SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2018

SUBSEQUENT EVENTS

SEMPRA ENERGY

Common Stock Offering

On July 13, 2018, we completed the offering of 9,750,000 shares of our common stock, no par value, in a registered public offering at $113.75 per share (approximately $111.87 per share after deducting underwriting discounts), pursuant to forward sale agreements with an affiliate of Citigroup Global Markets Inc. and an affiliate of J.P. Morgan Securities LLC (the forward purchasers). The shares offered pursuant to the forward sale agreements were borrowed by the underwriters and therefore are not newly issued shares. The underwriters of the offering fully exercised the option we granted them to purchase an additional 1,462,500 shares of common stock directly from us solely to cover overallotments. After the offering, including the issuance of shares pursuant to the exercise of the overallotment option, the aggregate shares of common stock sold in the offering totaled 11,212,500. We received net proceeds of $163.6 million (net of underwriting discounts, but before deducting equity issuance costs) from the sale of shares to cover overallotments.

The initial forward sale price under the forward sale agreements is approximately $111.87 per share, which is the public offering price in the common stock offering less the underwriting discount. However, the forward sale price is subject to adjustment pursuant to the forward sale agreements. We did not initially receive any proceeds from the offering of our common stock sold pursuant to the forward sale agreements. We expect that the forward sale agreements will settle in one or more settlements on or prior to December 15, 2019. At the initial forward sale price of approximately $111.87 per share, we expect that the net proceeds from full physical settlement of the forward sale agreements would be approximately $1.091 billion (or approximately $1.254 billion including the sale of shares to underwriters to cover overallotments) (net of underwriting discounts, but before deducting equity issuance costs, and subject to certain adjustments pursuant to the forward sale agreements). We used the net proceeds from the sale of the overallotment shares to the underwriters, and we expect to use the net proceeds from the sale of shares of our common stock pursuant to the forward sale agreements, to repay commercial paper, to fund working capital and for other general corporate purposes.

Although we expect to settle the forward sale agreements entirely by the physical delivery of shares of our common stock in exchange for cash proceeds, we may elect cash settlement or net share settlement for all or a portion of our obligations under the forward sale agreements. The forward sale agreements are also subject to acceleration by the forward purchasers upon the occurrence of certain events.

Before the issuance of shares of our common stock, if any, upon settlement of the forward sale agreements, we expect that the shares issuable upon settlement of the forward sale agreements will be reflected in our diluted EPS calculation under the treasury stock method. Under this method, the number of shares of our common stock used in calculating diluted EPS is deemed to be increased by the excess, if any, of the number of shares of common stock that would be issued upon full physical settlement of the forward sale agreements over the number of shares of common stock that could be purchased by us in the market (based on the average market price of our common stock during the applicable reporting period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). Consequently, we anticipate there will be a dilutive effect on our EPS during periods when the average market price of shares of our common stock is above the applicable adjusted forward sale price, which is initially approximately $111.87 per share, subject to increase or decrease based on the overnight bank funding rate, less a spread, and subject to decrease by amounts related to expected dividends on shares of our common stock during the term of the forward sale agreements. Additionally, if we decide to physically settle or net share settle the forward sale agreements, delivery of our shares to the forward purchasers on any such physical settlement or net share settlement of the forward sale agreements would result in dilution to our EPS.

6.75% Mandatory Convertible Preferred Stock Offering, Series B

On July 13, 2018, in a separate registered public offering, we sold 5,750,000 shares of our 6.75% mandatory convertible preferred stock, series B (series B preferred stock) at $100.00 per share (or $98.35 per share after deducting underwriting discounts), including 750,000 shares purchased by the underwriters as a result of fully exercising their option to purchase such shares from us solely to cover overallotments. Each share of series B preferred stock has a liquidation value of $100. We may pay declared dividends in cash or, subject to certain limitations, in shares of our common stock, no par value, or by delivery, at our election, of any combination of cash and shares of our common stock on January 15, April 15, July 15 and October 15 of each year, commencing on October 15, 2018, and to, and including, July 15, 2021. We used the net proceeds of approximately $565.5 million (net of underwriting discounts, but before deducting equity issuance costs) from this offering to repay commercial paper, to fund working capital and for other general corporate purposes.

Mandatory Conversion

Unless earlier converted, each share of the series B preferred stock will automatically convert on the mandatory conversion date, which is expected to be July 15, 2021, into not less than 0.7326 shares and not more than 0.8791 shares of our common stock, subject to anti-dilution adjustments. The number of shares of our common stock issuable on conversion of the series B preferred stock will be determined based on the volume-weighted average market value per share of our common stock over the 20 consecutive trading day period beginning on and including the 21st scheduled trading day immediately preceding July 15, 2021. The following table illustrates the conversion rate per share of the series B preferred stock, subject to certain anti-dilution adjustments:



CONVERSION RATES

Applicable market value per share of our common stock		Conversion rate (number of shares of our common stock to be received upon conversion of each share of series B preferred stock)

Greater than $136.50 (which is the threshold appreciation price)		0.7326 shares (approximately equal to $100.00 divided by the threshold appreciation price)
Equal to or less than $136.50 but greater than or equal to $113.75		Between 0.7326 and 0.8791 shares, determined by dividing $100.00 by the applicable market value of our common stock
Less than $113.75 (which is the initial price)		0.8791 shares (approximately equal to $100.00 divided by the initial price)

Dividends

Dividends on the series B preferred stock will be payable quarterly, beginning on October 15, 2018, on a cumulative basis when, as and if declared by our board of directors. We may pay quarterly declared dividends in cash or, subject to certain limitations, in shares of our common stock, no par value, or in any combination of cash and shares of our common stock. Shares of common stock used to pay dividends will be valued at 97 percent of the volume-weighted average price per share over the five consecutive trading day period beginning on, and including the sixth trading day prior to, the applicable dividend payment date. The holders of series B preferred stock will have no voting rights. However, under certain circumstances regarding nonpayment for six or more dividend periods, whether or not consecutive, the authorized number of directors on our board of directors will automatically be increased by two and the holders of the series B preferred stock, voting together as a single class with holders of any and all other outstanding preferred stock of equal rank having similar voting rights (which currently consists of the series A preferred stock), will be entitled to elect two directors to fill such newly created directorships. This right shall terminate when all accumulated dividends have been paid in full and the authorized number of directors shall automatically decrease by two, subject to the revesting of that right in the event of each subsequent nonpayment.

Conversion at the Option of the Holder

At any time prior to July 15, 2021, holders may elect to convert each share of the series B preferred stock into shares of our common stock at the minimum conversion rate of 0.7326 shares of our common stock per share of the series B preferred stock, subject to anti-dilution adjustments. However, if holders elect to convert any shares of the series B preferred stock during a specified period beginning on the effective date of a fundamental change, as defined in the certificate of determination of preferences of the series B preferred stock, such shares of the series B preferred stock will be converted into shares of our common stock at a fundamental change conversion rate, and the holders will also be entitled to receive a fundamental change dividend make-whole amount and accumulated dividend amount.

The conversion of the series B preferred stock would have resulted in the issuance of approximately 4.9 million shares of our common stock, subject to possible adjustment pursuant to the terms of the series B preferred stock, based on the last reported sale price of our common stock on the New York Stock Exchange on July 10, 2018, which was $117.30 per share.

Ranking

The series B preferred stock will rank with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution:


▪	senior to our common stock, including our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;


▪	on parity with our series A preferred stock, including our capital stock established in the future, unless the terms of such capital stock expressly provide otherwise;


▪	junior to our capital stock established in the future, if the terms provide that such class of series will rank senior to the series B preferred stock;


▪	junior to our existing and future indebtedness and other liabilities; and

▪

structurally subordinated to any existing and future indebtedness and other liabilities of our subsidiaries and capital stock of our subsidiaries held by third parties.