 46(R), the facility owner, Otay Mesa Energy Center LLC (OMEC LLC), is a VIE (Otay Mesa VIE), of which SDG&E is the primary beneficiary. Accordingly, Sempra Energy and SDG&E have consolidated Otay Mesa VIE. SDG&E has no OMEC LLC voting rights and does not operate OMEC.




    



Otay Mesa VIE's equity of $158 million at June 30, 2009 and $128 million at December 31, 2008 is included on the Condensed Consolidated Balance Sheets in Other Noncontrolling Interests for Sempra Energy and in Noncontrolling Interest for SDG&E. We provide additional information about Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

OMEC LLC has a project finance credit facility with third party lenders, secured by its assets, that provides for up to $377 million for the construction of OMEC. SDG&E is not a party to the credit agreement and does not have any additional implicit or explicit financial responsibility to Otay Mesa VIE. The loan matures in April 2019. Borrowings under the facility bear interest at rates varying with market rates. OMEC LLC had $316 million of outstanding borrowings under this facility at June 30, 2009. In addition, OMEC LLC has entered into interest-rate swap agreements to moderate its exposure to interest-rate changes on this facility. We provide additional information concerning the interest-rate swaps in Note 7.

Contracts under which SDG&E acquires power from generation facilities otherwise unrelated to SDG&E could also result in a requirement for SDG&E to consolidate the entity that owns the facility. In accordance with FIN 46(R), SDG&E continues the process of determining if it has any such situations and, if so, gathering the information that would be needed to perform the consolidation. However, such information has not been made available to us and an evaluation of variable interests has not been completed for these entities that are grandfathered pursuant to FIN 46(R). The effects of any required consolidation are not expected to significantly affect the financial position, results of operations or liquidity of SDG&E.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost

The following three tables provide the components of net periodic benefit cost:


NET PERIODIC BENEFIT COST -- SEMPRA ENERGY CONSOLIDATED

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended June 30,

Three months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 20 

$

 18 

$

 7 

$

 7 

Interest cost

 

 42 

 

 41 

 

 15 

 

 13 

Expected return on assets

 

 (35)

 

 (40)

 

 (12)

 

 (12)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost (credit)

 

 1 

 

 1 

 

 (1)

 

 - 

    Actuarial loss

 

 6 

 

 2 

 

 1 

 

 - 

Curtailment

 

 - 

 

 - 

 

 - 

 

 (2)

Regulatory adjustment

 

 (13)

 

 (7)

 

 5 

 

 - 

Total net periodic benefit cost

$

 21 

$

 15 

$

 15 

$

 6 

 

Six months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 39 

$

 36 

$

 14 

$

 13 

Interest cost

 

 85 

 

 83 

 

 29 

 

 27 

Expected return on assets

 

 (70)

 

 (80)

 

 (24)

 

 (24)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost (credit)

 

 2 

 

 2 

 

 (1)

 

 (1)

    Actuarial loss

 

 12 

 

 4 

 

 2 

 

 - 

Curtailment

 

 - 

 

 - 

 

 - 

 

 (2)

Regulatory adjustment

 

 (39)

 

 (22)

 

 4 

 

 1 

Total net periodic benefit cost

$

 29 

$

 23 

$

 24 

$

 14 




    






NET PERIODIC BENEFIT COST -- SDG&E

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended June 30,

Three months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 6 

$

 5 

$

 1 

$

 1 

Interest cost

 

 12 

 

 12 

 

 2 

 

 2 

Expected return on assets

 

 (8)

 

 (11)

 

 (1)

 

 (1)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost

 

 - 

 

 1 

 

 1 

 

 1 

    Actuarial loss

 

 4 

 

 - 

 

 - 

 

 - 

Regulatory adjustment

 

 - 

 

 2 

 

 1 

 

 (1)

Total net periodic benefit cost

$

 14 

$

 9 

$

 4 

$

 2 

 

Six months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 12 

$

 11 

$

 3 

$

 3 

Interest cost

 

 24 

 

 24 

 

 4 

 

 4 

Expected return on assets

 

 (16)

 

 (23)

 

 (2)

 

 (2)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost

 

 1 

 

 1 

 

 2 

 

 2 

    Actuarial loss

 

 8 

 

 1 

 

 - 

 

 - 

Regulatory adjustment

 

 (14)

 

 (4)

 

 1 

 

 (2)

Total net periodic benefit cost

$

 15 

$

 10 

$

 8 

$

 5 


NET PERIODIC BENEFIT COST -- SOCALGAS

(Dollars in millions)

 

Pension Benefits

Other Postretirement Benefits

 

Three months ended June 30,

Three months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 11 

$

 10 

$

 4 

$

 5 

Interest cost

 

 24 

 

 24 

 

 12 

 

 10 

Expected return on assets

 

 (22)

 

 (25)

 

 (10)

 

 (11)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service credit

 

 - 

 

 - 

 

 (1)

 

 (1)

    Actuarial loss

 

 - 

 

 - 

 

 1 

 

 - 

Regulatory adjustment

 

 (13)

 

 (9)

 

 4 

 

 1 

Total net periodic benefit cost

$

 - 

$

 - 

$

 10 

$

 4 

 

Six months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

Service cost

$

 22 

$

 20 

$

 9 

$

 9 

Interest cost

 

 49 

 

 49 

 

 23 

 

 21 

Expected return on assets

 

 (46)

 

 (51)

 

 (21)

 

 (22)

Amortization of:

 

 

 

 

 

 

 

 

    Prior service cost (credit)

 

 1 

 

 1 

 

 (2)

 

 (2)

    Actuarial loss

 

 - 

 

 - 

 

 2 

 

 - 

Regulatory adjustment

 

 (25)

 

 (18)

 

 3 

 

 3 

Total net periodic benefit cost

$

 1 

$

 1 

$

 14 

$

 9 





    



Future Payments

The following table shows our year-to-date contributions to our pension and other postretirement benefit plans and the amounts we expect to contribute in 2009:


 

Sempra Energy

 

 

(Dollars in millions)

Consolidated

SDG&E

SoCalGas

Contributions through June 30, 2009:

 

 

 

 

 

 

    Pension plans

$

 29 

$

 13 

$

 - 

    Other postretirement benefit plans

 

 24 

 

 8 

 

 15 

Total expected contributions in 2009:

 

 

 

 

 

 

    Pension plans

$

 161 

$

 57 

$

 74 

    Other postretirement benefit plans

 

 48 

 

 17 

 

 29 

EARNINGS PER SHARE

The following table provides the per share computations for our earnings for the three and six months ended June 30, 2009 and 2008. Basic EPS is calculated by dividing earnings attributable to common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the potential dilution of common stock equivalent shares that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.


EARNINGS PER SHARE COMPUTATIONS

(Dollars in millions, except per share amounts; shares in thousands)

 

Three months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

Numerator:

 

 

 

 

 

 

 

 

    Earnings

$

 198 

$

 244 

$

 514 

$

 486 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

    Weighted-average common shares

 

 

 

 

 

 

 

 

        outstanding for basic EPS

 

 242,718 

 

 245,576 

 

 242,245 

 

 252,100 

    Dilutive effect of stock options, restricted

 

 

 

 

 

 

 

 

        stock awards and restricted stock units

 

 4,372 

 

 4,101 

 

 3,794 

 

 4,069 

    Weighted-average common shares

 

 

 

 

 

 

 

 

        outstanding for diluted EPS

 

 247,090 

 

 249,677 

 

 246,039 

 

 256,169 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

    Basic

$

 0.82 

$

 0.99 

$

 2.12 

$

 1.93 

    Diluted

$

 0.80 

$

 0.98 

$

 2.09 

$

 1.90 


The dilution from common stock options is based on the treasury stock method. Under this method, proceeds based on the exercise price plus unearned compensation and windfall tax benefits or tax shortfalls, as defined by SFAS 123 (revised 2004), Share-Based Payment (SFAS 123(R)) (ASC 718), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits are tax deductions we would receive upon the assumed exercise of stock options in excess of the deferred income taxes we recorded related to the compensation expense on the stock options. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. The calculation excludes stock options for which the exercise price for common stock was greater than the average market price during the period. We had 1,506,783 and 801,684 of such stock options outstanding during the three months ended June 30, 2009 and 2008, respectively, and 2,250,061 and 1,485,542 of such stock options outstanding during the six months ended June 30, 2009 and 2008, respectively.




    



We had 33,889 and 710,113 stock options outstanding during the three months ended June 30, 2009 and 2008, respectively, that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method and 862,027 such antidilutive stock options during the six months ended June 30, 2009. We had no such antidilutive stock options outstanding during the six months ended June 30, 2008.

The dilution from unvested restricted stock awards and units is also based on the treasury stock method. Assumed proceeds equal to the unearned compensation and windfall tax benefits or tax shortfalls related to the awards, as defined by SFAS 123(R), are assumed to be used to repurchase shares on the open market at the average market price for the period. The windfall tax benefits or tax shortfalls are the difference between tax deductions we would receive upon the assumed vesting of restricted stock awards and units and the deferred income taxes we recorded related to the compensation expense on the restricted stock awards and units. We had no antidilutive restricted stock awards and units outstanding during the three months or six months ended June 30, 2009. We had 371,714 and 462,056 restricted stock awards and units outstanding that were antidilutive during the three months and six months ended June 30, 2008, respectively.

SHARE-BASED COMPENSATION

We discuss our share-based compensation plans in Note 10 of the Notes to Consolidated Financial Statements in the Annual Report. We recorded share-based compensation expense, net of income taxes, of $11 million and $14 million for the six months ended June 30, 2009 and 2008, respectively. Pursuant to our share-based compensation plans, we granted 918,200 non-qualified stock options, 37,200 restricted stock awards and 907,700 restricted stock units during the six months ended June 30, 2009, primarily in January 2009.

CAPITALIZED FINANCING COSTS

Capitalized financing costs include capitalized interest costs and, at the Sempra Utilities, an allowance for funds used during construction (AFUDC) related to both debt and equity financing of construction projects.  The following table shows capitalized financing costs for the three months and six months ended June 30, 2009 and 2008.


CAPITALIZED FINANCING COSTS

(Dollars in millions)

 

Three months ended June 30,

Six months ended June 30,

 

2009 

2008 

2009 

2008 

SDG&E:

 

 

 

 

 

 

 

 

    AFUDC related to debt

$

 2 

$

 2 

$

 4 

$

 4 

    AFUDC related to equity

 

 7 

 

 6 

 

 13 

 

 12 

    Other capitalized financing costs

 

 2 

 

 2 

 

 2 

 

 4 

        Total SDG&E

 

 11 

 

 10 

 

 19 

 

 20 

 

 

 

 

 

 

 

 

 

SoCalGas:

 

 

 

 

 

 

 

 

    AFUDC related to debt

 

 2 

 

 1 

 

 3 

 

 2 

    AFUDC related to equity

 

 3 

 

 2 

 

 5 

 

 4 

        Total SoCalGas

 

 5 

 

 3 

 

 8 

 

 6 

 

 

 

 

 

 

 

 

 

Sempra Global:

 

 

 

 

 

 

 

 

    Capitalized financing costs

 

 23 

 

 22 

 

 45 

 

 48 

Total Sempra Energy Consolidated

$

 39 

$

 35 

$

 72 

$

 74 





    



COMPREHENSIVE INCOME

The following table provides a reconciliation of net income to comprehensive income.


COMPREHENSIVE INCOME

(Dollars in millions)

 

Three months ended June 30,

 

2009 

 

2008 

 

Share-

Non-

 

 

Share-

Non-

 

 

holders'

controlling

Total

 

holders'

controlling

Total

 

Equity*

Interests

Equity

 

Equity*

Interests

Equity

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 201 

$

 (12)

$

 189 

 

$

 247 

$

 15 

$

 262 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

    adjustments

 

 54 

 

 - 

 

 54 

 

 

 (88)

 

 - 

 

 (88)

Financial instruments

 

 20 

 

 - 

 

 20 

 

 

 25 

 

 (12)

 

 13 

Available-for-sale securities

 

 4 

 

 - 

 

 4 

 

 

 (14)

 

 - 

 

 (14)

Net actuarial gain

 

 1 

 

 - 

 

 1 

 

 

 3 

 

 - 

 

 3 

Comprehensive income

$

 280 

$

 (12)

$

 268 

 

$

 173 

$

 3 

$

 176 

SDG&E:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 71 

$

 20 

$

 91 

 

$

 62 

$

 15 

$

 77 

Financial instruments

 

 - 

 

 1 

 

 1 

 

 

 (1)

 

 (12)

 

 (13)

Net actuarial gain

 

 1 

 

 - 

 

 1 

 

 

 1 

 

 - 

 

 1 

Comprehensive income

$

 72 

$

 21 

$

 93 

 

$

 62 

$

 3 

$

 65 

PE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 63 

$

 - 

$

 63 

 

$

 58 

$

 - 

$

 58 

Financial instruments

 

 1 

 

 - 

 

 1 

 

 

 5 

 

 - 

 

 5 

Comprehensive income

$

 64 

$

 - 

$

 64 

 

$

 63 

$

 - 

$

 63 

SoCalGas:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 66 

$

 - 

$

 66 

 

$

 57 

$

 - 

$

 57 

Financial instruments

 

 1 

 

 - 

 

 1 

 

 

 5 

 

 - 

 

 5 

Comprehensive income

$

 67 

$

 - 

$

 67 

 

$

 62 

$

 - 

$

 62 

* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.





    




COMPREHENSIVE INCOME (Continued)

(Dollars in millions)

 

Six months ended June 30,

 

2009 

 

2008 

 

Share-

Non-

 

 

Share-

Non-

 

 

holders'

controlling

Total

 

holders'

controlling

Total

 

Equity*

Interests

Equity

 

Equity*

Interests

Equity

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 519 

$

 (5)

$

 514 

 

$

 491 

$

 15 

$

 506 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

    adjustments

 

 80 

 

 - 

 

 80 

 

 

 (15)

 

 - 

 

 (15)

Financial instruments

 

 23 

 

 (3)

 

 20 

 

 

 7 

 

 (17)

 

 (10)

Available-for-sale securities

 

 13 

 

 - 

 

 13 

 

 

 (12)

 

 - 

 

 (12)

Net actuarial gain

 

 2 

 

 - 

 

 2 

 

 

 4 

 

 - 

 

 4 

Comprehensive income

$

 637 

$

 (8)

$

 629 

 

$

 475 

$

 (2)

$

 473 

SDG&E:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 171 

$

 27 

$

 198 

 

$

 137 

$

 15 

$

 152 

Financial instruments

 

 2 

 

 (3)

 

 (1)

 

 

 (1)

 

 (17)

 

 (18)

Net actuarial gain

 

 1 

 

 - 

 

 1 

 

 

 1 

 

 - 

 

 1 

Comprehensive income

$

 174 

$

 24 

$

 198 

 

$

 137 

$

 (2)

$

 135 

PE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 122 

$

 - 

$

 122 

 

$

 116 

$

 - 

$

 116 

Financial instruments

 

 2 

 

 - 

 

 2 

 

 

 - 

 

 - 

 

 - 

Comprehensive income

$

 124 

$

 - 

$

 124 

 

$

 116 

$

 - 

$

 116 

SoCalGas:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

 125 

$

 - 

$

 125 

 

$

 114 

$

 - 

$

 114 

Financial instruments

 

 2 

 

 - 

 

 2 

 

 

 - 

 

 - 

 

 - 

Comprehensive income

$

 127 

$

 - 

$

 127 

 

$

 114 

$

 - 

$

 114 

* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.





    



The amounts for comprehensive income in the tables above are net of income tax expense (benefit) as follows:


INCOME TAX EXPENSE (BENEFIT) ASSOCIATED WITH OTHER COMPREHENSIVE INCOME

(Dollars in millions)

 

Three months ended June 30,

 

2009 

 

2008 

 

Share-

Non-

 

 

Share-

Non-

 

 

holders'

controlling

Total

 

holders'

controlling

Total

 

Equity*

Interests

Equity

 

Equity*

Interests

Equity

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 12 

$

 - 

$

 12 

 

$

 17 

$

 12 

$

 29 

Available-for-sale securities

 

 1 

 

 - 

 

 1 

 

 

 (10)

 

 - 

 

 (10)

Net actuarial gain

 

 1 

 

 - 

 

 1 

 

 

 1 

 

 - 

 

 1 

SDG&E:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 - 

$

 - 

$

 - 

 

$

 - 

$

 12 

$

 12 

PE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 - 

$

 - 

$

 - 

 

$

 4 

$

 - 

$

 4 

SoCalGas:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 - 

$

 - 

$

 - 

 

$

 4 

$

 - 

$

 4 

 

Six months ended June 30,

 

2009 

 

2008 

 

Share-

Non-

 

 

Share-

Non-

 

 

holders'

controlling

Total

 

holders'

controlling

Total

 

Equity*

Interests

Equity

 

Equity*

Interests

Equity

Sempra Energy Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 14 

$

 - 

$

 14 

 

$

 5 

$

 - 

$

 5 

Available-for-sale securities

 

 4 

 

 - 

 

 4 

 

 

 (10)

 

 - 

 

 (10)

Net actuarial gain

 

 2 

 

 - 

 

 2 

 

 

 2 

 

 - 

 

 2 

SDG&E:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 1 

$

 - 

$

 1 

 

$

 - 

$

 - 

$

 - 

PE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 1 

$

 - 

$

 1 

 

$

 - 

$

 - 

$

 - 

SoCalGas:

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments

$

 1 

$

 - 

$

 1 

 

$

 - 

$

 - 

$

 - 

* Shareholders' equity of Sempra Energy Consolidated, SDG&E, PE or SoCalGas as indicated in left margin.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Sempra Energy, SDG&E and PE account for noncontrolling interests in their Condensed Consolidated Financial Statements under SFAS 160, as discussed in Note 2. The following two tables provide a reconciliation of Sempra Energy and SDG&E shareholders’ equity and noncontrolling interests for the six months ended June 30, 2009 and 2008. There were no changes in the equity of PE's noncontrolling interests in the three- or six-month periods of 2009 or 2008.





    




SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS

(Dollars in millions)

 

 

Sempra

 

 

 

 

 

 

Energy

 

Non-

 

 

 

 

Shareholders'

 

controlling

 

Total

 

 

Equity

 

Interests

 

Equity

Balance at December 31, 2008

$

 7,969 

$

 340 

$

 8,309 

Comprehensive income

 

 637 

 

 (8)

 

 629 

Purchase of noncontrolling interest in subsidiary

 

 (10)

 

 (84)

 

 (94)

Share-based compensation expense

 

 20 

 

 - 

 

 20 

Common stock dividends declared

 

 (190)

 

 - 

 

 (190)

Preferred dividends of subsidiaries

 

 (5)

 

 - 

 

 (5)

Issuance of common stock

 

 44 

 

 - 

 

 44 

Tax benefit related to share-based compensation

 

 5 

 

 - 

 

 5 

Common stock released from ESOP

 

 7 

 

 - 

 

 7 

Equity contributed by noncontrolling interests

 

 - 

 

 7 

 

 7 

Balance at June 30, 2009

$

 8,477 

$

 255 

$

 8,732 

Balance at December 31, 2007

$

 8,339 

$

 248 

$

 8,587 

Comprehensive income

 

 475 

 

 (2)

 

 473 

Share-based compensation expense

 

 24 

 

 - 

 

 24 

Common stock dividends declared

 

 (170)

 

 - 

 

 (170)

Preferred dividends of subsidiaries

 

 (5)

 

 - 

 

 (5)

Issuance of common stock

 

 11 

 

 - 

 

 11 

Tax benefit related to share-based compensation

 

 3 

 

 - 

 

 3 

Repurchase of common stock

 

 (1,002)

 

 - 

 

 (1,002)

Common stock released from ESOP

 

 8 

 

 - 

 

 8 

Equity contributed by noncontrolling interests

 

 - 

 

 63 

 

 63 

Balance at June 30, 2008

$

 7,683 

$

 309 

$

 7,992 


SHAREHOLDERS' EQUITY AND NONCONTROLLING INTEREST

(Dollars in millions)

 

 

SDG&E

 

Non-

 

 

 

 

Shareholders'